Self-commitments and the Binding Force of Self-regulation with Respect to Third Parties in Germany
Around 200 years ago Sir William Blackstone, the great commentator of English common law, used the metaphor of a shingle to describe the effects of self-commitments. Professionals who place a shingle above their office door to attract customers must be ready to fulfil the expectations that are commonly evoked in those who take notice of the shingle.
Today, self-commitments to non-statutory codes of good conduct are increasingly embedded in the law through use of the regulatory technique of ‘comply or explain’. Within the European Union listed corporations are obliged to annually state their compliance with a corporate governance code or to explain their non-compliance. This regulatory technique has recently been expanded from the area of corporate governance into corporate social responsibility, and it also attaches to professional market participants like institutional investors, asset managers, and proxy advisors.
The legal effects of self-commitments can be grouped according to a typology of mechanisms, these including norms, contracts, charter provisions and public disclosures: Firstly, codes of conduct to that self-commitment often refer to do not create normative effects, but they might restate applicable law or customary law (restatement). Secondly, a self commitment can be a component of a contractual agreement, but that does not lead to an evolving set of duties unless agreed at the time of making the agreement (static duty). Thirdly, a self-commitment to a charter of a business association obliges adherence to the current state of best practice as set out by the charter until membership is withdrawn (dynamic duty). Fourthly, disclosure of future compliance to a set of non-statutory rules or standards is binding until publication of a statement of future non-compliance (revocable commitment).
What does this mean for professional liability? A contract to which the self-commitment is tied will often preclude rights of third parties, but preclusions might be subject to judicial review if securing a third party’s trust is the essential purpose of the contract. For self-commitments to be viable, courts should not shift the burden of proof to the defendant. Instead, the defendant should be obliged to provide plausible information on the steps she has taken to comply with the self-commitment. This is nothing more than holding one to the given word, much in the sense of Sir William Blackstone’ metaphor of a shingle placed above the office door.