Liability Risks

There has been a huge increase in cases seeking to hold managing directors and members of supervisory boards liable for their decisions. This has led to an obligation of supervisory board members to assert claims as soon as they hear of the matter at hand.

This trend is set to continue, meaning it’s ever more important to identify, manage and, where possible, mitigate any risks.

Many errors in judgment on the part of companies can lead to their managers being held liable. The most important are:

  • Violations of German and European cartel law. Record fines are being issued in this context. In Germany, it often leads to investigations into managers’ duty of care under §§ 30, 130 Administrative Offences Act (OwiG). In addition, the question arises as to whether the company can hold them liable, not to speak of consequences in terms of their employment.
  • Corruption allegations, which, if proven, can lead to hefty fines, loss of contracts, asset forfeiture and employment consequences.
  • Failed financial investments and risky business ventures as well as speculative forward exchange contracts and commodity futures contracts raise questions as to adequate risk controls, duty of care and possible personal liability on the part of managers and board members.
  • Violations of social insurance and tax laws, of occupational safety and temporary employment conditions, of environmental or trade law, all can lead to litigation and/or prosecution.

We help you by developing strategies for the areas of your business most likely to lead to liability. These are then put to paper and into practice. We ensure that responsibilities are delegated properly, that controls are in place: in sum, ensure that the structure of your organization meets all legal requirements.

Corporate Liability

Companies can be held liable in terms of their organizational duties, legal requirements, failures in company processes, or in their choice or monitoring of business partners.

 

This means that your business is set up in a way to reduce the chance it will be held liable, face demands for damages or be sanctioned.

 

 

This requires a clear message from the management, the so-called “tone from the top”.

 

 

Responsibilities and hierarchies must be clear and functional to reduce risk. Every company thus needs an efficient compliance structure.

 

 

In sum, your company should be set up so that all processes are monitored. This is especially important for joint-stock companies, which have clear legal requirements in this regard, such as the German Stock Corporation Act’s (AktG) requirement to set up a monitoring systems for any developments that threaten the going concern.

 

Duty of care

The owners, managers and any controlling functions of a company have a duty of care towards their enterprise. What this represents is not precisely set out by the law, but these responsibilities do include various organizational, supplier and monitoring aspects.

  • Any duty of care not taken care of personally must be delegated in full. Unclear responsibilities are in themselves a breach. Tasks and competencies must be clearly defined and not overlap.
  • Employees must possess the skills and knowledge required to carry out their role and be chosen as such.
  • Employees must be clearly instructed as their tasks, as well as any corresponding legal requirement or updates thereof.
  • Even when everything has been delegated properly, a manager cannot leave his/her employees to their own devices fully. Adequate and careful controls must be carried to the extent that any malfeasance is uncovered quickly and in full.
  • Any violations must the investigated in full. Turning a blind eye to malfeasance, even as an exception, is equivalent to tacit consent.

Commercial Crime

A central component of this system is preventing and mitigating commercial crime.

 

Operational risks are increasing for companies, as is the damage caused by commercial crime. Police statistics underscore this point. Most damage is caused by those working from this inside and by discovering their acts too late in the game.

 

Prevention requires an open and constructive corporate culture. This should include the following elements:

  • awareness of commercial crime and its causes
  • systematic analysis of existing risks
  • developing and implementing preventive measures
  • taking quick and decisive action when violations occur