So this is quite a bit different and more limited than "If the company goes bankrupt, so does he." and closer to "I would imagine if a director breaks the law, only then he could be personally liable.", for example Adam Neumann might have had problems if WeWork was a German GmbH.

For breaking the veil of limited liability in German law, the managing director has to act in negligence/ gross negligence.

In theory I like this system. What are some of the downsides?

Significantly less risk taking and thus fewer globally competitive companies.

I think that if you want to make that argument, you probably shouldn't use Germany, manufacturing powerhouse of the West, as your example.

I'm not saying you are wrong, just that Germany doesn't really support your point.