The Implementation of Corporate Compliance Programmes as Part of the Oversight Duties of Directors: A Comparative View on the Law of Delaware, Germany and New Zealand

Abstract

Compliance programmes are mechanisms in a company that aim to ensure legal compliance of the company, the management and the employees. They have become an essential part of corporate governance. National soft laws refer to the importance of compliance structures and provide best practice standards for comprehensive compliance organisations. Further national securities laws emphasise the importance of controlling structures within the financial reporting of company. The paper approaches the issue of compliance programmes from another side. It discusses whether the implementation of compliance programmes is part of the directors’ oversight duties. This question becomes particularly relevant when the company has suffered losses from criminal conduct by its employees. The allegation that the directors did not implement sufficient compliance structures could lead to a liability of the directors for these damages. The paper explores this issue from a comparative perspective evaluating the position of Delaware, Germany and New Zealand. Starting with the hallmark cases Caremark and Stone v Ritter the conclusion for Delaware is that in principle directors have to implement a specific compliance standard but the risk of liability can be low due to a high threshold of culpability within claims of the breach of the duty of loyalty. German case-law does not have a similar hallmark decision such as Delaware. But there are cases that can lead to a similar conclusion than in Delaware: In Germany organisational structures are required to exercise adequate oversight. But as liability only requires standard negligence standard, the risk of liability may be higher than in Delaware. A similar approach can be developed for New Zealand. The comparison with German law shows that similar structures exist. Similar to German law, the oversight duties of a director under New Zealand law can amount to a similar standard and a similar risk of liability as in Germany, although this has not been decided by the courts in New Zealand yet.