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Legal challenges in the introduction of codes of conduct (Part 1)
Legal requirements must be taken into account when developing and implementing codes of conduct.
1. Introduction
As companies expand into developing and emerging markets, considerations regarding corporate social responsibility are becoming increasingly important. In many host countries, companies are frequently confronted with unfamiliar realities: foreign cultural norms, legal uncertainty, volatile political conditions, unpredictable administrative bodies, or indeed irresponsible treatment of the environment, corruption and the violation of internationally recognised labour standards and human rights.
The company must actively engage with these framework conditions, as it is expected to uphold the high standards of responsible business practices customary in its home country within its sphere of influence (suppliers, employees, locations, etc.) as well as in the countries where it sources, manufactures and exports goods, to apply the same high standards of responsible business practices that are customary in its home country.
A well-established tool for preventing potential adverse effects caused by stakeholders within a company’s sphere of influence is the so-called Code of Conduct. Through a bespoke Code of Conduct, a company sets out specific guidelines for action to ensure compliance with its core ethical and moral obligations. This tool has both a regulatory component (for suppliers) and a communicative component (for stakeholders) and, when developed in a practical manner and implemented credibly, can make a significant contribution to the company’s credibility.
2. Reasons for introducing codes of conduct
On the one hand, the reasons for introducing a Code of Conduct lie in the aforementioned risks, which stem from the internationalisation of companies and increasing globalisation. On the other hand, these reasons arise from regulatory requirements such as the US Sarbanes-Oxley Act. This Act requires listed companies in the US to ensure that misconduct in the areas of accounting, banking and white-collar crime – which covers a broad spectrum of potential offences – is detected and rectified as quickly as possible. German companies are subject to the obligations of the Sarbanes-Oxley Act if their parent company is listed on a stock exchange in the US.
The measures required to comply with the provisions of the Sarbanes-Oxley Act are implemented within companies in the form of codes of conduct. Specific guidelines on conduct are intended to reduce or minimise companies’ liability risks.
In Germany, there is a growing trend for companies – even those that are not themselves listed on the stock exchange or do not have a listed parent company – to commit to introducing codes of conduct or setting up reporting systems for breaches of the rules. There are a wide variety of reasons for this form of voluntary commitment – ranging from planning an initial public offering to the realisation that a code of conduct is a modern instrument of „corporate governance“ that stakeholders expect.
3. Objectives and content of codes of conduct
Whilst the objectives of codes of conduct are largely similar, their content can vary considerably from one company to another.
The primary objective – although often formulated in very different ways – is to minimise liability risks by setting out specific rules of conduct. These generally relate both to different organisational units (e.g. sales, human resources, etc.) and to different processes. In a sense, the company „shifts“ the risks arising from misconduct onto the individuals concerned, thereby availing itself of a means of exculpation. The fact that this is only of a relative nature is ultimately demonstrated by the fact that, in the media, it is usually the company and not the individual employee who is pilloried – with the exception of members of the executive board or senior management.
The content, on the other hand, generally varies considerably: some companies limit themselves to briefly and concisely requiring their employees to comply with applicable laws and internal guidelines and to report any breaches. In most companies, however, it can be observed that the Code of Conduct contains a large number of specific, situation-specific rules of conduct which, taken together, go far beyond what is required by the Sarbanes-Oxley Act. Here are a few examples:
- Confidentiality obligations
- Acceptance of gifts
- Prohibition of alcohol, drugs and intoxicating medicines
- Use of company facilities (telephone, machinery, vehicles)
- Rejection of child labour
- Breaches of environmental protection legislation
- Employment of family members by competitors
The code of conduct is also accompanied by sanctions that are imposed in the event of breaches of the code. These range from simple disciplinary measures to summary dismissal and the filing of a criminal complaint.
Another key component of codes of conduct is what are known as „whistleblowing systems“, through which breaches are reported. These usually take the form of hotlines or dedicated email addresses – anonymity and discretion are fundamental requirements here, without which such a reporting system would hardly function in practice (after all, who would want to be seen as a „snitch“, even if they are obliged to report breaches under the Code of Conduct?).
When comparing the development of codes of conduct between the USA and Germany, the high number of specific rules of conduct in US codes of conduct can be explained historically by the fact that labour law in the USA is significantly less heavily regulated than we are accustomed to in Germany. However, even in Germany, there is occasionally a marked tendency amongst compliance officers to „over-regulate“, although many of the regulated circumstances are already covered by both substantive employment law and the case law on employment law, which has been evolving for decades.
About the author
Eckart Achauer studied law and business administration, followed by postgraduate studies leading to a Master of Business Administration (MBA). He undertook further professional development alongside his work to qualify as a European Quality Manager (DGQ), a mediator specialising in commercial mediation, and a Certified Compliance Manager (TÜV).
He spent around 10 years in the international insurance industry, holding various management positions within a Swiss insurance group (claims department, sales, assistance), before moving into management and business consultancy in 1997.
