The ‘Business Judgment Rule’ and the Problem of Hindsight Bias – Observations from a German Company Law Perspective

Abstract

This paper introduces selected aspects of the German Business Judgment Rule (German BJR). The German BJR is explored in context with the internal liability of a member of the management board of a German stock corporation, Aktiengesellschaft (German AG). Recent rather spectacular litigations involving the liability of company organs have provoked a debate in Germany on whether or not the internal liability of the organ vis-à-vis the company under German law should be reformed. Against this backdrop controversies surrounding the effectiveness of the German BJR have also gained momentum. The German BJR is viewed mainly as a tool to limit the internal liability of company organs, in particular that of a member of the management board of a German AG. Is the German BJR in this context an effective legal instrument? Or does it rather require a reform to achieve its ambitious legislative goals? These questions stimulated the interest in analysing this topic in this paper which aims to prepare the way for responses. The tour d’horizon regarding the German BJR might not only allow a better understanding of the internal liability regime of a German AG which has become an issue of considerable practical importance. It also aims to provide some more general insights into German legal reasoning and the ‘operation’ of the German law of stock corporations (Aktienrecht). Its findings might not only be instructive to the practice of courts and practitioners of other legal systems in the realm of directors’ civil liability. As a concise ‘country report’ on the German BJR it could also be used as a basis for further comparative law explorations.