CORPORATE SOCIAL RESPONSIBILITY IN GENERAL
1. CSR values and practices, including levels of support from government, business and the general public
CSR and corporate governance concepts were relatively unknown in Germany until the 1990s. Since then they have been increasingly accepted and applied. Whilst initially confined to environmental issues in the late 1990s, government action in the field has recently focused on a diverse range of topics, from business transparency and consumer protection to gene technology, sustainable development and non-discrimination. The business world has also widely accepted the recommendations of the German Corporate Governance Code, although a major exception lies in the widespread refusal to report individualised accounts of compensations to managing board directors, a topic which is of great concern to the public.
2. Laws, statutes, government publications or other significant framework documents
The German Constitution contains a catalogue of human rights and fundamental freedoms that are directly binding on public authorities. The federal government has also taken steps to fight corruption and bribery with the Act on Action against Organised Criminality of 1992 and the Act on Action against Corruption of 1997. In 2002 the German Corporate Governance Code was published and given legal effect by the Transparency and Publicity Act, which introduced the obligation for companies to annually state compliance with the recommendations of the code. In July 2004 the federal government also adopted the (nonstatutory) Federal Guideline for the Prevention of Corruption in the Federal Administration.
Concerning environmental issues, the government last year passed the Act on Trade with Emission Certificates in order to implement the Kyoto Protocol and the Directive 2003/87/EC. Another recent measure is the Act on Ecological Tax Reform.
The law on public procurement has been changed by the Act on the Reform of the Public Procurement Law of 1998. A fundamental restructuring of this Act is currently under discussion.
3. International treaties, conventions or standards
Germany has ratified the OECD Convention on Combating the Bribery of Foreign Public Officials in International Business Transactions, the Convention on the Protection of the European Communities’ Financial Interests, and the Convention on Action against Corruption involving Public Officials of the European Communities or of the Member States of the European Union. The government adheres to the OECD Principles of Corporate Governance the OECD Guidelines for Multinational Enterprises and has also ratified the ILO-Convention and the European Social Charter.
Regarding the environment, Germany has ratified the Basel Convention on Dangerous Waste, the UN Framework Convention on Climate Change, the Kyoto Protocol and the Montréal Protocol on Substances Leading to the Reduction of the Ozone Layer.
4. Non-statutory sources of liability for companies
Liability of companies can be based on provisions in the Civil Code, the Act on Product Liability and in several public law statutes. Since Germany is a civil law jurisdiction there is, in principle, no non-statutory source of liability, only non-statutory developments enhancing the liability of companies. Thus, contrary to general rules, the liability in torts of companies can be established if a product causes damage, unless the producer can prove that the product did not have a fault or that the producer neither caused nor was responsible for that fault. Another relevant example concerns the piercing of the corporate veil. According to the case law, this is possible in exceptional cases if it leads to economically sensible results. However the systematic justification of this case law, as well as the extent to which it applies, is not yet entirely clear.
5. Principal institutions, government agencies and/or major non-governmental organisations (NGOs)
At the governmental level, several federal and state ministries are involved in CSR activities, in particular the ministries of economics, labour, environment, justice, and the Home Office. The Governmental Commission on Corporate Governance is a quasi-governmental body, as designated by the government, but has no public authority. Criminal law provisions are enforced mainly by public prosecutors and by the courts, whilst civil law and labour law provisions are enforced by specialised courts. Requirements of administrative law are enforced by the competent state authorities and specialised administrative courts. NGOs dealing with CSR include Transparency International, Amnesty International, Greenpeace, Friends of the Earth Germany (BUND), Germanwatch and Econsense.
SPECIFIC AREAS OF CORPORATE SOCIAL RESPONSIBILITY
6. Human rights
Germany has ratified most of the relevant treaties and conventions in the field, among them the International Pact on Civil and Political Rights, the International Pact on Economic, Social and Cultural Rights, the European Social Charter, and the European Convention on Human Rights and Fundamental Freedoms.
