Reports continue to surface about current managers of State Treasury companies filing criminal complaints and lawsuits against their predecessors.
The practice of filing complaints against former boards in State Treasury companies, particularly during changes of power, is not new. Its current iteration is confirmed, among others, by EY in the article "Poland: new regime shines spotlight on corporate investigations." Similar directives for "opening audits" were issued during the change of power in 2016 and even earlier, in 2005.
In 2014, while meeting with the president of a certain state-owned company, we exchanged the following remarks:
"Please, gentlemen, have a seat." "We're waiting for you to sit down, Mr. President." "Hm, presidents now mostly sit in Białołęka." [Bialoleka is a colloquial name for a jailhouse in Warsaw where preventively detained managers are typically detained]
There was a saying at the time that under Minister Zbigniew Ziobro's [former Polish Minister of Justice] tenure, prosecutors' infallibility slightly decreased, but the number of imprisoned presidents doubled. The private sector has a similar pragmatism, though perhaps less extreme.
In our bestselling "Little Book on Drafting Pleadings," in the chapter "Disputes and Managers Liability," we wrote that "many stories confirm that being a hired manager in someone else's company, especially a State Treasury company, is a risky occupation."
State-owned assets should undoubtedly receive special protection as the common good of all Poles. However, in cases against former board members, it often appears that this is not the primary concern.
In Whose Interest Is the Prosecution of Managers?
Does the prosecution of managers of the largest state-owned companies discourage competent individuals from taking on the mission of managing State Treasury companies and assuming economic risks? Could this lead to a decline in the competitiveness of the Polish economy? Who benefits from the prosecution of managers of State Treasury companies? These questions arise in the media for a reason. We've often heard potential candidates for management positions in State Treasury companies say, "Why would I want that?"-in direct relation to these concerns.
Of course, not all complaints are the same. A criminal complaint about un /paid overtime for board members differs significantly from one concerning participation in industry conferences or un /executed investments worth hundreds of millions or even billions. Some complaints and lawsuits are of course justified-we've written such complaints ourselves.
Regardless of the motivation behind harassing former managers, we want to consider how they should defend themselves and what best practices the State Treasury should follow in hiring and evaluating its managers.
Starting at the End: When a Manager Faces Allegations
Let's imagine a scenario where a former manager learns that the new board has filed a criminal complaint against them. Assume the typical situation where there is a media "leak."
The first encounter with the reality of the Polish law enforcement system can be shocking for white-collar professionals. Beyond the fear of criminal responsibility lies public stigmatization and, perhaps most distressingly, the fear and trauma experienced by their immediate family. The mere knowledge of the complaint is traumatizing, and its public dissemination adds a separate layer of trauma. Confronting the police-prosecutor-judge closed system should never be taken lightly.
Family
An accusation of a crime also affects the manager's family-their partner and children. Discussions about such matters at home are unavoidable. It's manageable if the manager's partner is a supportive, psychologically resilient person. However, it's not uncommon for the partner to be susceptible to intimidation, turning the family into a resonator of drama.
Betrayal
The attack usually originates from the new board. There are also cases where those responsible for replacing the president are the same individuals who should be protecting the company. These individuals sometimes hide problems only to fabricate accusations against the CEO later. Typically, the weaker someone is professionally, the more they act like a corporate rat. This makes the role of compliance in companies ambiguous. While its theoretical purpose is to ensure lawful operations, in practice, it sometimes involves scapegoating or seizing positions.
Rejection
Often, people in the manager's environment, including former colleagues, are drawn into the sphere of interest of law enforcement. Even if they aren't, mere knowledge of the complaint creates a lingering impression of "where there's smoke, there's fire." This is particularly painful when the manager considers or must approach these individuals for information about company matters.
Ego
The more committed someone is to fulfilling their responsibilities, the more traumatic it is to face accusations of criminal activity.
Restriction of Freedom
Another source of trauma is the actual restriction of freedom due to the need to actively defend oneself. Time, money, willpower, and emotions-all these resources must be engaged for potentially years. One doesn't need to be convicted to lose their freedom; the mere continuation of proceedings can achieve this, as in Franz Kafka's The Trial.
Limited Prospects and Reputation
As one former managing partner once told me, "There's little demand for former managing partners." A manager accused of any misconduct must expect greater difficulty in finding new employment. Their reputation suffers, and rebuilding it is a painstaking process requiring resilience.
Defensive Actions: Practical Problems
Defensive actions are challenging to implement, especially at the initial stage. The manager typically lacks access to the content of the complaint or the supporting documents. They usually do not possess the company's records they managed. Confidentiality clauses prohibit retaining or demanding documents like signed contracts. The manager is thus in a position akin to Josef K., the bank clerk from Kafka's The Trial.
