Modern Corporate Governance

Expert Interview with Lawyer Nikolaus Plagemann

Possibilities of Technology in Corporate Governance

Introduction of Our Expert

Nikolaus Plagemann is a lawyer at Taylor Wessing and an expert in corporate and capital markets law. Prior to his current role, he served as the head of the Corporate Office of a publicly listed company. He leverages his practical experience in advising executive and supervisory boards on corporate governance and their organizational duties amidst the ever-changing landscape of legal and regulatory requirements, jurisprudence, recommendations from proxy advisors, and evolving best practices.

Clarification of Terms – Corporate Governance

Dear Nikolaus, thank you for taking the time to speak with us. You have experienced governance both in-house and in your current role as an external advisor. What topics are included in corporate governance?

Corporate governance can best be translated as corporate constitution. It refers to the legal and factual framework for the management and supervision of a business enterprise. Since companies never act on their own but are represented in legal transactions by their organs—primarily the executive board and sometimes the supervisory board—these bodies and their members are the key players in shaping good corporate governance. The framework specified by the legal form leaves room for a company-specific and practical interpretation in many areas. Effective, i.e., high-performance, governance today also involves leveraging the benefits of new technologies for board work. When the executive and supervisory boards keep pace with the times, it has a significant signaling effect on the entire organization and its employees. I experienced this firsthand in my role as head of a Corporate Office.

Legal Requirements and Frameworks

What are the legal requirements and frameworks?

The core activity of the executive and supervisory boards is to make decisions. The executive and supervisory boards are solely committed to the company's interests. This commitment primarily creates duties of care that board members must observe in their activities. Acting with due diligence not only prevents damage to the company but also avoids personal liability. The duties of care are specified and accentuated by a multitude of legal requirements. When clear legal mandates exist, decisions are bound by them. However, there are also decisions to be made based on due business discretion. For such decisions, the duties of care shift to the preparatory phase. A decision-maker who wants to ensure that they make decisions in the company's best interest, considering all relevant laws and rules and avoiding liability, should focus on the processes for preparing decisions and on documenting the decision-making process comprehensively. This structured approach ensures compliance with the duties of care.

Implementation

How can the implementation of these frameworks look in your experience?

The focus must be on the relevant meetings, as most decisions are made in meetings. In large enterprises, it is now common practice, and a best practice, for the executive and supervisory boards to be supported in their meetings and resolutions by a specialized staff, a so-called Corporate Office. The Corporate Office is a crucial element of the governance structure and a guardian of central governance processes. To produce "good" decisions, the processes must ensure that all legal requirements are met for legally bound decisions and that the duties of care are observed during the decision preparation phase for business decisions. For decisions made with due diligence, the decision-maker can then rely on the so-called Business Judgment Rule. If the conditions of the rule are met, the outcome of the decision cannot be challenged later, even if it turns out to be wrong. Neither the supervisory board nor a court adjudicating a potential damage claim can question the decision.

The Role of Boardwise in Implementing Duties of Care

How did you get to know Boardwise in your previous role?

As head of the Corporate Office of a listed and co-determined group, I always valued the exchange of experiences with other Corporate Offices. During our regular conversations, the head of another Corporate Office, already using Boardwise, drew my attention to the tool and demonstrated some functionalities. I immediately realized that it is an extremely useful innovation, saving both time and effort. Boardwise not only reduces stress for employees involved in preparing and conducting meetings but is also a guarantee of three important points for the executive and supervisory board members. First, they can always trust that their decision proposals consider all foreseeable relevant aspects of the decision to be made and that the arguments from the perspectives of all affected functions within the company have been thoroughly weighed. Second, Boardwise enables prompt communication and execution of decisions, especially in time-critical situations, in accordance with the organ's will. Finally, it provides permanent documentation that includes the decision-making process, allowing proof that the conditions of the Business Judgment Rule were met for a particular business decision.

What role can Boardwise play in fulfilling duties of care?

As mentioned, the duties of care for business decisions shift to the preparation phase. Boardwise is particularly useful here because many data points of the decision-making process can be automatically captured and stored in meeting minutes. This allows decisions to be traceably reconstructed years after they were made with less effort. For instance, it could be proven that all available and reasonably accessible information was evaluated and incorporated into the decision-making process in a given decision-making situation.

How does this affect liability cases?

If business decisions are prepared in accordance with the duties of care required by the Stock Corporation Act, then, regardless of the decision's outcome, there is no breach of duty. The decision is explicitly exempt from liability. If the organs can demonstrate with Boardwise's help that they acted with due diligence in their decision-making preparation, no blame can be assigned to them.

What other advantages do you see in using Boardwise?

Besides the previously mentioned advantages for employees in Corporate Offices, primarily in terms of efficiency, using Boardwise offers further tangible benefits for decision-makers in companies. Should any of their decisions be criticized and scrutinized in the future, they can prove that they complied with their duties and prepared and made their decisions carefully. While this would also be possible with traditional minutes, a comprehensible reconstruction of the decision-making situation would likely require far more resources. In practice, some time typically elapses before a decision is reviewed. The parties involved often do not remember how the decision was made, and potential "witnesses" might no longer be with the company. Boardwise can archive all relevant information on the decision's history, making it easily accessible even years later. Additionally, decisions always need to be implemented. The responsible executing departments typically only learn about the decision and its details after the relevant meeting when the minutes are created and released. By significantly shortening the time needed to draft meeting minutes, companies using Boardwise can act much faster.