By Andreas Rasche.
Siemens, Volkswagen, Deutsche Bank … and now Airbus. What is wrong with German companies? It seems that German firms are disproportionally exposed to corporate irresponsibility. Of course, this is more of a subjective assessment than a statistical fact, and to be fair Airbus SE is a European company. Corporate irresponsibility appears in all jurisdictions, for all sorts of companies, and for a number of different reasons. My argument here is that Germany still has a legal infrastructure that makes prosecution of corporate criminal acts more difficult than in other countries.
It may come as a surprise, but Germany has, so far, not enacted an explicit corporate criminal law. While other countries have passed strict legislation to fight corporate criminality (e.g., the FCPA in the US or also the UK Bribery Act 2010), German legislation stands out in a number of ways. Unlike in other countries, you need to overcome a number of hurdles to sue corporations directly for criminal conduct. Existing legal provisions regarding corporate criminal liability are mostly found in §30 of the German Ordungswidrigkeitengesetz (OWiG). This law stipulates that corporations can be held legally accountable if someone representing the company has committed a criminal offense.
The Current Legal Situation in Germany
This legal framework puts Germany in a special role, as many other (developed) nations do not require prosecutors to prove individual guilt. As we know from CSR-related studies, corporate misconduct is usually diffused in organizations and it is often difficult to single out individuals as drivers of misconduct. Even if individuals can be singled out, it is still necessary to prove – beyond doubt – that this person was responsible for the criminal conduct on behalf of the corporation. The discussions around who was responsible for Volkswagen’s Dieselgate are a case in point. This leads to an interesting situation: While a rather high number of corporate crimes come to the attention of German public prosecutors (around 63.000 cases in 2014), few of these cases go to court, and in even fewer cases legal fines are imposed. The reason for this situation is mostly related to the fact that public prosecutors need to prove individual guilt rather than corporate guilt.
Of course, German companies are aware of the legal situation and this provides negative incentives. The current legal infrastructure may not directly motivate misconduct, but it is likely that it favors ‘lax behavior’ and unreflective actions.
Enact a Corporate Criminal Code
My plea here is simple: Germany has to enact and enforce an explicit corporate criminal code as soon as possible. The current legal instrument – the OWiG – is neither timely nor sufficient to fight corporate crimes like corruption. Actually, looking into the legal provisions reminds me a little of Milton Friedman’s famous saying that only individual actors – i.e. people with flesh and blood or ‘natural persons’ in legal lingo – can have responsibilities, and that corporate actors cannot have responsibilities because they are just a collection of individuals. We know that such an argumentation only works in the ideal world of economists (and even there its explanatory power is very limited). Any organization theorist would agree that corporations are collective actors; they possess shared norms, values and belief systems and hence there is agency beyond the individual. This is why we cannot and should not make the identification of individual guilt a precondition for corporate criminal liability.
In 2013, Thomas Kutschaty, then Minister of Justice of North Rhine Westphalia, presented a first draft for a German corporate criminal code (the so-called Verbandsstrafgesetzbuch). Ever since not much, if anything, has happened. The defense line of hardnosed corporate lobbyists is clear: under German law criminal liability is related to a fault on the side of the offender (the so-called Schuldprinzip) and hence fault cannot exist for a corporate entity itself, at least not as long as individual misconduct under the name of the company is proven. It is time to rethink the basic condition underlying such an argumentation: the legal principle and ancient rule societas delinquere non potest – responsibility belongs to individuals – may really be antique and outdated.
It is not necessary to simply transfer the legal liability of a natural person to a corporation, which probably would be very controversial. Fault can also be based on, for instance, a legal person’s internal organization or aggressive corporate cultures (as several cases of misconduct have shown). The bottom line? – Crimes are not always committed by men…
Andreas Rasche is Professor of Business and Society at Copenhagen Business School and Visiting Professor at the Stockholm Schools of Economics. More at www.arasche.com and @RascheAndreas.
Pic by zolnierek, Fotolia.