Pan-Pacific Conference XXXIV. Designing New Business Models in Developing Economies

esponsibility. It is sufficient to carry out its overall
management, if the Board of Directors gives the
necessary instructions and adequately supervise the
execution [10].
In practice, the Board of Directors delegates
financial responsibility to the Executive Board and uses
its preparatory and executive assistance. The annual
report, consisting of the management report and the
financial statements (Art. 958 para. 2 CO), is not drawn
up by the Board of Directors itself, but drafted and edited
by the Executive Board with the help of auxiliary staff
[15]. The management report is often prepared by the
Chairman of the Board of Directors in collaboration with
members of the Executive Board or a delegate. The Chief
Financial Officer and his team or a delegate prepare the
financial statements. The responsibility remains,
however, with the Board of Directors [11]. For this
purpose, the Board of Directors shall check whether the
financial reporting is correct (Art. 958 para. 1, Art. 958c
CO) [12].
If the finance function is assigned to one
member of the Executive Board, which should be the
case on a regular basis, this person is responsible for
financial reporting and shall sign the annual report
together with the Chairman of the Board of Directors
(Art. 958 para 3 CO).
If the Board of Directors has delegated the
performance of a task (eg. financial responsibility or
annual report) to another body, such as the Executive
Board, it shall be liable for the damage caused by the
latter, provided that it does not prove that it has exercised
due diligence in selecting, instructing and supervising as
required by the circumstances (Art. 754 para. 2 CO). As
a result of the delegation of tasks to persons who are
subordinated to the Board of Directors, these persons
shall become a body of the company [13]. The liability of
the Board of Directors is limited to due diligence in
selecting, instructing and supervising. However, this
shall apply only insofar as no non-transferable task of the
Board of Directors pursuant to Art. 716a CO exists.
Auxiliary tasks, which do not require a formal
organization through a corporate body, ie. preparatory
and executing tasks, may be delegated without a formal
basis. In this case as well, the liability of the Board of
Directors is limited to due diligence in selecting,
instructing and supervising the persons entrusted [14].
In summary, the Board of Directors is initially
responsible for financial reporting by virtue of law. He
can transfer responsibility by delegating tasks. The
Board's liability with regard to organizing the accounting
system remains unchanged, since organizing the
accounting system is one of the non-transferable tasks of
the Board of Directors (Art. 716a para. 1 no. 3 CO).
Beside the liability for selecting, instructing and
supervising, there is a further individual liability of the
Board members.
DOCUMENTING RESPONSIBILITY
DIRECTIVES OF THE BOARD OF DIRECTORS
Beside to the legal requirements and the
possibilities to delegate, responsibilities may also arise
from directives issued by the Board of Directors within
the meaning of Art. 716a para. 1 no. 1 CO. This includes
both, regulatory arrangements in a generally abstract
manner (eg. organizational regulations (By-Laws),
business regulations, duties for specific activities and
employees) as well as in an individual-concrete manner
(eg, logged board resolution). In addition to such written
instructions, oral instructions are also imaginable [15].
By-laws or resolution of the board of directors
If the Board of Directors has delegated
executive management competences, the assignment of
competencies between the Board of Directors and the
Executive Board shall be defined in the By-Laws. The
By-Laws organize the executive management, determine
the required positions, describe the tasks and particularly
regulate the reporting (Art. 716b CO). The purpose of the
By-Laws is to implement and supplement requirements
from laws, regulations and statutes in the company. It
also defines functions, responsibilities and powers of the
corporate bodies and their members. Consequently, the
responsibilities to manage business and financial affairs,
including financial reporting, shall be clearly defined in
the By-Laws.
The By-Laws can be supplemented and
concretized by means of specification sheets,
organizational charts, functional diagrams, job
descriptions, etc. They may be an integral part of the By-
Laws, but they may also be enacted separately [16].
Whoever is responsible for the financial
reporting within the company is typically determined by
the By-Laws [17] or can be derived from them. For the
sake of clarity, it appears to be advantageous to define
the responsibility in the By-Laws [18].
But what is the atypical case, if there are no
By-Laws or they are in fact not applied, outdated or not
lived? In such cases, it must be possible to prove the
delegated functions, responsibilities and powers by
means of other evidence, such as governance rules,
function and job descriptions, meeting minutes, internal
communications, business correspondence or witness
statements [19].
Governance rules
Often, large corporations have governance
rules in place in addition to By-Laws. They are usually
prepared by the Executive Board or business divisions,
and put into effect by approval of the Executive Board.
They serve to organize the business activities of the
respective business division below the Executive Board.
They regulate the responsibilities and powers which are
not regulated by the articles of incorporation or By-Laws
[20].
Function and job describtions
In addition to the By-Laws and/or governance
rules, it is possible to use function or job descriptions
alternatively to answer the responsibility question.
However, there may be cases where function or job
descriptions are only a paper tiger or outdated, which are
not adhered and not lived. Legal appearance and legal
reality differ in these cases, too. In my opinion, actual
design and actual practice of the functions has to be taken
into account in order to derive responsibility.
In summary, it can be stated that, if the responsibility for
financial reporting has been formally determined, but if it
is not lived, the formally responsible person is a
marionette, because it does not actually have the power
to decide. The document which governs responsibility is
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