1. Legal Starting Point: Section 25 Austrian Limited Liability Companies Act
The liability of managing directors is governed by Section 25(1) of the Austrian Limited Liability Companies Act (GmbHG). Under this provision, managing directors are required to exercise the care of a prudent and diligent business manager in the conduct of the company’s affairs. The Business Judgment Rule further specifies this standard and creates a “protected sphere of entrepreneurial decision-making.”
Accordingly, a managing director acts in compliance with his or her duties when making an entrepreneurial decision if he or she
- is free from extraneous interests,
- bases its decision on adequate information and
- may reasonably assume to act in the interests and for the benefit of the company
This makes it unequivocally clear that managing directors are not subject to liability for the success or failure of a business decision. They are liable only for a breach of duty in the decision-making process.
2. Sense and purpose of the Business Judgment Rule
The Business Judgment Rule is designed to prevent entrepreneurial decisions from being judged solely in hindsight based on their economic outcome. If every economically unfavorable decision automatically triggered liability, responsible entrepreneurship would be virtually impossible. Management would be reduced to mere risk avoidance, stifling innovation, strategic growth, and business development.
The rule therefore deliberately protects entrepreneurial discretion and acknowledges that even carefully considered decisions can have negative outcomes. What matters is always the ex-ante perspective: whether the decision was reasonable and justifiable at the time it was made.
3. Entrepreneurial Discretionary Decisions as a Practical Application
The Business Judgment Rule applies exclusively to entrepreneurial decisions in which the managing director has a legal discretion to decide. If a binding legal requirement exists—such as a statutory provision, the company’s articles of association, or a shareholder resolution—there is no discretion to protect, and the rule does not apply.
Entrepreneurial decisions are characterized by the existence of multiple legally permissible courses of action. The focus is therefore not necessarily on heightened uncertainty or increased risk. What matters is simply that the managing director has the discretion to choose among several options.
4. Conflicts of Interest and Extraneous Considerations
A key basis for excluding liability is the absence of extraneous considerations. The Business Judgment Rule protects only those decisions that are made solely in the best interests of the company. Personal financial interests of the managing director, benefits for related parties, or other external influences can void this
Not every conflict of interest automatically gives rise to liability. According to a widely accepted view, what matters is whether the conflict actually influenced the specific decision. Nevertheless, in practice, even the appearance of a conflict can create significant liability risks. Transparency, disclosure, and—where appropriate—abstention are therefore key tools for liability prevention.
5. Importance of Thorough Decision Preparation
The Business Judgment Rule does not require a perfect decision, but it does require a careful and structured decision-making process. Managing directors must thoroughly consider the key economic, legal, and financial aspects of any measure. This includes realistically assessing opportunities and risks, evaluating multiple courses of action, and factoring in potential unfavorable scenarios.
A decision made without a serious evaluation of alternatives or without considering foreseeable risks may exceed the protected scope of discretion. What matters is always whether the decision-making process was reasonable and justifiable from an ex-ante perspective.
6. Adequate Information Basis
Managing directors are required to base their decisions on an adequate information basis. However, this does not mean that every theoretically available piece of information must be obtained. The necessary level of information should instead be determined depending on the specific situation.
The greater the economic impact and the higher the risk of a decision, the more thorough the information gathering must be. At the same time, time constraints, the cost of obtaining information, and its expected benefit must be considered. The Business Judgment Rule explicitly acknowledges that entrepreneurial decisions are often made under uncertainty. Estimates and forecasts are also permissible, provided they are transparent, plausible, and methodologically sound.
7. Involvement of External Advisors
In complex decision-making situations, involving external advisors is not only permissible but often advisable. Managing directors may rely on expert opinions, but they remain obliged to critically assess them. This does not mean a technical second opinion, but rather a review for internal consistency, completeness, and alignment with known circumstances.
Blind reliance on external expertise does not absolve managing directors of their own responsibility.
8. Acting in the Best Interests of the Company
Another key standard of review is whether the managing director could reasonably assume that they were acting in the best interests of the company. What matters is not the subjective belief, but the objective justifiability of that assumption.
The best interests of the company include, in particular, its long-term profitability, competitiveness, and the sustainable preservation of the business. Decisions aimed at promoting these objectives are generally covered by the protection of the Business Judgment Rule, even if they later prove to be economically unfavorable.
Liability arises only in cases of gross misjudgment—that is, decisions that were entirely unjustifiable from an ex-ante perspective
9. Limits of Entrepreneurial Risk
The Business Judgment Rule also legitimizes risk-bearing decisions. Its limit, however, is reached when existential risks are taken on whose likelihood of occurrence is more than merely remote. Measures that endanger the long-term survival of the company or lead to structural unprofitability generally fall outside the protected scope of discretion.
10. Conclusion: The Decision-Making Process Determines Liability
For managing director liability, what matters is not the success of a measure, but whether it was made carefully, on an informed basis, and free of conflicts of interest. The Business Judgment Rule provides effective liability protection—but only for those managing directors who structure and document their decision-making process professionally.
Especially for strategic or high-risk measures, early legal guidance is advisable to minimize liability risks and ensure the protection of the Business Judgment Rule.
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