Managerial Diligence – What It Is and How to Prove It

Managers’ Liability In Poland – Part III

Maciej Gawroński and Piotr Biernatowski | GP Partners

[This article has been first published in Polish in Rzeczpospolita Daily on 20 May 2025]

When assessing a manager’s specific conduct, one must consider the totality of their actions, their loyalty, and their commitment to the company’s interests—rather than cherry-picking particular incidents. It should also be remembered that it is not possible to obtain a prior external legal opinion on every action or decision.

In our article “Prosecution of managers of Polish state-owned companies – quo vadis?”, we discussed the issue of successors holding managers in state-owned companies accountable. In the follow-up article “Accountability of Managers”, we focused on the right to information. Today, we address the subject of managerial diligence.

“If it’s ok, it’s ok, but if it’s not ok...” — this is what we tell our boardroom clients. As we wrote this piece, we realised that the legislator is essentially saying the same thing, albeit in different terms.

RESULT, DAMAGE, FAULT

Is a board member liable—civilly and criminally—for the company’s performance? Paradoxically, the answer is yes. According to Article 293 § 1 of the Polish Commercial Companies Code (for limited liability companies) and Article 483 § 1 (for joint-stock companies), “a board member is liable to the company for damage caused by an act or omission that contravenes the law or the company’s articles of association, unless they are not at fault”. This means that, in principle, a board member is liable for damage. Similarly, Article 296 § 1 of the Polish Penal Code refers to causing damage “through abuse of authority or failure to fulfil a duty”. Damage is a broad concept and may include unrealised profits. And then there is context—namely, the manager’s overall results.

A board member is liable for the consequences of their decisions only to the extent they are at fault. Basing managerial liability on fault is a standard principle in Western legal systems. This is rightly so, because the only certain way to avoid making bad decisions—especially ones someone else considers bad—is to do nothing at all. But once one becomes a manager, that time is long gone. Inaction is also a decision.

The Polish Commercial Companies Code generously [irony] allows the board member to prove lack of fault. The phrase “unless they are not at fault” means that the company must demonstrate the action, the damage, and causality, while the manager must prove that they are not at fault. Shifting the burden of proof has serious procedural implications. The manager must actively defend themselves by demonstrating that they exercised due managerial diligence.

As we wrote in previous texts, this task is complicated by the fact that, once out of office, the manager no longer has access to the company’s documents and information—that is, the very evidence of their lack of fault. The company, on the other hand, retains full access to its resources, which puts it at a natural advantage.

WHEN IT’S “NOT OK”: THE BUSINESS JUDGEMENT RULE

Proving lack of fault entails demonstrating managerial diligence—an inherently evaluative matter.

In the 2022 amendment to the Polish Companies Code, the criteria for assessing diligence were clarified by incorporating case law, legal commentary, and established practice in the form of the so-called Business Judgement Rule (BJR).

According to the BJR, a board member “does not breach the duty of diligence arising from the professional nature of their role if, acting loyally towards the company, they act within the bounds of reasonable business risk, including based on information, analyses, and expert opinions that ought to be considered under the circumstances when making a careful assessment”. Note that the provision is somewhat backwards in its construction: it does not state that loyalty and acting within risk equate to diligence—but that they do not violate it.

The BJR emphasises the correctness of the decision-making process and loyalty to the company, rather than the outcome. A manager avoids liability for company losses if, at the time of taking a management decision, they acted:

  • loyally;
  • within the bounds of reasonable business risk, including
  • based on information, analyses, and expert opinions that should have been considered.

Thus, by referencing “reasonable business risk”, the provision links diligence to documenting the decision-making process.

RISK ASSESSMENT

Following a loss, many are quick to judge. However, the assessment of a manager’s diligence and potential fault must be made with reference to the knowledge and facts available at the time the decision was made—not in hindsight. This is why the BJR refers to decision-making processes, not outcomes.

Managing an organisation is complex and multi-layered. A board member must make a great number of decisions, varying in importance. No single person can give each one the full attention needed to fully evaluate it in detail. Thus, the manager must organise the decision-making process and their involvement in it by assessing the economic risk and applying the corresponding principle of proportionality.

THE PRINCIPLE OF PROPORTIONALITY

The principle of proportionality requires that, given finite resources (board time and attention), priority should be given to decisions with the highest risk and greatest impact on the business—without neglecting smaller matters. Allegedly, Harvard research shows that a person’s success depends primarily on the number of decisions they make—and also that decision fatigue is real. Therefore, in many cases, any decision is better than none. As we’ve already noted, inaction is itself a decision—one that can also cause harm and be judged. In short, the board must set priorities well.

This principle is implemented through decision classification and delegation of authority. Decisions should be categorised based on their impact on the business. Rules (ideally in an internal document) should define which decisions require board signatures and which may be taken at lower levels. The board remains responsible for lower-level decisions through so-called “organisational fault”, which can be mitigated by procedures for decision-making and oversight.

Risk assessment and proportionality are fundamental to effective management. Only in light of a manager’s overall responsibilities can we assess what level of effort (not too much, not too little) was appropriate for a particular decision. One should not rush to commission analyses and opinions, which cost time, money, and energy—and may exceed the value of the decision or even be counterproductive.

