entities into economic units. They are more concerned about the bilateral relationship between two affiliated entities( and the direct benefits and burdens they exchange) rather than taking a more holistic view at the group. Whilst they have elaborate rules for addressing that some entities may be steered by others, they unrealistically assume that such control is exercised by way of“ instructions” issued from the controlling entities and addressed to the governing bodies of the controlled entities.
Most legal systems assume that the management body of every entity is in charge of and knowledgeable about the actions performed by that entity. In practice however, these bodies are often filled with members, without much consideration for their knowledge of the relevant business and jurisdiction. The knowledge and organizational authority of these directors does not overlap with the extent of their legal responsibility. Generally, legal systems do not perceive and address the solid reporting lines established at the middle and upper management levels of groups whose businesses and support functions are organized across international borders a multitude of entities. In consequence they do not provide for any legal solution for this divergence between the organizational and legal responsibilities for an action.
Role and efficiency of compliance policies in groups The main instrument for enforcing legal compliance in any organization is the setting of specific rules. These
so-called compliance policies are instructions by a legal entity to the natural persons fulfilling functions within and / or on acting on behalf of it to do or restrain from doing certain actions. In many countries, compliance policies are an“ imported good”, i. e. they are localized texts built on original texts drafted for different countries. In the“ receiving” countries, the awareness of the consequences of breaches will often be lower when compared to the more sophisticated markets of the“ headquarters”. As a result, the employees of the subsidiary may be less prone to comply with them. Also, the subsidiary will find it difficult to diverge from practices established in its local market( suppliers, customers, regulators, courts, just to name a few). And these efforts will likely result in some business being lost to competitors, that may be acting without these restrictions. The leaders of businesses may prioritize the short-term achievement of financial goals, whereas the remuneration systems typically rewards achieving results, and not so much the proper observance of compliance policies.
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