The Munich District Court N° I has decided that each individual board member (Vorstandsmitglied) has to ensure that his company is organized and monitored in such a way that no violations of the law take place.

Such organization duty is only sufficient once a compliance organization is established which ensures loss prevention and risk control. Crucial for the scope of the organization is the type, size and structure of the company. The establishment of a functioning compliance system is part of the overall responsibility of the board (Vorstand).

In the case at hand, the board member had been responsible for the corporate finance and legal department, and is accused of not having implemented effective measures against bribe payments despite having knowledge of such bribes being paid abroad.

Since at least 1999 there were signs of a system of black accounts. Since 2001 Business Conduct Guidelines had been implemented, which require full compliance with the law; these Guidelines were also part of the board member's service agreement with the company.

According to the Court, each board member must comply with all, including foreign regulations affecting the company. There is no justification for bribes, even in jurisdictions where economic success is only feasible when bribe payments are effected. Each board member is individually responsible for the establishment and monitoring of a functioning compliance- and monitoring system, which has to be adequate for the type, size and structure of the specific company.

The Court ruled that ensuring the effective functioning of a compliance system is an original, non -delegable, duty of every board; although a board member may delegate certain tasks, he must ensure that that a functioning reporting structure is implemented in order to endow the board with the relevant information to monitor the compliance system.

In practice, we advise our clients to implement an effective compliance system and strongly recommend adapting existing compliance systems on a regular basis to the changing needs and scopes of our client's companies. It is important to keep in mind that the implementation of such structures is not only essential for the company but also serves to avoid personal liabilities of individual board members.

Munich District Court N° I, judgment dated 10 December 2013 – 5 HKO 1387/10

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.