Governing

Definition of the term and legal framework of Governing

Definition of the term Governing

The term Governing (German: “Steering,” “Guidance,” or “Government”) refers, in a legal context, to the exercise of steering, guiding, and decision-making functions by individual bodies, institutions, or associations within a legal framework. Governing encompasses all processes by which rules are established, rights and obligations are created, decisions are made, and controlling mechanisms are implemented. Central focuses are rule-making, control, and discipline within both formal and informal structures.

Distinction from related terms

Governing differs from Government (state government) and Governance (the entirety of regulations and procedures of an organization). While “Government” usually describes the state government as an institution and “Governance” refers to organizational or administrative leadership and regulatory structures, Governing focuses on the actual exercise of control and supervisory measures.

Legal foundations of Governing

Constitutional anchoring

In public law, Governing is primarily based on constitutional principles of the separation of powers and structures of accountability. The exercise of authority (state power) is regulated by the legislative, executive, and judiciary branches. Each of these branches is subject to its own Governing processes:

• Legislative: Rule-making by parliaments
• Executive: Application of law by government bodies
• Judiciary: Control and review by courts

Each respective form of Governing occurs within legally defined areas of competence and is limited by principles such as legality, proportionality, and effectiveness.

Administrative law and Governing

In the context of administrative law, Governing relates to public administration and its bodies. The essential elements are:

• Decision-making and exercise of discretion
• Administrative act and self-administration
• Control through legal and specialist supervision
• Measures to ensure lawful behavior (disciplinary measures, instructions, notifications)

Administrative acts and internal guidelines are central instruments for implementing Governing in administration.

Governing in private law

Corporate law aspects

In corporate law, Governing particularly involves the management and supervision of companies and associations. The legal framework arises, for example, from the German Stock Corporation Act (AktG), the Limited Liability Companies Act (GmbHG), and the German Civil Code (BGB). Key duties include:

• Definition of corporate objectives and strategies by management, supervisory board, general or shareholders’ meeting
• Legal supervision and control of management
• Calling and conducting of board meetings
• Recording resolutions and documentation obligations

Contractual steering

Governing also plays a role in contractual relationships: Contracts may include detailed control and steering mechanisms, for example, through:

• Rights to issue instructions
• Consent and veto rights
• Termination or exit clauses
• Arbitration and settlement agreements

These mechanisms are legally protected by the principle of private autonomy, but are subject to limitations, such as immorality or statutory prohibitions.

Governing internationally

International Law

In international law, Governing refers to the legal control mechanisms of international organizations, confederations of states, or intergovernmental agreements. These include:

• Design and enforcement of international treaties
• Sanctions and supervision of compliance by committees or courts, for example, the International Court of Justice (ICJ)
• Supranational supervision, for example within the European Union by its bodies (Commission, Council, European Court of Justice)

Corporate Governing in an international context

Governing at the international level is becoming increasingly important, especially in multinational corporations. Cross-border compliance requirements, Corporate Social Responsibility (CSR), and international corporate governance standards are giving rise to legal obligations to establish effective control and steering systems.

Instruments and processes of Governing

Rule-making (setting of standards)

Governing primarily comprises processes of setting standards, that is, the establishment of general behavioral rules and implementing provisions in the form of laws, regulations, statutes, or internal policies.

Control and supervision

To ensure compliance with prescribed rules, various control measures are implemented:

• Internal and external audits
• Establishment of supervisory bodies
• Reporting obligations
• Sanction mechanisms for breaches of duty

Behavioral steering and instructions

Instructions, implementation orders, and guidelines serve to legally control behavior within organizations.

Legal consequences and sanctions in the event of violations of Governing structures

Sanction mechanisms

If binding Governing regulations are violated, various legal consequences may arise, in particular:

• Disciplinary measures and regulatory actions
• Claims for damages
• Contract dissolution or termination rights
• Public and internal sanctions up to reputational damage

Legal protection and review

Legal protection mechanisms ensure the reviewability of Governing measures. These include:

• Recourse to administrative courts against governmental acts of intervention or performance
• Corporate law lawsuits, such as actions for annulment and declarations of invalidity
• Arbitration and mediation proceedings
• International arbitration bodies, for example, within the context of trade or investment protection agreements

Development and significance of Governing in the digital age

With digitalization and the introduction of complex IT systems, the requirements for Governing are also changing. Particular legal requirements are arising, such as in data protection, IT governance, compliance with information security standards, or the monitoring of artificial intelligence within the context of automated decision management.

Current developments indicate a trend toward greater formal and legal assurance of Governing processes and the internationalization of control mechanisms.