The Federal Constitution and the various state constitutions all contain catalogues on human rights and fundamental freedoms. The corporate sector is primarily affected by the Federal Constitution, particularly Articles 1, 2, 3, 5 and 6. These articles apply to all human beings and respectively cover human dignity; freedom of action, right to life and to health; non-discrimination for reasons of gender, origin, race, language, religious or political beliefs, and disability; freedom of speech; and the protection of marriage and family. Freedom of association and the right to form trade unions (Article 9), and the freedom to choose an occupation (Article 12) are also significant but only apply to German citizens. Equally important are the rule of law and the social state principles stated in Article 20 of the Federal Constitution. The catalogues in the state constitutions are similar but some of them go beyond the Federal Constitution and contain provisions relating to a right to work, not as an enforceable right, but rather as a programmatic objective.
According to German doctrine and jurisprudence fundamental rights are, in principle, only binding on public authorities. Although public enterprises are under a direct obligation to apply fundamental rights, statutes nevertheless give effect to fundamental rights between private parties in specific areas, such as labour law and consumer protection. There are, however, important exceptions to the rule. For instance, the Federal Constitution’s right to form trade unions (Article 9) is directly applicable between private parties, corporations and their employees. Furthermore, fundamental rights are, through general statutory clauses, taken into account by the courts as a means of interpreting treaties between private parties.
Against public authorities, fundamental rights are enforced by the Federal Constitutional Court and state constitutional courts as well as by administrative courts. The indirect effect of fundamental rights between private parties is secured by civil and labour courts.
7. Corruption
On the international level Germany has signed, but not yet ratified, the Council of Europe Criminal Law and Civil Law Conventions on Corruption, the Additional Protocol to the Criminal Law Convention on Corruption and the UN Convention against Corruption. In 1999 Germany became a member of the Group of States Against Corruption (GRECO) and has since undergone evaluation and compliance reports by this organisation. Germany has also ratified the OECD’s Convention on Combating the Bribery of Foreign Public Officials in International Business Transactions, the Convention on Action against Corruption involving Public Officials of the European Communities or of the Member States of the European Union as well as the First Protocol, Second Protocol and the ECJ Protocol of the Convention on the Protection of the European Communities’ Financial Interests.
Legislative measures by the federal government include the Act on Action against Organised Criminality of 1992, the Act on Action against Corruption of 1997 and the Act on the Improvement of Action against Corruption of 1998. These statutes introduced new provisions into the Criminal Code and amended some existing provisions as well. A very important non-statutory measure is the government’s new Federal Guideline for the Prevention of Corruption in the Federal Administration of 2004, which mainly contains precautionary measures concerning the organisation of the federal administration.
Sections 331 and 333 of the German Criminal Code prohibit the acceptance and the granting of an advantage for performance of an official duty, regardless of whether a breach of duty is involved. These sections also cover promises of advantages and the granting of advantages to third persons. Sections 332 and 334 outlaw the acceptance and the granting of an advantage that constitutes a consideration in return for the past or future performance of a specific official act by a public official, where this official act is in breach of his or her duty. The omission to perform an official act is in both cases deemed equivalent to the performance of such an act. Since the ratification of several anticorruption conventions, these provisions also cover the bribery of overseas public officials and, more specifically, of public officials of other EU member states. The statutory punishment for a violation of sections 331 and 333 is either a fine or a maximum of three years’ imprisonment. For a violation of sections 332 and 334 the punishment is a maximum of five years’ imprisonment.
Section 299 of the Criminal Code prohibits the demand of an advantage and the promise of an advantage. In the competitive purchase of goods or commercial services, an employee or an agent of a business enterprise, either acting for him/herself or a third person, can not accept an advantage as consideration for giving preference to another in an unfair manner. The statutory range of punishment is up to three years imprisonment, and in particularly serious cases up to five years imprisonment or a fine. With the reform of the Income Tax Act of 1999, granted advantages are not deductible as business expenditures for tax purposes if such granting constitutes a criminal or administrative offence. Section 261 of the Criminal Code penalises money laundering with imprisonment of up to five years or a fine. The 1993 Act on Money Laundering and the 2002 Act on Action against Money Laundering put certain obligations on credit and financial institutions, insurance companies and tax advisers regarding the identification of contract partners, as well as the recording and the notification of suspect acts. Lawyers are under the same obligations if they do not obtain the relevant information while giving legal advice. In the field of political corruption, specific sections of the Criminal Code deal with the bribery of voters and of members of parliament, whilst the Political Parties Act limits the possibilities of granting money to political parties and requires full transparency as to the sources of a party’s money. The anti-corruption and money laundering provisions are enforced primarily by the competent state authorities, in particular by public prosecutors, and in certain cases by the Federal Criminal Police Service (Bundeskriminalamt). Transparency International, the leading NGO in the field, was originally founded in Germany and has its headquarters in Berlin.
