Updates on CEO’S responsability
Italian jurisprudence applies the so-called “Business judgment rule”, which derives from Common Law and according to which the Judge in deciding on the civil responsability of a Chief Executive Officer of a Company cannot evaluate the merit or the content of the manager’s choice or the profitability of the transaction, which are both eleemnts of an unquestionable entrepreneurial discretion, but can only evaluate the possible absence or the insufficiency of those precautions, checks and preliminary information that are generally necessary in the CEO’S decision making, on the basis of given circumstances, as well as the degree of diligence of the CEO in assessing the potential risks associated with the transaction.
Therefore, as already clarified by the Italian Court of Cassation several times from 2013 to date, in accordance to the so-called “Business judgment rule”, the Judge must only execute a verification on the correctness of the process of decision making, not questioning the choice itself, unless it was completely irrational and hazardous.
Hereby we highlight the most significant recent rulings on this topic:
- With regard to the Non Performing Loans of Banks: Court of Bologna December 17, 2018; balance sheet adjustments of NPL are related to the directional management of the Company;
- In relation to the risk assessment of business transactions: Court of Trieste October 16, 2019; managerial choices shall be scrutinized with regard to the moment in which they are taken, not considering their consequences;
- With reference to the decisions on the corporate organization: Court of Rome, April 20, 2020; the judicial assessment about the aptness of the corporate organization depends on the Company and on the moment in which the related choices are made, and it shall not just consider the abstract rules of law, but the criteria, rules and principles of management issued by the directive or business administration., or by entrepreneurial associations or by the self-regulatory Codes of conduct.
Landolfi & Associati corporate lawyers are available for any further insight and information on jurisprudential and regulatory updates mentioned above and on their application to specific cases of CEO’S liability.