Compliance In France And The United States: A Combination Of Corporate And Social Responsibility

Author:Ms Noëlle Lenoir, Alan R. Friedman, Hélène Bérion and Daniel Lennard
Profession:Kramer Levin Naftalis & Frankel LLP

In the past, French law neither mandated nor provided any material incentives for companies to embrace compliance, corporate and social challenges. But things are dramatically changing in Europe, and more specifically in France, so that there are growing similarities between French and American law in this respect.

This fall, the French Parliament inserted a provision into the French Civil Code whereby each company's corporate interest takes account of not only the shareholders' interest but also the company's social and environmental responsibility.1 Based on an EU Directive,2 French law since 2017 has obliged the country's largest companies to disclose nonfinancial information (regarding social, environmental, human rights and anticorruption issues) in their annual reports.3 Last but not least, the enactment of two important recent laws has triggered a radical change in the French compliance landscape.

First, the Sapin II Law,4 similar to the U.S. Foreign Corrupt Practices Act (FCPA), obliges companies to implement an "anticorruption program."5 This law brings the French legal framework in line with international standards and expectations in the area, drawing upon the U.S. and UK anticorruption and sanctions regimes.6 If anticorruption laws in other EU member states do not specifically oblige companies to adopt a compliance program, however, these member states recognize that such programs can be used as an instrument to mitigate or inhibit liability.7

Second, the Duty of Vigilance Law8 provides that the parent and other companies have an obligation to adopt and publish a "vigilance plan" in order to prevent infringements of human rights, fundamental freedoms, and harm to health or the environment. It is the first law that imposes specific due diligence obligations on businesses regarding human rights. The law comes against a background of disasters like the Rana Plaza collapse, the Bhopal gas tragedy and the sinking of the Erika. To date, certain existing European9 and national-level10 initiatives only require companies to report on their efforts to preserve human rights risks. Switzerland, however, is expected to adopt legislation that is similar to French law this winter.11

  1. Scope of application

    The Duty of Vigilance Law applies to companies whose parent is incorporated under French law12 and that employ, for a period of two consecutive financial years, at least 5,000 employees, including employees of French subsidiaries, or at least 10,000 employees (taking into account those of both French and foreign subsidiaries).13 It is more limited in scope than the Sapin II Law, which applies to entities with at least 500 employees in France, with a yearly turnover of over €100 million.14

    Nevertheless, subsidiaries or controlled companies that exceed the thresholds set out by the Duty of Vigilance Law are deemed to satisfy the vigilance duties when the vigilance plan of the company that controls them has been established for the whole group.15 In the same vein, the French Sapin II Law provides that subsidiaries or controlled companies that exceed the thresholds prescribed by the law are deemed to comply with their anticorruption obligations, provided that the company which controls them implements these measures and procedures at the group level.16

  2. Vigilance and anticorruption duties and obligations

    Companies falling within the scope of both laws shall implement effective vigilance and anticorruption compliance plans built on a common model and methodology.

    It might be difficult to determine the most suitable individuals inside a company to develop a vigilance plan. A company may already employ individuals in charge of the areas covered by the law (human rights, health and safety, and the environment) and may already have processes in place.17 Many companies have created interdepartmental working groups, comprising legal, compliance, risks, audit or internal controls personnel,18 to develop a vigilance plan.19 Implementing an anticorruption compliance program generally falls within the mission of the entities' legal/compliance departments. Their major challenge might be to ensure a common understanding of the plan's objectives and allocation of resources while implementing the five measures that must be included in the vigilance plan:

    A risk mapping Procedures to assess, in accordance with the risk mapping, the status of subsidiaries, subcontractors or suppliers with whom the company maintains "established...

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