Introduction

More often than not, the shareholders of a company do not manage a company’s daily affairs. The shareholders elect and appoint the directors, which in turn engage in the day to day business of such company. In case a shareholder is of the opinion that a director’s actions have been detrimental to the company itself, it begs the question as to what extent the director would be held liable for such actions. In order to assess potential liability of a member of the corporate management, most likely a director, it is important to assess the obligations and duties of such director.

Absence of Brightline Rules

Under the Turkish law, each director is expected to act as a prudent manager and work towards the benefit of the company by acting in good faith. This cautiousness aspect is said to relate not only in execution but also in decision making and planning. Being prudent aspect can be translated into what is generally known as the “business judgement rule” or BJR.

The full extent and application of the BJR under the Turkish law remains uncertain since the directors and the lawyers alike must rely on the Court of Appeals’ precedents since the letter of the law is lacking on this aspect. It is also very common for Turkish lawyers to refer to foreign legal sources and cases to better understand and apply this standard into real life situations.

Duty of Loyalty

It is important to note that rendering a well-informed decision is clearly repeated as part of the BJR under common law practice. The importance of making a due inquiry by directors and retrieval of relevant information from third parties is almost always seen as a strict requirement. If a decision is not tainted with self-dealing or misappropriation and was given in good faith with corporate benefit being prioritized (duty of loyalty) the end result would be negligible. There is no issue of liability for decisions that have been taken with necessary level of care which later turned out to be a misjudgment.

To sum up: If a business decision was taken by exercising duty of care, then the elements of BJR are deemed to be fulfilled.

If a decision is not tainted with self-dealing or misappropriation and was given in good faith with corporate benefit being prioritized (duty of loyalty) the end result would be negligible.

Conclusion

It is not possible to determine a set of concrete rules as to how the directors’ discretionary powers are to be used. However, any decision taken by the board of directors may have unforeseen impacts for the company. In the context of these decisions, it is highly important to ensure that the directors have been attentive and careful while performing their duties in relation to the management of the company. A balance must be maintained between the civil liability provisions and the authority granted to the directors. The directors must exercise duty of care in order to enjoy the projection of business judgement rule in connection with civil liability cases.