8. Corporate governance and business ethics
The concept of corporate governance was relatively unknown in Germany until the 1990s. However, there have since been some government and corporate activities in this area. The Act to Promote Transparency and Control in Business of 1998 intensified the laws regarding a board’s duties of direction, supervision and information. Following non-official initiatives the government also set up a commission that published the German Corporate Governance Code in 2001. Although CSR issues are not directly addressed, the Code summarises statutory requirements on the governance of listed companies, provides recommendations that take account of nationally and internationally recognised standards, and contains suggestions for good and responsible governance. The code seems to be widely accepted with a few critical exceptions. For example, most business enterprises do not comply with the recommendation that a manager’s compensation be individually reported and subdivided into fixed, performance-related as well as long-term incentive components. Under section 161 of the Company Law Act (as amended by the Transparency and Publicity Act of 2002) boards also have an obligation to issue an annual statement of compliance stating whether the recommendations of the German Corporate Governance Code have been applied or not. However there is no legal obligation to indicate reasons for non-application. In response the government has taken further measures regarding a board’s supervisory and management duties, liabilities and accounting standards.
There are also some criminal law measures in the Criminal Code that penalise economic subsidy fraud and capital investment fraud, as well as breach of trust. Further specific provisions are found in the Company Law Act and in the Commercial Code.
On the international level, the 2004 revised version of the OECD’s Principles of Corporate Governance need to be taken into account, as well as the EC’s Action Plan on Company Law and Corporate Governance. The Berlin Centre of Corporate Governance is a very active NGO in the field. The Governmental Commission on Corporate Governance is a quasi-governmental institution that promotes corporate governance ideas and makes appropriate suggestions.
9. Corporate responsibility to employees
The law of the European Communities strongly influences national labour law through directly applicable treaty provisions, regulations, and directives. Important at the international level are the International Labour Organisation Convention and the European Social Charter. National legislation exists on both the federal and the state level. On most issues state legislation is allowed, as long as no federal statute exists, the applicable federal statute is not exhaustive or contains only framework provisions. In any case federal law has priority over state law.
Some laws are influenced by the goal to protect human dignity and the general right of personality. The employer is under a general obligation to provide working conditions compatible with human dignity. This excludes optical surveillance or the secret surveillance of internal phone calls. The Codetermination Law and the 2001 Works Council Constitution Act are influenced by human rights as well. The 2003 Federal Data Protection Act, which covers the collecting, processing and use of personal data by non-official agents, also belongs in this context.
Many provisions of labour law are intended to protect the health and safety of employees. Their goal is to improve safety and health protection in the workplace. Among them is the Industrial Code and the 1996 Labour Safety Act. Various state bank holiday laws and the 1994 Working Hours Act restrict working days and hours, whilst the 1963 Federal Holidays Law provides for remunerated holidays. The 2002 Law on Continued Remuneration guarantees continued payment of wages during employee illness and on bank holidays. Special protection is given to mothers by the 2002 Mother Protection Act and to youth workers by the 1976 Youth Working Protection Act. Under the 2004 Federal Educational Allowance Act educational allowances are granted to parents under certain circumstances.
Of particular interest in the field of employment is the principle of non-discrimination. According to the Federal Constitution employers are not allowed to discriminate between their employees for reasons of gender, origin, race, language, disability, or religious/political beliefs. The Civil Code also prohibits gender discrimination when an employment relationship is established.
The Constitution also guarantees the right to form trade unions. This includes the rights of citizens to form such a union, as well as the rights of a union to exist and to be active. Ancillary provisions protect the effectiveness of trade unions and unions of employers. For example, there are provisions that regulate industrial disputes (strikes, lockouts and economic boycotts), conciliation, as well as collective agreements. Clauses in employment contracts restricting competition or a secondary occupation can be unlawful in certain circumstances due to the Constitution’s right to choose an occupation.
