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’. For example, 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.
Whilst it is agreed that self-commitments to non-statutory rules or standards of good conduct are an important component of self-regulation, it is widely unexplored how and to what extent they influence legal duties. As I discuss in a recent paper, the legal effects of self-commitments can be grouped according to a typology of binding mechanisms, including norms, contracts, charter provisions and public disclosures. Each type must be considered separately to duly capture possible legal effects of self commitments and their impact on self-regulation.
To illustrate the differences: First, some codes of conduct like the skiing rules published by the Fédération Internationale de Ski are seen by courts not to create normative effects, but merely to restate the duties under the law (restatement). Secondly, a self-commitment to align production to a specific technical standard like an ISO standard can be part 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 like the Association for Financial Analysis and Asset Management obliges adherence to the current state of best practice as set out by the charter until membership is withdrawn (dynamic duty).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 e.g. in corporate governance codes 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. Far reaching possibilities have been discussed with regard to how courts should protect the trust of third parties in such cases. In my view, the self commitment should be given effect towards third parties but one should not go as far as shifting the burden of proof for the breach of duty 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. A defendant who has committed herself to a code of conduct will hence be in breach of her duty if no sufficient steps to fulfil the expectations have been taken. This is nothing more than holding one to the given word, much in the sense of Sir William Blackstone’s metaphor of a shingle placed above the office door.
Patrick C. Leyens is Professor (hon.) of Law & Economics at the Erasmus University Rotterdam, Erasmus School of Law, Netherlands, and Guest Professor at the Humboldt University of Berlin, School of Law, Berlin, Germany.