Prosecuting Managers of Polish State-Controlled Companies– Quo Vadis?

Managers’ Liability In Poland – Part I

Maciej Gawroński and Piotr Biernatowski | GP Partners

[This article has been first published in Polish in Rzeczpospolita Daily on 27 December 2024]

We are seeing increasing reports of current executives at Polish State-Controlled Companies (SCCs) filing criminal complaints and civil lawsuits against their predecessors.

The practice of reporting previous management teams in SCCs, especially when leadership changes due to political shifts, is not new. Its current iteration is confirmed, for example, by EY in their article "Poland: new regime shines spotlight on corporate investigations." A similar directive for initial audits followed the 2016 change in government. Not to mention 2005.

When we met with the president of a state-owned company in 2014, the exchange went like this: "Gentlemen, please sit down." — "We're waiting for you to sit, Mr President." — "Hm, nowadays presidents mostly sit in the Białołęka jailhouse." According to rumour, under Minister Ziobro, prosecutorial infallibility decreased slightly (from 98% to 96%), however the number of jailed executives doubled. The private sector shows a similar, if less extreme, pragmatism.

In our In our The Little Book on Drafting Pleadings. How to Communicate and Argue in Writing (English edition Amazon, 2023, Polish bestselling edition titled Jak pisać pisma procesowe i prowadzić komunikację w sporze czyli książeczka o pisaniu pism Wolters Kluwer Polska, 2022), we wrote in the chapter "Disputes and Board Responsibility" that "many stories confirm that being a hired executive in someone else’s company, particularly a state-owned company, is a risky occupation."

Certainly, state assets should be subject to special protection as the property of all citizens. Yet, in proceedings against former board members, this principle is not always the true concern.

Whose interest does it serve to prosecute the managers of the country's largest enterprises? Might this not deter competent executives from undertaking the mission of running SCCs and taking business risks? Could it not harm the competitiveness of the Polish economy? Who gains from prosecuting SCC managers? These questions, often heard in the media, are not asked idly. We’ve often heard candidates invited to join SCC boards say, "Why would I do that?", clearly referring to precisely these concerns.

Of course, not all complaints are alike. One might concern unpaid overtime for board members, another participation in an industry conference, and yet another a cancelled investment worth hundreds of millions or even billions. Some complaints and lawsuits are justified; we have written such claims ourselves.

Regardless of the motivation behind targeting former executives, we want to consider how they should defend themselves and what good practices the State Treasury should adopt for hiring and settling accounts with its managers.

Our analysis of how to deal with SCC managers can start at the beginning (hiring) or at the end (after dismissal). We begin with the end.

Imagine a SCCnario where a former manager learns that the new board has filed a criminal complaint against them. Typically, this begins with a media "leak."

The first encounter with the Polish law enforcement system can be a shock for white-collar professionals. On top of fear of criminal liability comes public shaming and, perhaps worst of all, the anxiety and trauma inflicted on the manager’s family. Merely knowing a complaint has been filed is traumatic; having it enter the public domain is a trauma of a different order. One must never take lightly the experience of encountering a closed prosecutorial system.

Family. A criminal accusation also affects the manager’s family, including their partner and children. It inevitably becomes a topic at home. It’s less concerning if the partner is strong and supportive, but more often, the partner may be vulnerable and easily intimidated. In such cases, the family becomes a sounding board for the unfolding drama.

Betrayal. The attack typically comes from the new board. There have also been instances where those orchestrating the leadership change should have been protecting the company. Instead, they hid a problem and later manufactured an accusation against the outgoing executive. Often, the weaker the person professionally, the more ruthless they are in corporate manoeuvring. This is why the role of internal compliance can be ambiguous. In theory, it ensures lawful conduct; in practice, it often identifies scapegoats or facilitates internal power grabs.

Rejection. Former colleagues of the manager are often pulled into the orbit of investigation. Even when they are not, mere awareness of a complaint creates a lasting impression. This is particularly painful when the former manager needs to approach them for information about events during their tenure.

Ego. The more committed someone is to their responsibilities, the more traumatic it is to be accused of criminal misconduct.

Loss of liberty. The requirement to actively mount a defence creates its own form of confinement. Time, money, willpower, emotion—these resources are consumed over potentially many years. One needn’t be convicted to lose their freedom. The case itself, like Kafka's The Trial, can be a prolonged punishment.

Diminished prospects and reputation. As a former managing partner once told me, "Counsel, there’s not much demand for ex-managing partners." An executive accused of misconduct faces a damaged reputation and diminished employment prospects. Rebuilding one's name is a long and demanding process.

Mounting a defence is a practical challenge. At the outset, it is often hard to even understand the allegations. The manager doesn’t have access to the complaint or supporting documents, nor to the company’s internal files. Executive contracts rarely provide rights to retain or demand a list of documents signed. On the contrary, confidentiality clauses typically prohibit retaining them. The manager is thus in the Kafkaesque position of Josef K.