Besides the federal and state ministries of Labour and Economy, trade supervision enforces many provisions by means of public administrative law. Trade unions and work councils are principal actors for self-governance, internal democracy and for the enforcement of employees’ rights. On the employer side, chambers and coalitions form a counterpart to trade unions. Labour law is enforced by specialised labour courts with a special composition.
10.Corporate responsibility towards the environment
Germany has ratified most of the important international treaties and conventions on the environment, such as the Basel Convention on Dangerous Waste, the UN Framework Convention on Climate Change, the Kyoto Protocol and the Montréal Protocol on Substances Leading to the Reduction of the Ozone Layer. Recently the government has taken the necessary steps to implement the Kyoto Protocol and the Directive 2003/87/EC regarding trade with emission certificates, by adopting the Act on Trade with Emission Certificates. Another recent measure is the Act on Ecological Tax Reform, which introduced a tax on electricity and raised the tax on oil with the objective to give incentives to reduce the consumption of energy. Under the Federal Constitution, the state has a responsibility to protect natural resources and animals. Although only a programmatic goal, the provision nevertheless highlights the importance of the environment. Fundamental rights in the Federal Constitution also give rise to protection duties of the nation as a whole. Several state constitutions contain even more far-reaching provisions on the protection of the environment.
For constitutional reasons, statutes concerning the protection of the environment exist both on the federal and the state level, whereby federal legislation has priority over state legislation. For some issues there is an exclusive competence at the federal level. For most issues there is a concurrent competence, which means that state legislation is possible as long as no federal statutes exist, federal statutes are not exhaustive or contain only framework provisions. EC directives, which are particularly important in this field, are implemented by the federal and/or the state legislation depending on the constitutional order of competence. Besides the general Federal Act on the Protection of Nature of 2002, there are substantive provisions concerning the protection of water (the 2002 Water Resource Management Law), air (the 2002 Federal Law on air pollution, noise, vibrations, etc) and soil (the 1998 Federal Law on the Protection of Soil). The requirements of the Directive 96/61/EC on the Integrated Pollution Prevention and Control have been implemented by amending the aforementioned statutes. Other statutes regulate the treatment of waste (the 1994 Recycling and Waste Law), the use of atomic energy (the 1985 Law on the peaceful use of Atomic Energy), genetic engineering (the 1993 Act on Gene Technology) and the use of chemical products (the 2002 Act on Chemicals). Some statutes require corporations to nominate an officer for the protection of the environment whose duties and competences generally include control, information and suggestions for improvements.
Under German criminal law there is no criminal liability for business enterprises as such, only for acting individuals or members of the board of directors. The Criminal Code penalises pollution by intent or negligence of water, land, and air, and prohibits certain activities concerning dangerous waste and radioactivity. Administrative law offences are contained in a number of environmental statutes as well. Under section 1004 of the Civil Code, neighbours have a right to claim the omission and the abatement of emissions and other nuisances. Emissions have to be tolerated if the requirements of section 906 of the Civil Code are met. Activities with environmental impact can entail liability for the polluter, with or without fault, on the basis of sections 823 and 1004 of the Civil Code, and according to the 1989 Product Liability Act and the 1990 Environment Liability Act.
In principle, statutes, including federal ones, are enforced by state authorities according to their own administrative procedure. They can make use of permit procedures that in some cases include an environmental impact assessment. Public authorities can also prohibit activities or impose restrictions on activities that are harmful to the environment. They can also require certain thresholds to be observed such as the best available technology. Voluntary measures include audits based on the 1995 Act on Environmental Audit and the new Eco-Management and Audit Scheme (EMAS-II) Regulation 761/2001/EC. Another instrument is the voluntary certification under ISO 9001 ff and ISO 14001 ff. Indirect measures include the granting of direct or indirect state aids for activities favourable to the environment, for example the 2000 Act on Renewable Energies, as well as duties such as the discharge of sewage into waters, the use of water, or the use of electricity. Emission certificate trading is supervised by the Federal Environment Agency. Criminal law is enforced by state authorities, particularly public prosecutors. Among relevant NGOs, Greenpeace and Friends of the Earth Germany (BUND) are the most famous ones. Econsense is a business initiative for sustainable development.