As a consultant and managing director of various consultancy firms, Mr Achauer has specialised in organisational and process optimisation, as well as in the development and implementation of management systems – quality management, risk management and compliance management.
At Senator Executive Search Partners, Mr Achauer is responsible for the Compliance Management division. As part of compliance audits, he analyses organisations„ “compliance fitness’, raises awareness and provides training for management, executives and staff, and supports companies in developing and implementing bespoke compliance management systems. In doing so, he always takes into account the specific risk profile of each company. Thanks to his many years’ experience as a manager and consultant, he is thoroughly familiar with the practical challenges faced by businesses.
Negotiating in China (Part 2)
Like at the bazaar?
„At first, everything proceeded in a very proper and formal manner. The longer the negotiations went on,
“The discussions dragged on, and the deeper we delved into the details, the more it felt like being at a bazaar. We literally spent hours haggling over the finer points," said the chief negotiator for a German automotive supplier.
Chinese negotiators have immense perseverance when it comes to clarifying details that are important to them. They expect the same from their negotiating partner. The stages of the negotiation in which concessions are made tend to be lengthy. Remain just as tenacious as your counterpart, whilst at the same time maintaining a positive atmosphere. Concessions should always be discussed with a view to balance and a win-win outcome. Do not forget to use reciprocity („if…, then…“) as a basis, and link a demand from the other side with a demand of your own.
Work in Progress: The Contract
In China, it is quite common to amend terms that have already been agreed upon during the next round of negotiations. There is not always a sense of „contractual consistency“ or an obligation to adhere to agreements that have been concluded. For this reason, all outcomes of negotiations should be recorded in detail in writing, regardless of whether the agreement has been reached in part or in full. Verbal commitments do not usually last very long.
It is advisable to clarify the other party’s powers of attorney at the start of negotiations. Are they authorised to conclude a deal, or are they initially only there to gather information and sound out the situation, so that another member of staff can then conclude a binding agreement in the next round of negotiations? As China is a socialist country, trade is generally conducted through state-owned enterprises or government agencies. With a few exceptions, such as tenancy agreements, there is relatively little restriction on the drafting of contracts. Certain regulations are in place, but experience shows that these can be met with „pro forma“ provisions. For domestic transactions, it is worth bearing in mind that a relevant contract law has only been in place for a few years and that the issuing of licences, which are required for many transactions, can take quite some time.
Complex legal situation
In China, lawyers play an important role for foreign business partners. Lawyers serve not only as legal advisers, but often as interpreters as well. If you wish to engage a lawyer, the question arises as to whether to choose a Chinese lawyer or a foreign lawyer working for an international firm in China. Whichever way you decide, there are still pitfalls: on the one hand, a Chinese lawyer loses their membership of the Chinese Bar Association if they join an international law firm in China.
On the other hand, a lawyer qualified abroad is not authorised to provide an expert opinion on Chinese law. The best choice is a lawyer from an international law firm who understands the Chinese mindset and is not dependent on the government. Internationally active law firms often employ Chinese nationals who have studied abroad. These individuals are familiar with both Western and Chinese ways of thinking. Much of what is regarded as standard negotiating practice in Germany requires written confirmation in China. As mentioned, the Chinese treat contracts as they would laws: they are worded vaguely, leaving room for different interpretations. From a Chinese perspective, this approach to drawing up contracts takes account of the „human side“; the „legal nit-picking“ of Western managers is often met with a lack of understanding.
When it comes to the Chinese sense of justice, choosing the right lawyer pays off just as much as being creative in marketing and negotiation. For example: whilst we talk about trademark piracy, the Chinese tend to focus more on the appeal of the product itself, and any imitations are seen as a mark of distinction for the original.
This situation can be overcome, as the example of Coca-Cola shows: before production began, the company launched a wide-ranging media campaign. The public was informed about what a registered trademark is, what the Coca-Cola brand stands for, that its purpose is to guarantee quality, and that imitations are illegal and of inferior quality. Such initiatives pay off: despite specific instances of trademark piracy in China, Coca-Cola is very successfully positioned in the market there.
Working hours (Part 2)
The second type of working arrangement is part-time work. In this arrangement, employees regularly work fewer hours than comparable full-time staff. Women with children in particular benefit from part-time work. There are just under 9 million people in part-time jobs. Of these, almost 80 % are women.
A topical issue is the passing of the law introducing what is known as ‘bridging part-time work’. Employees who agree to work part-time after 1 January 2019 are affected by this provision.
However, the right to transitional part-time work applies only to companies with more than 45 employees. Only then can an application be made for a fixed-term period of part-time work lasting between one and five years. Yet just under 15 million people are already employed in companies with fewer than 45 employees. The new rules do not apply to this group at all.
Employees working for companies with up to 200 staff are also affected by a specific rule. For every 15 employees, only one must be granted the right to bridging part-time work.