Inability to use trusted advisers. During their tenure, the manager may have relied on familiar lawyers. Due to conflict-of-interest rules, these same lawyers are now unavailable to defend them against the company's new leadership.

What steps should a manager take when facing allegations?

There are at least several levels on which to act or assess: strategic, legal, reputational, psychological, and financial.

It is worth identifying potential adversaries and their motives. Do not assume there is only one explanation. Motives change, as do people. It’s prudent to outline multiple scenarios. The immediate adversary is the new board. Within it, there is likely someone pushing for prosecution and spreading insinuations. Their motives could be personal, political, or commercial—perhaps a directive from superiors, alignment with foreign interests, or a bid for favour with the current government. Some sincerely believe the former board committed offences. Others may think they were corrupt but uncatchable, and so fabricate another accusation. This is the logic of "stupid is as stupid does," to quote Forrest Gump.

Once we understand the range of adversaries, motives, and goals, it becomes easier to choose a strategy and communication narrative. Possible approaches include:

Waiting it out: waiting for a problem to pass may work temporarily, as any response can feed the narrative. But once you know a complaint has been filed, further action should be anticipated.

Legal defence: submit a clarifying brief if you know which prosecutor's office is involved; sue the company or specific board members for defamation; request an injunction (a "gag order") against the company and its representatives. Targeting individuals rather than the company can be effective, as they must defend themselves at personal cost.

Media counteroffensive: use the publicity to present your side of the story; highlight the broader context; expose the true beneficiaries of the attack.

Political response: if you are caught in a political war, seek support from opponents of your opponents. Concern about being politically branded is futile—you already are, whether you want to be or not.

Solidarity: seek alliances with others in similar situations. The challenge here is trust: e.g. the fear that others may genuinely be guilty.

Insurance: defence is expensive. Legal counsel, PR, expert opinions—all cost money. If you have D&O liability insurance, activate it.

How can one find out the contents of the complaint? In theory, an accuser should tell you what you're accused of. In practice, only a lawsuit (e.g., for damages or protection of personal rights) might expose at least part of the file submitted to the prosecutor. You can also invoke data protection rights, including access and copies. An unlawful refusal can be challenged.

What arguments can be used in defending against accusations of mismanagement?

A common cognitive error in such cases is hindsight bias—judging decisions by their outcomes. Under Polish company law, the business judgement rule applies. Executive decisions should not be assessed retrospectively based on results, but on the soundness of the decision-making process at the time.

Key to evaluating a board’s actions are the information, analysis, and expert opinions available to it. Decisions must be supported by good technical evidence. In The Little Book on Drafting Pleadings, we explain the value of obtaining managerial opinions. They are useful because no matter what, some decisions will appear harmful in hindsight. Statistically, this is unavoidable.

No decision is made in isolation. The diligence of any one decision must be judged in the context of the executive’s broader conduct. Only by considering this totality can we determine the appropriate standard of care for any particular case.

The size and complexity of the business also matter. The risk of mistaken decisions increases with scale. SCCs are among Poland’s largest enterprises, operating in specialist industries. Executive risk is therefore high. Expenses of tens of thousands of zloty are insignificant in medium and large enterprises. Excessive focus on minor costs can itself constitute negligence, especially when multimillion-zloty issues demand attention. A manager is a bit like communist Prime Minister Cyrankiewicz from that old joke—they must choose which fires to extinguish[1].

So how should we evaluate executive liability, and how can an executive prepare? We will discuss the available tools shortly.

[1] Cyrankiewicz gets into a taxi. The driver asks, “Where to?” Cyrankiewicz replies, “It doesn’t matter. They need me everywhere.”.

Maciej Gawroński and Piotr Biernatowski

The authors are partners at GP Partners Gawroński, Biernatowski sp.k., authors of the bestselling The Little Book on Drafting Pleadings. How to Communicate and Argue in Writing.

GP Partners Gawroński, Biernatowski sp.k., headquartered in Warsaw, is a Polish business law firm specialising in technology, dispute resolution, corporate law, mergers and acquisitions, financial sector regulation, and public procurement.

The firm’s lawyers are the authors of two No 1 legal bestsellers: Jak pisać pisma procesowe i prowadzić komunikację w sporze, czyli książeczka o pisaniu pism (Poland’s best-selling legal title from Wolters Kluwer in 2022), published in English as The Little Book on Drafting Pleadings. How to Communicate and Argue in Writing; and RODO. Przewodnik ze wzorami, the most popular Wolters Kluwer Poland title in 2018 and 2019, published in English as Guide to the GDPR.

GP Partners’ lawyers have been recognised by international rankings in categories such as: Data Protection, Dispute Resolution, Fintech, Franchise, Intellectual Property, IT, Media, Patent Disputes in Life Sciences, Public Procurement, Technology, Telecommunications, Trademark and Copyright Disputes, as well as Client Satisfaction.

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