11.Corporate responsibility to communities
There are no relevant government measures in this field. Business enterprises take responsibility towards communities mainly by supporting political, social, cultural, scientific and other initiatives, in particular through charities or donations. One recent example is the donation of foodstuffs by supermarkets and restaurants to organisations for the homeless and poor.
12.Corporate responsibility for overseas activities
Germany adheres to the ‘soft law’ OECD Guidelines for Multinational Enterprises. Whilst observance of the guidelines is voluntary for businesses, the government is committed to promoting them and to making them influential among companies. The National Contact Point in Germany is the Federal Ministry of Economics and Labour. The National Contact Point works in close co-operation with the social partners. A Working Party on the OECD Guidelines, composed of representatives from other Federal ministries, business organisations, employee organisations and selected NGOs, meets regularly to discuss all guidelines-related issues. A particular active NGO in the field is Germanwatch, a development initiative with a focus on monitoring the compliance with, and the development of, the OECD Guidelines.
13.Procurement
To implement the relevant EC directives, the law on public procurement has been fundamentally changed by the Act on the Reform of the Public Procurement Law. Depending on whether the awarded contract exceeds certain thresholds, public procurement is regulated by sections 97-129 GWB of the Act Against Restraints of Competition, section 55 of the Federal Budgetary Regulation or the provisions of state budgetary regulations, respectively. The awarding procedure of sections 97-129 GWB corresponds to the requirements of EC law provisions. It is regulated in more detail in the Ordinance on the Award of Public Contracts, which refers to the German Procurement Regulations for Public Works, Public Supplies and Services and Freelance Services. Primary judicial review of the contract awarding procedure and the award itself is only available for competitors where the thresholds are exceeded and sections 97-129 GWB apply. Below the respective thresholds, competitors can only claim compensation for damages.
According to the Act Against Restraints of Competition, the contracting entity has to respect the principle of non-discrimination. However, social or environmental criteria unrelated to the award (other than competence, efficiency, and the reliability of the bidder) can be taken into consideration if they are admitted in a federal or state statute, although the compatibility of such criteria with EC law is in doubt. Existing criteria of this kind include assistance for the unemployed, promotion of industrial rehabilitation of handicapped persons, declaration of loyalty to collective wage agreements and the promotion of women. Another way to take social and environmental criteria into account is by using them to specify the work or service that is meant to be awarded.
Public procurement law requires authorities and other public entities to observe defined procedural and substantive rules. They are under an obligation to put contracts to tender, to involve several officials in decisions on awarding contracts, and to order an investigation where there is a suspicion of manipulation. Bidders can be excluded from participating in the competition for public contracts if there is evidence that they have committed serious misconduct that gives rise to doubt their trustworthiness. The Criminal Code penalises collusive tendering that restricts competition with imprisonment of up to five years or a fine.
Public procurement is not conducted by a central procurement office. Instead, the competence is decentralised and divided between federal, state and local authorities. The compliance with public procurement rules is supervised and enforced by specialised bodies (Vergabekammer) and by the Courts of Appeal. Different courts deal with the public procurement procedures of each state and of the federal government. A relevant NGO is the Association of Taxpayers (Bund der Steuerzahler) that is committed to the supervision of government expenditure in the interest of taxpayers. Throughout 2004 Germany’s public procurement rules shall be amended and fundamentally restructured, partly in order to implement substantially altered EC-Directives.
14.CSR reporting and socially responsible investing
Since January 2002, certified private pension schemes and some occupational pension schemes must inform members in writing, whether and in what form, ethical, social, or ecological aspects are taken into consideration when investing the paid-in contributions (under the Act on the Reform of Social Security Pension Insurance and Promotion of an Old Age Provision Fund). Ethical investment that takes into account human rights, environmental issues and corporate governance seems to become more important, but still plays a rather ancillary role in the German funds market.
The Company Law Code (Article 161) introduced the obligation of an annual compliance statement with the recommendations of the German Corporate Governance Code. The voluntary audit scheme includes reporting on environmental issues. As a general rule, German reports are strong in environmental information but less so on social reporting.
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