Interconnected gears and magnifying glasses symbolize corporate transparency and accountability.

Navigating Corporate Accountability: Understanding Flawed Ad-Hoc Publicity and the Rise of Informal Special Audits

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Reese Marlowe in Law & Justice October 2026 • 5 min read.

"A Comprehensive Guide to Liability Structures, Informal Audits, and European Co-determination"


In today's rapidly evolving corporate landscape, accountability and transparency are paramount. Companies face increasing scrutiny from investors, regulators, and the public, making robust governance mechanisms essential. This article delves into two critical areas of corporate oversight: the challenges posed by flawed ad-hoc publicity and the growing trend of informal special audits. Additionally, we will explore the complexities surrounding co-determination within European multinational corporations.

Flawed ad-hoc publicity can lead to significant legal and reputational risks. The legal frameworks governing corporate disclosures, such as §§ 37b and 37c of the German Securities Trading Act (WpHG), aim to ensure that investors receive timely and accurate information. However, the interpretation and enforcement of these regulations can be complex, particularly when assessing liability for damages resulting from misinformation.

In response to the increasing demand for accountability, a new type of audit has emerged: the informal special audit. These audits, conducted outside the formal framework of statutory special audits, offer companies a flexible and discreet way to address concerns and improve governance. We will examine the benefits and limitations of these informal audits, as well as the key considerations for structuring effective agreements with shareholders and auditors.

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Defining the Corporate Entity

A corporation is a legal entity authorized by the state to act as a single person in law, distinct from its members, with rights and liabilities akin to an individual. This statutory creation enables it to hold property, enter contracts, and sue or be sued in its own name. The term 'corporate' describes anything relating to or shared by such an entity, especially large companies.

Ad Hoc Publicity and Governance Frameworks

Regulatory frameworks such as the revised SIX rules have moved away from rigid per se ad-hoc-relevant categories toward flagging mechanisms and issuer discretion in evolving factual situations. A formal model for regulating corporate social responsibility aims to ensure fulfillment of social obligations, while disciplinary systems continue to adopt amendments to standards for professional misconduct. The demise of staggered ad hoc disclosure reflects a shift toward a 'more likely than not' test for materiality.

Evolution of the Corporate Concept

The concept of 'corporate' has long denoted belonging to or for a corporation, with usage reflecting the entity's growing role in economic and welfare contexts. Early definitions emphasize the legal fiction of corporate personhood as a foundation for modern business organization.

The Labyrinth of Flawed Ad-Hoc Publicity: Untangling Liability and Claims

Interconnected gears and magnifying glasses symbolize corporate transparency and accountability.

The German Securities Trading Act (WpHG), particularly §§ 37b and 37c, seeks to protect investors by ensuring timely and accurate disclosure of information that could affect stock prices. This is often referred to as ad-hoc publicity. However, the practical application of these regulations can be fraught with challenges, especially when determining who is entitled to compensation for losses incurred due to flawed or misleading information.

A central issue in the interpretation of §§ 37b and 37c WpHG is the so-called “transaction requirement.” The prevailing view is that the right to claim damages hinges on the nature of the underlying contractual agreements. In other words, the focus is on the obligations arising from the transaction rather than the proprietary rights associated with the securities. This distinction can have significant implications for determining who can claim damages when trades are executed based on incorrect information.

  • The Prevailing View: The consensus is that the legitimacy of claims under §§ 37b and 37c WpHG depends on the contractual nature of the transactions, sidelining considerations of proprietary rights.
  • The Limits of the Standard Interpretation: Traditional interpretations face difficulties when applied to scenarios such as securities lending, highlighting the need for a more nuanced approach to compensatory mechanisms.
  • The Issue of Securities Lending: The prevailing view struggles to provide clear guidance in cases involving securities lending, where the legal ownership and control of the securities are temporarily separated. This raises questions about who should be entitled to compensation if misleading information affects the price of the securities during the lending period.
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Emerging Scholarship on Accountability Mechanisms

Recent academic work increasingly scrutinizes the effectiveness of voluntary disclosure regimes and informal audit practices in constraining corporate misconduct. Studies suggest a gap between formal compliance and substantive accountability, particularly where ad hoc publicity substitutes for systematic oversight.

