What is more important, keeping internal information of stock corporations confidential, or disclosing it to the broader public? If the company is (partly) owned by the public sector, finding an answer to this is not always easy, as PhD law student Davud Tayaranian explains in his doctoral thesis.
Starting points are the planned expansion of the rail network and the reasons for the delays on the part of Deutsche Bahn AG: the brief inquiry of some members of the German Bundestag and the fraction of the German Green party (Die Grünen) before the German parliament in 2010 brought a conflict to light that cannot easily be resolved. The problem is related to the fact that the Deutsche Bahn is owned by the state. Government representatives are members of the supervisory board. As sensitive information is discussed by this body, they are subject to a special duty of confidentiality. At the same time, however, the government has the duty to provide information to parliament regarding exactly the same information. "This means that the government has to speak out and keep silent at the same time," Davud Tayaranian, research associate at the Faculty of Law at Kiel University, explained the predicament. As the duties cannot both be fulfilled simultaneously, a decision has to be made.
"The question of which duty is more important cannot always been solved easily," according to Tayaranian. In the case of Deutsche Bahn AG, the German Federal Constitutional Court ruled in November 2017 "in favour of the government's constitutional duty to provide information, as this has a higher rank than the duty of confidentiality under stock corporation law," the doctoral researcher explained. Tayaranian uses this case as the starting point for his doctoral thesis (PhD supervisor: Professor Michael Stöber). "I wanted to find out whether there are other conflicts of duty that are similar."
The title of Tayaranian's thesis translates as "Protection of confidentiality in publicly controlled corporations", and he examines the interface between public law (which aims at transparency) and civil law or company law (which seeks to protect the confidentiality of corporate information), comparing paragraph to paragraph, referring to various essays and rulings – and finding that in many cases, the duty to provide information and the responsibility to maintain confidentiality are at odds with each other.
"Similar conflicts usually arise when either the federal government or individual states or municipalities hold shares in stock corporations and are asked for information – either by political parties or also by members of the press (media's right to information) or the citizens (right of access to information)," explained the postgraduate from Kiel, who has researched these conflict situations in great detail.
"It becomes clear that the protection of confidentiality under company law and transparency obligations under public law have developed independently of each other," Tayaranian elaborated. They are not interlocking, but often incompatible. Changes or amendments to company law are not in sight. "Therefore, additional future conflicts are unavoidable. To this day, the effects of this ruling on stock corporation law and the resolution of similar conflict situations are discussed controversially by legal experts."
One of the main questions Tayaranian addresses in his thesis is whether a stock corporation has to accept that confidential information is publicly disclosed or whether the company would be entitled to compensation in such cases. After all, the stock corporation could suffer economic damages as a result of the publication of internal information. "Order intake and earnings might be under threat if a corporation's costs, calculation bases or other business and trade secrets are publicly accessible, even to the competition," said Tayaranian. "This may not be so serious in the case of Deutsche Bahn, as it has little competition and the government is the sole owner. However, the matter is totally different in cases of private shareholders involved who expect profits that may be diminished by such conflicts and their consequences."
In conclusion, the legal scholar deems it appropriate that the federal government, the state or the municipality should pay for any economic damages resulting from the disclosure of sensitive internal information, and Tayaranian developed a liability concept for such situations. This will be the final chapter of his doctoral thesis, which the 28-year-old is currently completing. Tayaranian will submit his doctoral thesis in autumn or winter of this year at the latest.
Author: Jennifer Ruske