Corporate governance and responsibility: mismanagement and its consequences
September 4, 2017
What is the mismanagement and how is the responsibility calculated for those who hold (or have done so in the past) the position of executive or general manager? A long and articulated essay by Silvio Martuccelli (LUISS Guido Carli), Giovanni Di Lorenzo (Sapienza Università di Roma) and Vittorio Occorsio (Università Telematica Pegaso) deals with these issues, examining in detail the reference legislation in Italy.
The essay explores, on a theoretical level, the main traits marking the distance among company rules and two of the traditional models for contractual and non-contractual liability; and, on the level of concrete implications, it highlights, after careful reconstruction of the main guidelines accepted by the Italian High Court of Appeal, along with the main jurisprudence from that same body, the outcomes from the conceptual framing of management responsibility in relation to the incrimination of the burden of proof, quantifying the damages and the condition for the tort.
This analysis is based on the provision of the Italian Civil Code (first paragraph of article no. 2392) on the liability of executives towards companies. The executives’ liability does not seem to be fully in line with the common statute of liability for non-performance, since there is no mention in the said article relating to accountabilities, obligations or benefits in the contract between the executive and the company they administer – the only thing to be cited is duties foreseen by the law and the statute. While the legitimate obligation by the ordinary contracting party is one that can be demanded to be fulfilled, in the case of any executives this constitutes a duty whose non-compliance, followed by any damages, justifies a claim for compensation. This distinction calls upon a reflection on the duties associated with the position as an executive.
The authors refer to the distinction between “general duties” (which can be linked to standards of conduct, which has to be diligent, fair and informed) and “specific content” duties, that is for instance the performance of certain acts that are functional to maintaining the correct corporate structure or that are aimed at counteracting circumstances that can affect the company’s capital. Secondly, an element constituting liability for mismanagement is examined, resulting from negligence by an executive: damage, understood both as the onset of an unfavourable situation and, from a legal point of view, as the result of a rule tied to the failure to carry out a specific conduct and, therefore, as the cause of an obligation to compensation.
The essay also examines the possible co-responsibility for mismanagement by the company’s shareholders, that is it asks the question of whether only those who act as general managers should be considered responsible, or whether shareholders should be also included, as they could have influenced the decision-making processes outside the institutional framework. Positive indicators are therefore sought to make it possible to attribute to the latter the harmful consequences of bad management, especially in State-owned companies (and/or those companies where other public bodies have a stake).
Therefore, the work of Martuccelli, Di Lorenzo and Occorsio provides clarity on a complex subject, and one of fundamental importance at that: as pointed out by Arturo Martucci di Scarfizzi, President of the Court of Auditors, in the inaugural speech of the 2017 judicial year, mismanagement is one of the main causes of financial failure, off-balance sheet debt, uncertain accounting and damage to the image of companies, and it also produces a waste of resources and misuse of funding and assets.