The topic of the group-wide obligation to establish a Compliance Management System is always the subject of controversial discussion in legal literature in Germany. According to advocates of this system, parent companies should ensure that the respective subsidiaries maintain effective compliance systems and thus prevent possible legal violations. But are top management officers truly liable if they fail to implement suitable and appropriate measures within the group to prevent compliance violations?
Group-specific separation principle falters
The group-specific separation principle states that, within a group, each organization belonging to it must independently ensure legally compliant behavior and that possible (legal) violations only concern the respective managers of the individual organizations but not the management of the parent company. Recently, however, there have been increasing calls in the literature to extend the liability for legal violations to the top management of a group.
The aim here is to encourage a group’s top management to ensure legally compliant group-wide conduct. A “group-wide legality control obligation” is cited as the reason for such conduct. If such a legality obligation actually exists, potential liabilities would no longer be limited to the respective non-compliant organization.
Does the possibility to exert influence justify a legality obligation?
An indication of an existing group-wide legality obligation could be the opportunity for the parent companies to fundamentally influence the subsidiaries. However, group law provides for a strict separation of the respective organizations within a group in order to ensure the independence of the (subsidiary) companies and to protect them from dominant influence from the parent organization. However, the principle has recently been watered down several times by courts, such as the Regional Court of Munich or the Higher Regional Court in Stuttgart, – among other things, with regard to public antitrust violations – which implies a legality obligation on the part of the parent companies for other compliance areas as well. Approaches from the legal literature also see a group-wide “compliance responsibility” resulting from the group-wide legality control obligation.
In addition, it is believed that the responsibility of maintaining the value of the (subsidiary) companies lies with the manager of the parent organization. This can also be supported by appropriate compliance measures. In this context as well, there is talk of a group-wide “compliance responsibility.”
Diverging opinions on obligations of parent companies and subsidiaries
Opinions on the compliance obligations of parent companies diverge. Some of the literature vehemently asserts the existence of a group-wide legality and legality control obligation, while, at the same time, there are voices that do not see the parent companies as having an obligation to the subsidiaries to also maintain appropriate compliance management systems for them.
According to the provisions of the German Stock Corporation Act (Aktiengesetz, AktG), the “board members” of corporations are responsible for the due care and diligence of a competent manager. However, it can only be deduced from this that a member of the parent company’s management bears the obligation for damages compensation if compliance duties are culpably breached, thereby causing damage to the parent company. However, this liability may also cover indirect damage to the parent company in the form of a reduction in the value of the assets of the directly injured subsidiary. Due to the aforementioned – in certain constellations – group-wide liability, an obligation to set up a group-wide compliance system can thus be justified – with good arguments.
Managers should protect themselves
Since no clear legal opinion can currently be definitively drawn from the literature and case law, the issue of group-wide legality obligations for boards of parent companies remains an unpredictable risk. The number of different opinions and arguments is too large to be able to follow a legal approach with certainty.
However, in the Corporate Sanctions Act – although on hold at the moment – , there is a noticeable tendency that the legislator would like to pay considerably closer attention to legally compliant behavior within companies in the future. It is therefore incumbent on anyone seeking to minimize liability risks to ensure that effective compliance measures are also in place throughout a group. The risk of being taken by surprise by the courts in individual cases is too great. Our experts will gladly advise you on this!