Management

Concept and Definition of Management

Management is a central term in business administration and legal studies. It describes the goal-oriented, planned, organizing, directing, and controlling leadership of organizations, particularly companies. In a legal context, management refers to the exercise of managerial functions arising from statutory, contractual, or corporate law requirements. Thus, management encompasses legal responsibility and the assumption of duties in the control of economic, personnel, and organizational processes.

Legal Foundations of Management

Corporate Law Classification

In corporate law, management is primarily shaped by the statutory structure of the respective legal form. The management of a company is regulated differently depending on the legal entity:

Management in Corporations

In a limited liability company (GmbH) and a stock corporation (AG), management is vested in the managing director or the board of directors. This gives rise to, among others, the following legal obligations:

• Duties of Corporate Bodies: Members of management and supervisory bodies must represent the company externally and manage it internally (§ 35 GmbHG, § 76 ff. AktG).
• Legality Principle: Management must ensure compliance with all statutory requirements.
• Duties of Care: Special standards of care apply to the diligence of a prudent and conscientious manager (§ 43 GmbHG, § 93 AktG).
• Avoidance of Conflicts of Interest: Managers must not pursue personal interests that conflict with those of the company.

Management in Partnerships

In partnerships such as the general partnership (OHG) or the limited partnership (KG), management is generally undertaken by the managing partners. Here, management is legally primarily determined by the provisions of the German Commercial Code (HGB) and the partnership agreement.

Employment Law Framework for Management

In addition to their corporate law position, managers are usually bound by employment contracts. The assignment under employment law is particularly relevant for so-called employed managing directors. The following aspects are, among others, relevant here:

• Employment Contract: The contract regulates rights and obligations, remuneration, bonus payments, vacation entitlement, and termination modalities.
• Obligation to Follow Instructions: Depending on their corporate function, managers may be subject to varying degrees of authority to issue instructions.
• Protection Against Dismissal: Managing directors and board members of corporations are generally not subject to the Protection Against Unfair Dismissal Act.

Liability and Responsibilities of Management

Management bears significant civil, criminal, and administrative liability:

Civil Liability

• Internal Liability: Damages caused by culpable misconduct towards the company establish personal liability (§ 43 para. 2 GmbHG, § 93 para. 2 AktG).
• External Liability: In exceptional cases, managers are also liable to third parties, for example in cases of unlawful acts or breaches of duty related to insolvency.

Criminal Liability

Managers can incur criminal liability through active conduct or culpable omission. Typical offenses include fraud, embezzlement, insolvency crimes, and violations of occupational health and safety or environmental regulations.

Administrative Offenses and Regulatory Law

Besides civil and criminal sanctions, fines and regulatory measures can also be imposed on management, for example by the German Federal Financial Supervisory Authority (BaFin).

Co-determination and Information Rights

Management in Germany must observe employee participation rights. Key regulations are:

• Works Constitution Act (BetrVG): It regulates cooperation with the works council. Management must inform, consult, and in certain cases obtain the consent of the works council.
• Co-determination Laws: In larger companies, managers must ensure equal representation in supervisory boards and involve employee representatives.

Compliance and Corporate Governance

Effective lawful management requires compliance with internal company and statutory regulations:

• Compliance Management Systems: These systematically ensure compliance with legal requirements and company-internal guidelines.
• Corporate Governance: Refers to the entirety of principles guiding company management and supervision that secure transparency, accountability, and control, and appropriately consider the interests of all stakeholders.

Conclusion and Legal Significance of Management

Management in the legal sense is a complex and multi-layered field of tasks, where legal responsibility, diligence, oversight duties, as well as labor and corporate law frameworks play a central role. Statutory provisions establish the legal framework within which management acts as a governing body, employee, or partner. Breaches of legal and contractual duties can lead to significant liability risks, prosecution, and regulatory measures. Legally compliant and diligent management is therefore essential for the sustainable success and continuity of the organization.

Relevant Regulations:

• § 35, § 43 GmbHG (Management, Duties of Care)
• § 76 ff., § 93 AktG (Board of Directors, Diligence, Liability)
• HGB (Commercial Code: Regulations on Representation and Management)
• Works Constitution Act (BetrVG)
• Co-determination Laws
• Relevant labor law provisions

This article provides a comprehensive overview of the concept of management within the framework of German business and company law.

Frequently Asked Questions

What legal obligations does management of a company in Germany have?

