New UK Corporate Manslaughter Law heightens duties of directors of UK companies

August 31, 2007

US companies with foreign subsidiaries should not assume that director appointments are just technical exercises without practical impact.  The role of a director of a subsidiary is more than simply signing annual minutes to appoint foreign officers.  Standards for director conduct vary around the world.  A recent change to UK law sharpens this point. 

On July 27, 2007, the Queen assented to the Labor Government’s fulfillment of a Tony Blair promise of ten years ago – to create a criminal offense (“offence” in English English) of Corporate Manslaughter.  The idea is to permit a corporation to be held criminally responsible when the company causes the death of a person (an employee, consumer, contractor, others).  This can happen if the organization (a) had a duty to the deceased; (b) there was a gross breach of this duty; and (c) the death occurred “wholly or substantially” because of how the company’s activities were managed or organized by senior management. 

“Senior management” means those persons who “play significant roles in decision-making with the business” beyond those who actually manage activities.  “Clearly, this will include all Board members of companies,” according to the August 2007 Commerce Bulletin of Martineau Johnson, one of England’s premier law firms. 

Take, for example, a death caused by an employee’s drunk driving after a company picnic.  The Crown could argue that by allowing such activity, with no policy against supplying alcohol at company functions, senior management substantially caused the death.  If convicted, a business is subject to unlimited fines and remedial orders that would be both publicly humiliating and costly. Individuals are not open to criminal liability for aiding and abetting or otherwise procuring the company violation.  Nonetheless, a US director of a UK entity would be an obvious witness at trial.  If the director could not show that he or she gave any real attention to health/safety policies at the UK company, this could be grounds for finding a “gross breach” of the duty of care owed by senior management.

There are obvious implications for US directors of UK entities.  They should recognize that the Corporate Manslaughter law heightens their obligation to set policies that promote health and safety connected with the business, and should put in place monitoring mechanisms to gauge whether in-country managers are implementing adopted policies.  Various measures, such as a health/safety ombudsman, internal whistle-blower hot-lines, awareness campaigns and other techniques, can be adopted by directors to evidence their proactive concern about minimizing personal risks raised by company activities.  Even though director criminal liability under the new act is not available, a criminal conviction of the enterprise might be used against a director in a wrongful death suit, so that Director and Officer insurance policies should be reviewed to ensure adequate financial protection for US directors who serve on foreign boards. 

Foreign director responsibilities are not simply to sign annual actions appointing others to run things in-country.  In Germany, for example, a director can become personally responsible to creditors of an insolvent entity if the director contributed to letting the business slide into bankruptcy.   Awareness of the differing standards that apply to foreign corporate directorships can prevent embarrassing and costly incidents.  At a minimum, multinational companies should educate their appointed directors on what a position entails in a foreign jurisdiction. 

Joe Dehner chairs the firm’s International Services Group and is an Executive Council Member of MULTILAW, one of the world’s leading international law firm networks.  Frost Brown Todd and MULTILAW firms stand ready to work with businesses to understand and meet varying global standards of corporate governance.

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