You are here

Development Of The Law And Its Significance For Companies

We observe a trend to extensive (over-)regulation of corporate activity, increased application and enforcement of legal provisions as well as fines for compliance violations, some of which threaten the very existence of companies. As a result of these trends, legal issues are becoming a key concern for the management of companies. Due to the ever-increasing regulatory reach, companies and their management are confronted with a creeping juridification of business decisions, organisation and processes. The associated problems for companies are multifaceted and complex. They go far beyond the issues of avoiding liability risks for companies and directors, removing legal barriers to market access or reducing transaction costs. The problems cover the entire value chain of the company as well as all aspects of its legal relationships with stakeholders. The search for appropriate solutions must take into account that the law itself, as well as its application and enforcement are undergoing a period of profound change. The VW scandal is not the only example that clearly illustrates the reach of US law and its instrumentalisation for trade policy. Added to this is the growing technologisation and economisation of law, which has a considerable impact on the systematics/dogmatics of law as well as on the design of legal provisions and their application. What’s more, the effects of politically motivated legislative action at an accelerating pace should not be underestimated. This also requires companies to make constant adjustments. The application of law is subject to increasing legal uncertainty, with a simultaneous increase in “legal” liability risks. These developments also have considerable consequences for legal advisers, who must be specialists and generalists at the same time. A central challenge for companies is how to respond appropriately to these developments. It requires a systematic and active management of the application and enforcement of law in and by the company (legal process management).

Problems of law application and enforcement in and by companies in practice

Apart from the topics of “compliance” and “liability”, it can be observed in practice that the topic of law is treated with neglect by the management – if at all. Legal issues are viewed as a disturbing element in the management of a company, to be tolerated at best. This ignores the fact that law not only serves to reduce liability, but can also have a formative and regulatory function. In addition, there is considerable potential to reduce the costs incurred by companies for application and enforcement of the law by designing the associated processes effectively and efficiently. Companies often have only a limited understanding of the (strategic) function of legislation, legal departments and legal advisers. This is especially true for the affected departments. The upshot is that legal issues are often not given the necessary importance in companies. Not surprisingly, one can say that there is usually a lack of sufficient integration of the legal department or external lawyers into the company organisation and operational processes. Legal issues are often only dealt with reactively rather than actively and preventively. Even in contract negotiations, the legal department is often only consulted when – from the point of view of the respective department – the points relevant to it have been negotiated or decided on in substance. Unrecognised legal issues have to be renegotiated afterwards under pressure from the legal department and often cause negative effects on already negotiated contract conditions and lead to conflicts and delays.

It is very difficult to calculate the opportunity costs of poor contractual arrangements, and in most cases only after the fact. Problems with the quality of the legal department or assigned consultants etc. are usually only recognised when it is too late, i.e. when the company is already in a dispute with contractual partners or authorities. In addition, problem handling and problem solving within the company is often either focussed on legal matters oron business management. A holistic approach is rarely pursued. This probably owes a lot to the fact that the employees and consultants have acquired expertise in their respective fields without an awareness for interface conflicts between the law, technology and business – an awareness that is crucial today. Another problem that should not be underestimated is the frequently encountered lack of personnel and financial resources in legal departments and too high expectations placed on the legal knowledge of the employees concerned. These are expected to be all-knowing and all-competent (at least) in several, unrelated fields of law and legal matters. In practice, the control of the quality and cost incurred through the work of legal departments and legal advisers also causes difficulties. Here, there is often a lack of objective assessment criteria and the necessary expertise in companies.

Legal process management for companies

Legal management in the sense of active control of the application and enforcement of law in and by companies (legal process management) must take up the challenge of solving the problems described by creating a corresponding (process) organization and culture in the company (legal governance). This requires considerable rethinking by companies and their legal advisers. At the level of the company, it must be recognised that the law has an undeniable importance that covers all areas of the company and goes beyond the areas of “compliance” and “liability”. Lawyers, on the other hand, must understand that mere thinking and acting out the chain of legal consequences coupled with industry knowledge is no longer sufficient to apply law effectively and efficiently for companies. Rather, in their consulting practice, they must take into account the effects of the law on the value chain and the business processes of the company. From the perspective of companies, the application/enforcement of law is no longer just a problem tailored to specific legal issues, but is a process of its own (legal process), which must be set up as such in organizational terms and coordinated with the company’s business processes and the company’s relationships with its stakeholders.

From the perspective of a company, three essential areas of law application and enforcement can be identified (legal stakeholder management, legal risk management and legal conflict management), which must be actively controlled by the legal process management.

All three core areas cover all areas of the company as well as the respective business processes, without the question of the operational form of organisation of the company being relevant. Even though the three areas are interlinked and overlap in terms of content, their fundamentally different structure requires independent identification, coordination and control of the business and legal processes they cover. The weighting and determination of the approach and the design of the respective legal and business process depends on the objectives pursued, the strategy and the organisation of the company. The main task of the legal process management system is to actively manage the legal risks and opportunities, taking into account and including all three core areas, by establishing corresponding process guidelines, monitoring compliance with them and mapping them in accordance with contractual law (e.g. tightening documentation and reporting obligations, etc.). The focus is on:

  • the systematic legal structuring and management of the allocation of opportunities and risks in stakeholder relations and with competitors, and
  • process control through the coordination of business and legal processes of the company

on the basis of the respective corporate objectives and corporate strategy.

The introduction and maintenance of a legal process management can be presented in a nutshell as follows:

In the area of corporate management, for example, typical legal and liability risks for the company and its management can be determined in the following “processes”:

  • Corporate management (violation of the principles of overall management responsibility, monitoring and information duties, etc.)
  • Exercise of entrepreneurial discretion (existence of bound decisions, acting on an appropriate information basis, etc.)
  • Delegation of tasks (sufficient compliance with the duties of selection, instruction, supervision, intervention and intervention)

Conclusion

Against the background of general political developments, the demands on management to ensure their companies are legally compliant are bound to increase steadily. This also drives up liability risks for companies and their directors. In order to respond to these developments appropriately, it no longer suffices to pursue a selective approach in the area of application and enforcement of the law. What is needed is a holistic solution in the sense of active legal process management.


do you have any question about the article?
do not hesitate to contact us

Article Rating: 
Average: 4.7 (6 votes)
Total reads: 157
Uwe Müllner's picture

Uwe Müllner specializes in legal services for complex court and arbitration matters in the fields of commercial and corporate law.

He regularly represents companies, their corporate bodies and shareholders in management/ shareholder disputes and in D&O liability cases.

He also has vast experience in arbitration and court matters in commercial, banking and capital market law. He also focuses on representing professionals in recourse proceedings.

Uwe Müllner advises companies and their shareholders in all corporate law matters, such as M&A transactions, corporate restructuring and corporate succession.

Another focal point of his consulting services comprises the drafting and negotiating of contracts and agreements in the fields of commercial and distribution law.

Uwe Müllner also gives speeches on compliance, focusing on the liability of corporate bodies.

Due to his experience in the field of conflict resolution, Uwe Müllner also represents natural persons in inheritance disputes, in particular at the interface to corporate law.

In addition, Uwe Müllner is a certified Compliance Officer and Business Coach.