Specialization of board members and executives

Czech Republic: Assigning responsibilities to individual managers has implications for the scope of their duties, and of their liability

The New Civil Code has made it possible to assign different responsibilities to different members of the board of directors or to the various executives (if they have been lifted to the rank of a collective body in the company’s memorandum of association), to reflect various areas of expertise. In this manner, one director may be in charge of financial issues, say; another one may be in charge of marketing, and yet another person may be responsible for HR management.

If areas of competencies were thus delineated, then the decision on matters of the company which fall within the purview of the given area of competencies rests no longer with the board of directors (executive committee) as a whole, but solely with the relevant member in charge. All other members of the management are obliged to exercise supervision over how the company’s affairs are being managed in “neighboring” fields (Sec. 156 (2) of the New Civil Code).

In this manner, the division of competencies modifies the scope of rights and obligations of individual members of the management. Each board member / executive has two basic tasks: the immediate management of the field assigned to them, and supervision over the work of the other board members / executives. Both these obligations must be discharged with the due care of a prudent businessperson.

In other words, if a board member / executive causes damage because of a measure he or she took in his or her area of competencies, then the criterion of due care will be used in examining that particular measure, and how it was adopted.

In the case of all other members of the management, one will have to examine whether they discharged their supervisory duty with the due care of a prudent businessperson – i.e., in particular, whether they duly monitored the work performance of their colleagues, and whether there existed no manifest circumstances that would have given reason to take initiative and adopt corrective measures. If they can pass this test, they are considered to have been in compliance with their duty of proper supervision, and thus will not be held liable for the damage caused by measures that were taken in another area of responsibilities.

In closing, we ought to stress that the assignment of individual responsibilities has no bearing on the way in which management acts on behalf of the company. If the articles (memorandum) of association require that more than one board member / executive act on behalf of the company, then this requirement must be observed even if the transaction in question falls within the area of competencies of one particular member.

Source: New Civil Code (Act No. 89/2012 Coll.)

Lucie Josková, Attorney

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