Critiques of Informal Audit Reliance

Critics argue that informal special audits lack the independence and procedural rigor of statutory audits, risking capture by management. Empirical evidence on their deterrent effect remains mixed, with some high-profile failures attributed to insufficient scope or follow-through.

Cross-Jurisdictional Approaches to Ad Hoc Disclosure

Comparative analysis reveals divergent thresholds for materiality and timing of ad hoc announcements across major financial centers. Some jurisdictions mandate immediate disclosure upon certainty, while others permit staggered release, affecting market efficiency and investor protection.

To illustrate the complexities, consider a scenario where securities are lent out, and during the lending period, misleading information is released that negatively impacts the stock price. Under the prevailing view, it may be unclear whether the lender or the borrower is entitled to claim damages. The lender retains legal ownership of the securities but has temporarily transferred control to the borrower. The borrower, on the other hand, has control over the securities but does not have legal ownership. This ambiguity can create significant challenges in determining who has the right to claim damages under §§ 37b and 37c WpHG.

The Future of Corporate Governance: Balancing Formal and Informal Mechanisms

As the corporate landscape continues to evolve, the need for robust and adaptable governance mechanisms will only increase. Companies must navigate a complex web of legal requirements, stakeholder expectations, and ethical considerations. By understanding the nuances of ad-hoc publicity regulations, embracing the potential of informal special audits, and adapting to the pluralistic landscape of European co-determination, companies can build a foundation for sustainable success and long-term value creation.

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Integrating Formal and Informal Controls

Experts emphasize that informal special audits and ad hoc publicity should complement, not replace, robust statutory frameworks. Effective accountability requires aligning incentives, ensuring auditor independence, and closing enforcement gaps that allow selective disclosure.

Technology and Real-Time Transparency

Advances in data analytics and blockchain-based reporting may enable continuous, verifiable disclosure, reducing reliance on periodic ad hoc announcements. Regulatory sandboxes are testing automated compliance monitoring to enhance corporate accountability.

Structural Incentives and Regulatory Capture

Systemic challenges include misaligned executive compensation, concentrated ownership, and regulatory capture that weaken oversight. Addressing these requires reforms beyond disclosure, touching corporate governance architecture and political economy.

Stakeholder Consequences of Accountability Gaps

When accountability mechanisms fail, employees, communities, and investors bear the costs through job losses, environmental harm, and financial damage. Strengthening informal audits and ad hoc publicity must prioritize protecting vulnerable stakeholders from corporate externalities.

What remains unresolved in special-audit practice

  • What evidence is enough to satisfy a court that suspicion is justified, given that appointment requires facts supporting suspicion of dishonest conduct or gross violations?[1]
  • How can applicants distinguish a genuine gap in fact-finding from an inference based on information they do not have, such as assuming that no review took place?[1]
  • When all relevant facts are undisputed, what other route can establish a basis for possible corporate claims, since the stated fact-finding purpose rules out ordering a special audit in that situation?[1]
  • How will the practical conditions set out in the Berlin Court of Appeal’s preliminary order affect later applications for court appointment?[1]

Questions about access to a special audit

Can minority shareholders obtain a special auditor without majority support?

Under certain conditions, minority shareholders can obtain court appointment even against the majority’s will. Applicants must also meet the stated shareholding-duration and continued-holding requirements.[1] [2]

Terms used in the evidence

Minority protection
A function of the special audit in stock corporation law.[1]

Sources

  1. Application for a special audit at the AGM: No dishonesty or gross breach of duty where the legal situation is unclear, and requirements for substantiating suspicion of a breach of duty | RÖDL (www.roedl.com)
  2. § 142 AktG - Einzelnorm (www.gesetze-im-internet.de)

About this Article -

Written with AI assistance from published research, and reviewed by the Mystum team. See our About page for more information.

