Several CSR frameworks as well as reporting laws, such as the recently adopted Non-financial Reporting Directive (Directive 2014/95/EU), either presuppose or at least encourage that groups of companies should have a group policy. These instruments support the implementation of such policies throughout the group. They are essentially recommending increased monitoring within the group by the parent company in order to ensure that parent companies, usually located in countries with higher environmental and social standards, are also driving compliance with the policies in the subsidiaries in jurisdictions with less developed legal systems.

In our paper entitled "Pursuing CSR Policy in Groups of Undertakings – Insights from the Practices of Danish Groups" we analyse the problems and implications associated with implementing and reporting such group CSR policies. From a theoretical point of view it is possible to point out several issues. Firstly, the information needed for preparing consolidated reports and ensuring that CSR group policies are implemented may not be readily available, and it may be problematic to collect them from the subsidiaries. Secondly, implementing a group policy suggests that the parent company should exercise control over its subsidiary. Given that subsidiaries are subject to the company law of different jurisdictions, exercising control may prove to be difficult. Even if it proves successful, it may trigger unwanted consequences, one of the most significant being that the parent company becomes liable for the violations of the group policies inflicted by the subsidiaries.

Next we examine to what extent Danish listed groups of companies adopted and implemented group CSR policies. We conduct this research by analysing consolidated management reports, consolidated non-financial reports, and group CSR policies. We have chosen Danish groups for the analysis, because the Danish mandatory CSR reporting requirement, very similar in structure and requirements to the Non-financial Reporting Directive, has been in effect in Denmark for a long time.

We examined in detail 42 groups of companies that all claimed to have some kind of group policies. A large majority – 32 out of 42 – had formulated codes of conduct or similar codes that regulate how the companies within the group should behave. 

The Danish reporting rules, among other things, require listed companies to report on “…how the business translates its CSR policies into action, including any systems or procedures used” (see the Danish Financial Statement Act § 99a(2)(2). For an explanation of the Danish legislation in English see here). As a result, most groups report on some kind of compliance mechanism.

One way of ensuring compliance with a group CSR policy is to introduce a review mechanism that examines on a regular basis whether the individual companies in the group comply with the CSR policy. Such examinations can be termed reviews, assessments, audits or due diligence. Our examination shows that 16 out of the 42 groups conduct some kind of review. The ways these reviews are undertaken differ considerably, but in some cases they involve on-site reviews.

While whistleblowing is not the most direct way to implement group policies, it may help to enforce group policies. Through a centralized whistleblowing system the parent company supervises the whole group based on information from employees and others affiliated with the subsidiaries and may thus circumvent the subsidiaries’ boards. We found that 35 out of 42 groups had some kind of group-based whistleblowing arrangement. Again, how they operate differs; whether they use external parties or are setting up internal specialised bodies to handle complaints, who can make a complaint etc.  

Thus, there is evidence that Danish groups do adopt group CSR policies and often take steps to implement them. The problems we foresaw are most often not addressed or even evident from the reports we studied. In most cases, the difficulties of accessing information in the subsidiaries for the management report and CSR report are not even mentioned. Mostly, the problem with exercising control over the subsidiary is not acknowledged either. It is clearly assumed that the CSR policy formulated by the parent can be imposed on the subsidiary. Only in one case did the subsidiaries’ board of directors need to confirm that the policy applied to them. The unwanted consequences we foresaw are not addressed, and only in a few cases do the groups seem to take preventive measures against such consequences.

Karsten Engsig Sørensen  is a Professor and Dániel Gergely Szabó  is a post-doctoral research fellow, both at the Department of Law, Aarhus University



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