Trusted Advisors Unavailable
While employed, managers often work with trusted legal advisors. Due to conflict-of-interest rules, these same advisors cannot represent the manager in defending against actions by the company's new authorities.
What Steps Should a Manager Take When Facing an Accusation?
When confronted with an accusation, there are several key areas that require attention or assessment: the strategic, legal, reputational, psychological, and financial dimensions.
Strategy
Evaluate who may be your adversary and their possible motives. There's no need to limit yourself to one hypothesis-motives and people can change. Assume several scenarios. The immediate adversary is the new board, and within it, at least one person insists on pursuing charges and spreading insinuations. This direct opponent might act for various reasons: under orders from superiors (including politicians), in the interest of foreign states or international corporations, out of personal grudges, or to curry favor with those in power.
But tew managers may also act cautiously, perhaps due to the need to make decisions that negate the value of their predecessors' expenditures. Their motivation might stem from a sincere belief that their predecessors' actions constituted a crime. However, it might also involve a belief that the predecessors were corrupt or malicious, even if there is no direct evidence. In such cases, they might resort to attributing other faults, exemplifying the "Stupid is what stupid does" reasoning from Forrest Gump.
By identifying the range of potential adversaries, their motives, and their objectives, we can more effectively select the appropriate response strategies and communication narratives. The following approaches merit consideration:
Waiting
Adopting a wait-and-see approach can be an effective tactic in the short term, as immediate reactions often fuel further actions. However, once aware that a notice has been filed against us, we must be prepared for subsequent developments.
Legal Defense
You might file an explanatory letter if you know which prosecutor's office is conducting the investigation. You could sue the company or specific board members for defamation or request a gag order against the company and its representatives. Targeting specific individuals rather than the entire company can have advantages, as they would need to defend themselves at their own expense.
Leverage Media Momentum
You can use your adversary's media momentum to your advantage by sharing your story, highlighting the full context, attacking the attackers or the real beneficiaries of the attack, or gaining public sympathy.
Political Defense
If you are a victim of a political war, you might seek media support from opponents of your adversaries. Fear of being associated with a specific political faction is irrelevant-you are already linked with one side, whether you like it or not.
Solidarity
Consider seeking support and collaboration with others in similar situations. Lack of trust and fear that the allegations against another manager might be justified will be obstacles.
Insurance
All actions require resources-legal advice, lawsuits, PR consulting, media consulting, expert opinions, psychotherapy. Activate your Directors & Officers liability insurance if you have it.
Accessing Accusation Content
In theory, anyone accused should be informed of the allegations against them. In practice, only a lawsuit for damages may reveal part of the material submitted to the prosecutor's office by your former employer. A lawsuit for the protection of personal rights may also serve as a discovery tool. You can also attempt to exercise the right to access and obtain copies of personal data, though such requests may face unlawful refusals.
Arguing Against Mismanagement Allegations
A common cognitive error in post-event evaluations is hindsight bias-assessing decisions retrospectively based on their outcomes. In Polish corporate law, the business judgment rule applies: actions by board members should not be judged retrospectively but by the correctness of the decision-making process at the time of the decision and its circumstances.
When evaluating a board's actions, the information, analyses, and opinions available at the time are crucial. Decisions must be supported by solid expert materials. In our Little Book on Writing Pleadings, the chapter Disputes and Board Responsibility highlights the value of obtaining so-called managerial opinions. Their importance lies in a simple truth: it is inevitable that some managerial decisions will, in hindsight, be deemed harmful. Statistically, this is unavoidable.
No business decision exists in isolation from others or the broader context of the company's operations. The assessment of diligence should consider the entirety of a manager's decisions. Only within this broader context can the standard of diligence for a specific decision be accurately determined.
A key factor is the size and complexity of the business under the manager's control. The likelihood of poor decisions increases with the entity's scale and the complexity of its operations. State-Owned Enterprises are among the largest entities in the country, often operating in highly specialized industries, making the risks faced by their managers above average. Decisions involving costs of tens or even hundreds of thousands of zlotys are negligible for medium-sized companies, let alone large ones. Overemphasizing such minor decisions could be seen as neglecting diligence in managing the overall business, especially when multimillion-zloty decisions demand attention. A manager, much like Prime Minister Cyrankiewicz from an old joke, must choose which fires to extinguish [Cyrankiewicz gets into a cab. The driver asks - Where to. Cyrankiewicz replies - All the same. They need me everywhere].
Final Thoughts
The challenges managers face in defending themselves against criminal complaints and lawsuits highlight the need for preparedness, strategic thinking, and proactive measures. In subsequent articles, we will elaborate on the array of possible tools and strategies available to managers for protection and effective response.
Maciej Gawronski and Piotr Biernatowski