“In the strict reflection there is no difference regarding the legal basis of risk management between now and yesterday, also according to the old law the management was obligated to recognize developments which were threatening to the existence of the company” is the comment of the minister of justice to the debate of the “Gesetz zur Kontrolle und Transparenz im Unternehmensbereich (KonTraG)”.
Due to the raising rate of insolvencies, increasing number of company crises and because of the “corporate governance” discussion, the legislator recognized the need to develop a new law. The KontraG was introduced at the 5th of March 1998, which mainly influenced the “Aktien- and Handelsgesetzbuch”.
The consequences of this law are discussed highly controversal by experts. There is no general opinion, particularly in terms of the commitment of the introduction of a risk management according to the §91 Abs.2 AktG. The following analysis of the legal basis specifies the de facto obligations of a stock corporation management in regards to risk management.
Chapter 2 gives a theoretical and historical introduction into the topic of risk management. It is essential to understand the meaning of risk management in terms of how a manager, opposed to a lawyer, would define it.
Chapter 3 discusses the legal foundation of risk management. In order to understand the different obligations required by the new law, the chapter is separated into the analysis of the old legal foundation then the new.
Table of Contents
1 INTRODUCTION
2 DEFINITIONS AND REFERENCES
2.1 THE KONTRAG
2.1.1 Requirement of a Reform
2.1.2 Development and intention of the KonTraG
2.2 RISK MANAGEMENT – ORGANISATIONAL ENTITY
3 RISK MANAGEMENT - A LEGAL ISSUE
3.1 RISK MANAGEMENT BEFORE THE INTRODUCTION OF THE KONTRAG
3.2 RISK MANAGEMENT AFTER KONTRAG
4 SUMMARY
Objectives and Topics
The paper examines the legal obligations imposed on the management of stock corporations regarding the implementation of risk management systems, particularly in the context of the German "Gesetz zur Kontrolle und Transparenz im Unternehmensbereich" (KonTraG). It investigates whether this law introduced a fundamentally new duty or merely codified pre-existing "due diligence" requirements.
- Legal analysis of §91 Abs. 2 AktG in relation to corporate management duties.
- Theoretical and historical framework of risk management systems.
- Evaluation of the legislator's intent vs. the literal interpretation of the law.
- Comparative analysis of risk management requirements before and after the KonTraG reform.
Excerpt from the Book
3.1 Risk management before the introduction of the KonTraG
In the GmbH the company leader per §35 I HGB has to follow the decisions and restrictions of shareholders according to §36 I HGB. In contrast to the GmbH, the board of managers in a stock corporation combine all leading power in their responsibility (§76 I AktG). This means, neither the supervising board which only monitors the management as per § 111 AktG, nor the shareholders-meeting, which can only be included in management decisions if the executive board demands (§119 II AktG), are capable to influence the decisions of the management.
According to this high grade of responsibility the management is required to have a comprehensive scope of discretion. This scope has to allow management to consciously commit business with risks, and the possibility of false estimations and mistakes, because no business decision can be certain. After an ex post analysis of every decision is conducted, it is easy to place blame on the decision maker, because the information is now distinctive. To ensure that the expectations on management are feasible the extended scope is essential.
Summary of Chapters
1 INTRODUCTION: This chapter provides the motivation for the study, highlighting the increasing rate of insolvencies and the legislative response through the KonTraG to improve corporate governance.
2 DEFINITIONS AND REFERENCES: This section establishes the theoretical and historical foundations of risk management, detailing the legislative process of the KonTraG and the organizational components of risk management systems.
3 RISK MANAGEMENT - A LEGAL ISSUE: This central chapter evaluates the legal requirements for risk management both before and after the introduction of the KonTraG, concluding that the law specifies pre-existing due diligence duties rather than creating entirely new ones.
4 SUMMARY: This final chapter synthesizes the main findings, clarifying that while §91 II AktG formalizes the need for monitoring tools, the core mandate for management remains the exercise of due diligence in risk-taking.
Keywords
KonTraG, Risk Management, §91 II AktG, Corporate Governance, Due Diligence, Executive Board, Internal Auditing, Supervisory Board, Stock Corporation, Business Risk, Risk Identification, Risk Reporting, Legislation, Commercial Code, Accountability.
Frequently Asked Questions
What is the core focus of this research paper?
The paper focuses on the legal basis for risk management in German stock corporations, specifically analyzing the impact and scope of §91 II AktG following the implementation of the KonTraG.
What are the primary themes discussed?
Central themes include the interpretation of legal prescriptions regarding corporate monitoring tools, the balance between corporate freedom and risk oversight, and the historical evolution of risk management legislation in Germany.
What is the main objective or research question?
The objective is to determine whether §91 II AktG creates a mandatory legal obligation to implement a full-scale risk management system or if it simply codifies the existing fiduciary duties of the executive board.
Which scientific methodology is used?
The paper utilizes a legal-doctrinal approach, combining legislative analysis of German commercial and stock corporation laws with an evaluation of expert academic commentary and historical government proposals.
What topics are covered in the main body?
The main body covers the theoretical definition of risk management, the historical context of the KonTraG, an analysis of legal obligations prior to the reform, and an interpretation of the current legal landscape regarding internal auditing and risk reporting.
Which keywords characterize the work?
Key terms include KonTraG, §91 AktG, due diligence, risk management systems, corporate governance, and executive board liability.
How does the author interpret the term "risk management" in a legal context compared to a business context?
The author argues that while business administration demands complex systems, the legal interpretation of §91 II AktG is less prescriptive, focusing on the outcome—that monitoring tools must exist and effectively function—rather than a specific technical design.
What conclusion does the author reach regarding the executive board's liability post-KonTraG?
The author concludes that the KonTraG does not extend the liability of the executive board, as the duty to implement such tools was already implicit in the existing, unwritten due diligence requirements under §76 and §93 AktG.
- Quote paper
- Christoph Mootz (Author), 2004, Business Risks as Legal Problem. Risk Management as Obligation for the Management, Munich, GRIN Verlag, https://www.grin.com/document/27593