Everything You Need To Know

1

What is the primary goal of §§ 37b and 37c of the German Securities Trading Act (WpHG), and why is it significant?

The primary goal of §§ 37b and 37c of the German Securities Trading Act (WpHG) is to ensure investors receive timely and accurate information. This is critical because it directly impacts the decisions investors make, especially concerning stock prices. Accurate information helps prevent losses due to misinformation and maintains trust in the market. These sections of the WpHG are vital because they set the legal framework for corporate disclosure, ensuring that companies are transparent about information that could affect stock values. The potential liability for damages under these regulations underscores the importance of compliance and accurate reporting, which in turn safeguards investor interests and market integrity.

2

How do informal special audits differ from statutory special audits, and what advantages do they offer?

Informal special audits are conducted outside the formal framework of statutory special audits. They offer companies a flexible and discreet way to address concerns and improve governance. Unlike statutory audits, which are often mandated by law and public, informal audits can be tailored to specific needs and are usually kept confidential. The main advantages include greater flexibility in scope and timing, as well as discretion, allowing companies to address sensitive issues without triggering public scrutiny. These audits help companies proactively identify and rectify issues, which can lead to improved governance and potentially prevent larger problems from arising later. Structuring effective agreements with shareholders and auditors is key to maximizing the benefits of these audits, ensuring their validity and effectiveness.

3

In the context of §§ 37b and 37c WpHG, what is the 'transaction requirement,' and what implications does it have on claiming damages?

The 'transaction requirement' in the context of §§ 37b and 37c WpHG refers to the prevailing view that the right to claim damages hinges on the nature of the underlying contractual agreements. The focus is on the obligations arising from the transaction, rather than the proprietary rights associated with the securities. This means that for an investor to claim damages, their claim is often tied to the specific contractual obligations they entered into, such as a purchase or sale agreement. This requirement can significantly impact who is eligible to claim damages, particularly in complex scenarios, like securities lending. It can limit claims to those directly involved in the contractual transactions, potentially excluding others who may have been indirectly affected by the misleading information.

4

How does the 'prevailing view' on the 'transaction requirement' create difficulties in cases of securities lending, and what are the implications?

The prevailing view, which emphasizes the contractual nature of transactions under §§ 37b and 37c WpHG, faces challenges when applied to securities lending. In securities lending, the legal ownership of the securities is separated from their control. The lender retains legal ownership but transfers control to the borrower. If misleading information affects the stock price during the lending period, it becomes unclear whether the lender or the borrower is entitled to claim damages. The lender has ownership, but the borrower made the transaction and controlled the securities during the price fluctuation. This ambiguity creates a complex legal gray area, making it difficult to determine who should be compensated. This highlights the need for a more nuanced approach to compensatory mechanisms, one that considers the specific circumstances and contractual arrangements involved in securities lending.

5

What key elements are essential for building a foundation for sustainable success and long-term value creation according to this overview?

To build a foundation for sustainable success and long-term value creation, companies must understand and navigate a complex web of factors. These include a deep understanding of ad-hoc publicity regulations, particularly §§ 37b and 37c of the German Securities Trading Act (WpHG), to avoid legal and reputational risks. Secondly, companies should embrace the potential of informal special audits to proactively address concerns and improve governance. These audits offer flexibility and discretion, allowing companies to identify and rectify issues discreetly. Finally, businesses need to adapt to the pluralistic landscape of European co-determination, which involves understanding and incorporating the perspectives of various stakeholders. By focusing on these areas, businesses can improve transparency, strengthen governance, and foster a culture of accountability, which in turn leads to increased investor trust and sustainable success.

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