Management, especially the members of the executive management or the board of directors, are subject to numerous statutory obligations in Germany. These include, in particular, the duty of care (§ 43 GmbHG, § 93 AktG), according to which they must exercise the care of a prudent and conscientious manager when managing the company. Additional obligations result from special statutory provisions, such as the HGB, AO, or BGB. The duty of proper bookkeeping (§§ 238 ff. HGB), obligations to provide information and report to shareholders or the supervisory board, and the obligation to comply with all tax laws must be observed. Breaches of these obligations can lead to claims for damages against management, personal liability, or even criminal consequences. Insolvency law obligations are also of particular importance: if there is a ground for insolvency (illiquidity or over-indebtedness), management must file for insolvency within a maximum of three weeks (§ 15a InsO). Failure to file leads to civil and criminal law consequences.

To what extent is management liable for breaches of duty?

In principle, management is jointly and severally liable to the company for damages arising from breaches of duty (§ 43 para. 2 GmbHG or § 93 para. 2 AktG). The prerequisite is culpable conduct, with simple negligence being sufficient. The company may claim damages, and in the event of insolvency, the insolvency administrator is entitled to do so. Liability primarily covers financial losses, but can also entail criminal consequences, such as in cases of embezzlement (§ 266 StGB). Unlike executive remuneration, there is generally no limitation of liability through by-laws or contracts, unless legally enforceable limitations have been agreed upon. There are also liability risks to third parties, particularly in cases of tortious acts or violations of environmental and occupational health and safety laws.

What legal requirements exist for compliance with corporate governance?

Corporate governance encompasses all statutory and non-statutory requirements for proper and good company management. In Germany, key requirements derive from the Stock Corporation Act (AktG), the Commercial Code (HGB), and, for listed companies in particular, from the German Corporate Governance Code (DCGK). Compliance with the DCGK is not legally binding; however, the “comply or explain” principle applies, meaning deviations from the code’s recommendations must be explained (§ 161 AktG). In contrast, provisions regarding transparency, oversight and supervision by monitoring bodies, and the proper convening and execution of annual general meetings or shareholders’ meetings are mandatory. Violations may result in sanctions by supervisory authorities or civil claims.

What significance do compliance systems have for management from a legal perspective?

Compliance systems ensure that all corporate, statutory, and regulatory requirements are met. Management is legally required to introduce and supervise an effective compliance system; otherwise, they can be held liable (§ 93 para. 1 AktG). Publicly listed companies, in particular, are obliged to implement appropriate control and risk management systems and to report on these as part of the corporate governance statement (§ 289f HGB). Failure to do so may constitute organizational fault, with the consequence that management is liable for damages caused by unlawful conduct of employees or may even be held personally liable for recourse. Furthermore, a lack of compliance structures can lead to fines or regulatory actions.

What participation rights do employees have vis-à-vis management?

German law provides for company-level and corporate co-determination rights for employees in certain company forms, especially corporations and larger companies. The basis for this is the Works Constitution Act (BetrVG) and the Co-Determination Act (MitbestG). Under these laws, employees are involved in company decisions through the works council (e.g., in individual HR measures, social plans, or general working conditions). In companies with more than 2,000 employees, there is equal co-determination in the supervisory board, which oversees key corporate decisions and appoints or dismisses management. Management is obliged to observe co-determination rights and to inform and involve the works council properly—failures may trigger challenges to resolutions, court proceedings, and claims for damages.

How should management deal with conflicts of interest?

Under German company law, executive managers have a fiduciary duty to the company. They are required to subordinate their own interests to those of the company and to disclose conflicts of interest. For example, § 88 AktG provides for a non-compete obligation for board members. Transactions with themselves or related parties are either prohibited or only permitted under strict transparency requirements and with the consent of the shareholders (§ 181 BGB, §§ 112, 114 AktG). Violations may result in the contestability or nullity of transactions and claims for damages by the company. Disclosure and documentation of conflicts of interest are essential to avoid allegations of breach of fiduciary duty or a breach of the duty of care.

What publication obligations does management have?

According to commercial and corporate law, management is obliged to publish certain information. This includes, in particular, the disclosure of annual financial statements in the Federal Gazette (§ 325 HGB) within specified deadlines. Listed companies additionally have ad hoc publication obligations (§ 17 MAR in conjunction with § 26 WpHG), under which price-sensitive facts must be disclosed without delay. Incorrect, incomplete, or delayed publications may result in significant fines and civil liability risks. In addition, there are sector-specific and tax disclosure obligations, non-compliance with which is subject to criminal or administrative penalties. Management is personally responsible for this and cannot delegate responsibility to subordinate departments.