The new law on bridging part-time work does not, therefore, apply to all employees. And for most people, the „part-time trap“ remains. Whilst the bridging part-time scheme is well-intentioned, the law was watered down too much during the negotiations.
It is clear that new ideas and laws relating to working hours are constantly emerging. However, it always takes a while before they can actually be implemented.
About the author
After completing his degree in Automotive Engineering and Industrial Engineering, he began his career in the automotive industry in the fields of sales, development and marketing, and also spent a year in Japan working for one of the largest automotive suppliers.
He then moved to a world-renowned premium car manufacturer, where he served as a marketing officer responsible for product marketing in Japan and South America, and as a marketing officer responsible for marketing strategy in North and South America.
In 1994, he decided to set up his own business and founded a recruitment consultancy in Munich, which he has been developing and expanding for over 20 years. As managing director, his main areas of focus are, naturally, the automotive sector and mechanical and plant engineering.
His PhD in the field of aptitude assessment perfectly complements his areas of expertise, particularly with regard to HR and management consultancy. His thesis focuses on identifying and demonstrating typical personality traits among engineers, as well as defining areas for development to ensure a successful career.
These are scientifically derived and presented in the book *Aptitude Testing in Practice*.
At the same time, his focus is on building networks and cooperation models, as well as the ongoing development of systems and processes in HR consultancy.
Over the past 20 years in the field of HR consultancy, he has developed several brands that continue to operate successfully in the market to this day.
Negotiating in China (Part 1)
In recent years, the People’s Republic of China has grown to become a major economic player on the world stage. The financial crisis has done nothing to change this; quite the contrary. Furthermore, in light of recent political developments in the United States, China is becoming an increasingly important partner for Europe. China’s rapid growth has slowed during the political turbulence and uncertainties of the recent past – albeit still at an above-average rate of approximately 6 % to 7 % („the new normal“). The Chinese market remains attractive to German investors and business partners, particularly due to its considerable domestic market potential. Conversely, we are seeing a trend whereby Chinese companies are increasingly beginning to invest in Europe and, above all, in German-speaking countries.
It is not only global players such as Volkswagen, BASF, Bayer, Coca-Cola, Henkel and Procter & Gamble – to name but a few – that have a presence in the Middle Kingdom. German SMEs are now also heavily involved in a wide variety of ways. But is this vast country really a rapidly developing and promising future market that justifies sustained, long-term investment? China is not just China. The People’s Republic is a world unto itself, with a history stretching back over 4,000 years, various languages and dialects, and diverse social conditions and behavioural patterns. The country’s size, its gradual opening up to the West and its rapid economic growth make China a significant growth market that is highly attractive to foreign investors. According to Volkswagen, China is the fastest-growing market in the world. Yet not every business venture is crowned with success. Many companies have failed to achieve the quick returns they had hoped for. What mistakes do Western entrepreneurs make when doing business in China? What are the specific challenges involved in negotiating, doing business and running a company on the ground?
The Middleman
Western businesspeople have little chance of closing a deal in China without a middleman, also known as a „Zhong-jian Ren“. This middleman is familiar with the specific, personal and reciprocal system of relationships that prevails in China, which goes beyond what is traditionally understood as networking in the West. In the West, we often tend to trust others until we have reason not to do so.
In China, things are a little different: in business, you cannot build trust, as no business relationship of any kind can even come about without trust. Instead, trust must be established through „guanxi“. This Chinese
The term refers to the network of personal relationships in China; in other words, it is based on mutual give and take. This means, for example, that a business partner you trust will introduce you to business partners whom they, in turn, trust. The crucial first step in China during this phase of the negotiations – also known as the „exploratory phase“ – helps you to establish personal contacts with the relevant company or managing director.
A talented Chinese intermediary remains indispensable even after the first meeting. Consider what happens during a typical negotiation session between Chinese and Western businesspeople. Rather than saying ‘no’ outright, Chinese businesspeople prefer to change the subject, remain silent, ask a different question or respond using ambiguous or vaguely positive expressions that carry a slightly negative undertone.
A native Chinese speaker is able to accurately interpret the moods, facial expressions and body language displayed by Chinese negotiating partners during a formal meeting, and to explain them. Often, only the intermediary can determine what is actually happening. If an impatient negotiating partner from the Western world wants to know what the Chinese think of the proposal, they will invariably respond evasively, for example with „Let’s see“ or „Let’s look into it“ – even if they think there is something wrong with the proposal. This is one of the situations in which the intermediary can step in, as their role is less about translating words and more about mediating between cultures.
It is often the case that both parties can speak openly to the intermediary about matters they would be unable to discuss directly with one another. In China, it is the intermediary, not the actual negotiating partner, who first raises the business issue to be discussed. Furthermore, they are often able to bridge differences. In fact, a good intermediary can succeed in significantly reducing complex situations and substantial differences of opinion.
