Foreward by Andrew Chilvers
As companies continue to look for opportunities in global markets, directors from diverse jurisdictions are hired to serve on the boards of foreign businesses as well as domestic ones that have operations and assets in other countries.
Enterprises across the world look for directors from other jurisdictions for any number of reasons. Hiring board directors from other countries can help to build investor confidence, for example. Likewise, an enterprise that is headquartered in a different jurisdiction but with a subsidiary in the US or Europe could seek directors to gain expertise and credibility. The director may have valuable international or local geographic expertise regarding business objectives, strategy, operations and risk management.
Nevertheless, serving as a director on the board of a global enterprise can bring major challenges. It’s true that during the past few years corporate governance laws and regulations have started to converge across regions, but there remain critical international differences regarding the responsibilities and liabilities of directors.
With recent data protection legislation across different jurisdictions, companies are now being held to account regarding their use of personal data. Will this result in a more litigious culture for companies and what does this mean for boards?
The GDPR, which is directly binding in Poland, does not determine the terms and scope of liability for breaches of regulations subject to the processing of personal data. This issue is left to EU member states that may, at their discretion, lay down rules on penalties for any violations of GDPR regulations. The Polish legislator took this opportunity and introduced rules on criminal liability through a Personal Data Protection Act, dated 10th May 2018.
In accordance with Article 107 of the PDPA, anyone who processes personal data where it is not allowed or without being authorised to process the data, can face a fine, restriction of liberty or imprisonment for up to two years. In addition, Articles 107 of the PDPA also foresees penalties for unlawful processing of data revealing racial or ethnic origin, political opinions, religious or philosophical beliefs, trade union membership, genetic data, biometric data for the purpose of uniquely identifying a natural person, data concerning health or data concerning a natural person’s sex life or sexual orientation (the so-called special categories of personal data).
This crime is subject to a fine, restriction of liberty or imprisonment for up to three years. The crime under Article 107 of the PDPA can be committed by anyone including directors (management board members) of entities and establishes their personal liability. Similar regulations have also been enacted by other EU member states in light of GDPR. As a result, directors acting in particular in the European legal sphere may acquire understanding of data protection regulations in other countries and should also be familiar with those statutes imposing liability on them for violations of data protection provisions. Furthermore, GDPR also imposes administrative penalties on entrepreneurs and these violations may lead to class action suits filed by injured persons from different European countries as they may have similar claims and sufficient financial interests.
With global directors now increasingly in demand, how important is it for boards and directors to understand the different expectations of directors and different cultures of governance?
Global directors are commonly in charge of directing all global international issues and projects for their company. The demand for global directors (as management board members) is increasing in size in Poland. Polish corporate law does not impose any further duties on global directors due to their diverse and multiple functions within a corporation. But additional duties (to those of local directors) might be imposed on global directors by the company on an individual basis through internal by-laws and/or managerial contracts and this is a common practice in Poland.
It is expected that a global director’s main responsibility will include providing expert advice and making important business decisions based on market results, production numbers and customer feedback. In addition, introducing new company offerings to existing and new markets worldwide and generating more revenues while minimising the use of company resources.
Global directors must coordinate activities and oversee progress among many departments, divisions, and regions, countries of the company as well as use strategic thinking to negotiate with vendors, execute plans and create effective business models in the international environment. Global directors also evaluate business and employee performance to find areas of improvement. This list is not exhaustive but is designed to highlight areas of particular importance to responsible business behaviour of a global director.
How important is an effective board that follows core principles of international corporate governance? Does this give boards a shield against litigation and other issues such as bankruptcy and bribery?
A director is not an ornament but an essential component of corporate governance. Consequently, directors must use their best business judgement and also follow recognised business rules.
Under Polish corporate law, a director within his/her activities must exercise due care, which also belongs to one of the fundamental principles of international corporate governance. As a general rule, directors owe that degree of care that a businessperson of ordinary prudence would exercise in the management of his or her own affairs. The nature and extent of this care depends on the type of corporation, its size, and its financial resources. For instance, a bank director is held to stricter accountability than the director of a small or medium-sized company.
In corporations invested with public interest such as insurance companies or financial institutions, rigid and specific regulations are usually imposed on directors and in the event of failure to exercise the requisite degree of care and skill, the corporation will have a right of action against him or her for any resulting losses. Many claims which may be asserted against directors of corporations due to bribery or bankruptcy rely on the assumption of the fault of the director in the given case. If the director, within litigation or criminal proceedings, succeeds in showing that his or her action was undertaken by exercising due care than this might be a legitimate defence against this suit as the duty to exercise due care is synonymous with a duty not to be negligent.
