Legal obligation of care

The board and management of a company (the executive bodies) have a legal and moral obligation to organise and control the company in such a way that violation of the law is avoided. If the accountable executive body violates this obligation, they and the staff who directly caused the damage are potentially personally liable (the so-called 'organisational fault'). The only way to minimise personal liability, other than taking out directors and officers insurance, is to have a legally-compliant organisation of a company, including proper documentation.

To meet court standards, the management must be able to provide unquestionable proof that the governing bodies have taken all necessary and appropriate measures to prevent violations of the law, and that the infringement is therefore not their fault. Proof is particularly powerful if there is written documentation of the operational structure of the company. Arguments against written documentation such as lack of time, too much effort or cost are neither valid nor accepted. Legally speaking, the obligation to document cannot be waived even in negative cost-benefit analysis. An essential part of any ISO quality management is that the responsibilities and decision-making powers of employees are clearly defined.

The legal entity structure of many companies is increasingly complex. Globalisation leads to interdependent groups that operate across borders, as well as various national laws. These corporate structures are generally aligned to optimise costs such as tax and administrative expenses, or business activities such as sales optimisation. At the same time the legal entity structure is a decisive factor in the extent of liability risks that exist for the company itself, as well as its management and senior staff. The right corporate structure can and must make a significant contribution to minimising risk for individual executives and the company.