EXAMPLE

A decision to build a power plant or new airport requires extensive research and analysis. Devoting the same attention to whether to attend a conference would be a waste of resources.

Conclusion: not every managerial decision requires a prior expert validation or documentation.

DOCUMENTING THE DECISION-MAKING PROCESS

We do not question the value of documenting diligence in relation to key decisions. 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 refer on p. 100 to “managerial opinions”. We believe that documenting is generally better than not documenting—provided it is done in a way that reflects civil and criminal standards of diligence, presents available options, and considers opportunity cost. Still, such documentation offers no protection against bad-faith attempts to “build a case bottom-up” by aggregating minor acts into one that meets the criminal thresholds.

When serving on the board, one must ensure not only that documents are prepared—but that they are stored in the correct place so they can serve as evidence. As we wrote in our article on information access, a former board member should ideally retain access to repositories of their actions (without disclosing trade secrets)—including resolutions and signed documents. This enables a clear assessment of whether a given matter was considered by the board, whether a document bears the manager’s signature, and whether they are accused of personal or organisational fault. Such repositories also reduce the risk that the company will claim that a board member failed to obtain opinions and analyses that are, in fact, held by the company.

Documentation outlining the business logic should appear in the rationale for board resolutions or as attachments containing analyses and expert opinions. In some organisations—such as banks—this documentation process is well established. Yet even in a bank, tracing the business logic behind decisions involving hundreds of millions can be surprising.

Sometimes, decision-making processes—such as procurement—are so convoluted that, in practice, boards act by derogation from general principles. Is the board “at fault” for an inefficient process it inherited, where endless committees cannot reduce a 30-step procedure to 15 (which may still be too many)? Meanwhile, ongoing investment and operations must proceed. Is the board member culpable for bypassing the theoretical procurement path? For how long can they rely on the “inherited state”? Let’s be honest: changing an entrenched organisational culture over a short-term mandate is difficult—sometimes impossible—and the greater the change, the greater the resistance.

LEGAL MANAGERIAL OPINION

In our (bestselling) Little Book on Drafting Pleadings, we wrote: “In our view, a legal managerial opinion—on entering and conducting disputes, among other things—should be based on a SWOT-type analysis. From this, the adviser should derive a decision matrix with potential consequences for each option. The opinion should include a recommendation based on the client’s stated priorities, e.g., financial security or project completion within a set timeframe.”

We still stand by that. A sound economic-organisational-technical-legal opinion can support any managerial decision. A key element is an evaluation of alternative scenarios, including procrastination. And one final note: dear managers, commission opinions that are useful to you, with clear conclusions and without a litany of caveats. Otherwise, such opinions are little more than a meme-like gesture of encouragement to someone who is drowning.

PER BALANCE VERSUS LOYALTY

Courts and prosecutors usually assess not the entirety of a manager’s performance, but a fragment selected to support a specific theory of harm, following the tax office’s favourite “cherry-picking” tactic. They say, “you should have paid more attention here”, without explaining which area would have had to be neglected to enable that. This is a flawed method. No one is perfect. When evaluating diligence and the outcome of a given decision, one must consider the manager’s overall balance of decisions—whether they delivered good results overall—provided, of course, they acted with loyalty and care for the company’s interests.

However, decisions lacking loyalty must be assessed on their own.

EXAMPLES OF DISLOYALTY:

  • Using company funds to finance disputes between shareholders
  • Paying for non-business expenses (e.g., dresses, holidays, handbags, cosmetic treatments)
  • Blocking a board member’s access to bank accounts or information
  • Registering the company’s domain personally and transferring it through hidden assignments; alienating the trademark
  • Filing for bankruptcy using false information
  • Sponsorships without tangible exposure
  • Diverting source code developed by the company

Actions in a conflict of interest may also be disloyal—for example, where someone is both a shareholder and board member, and, in a situation of conflicting interests, fails to abstain from action or misleads colleagues for months. Is it disloyal to answer, “Where did the business plan data come from? From my a…”? Perhaps not in itself—but it may support an interpretation of other conduct as disloyal. These examples are not from State Controlled Companies (SCCs).

THE CORPORATE DANCE: CONSENTS

Lastly, managers should collect consents and opinions from higher-level bodies—namely, the supervisory board and shareholders.

Even when formal approval is not required, some form of endorsement, acknowledgment, or non-objection is valuable. This can be:

  • direct (explicit approval of an action), or
  • indirect (e.g., budget approval that covers the action under item XYZ).

Even a symbolic recapitalisation (e.g., PLN 1 million of a PLN 100 million project) can later serve as evidence of support. Why? Because if they were “for” or at least “not against”, it will be harder to formulate selective accusations later. Yesterday you approved a million—today you deny me discharge for executing the plan?

Of course, giving advice is easy. Supervisory boards—particularly in SCCs—are reluctant to make decisions or take responsibility. A request to a higher body is often preceded by internal debates over whether and how to ask. No one wants a rejection. Managers must sometimes find legal solutions that bypass the need for formal approval. Without them, much of the country’s infrastructure would never have been built.

Which brings us back to the need for sound legal and legal-managerial opinions...

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.

The full list of GP Partners’ practice areas is available at: https://gppartners.pl/practiceareas.