Corporate Social Responsibility 4 Company law

Directors’ duties Traditional system, e.g. § 93 AktG (1) In conducting business, the members of the management board shall employ the care of a diligent and conscientious manager. They shall not be deemed to have violated the aforementioned duty if, at the time of taking the entrepreneurial decision, they had good reason to assume that they were acting on the basis of adequate information for the benefit of the company.

The benefit of the company Leading opinion: Directors may only foster common welfare if that is (financially) beneficial for the company – e.g. Kort, NZG 2012, 926 –Duty to comply with legal obligations –No duty to foster common welfare –No right to foster common welfare if it is not even indirectly financially beneficial

CSR to the benefit of the company? 1)Legal obligations -Influence of extended liability under tort law (Chandler v Cape) -Could have influence on CSR aspects such as safety at work, environmental protection -Could also extend to the supply chain 2)Compliance with codes of relevant business associations or multilateral codes -Could be necessary if the provisions of such private regulation turn into new legal standards

CSR to the benefit of the company? 3) The business case of CSR -Marketing advantages through advertising with CSR -Employees‘ satisfaction, reduced fluctuation and so on -Good relationship with government -Avoiding scandals -Contribution to raising general standards in competition (so as to exclude ‚black sheep‘ competitors) -See also the lawfulness of donations, e.g. to charities or to political parties

Impact of reporting requirements Establishment of a CSR-friendly legal environment From voluntary reporting to reporting requirements –E.g. Danish Financial Statements Act (as amended with effect from 2009) applicable to approx. 1,100 large businesses in Denmark Obliged to report on 1) CSR policies, 2) their translation into action and 3) their achievements and expectations for the future eporting_in_Denmark.pdf –Similar plans at EU level –Higher visibility (business case)

Explicit right for directors to include CSR in business decisions Sec. 172(1) UK Companies Act 2006: ‘A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to— (a) the likely consequences of any decision in the long term, (b) the interests of the company's employees, (c) the need to foster the company's business relationships with suppliers, customers and others, (d) the impact of the company's operations on the community and the environment, (e) the desirability of the company maintaining a reputation for high standards of business conduct, and (f) the need to act fairly as between members of the company.’

Further initiatives Proposal for an amendment of § 93 AktG (new para. 2 sent 3): „Eine Pflichtverletzung liegt zudem nicht vor, wenn das Vorstandsmitglied eine unternehmerische Entscheidung auf Grundlage menschenrechtlicher, sozialer oder ökologischer Standards getroffen hat, zu deren Einhaltung sich die Bundesrepublik Deutschland völkerrechtlich verpflichtet hat.“ Directors do not breach their duties if they make a business decision on the basis of human rights, social or environmental standards that the Federal Republic of Germany has committed itself to. BT-DrS. 17/11686 (BÜNDNIS 90/DIE GRÜNEN)