Literature and further sources

• Handbook of Constitutional Law, Volumes I-III
• Munich Commentary on the Stock Corporation Act (AktG)
• Schmidt, R., Company Law, 19th edition, C.H. Beck
• International Law Commission – United Nations

Summary: Governing is a complex and fundamentally legal concept that encompasses guidance, steering, and control functions at various levels and in different areas of law. Its legal foundations and forms extend from public law through private law to international law and are continuously developing in response to new societal and technological demands.

Frequently asked questions

What legal conditions must be observed when establishing governance structures in companies?

The legal requirements for the design of governance structures in companies are essentially set out in corporate law, particularly in the Stock Corporation Act (AktG), the Limited Liability Companies Act (GmbHG), as well as specific regulations such as the German Corporate Governance Code (DCGK). These rules govern, among other things, the composition and rights of leadership and supervisory bodies (e.g., management board, managing director, supervisory board), duties of members of these bodies (duties of care, confidentiality obligations, fiduciary duties), transparency requirements, as well as co-determination rights of shareholders or partners. In regulated sectors, numerous special laws (e.g., KWG, WpHG, Insurance Supervision Act) must also be taken into account, which impose specific requirements on governance, for example regarding risk management or compliance systems. In international corporations, foreign legal provisions and conflict of laws issues are also relevant, for example in the context of cross-border corporate governance.

What liabilities exist for members of leadership and supervisory bodies within the framework of corporate governance?

Members of leadership and supervisory bodies—especially management board members, managing directors, and supervisory board members—are personally liable for breaches of duty within the scope of their management or supervisory roles, according to the relevant regulations, such as § 93 AktG or § 43 GmbHG. Liability particularly covers damages caused to the company or third parties by culpable conduct of the board members, with both intent and negligence being relevant. Typical liability risks include faulty investment decisions, inadequate supervision of management, disregard for compliance or reporting obligations, and breaches of capital maintenance or disclosure requirements. In addition, criminal consequences (e.g., breach of trust, accounting fraud), as well as administrative and regulatory sanctions, may occur. Insurance coverage through D&O insurance often provides only limited protection, so comprehensive risk management and ongoing further training for board members is essential.

What is the significance of data protection and information security regulations for internal corporate governance?

Data protection requirements such as the General Data Protection Regulation (GDPR) and the Federal Data Protection Act (BDSG) obligate companies to implement appropriate technical and organizational measures to ensure data protection and to regularly review their effectiveness. Governance structures must therefore establish processes and responsibilities for compliance with data protection requirements as well as for managing data protection incidents (data breach management). This includes, among other things, appointing a data protection officer, conducting data protection impact assessments, establishing internal policies, and employee training. Violations of data protection requirements can lead to substantial fines, liability for damages, and reputational loss, making structured control mechanisms and ongoing reviews essential as part of governance.

To what extent must shareholders and partners be involved in governance decisions?

Shareholders and partners are entitled, within the framework of their corporate co-determination rights, to information and participation in essential management and supervisory decisions. The degree of involvement varies depending on the company’s legal form and basis for rights: In stock corporations, § 119 AktG in particular determines which matters are reserved for the general meeting, whereas in GmbHs § 46 GmbHG defines shareholders’ rights. Topics subject to co-determination include, among others, appointment and removal of board members, capital measures, amendments to articles of association, and fundamental corporate restructurings. Listed companies are also legally obliged to disclose certain information (ad hoc publicity), ensuring transparent and fair participation for all stakeholders. Lack of or faulty participation can lead to contestability of resolutions and liability risks for the governing bodies.

What role do compliance management systems play in the legal context of governance?

Compliance management systems (CMS) are key instruments for ensuring adherence to laws, internal guidelines, and ethical standards within the company, and represent an integral part of modern governance structures. Legally, companies are particularly required by § 130 OWiG (German Administrative Offenses Act) to implement appropriate oversight and control mechanisms to prevent legal violations and minimize liability risks. In addition, specialized regulatory frameworks (e.g., MaRisk in the banking sector, Supply Chain Due Diligence Act) require specific compliance functions. An effective CMS includes risk analysis, internal instructions, training, monitoring and reporting channels (e.g., whistleblowing systems), as well as regular evaluation and adaptation of compliance measures. Failures can lead to significant fines, loss of reputation, and claims for damages.

Under what conditions may governance structures be changed?

The amendment of governance structures—such as modifications to the articles of association or the rules of procedure for management or supervisory bodies—requires strict compliance with statutory and, if applicable, constitutional requirements. In most cases, a qualified majority resolution of the relevant body (e.g., the general meeting according to § 179 AktG) is required under company law; in the case of GmbHs, shareholders often decide by majority according to § 53 GmbHG. Amendments that affect employee rights or co-determination structures are further subject to the requirements of the Co-Determination Act and may require the consent of the works council under the Works Constitution Act. In addition, any new governance structures must, in particular, be reviewed for compatibility with higher-ranking law (e.g., antitrust law, capital market law) and the requirement of registration in the commercial register to ensure their effectiveness.