A managing director was sentenced to pay damages for failing to monitor his employees. It follows from the judgment that compliance with the four-eyes principle is also important in negotiations. With the right negotiation concept, it can be implemented.
The reason for this article is the personal liability of a managing director (the D
The judgment of the Nuremberg Higher Regional Court (“OLG” for short) v. 30.03.2022 (Az. 12 U 1520/19) specifies the duties of the managing director of a GmbH with regard to the internal company organization in a generally applicable manner. In practice, the judgment is rightly judged to be groundbreaking. For example, the lawyers Prof. Dr. Leuering (Flick Gocke Schaumburg) and Dr. Daniel Rubner (Görg) aptly: “A groundbreaking decision by the Nuremberg Higher Regional Court, which is of great importance for all entrepreneurial companies!” (NJW Special 2022, 367).
The statements of the Higher Regional Court, which refer to the creation of compliance structures for monitoring employees and in particular to the “maintenance of the four-eyes principle for harmful activities” (Principle No. 3), are also groundbreaking for negotiations of all Projects that can be “harmful” to the company.
dr Hermann Rock is a lawyer in Munich and has been relying on the legal advice of M
Conversely, this means that a negotiation concept that does not meet the requirements of the Nuremberg Higher Regional Court in relation to the four-eyes principle can lead to unlimited personal liability on the part of the managing director.
This post outlines the following:
First: Managing directors must set up a compliance management system
It corresponds to the “due diligence of a prudent businessman” that the managing director acts “like an independent, fiduciary administrator of third-party assets” (paragraph 75 of the OLG decision). The managing director must set up a compliance management system (margin no. 19). A violation of this obligation already exists “if inadequate organization, instruction or control enables employees of the company to act improperly or even facilitates them” (margin no. 79). The managing director can of course delegate monitoring duties, but the overall supervision of the managing director remains a “non-transferrable core duty” (margin no. 82).
Secondly, the four-eyes principle must be applied to all potentially damaging projects
The Nuremberg Higher Regional Court literally explains the four-eyes principle: “The four-eyes principle (English two-man rule) is a preventive control in organizational theory, in which certain operational sections, work processes, work processes, tasks, decisions, Actions or processes may only be carried out by the same decisions made by at least two people. The aim of the four-eyes principle is to reduce the risk of errors and misuse. The four-eye control can be found across all industries in a large number of internal company work processes that are rated as critical. Processes are always critical if they can result in personal injury or significant financial consequences if they are not carried out properly” (margin no. 104, emphasis by the author).
The Higher Regional Court was also not impressed by the fact that the managing director had not found a suitable person to monitor: “If monitoring could not be delegated for this reason, the defendant (meaning the defendant managing director) would have had to carry out the necessary monitoring activities himself “ (paragraph 106).
Irrespective of whether a “process” (e.g. also a negotiation project) is “critical”, according to the above-cited guiding principle no. negotiating a project) is “harmful”. This “harmfulness” alone is the core criterion that determines whether the four-eyes principle must be introduced or not.
Third: Violation of the duty to monitor leads to personal liability
The Higher Regional Court finally determined in the specific case that the breach of the establishment of an effective compliance management system (here waiver of the four-eyes principle) for the managing director to personal liability in the amount of EUR 788,933.31 (margin no. 112). In para. 118, the Nuremberg Higher Regional Court found that the causality of the managing director’s breach of duty is obvious and adds: “If the four-eyes principle had been observed, the actions of employee H would have been noticed and prevented from the outset, which would not have been possible.”
The “action” here consisted in the fact that an employee tolerated the exceeding of credit limits by customers and for this purpose manipulated the software (undetected for a long time).
Fourth: The four-eyes principle as a standard in conducting negotiations
The decision of the Nuremberg Higher Regional Court has a direct impact on the proper organization of your negotiations.
Since the four-eyes principle applies to all “tasks, decisions, actions or processes” that are “harmful”, every managing director must first ask himself whether this project is “harmful” in relation to any project to be negotiated. If this is the case, he must introduce the four-eyes principle in relation to the negotiations, otherwise not.
In practice, however, the criterion “prone to damage” does not help the managing director very much.
For the managing director, it is currently (ex ante view) not foreseeable in which cases a court will later (ex post view) classify a project as “harmful”.
In particular, the managing director must assume that a court – after damage has actually occurred – assumes that the project was “prone to damage” from an ex ante point of view (i.e. before the damage occurred). This is the so-called “hindsight bias”, which is of great importance in the context of manager liability (cf. e.g. Risse, NJW 2018, 2848 ff.) and has a disadvantageous effect on managers in liability processes.
The diligent manager has only one choice when it comes to negotiations if he wants to minimize the risk of personal and unlimited liability: He must install and enforce the four-eyes principle in relation to all negotiations that are not obviously inconsequential.
The four-eyes-principle is thus becoming the new standard for the cautious managing director with regard to all negotiations that a company conducts or has conducted in relation to projects that are “prone to damage” in the broadest sense.
Fifth: How to install the four-eyes principle in your negotiations
If you, as a managing director, have come to the conclusion that a project to be negotiated can be “harmful” (or is not obviously trivial), you should install the four-eyes principle in order to avoid unlimited personal liability. This requires at least the following 3 steps (“minimum standard”):
Step #1: Set up a team (see e.g. How to negotiate properly: How to recognize a professional negotiator – FOCUS Online).
As the managing director, you are the ultimate decision-maker and do not negotiate yourself (an important rule for professionals: “the boss does not negotiate”). First you decide who you need for your project team.
In any case, you need a negotiator, i.e. someone who has mastered the best practice of negotiating. This is often a manager of the company (e.g. project manager).
Step #2: Determine your positions for the negotiation
Determine all (contractual) positions that you really want to enforce in the project, i.e. your “target positions”. Then optimize these target positions in order to create room for negotiation. With these optimized target positions (“start positions”), the negotiator (e.g. project manager) literally starts.
Step #3: Give your negotiator a specific mandate
Now, as managing director, you give your project manager the task of conducting the negotiations professionally, i.e. your task is short and precise: “Learn”, “Bargain”, “Report Back”.
The negotiator should therefore understand what the other side wants (learn), assert your positions (bargain) and report back to you in detail after the negotiation (report back).
Due to the reporting, you can control the negotiator – in fulfillment of your monitoring duties according to the four-eyes principle – and prevent the negotiator from communicating positions or decisions that are not in the interest of the company. After analyzing the reporting, you will issue a new order to the negotiator regarding the positions to be communicated at the negotiating table.
Exactly this interaction (requesting reporting and issuing a new order) guarantees you the enforcement of the four-eyes principle, an important element of compliance.
So you prevent decisions being announced at the negotiating table that you have not expressly approved.
This interaction continues until you, as the decision maker, give the order to agree on a specific negotiation package or to break off the negotiations.
If you then sign the contract as a result, you can check again whether the content of the contract corresponds to your specifications.
Depending on the size of the company, you can of course delegate the implementation of the four-eyes principle, but then you have to monitor the “supervisor”.
In any case, you should document the respective orders or the reporting (e.g. by e-mails).
Sixth: minimum standard versus driver seat concept
The aforementioned 3 steps (Learn, Bargain, Report Back) only represent the minimum standard.
If you structure your negotiations anyway, it makes sense not just to install the minimum standard, but to implement best practice.
If you follow best practice, the managing director not only carries out 3 tasks (team, positions, assignment), but 7 tasks, which are abbreviated to TOP LADY in the driver seat concept (which describes best practice): team, options , Positions, Learn, Adapt, Discuss, Your Instruction. See the following post for details.
