A lot is going on in Corporate Governance Land about the possible liability of managing directors and supervisors. Particularly in the financial sector this is the wrong focus. The risk of liability for managing directors and supervisors is not nearly as high as we all seem to think. You really have to mess up to actually be held liable. The motto is: use common sense.

If you do not do any super stupid things, such as make decisions with substantial financial consequences without seeking sound advice, or systematically neglect your administrative organization, or take totally irresponsible risks, you will not be held liable. No risk involved. The threat comes from an unexpected source. The risk these days is the loss of reputation. Loss of reputation for you as a person and loss of reputation for the organization you work hard for: that is really risky. And it can happen just like that.

There is a lot of tweeting and Facebook posting going on. Just a suspicion of a journalist immediately turns you into a villain. A mere message in the newspaper, whether or not from a scrupulous source, makes your company unreliable. These days, due to a new type of -in my opinion- totalitarian, electronic, and often demagogic democracy, the nuance is quickly gone.

It is no use nagging about it or regretting it. We live in different times. Good managers and supervisory directors consider it in their strategy. That does not happen automatically. The mere insight is not sufficient. You have to put this topic on the agenda of management board meetings and supervisory board meetings in an early stage. If you do not discuss it in the management board or supervisory board until the newspaper article has already been published, you are culpably late. Make a list of possible reputational risks in advance. Discuss how you react to each of these risks. Also discuss who reacts, so you can avoid that there suddenly are three spokespersons. In addition, make arrangements on how the internal communication will take place, for your own employees also need to know what they can and cannot say. Always conduct an internal investigation and be open to a more independent assessment. By the way, never deny real mistakes. You immediately have to be transparent in any case. If applicable, you promptly have to apologize and fully cooperate in order to reduce the harmful consequences and resolve them, if possible. Forget liability. Common Sense.

Do you have a question about corporate governance yourself? Please e-mail it to governance@ekvandoorne.com and perhaps your question will be discussed in the next blogpost.

Related article