February 09, 2021 - Since 2016, Daimler has significantly enhanced its technical Compliance Management System (tCMS) in order to preemptively meet the legal risks in product creation. In doing so, the company addresses future issues, for example, data security within the vehicle or requirements that arise when vehicles that drive autonomously cross national borders. At the end of 2020, a reputable audit firm completed its successful review of the tCMS, focusing on emissions. Renata Jungo Brüngger, Member of the Board of Management of Daimler AG and Mercedes-Benz AG responsible for Integrity and Legal Affairs, and Markus Schäfer, Member of the Board of Management of Daimler AG and Mercedes-Benz AG; responsible for Daimler Group Research and Mercedes-Benz Cars COO, recently discussed many of the developments in technical compliance and the challenges for the future.
In the summer of 2020, Daimler reached a civil settlement with US regulatory authorities in connection with diesel emissions issues. As part of the settlement, the company had to commit to enhance its technical Compliance Management System. On the other hand, the settlement does not impose an external compliance monitor. How well does the current system protect the company from future legal issues in this area?
Markus Schäfer: Over the past few years, we have done a lot with our tCMS and are well positioned in the product creation phase. However, the development of technical innovations will always entail risk – including legal risks. Therefore, we have to continuously enhance and further develop our tCMS. Of course, in doing so, we will also carefully implement the measures agreed to with the US authorities.
Renata Jungo Brüngger: As part of our efforts, we will also be supported by an external compliance consultant who will advise the Legal Affairs Committee of the Supervisory Board of Daimler AG. Moreover, we asked an independent audit firm in 2019 to review our tCMS, with a focus on emissions. At the end of 2020, the review was successfully completed. This demonstrates that the existing system is already effective in this area. However, it is important not to slow down, and to constantly review and adjust the tCMS in parallel with technological and legal developments.
What exactly does it mean when an audit firm reviews such a system?
Renata Jungo Brüngger: The central issues of the review were: Has our tCMS been properly set up, have we fully implemented the elements of the system in the organization, and is it embedded effectively? To answer these questions, the auditors reviewed numerous documents and talked to representatives of the compliance organization. The auditors also conducted expert interviews with many department heads of the development and certification departments. Based on spot checks throughout the process, the question as to whether the tCMS processes are known and used by the relevant personnel was also examined. We of course also use these findings from the review in further enhancing our tCMS.
How much of an impact has the diesel scandal had on enhancing technical compliance?
Renata Jungo Brüngger: The diesel scandal has obviously made the entire industry realize how important the topic is. However, at Daimler, we already had in place processes and structures for product compliance. tCMS is a major enhancement of those existing processes. When developing the tCMS, we adopted many elements from the existing systems, in classic compliance areas such as anti-corruption, antitrust or anti-money laundering and adjusted them to address the specific risks of product creation.
Markus Schäfer: The tCMS not only addresses issues of emission regulation, but also the development of all relevant future technologies. The legal risks in this area will likely increase. For example, just think about autonomous driving or e-mobility. There are still a lot of uncertainties from a regulatory perspective in these areas.
Why does one need a specific compliance system for product development? Aren’t the classic compliance systems sufficient for this?
Renata Jungo Brüngger: For us, putting vehicles on the road globally without any legal violations is paramount. Actually, this should go without saying. However, our researchers and developers work in an environment in which not only the technology, but also the regulatory framework, gets more complex each day. First, regulatory provisions are formulated abstractly because the requirements must apply to a large number of cases. For example, what does the phrase ”normal vehicle operation and use“ mean? This type of language leaves room for interpretation. Second, technology often runs ahead of legislation. While engineers are already working on a new technology, the legislature has in many cases not yet defined any requirements. And third, the regulatory requirements are continually increasing. Every day, we are confronted with 200 new laws globally, including numerous technical regulations. One can only meet these challenges with an effective compliance system for legal risks in the product creation phase.
Markus Schäfer: Legislative texts are often hard to understand for engineers – just like the technical aspects are hard to understand for lawyers and compliance managers. Without the support from other experts, it is almost impossible for any one individual to stay on top of things. In these situations, we have to protect the company from making the wrong decisions. Therefore, technology and law have to go hand in hand from the beginning. With the tCMS, we provide an approach which supports our developers when it comes to resolving complex legal frameworks and difficult questions of interpretation. The message is: We do not leave our engineers alone with difficult decisions.
How does the technical Compliance Management System work exactly?
Markus Schäfer: Above all, we rely on two things: systematic advice and continuous exchange of know-how. When providing advice, the cross-functional approach which I just described is central: From the beginning, our engineers work closely together with legal, certification and other experts. Because only jointly can open issues be assessed from different perspectives at an early stage and ideally clarified in the first instance at the working level. In the event issues remain open, a clearing process will provide assistance: in this instance difficult questions of interpretation regarding technical regulations will be decided by interdisciplinary committees. Moreover, we are constantly engaging with our colleagues via training sessions and dialog events and regularly provide information on technical compliance, particularly on our points of contact and current legal requirements.
Can you give an example of an issue with which the teams engage?
Renata Jungo Brüngger: Some of the current issues relate to, for example, autonomous driving. Think about the traffic sign showing a jumping deer that cautions against a possible deer crossing. This warning sign signals for drivers to be particularly alert, watch the shoulder of the road and, if necessary, reduce speed. But how can you program this vague requirement in a vehicle that drives autonomously? What are the measures necessary to reflect the increased alert in the system? And how long will the traffic sign apply if no distance is provided? These types of questions have not yet been answered by any law. Nevertheless, they already have to be considered and programmed during the development of autonomous vehicles.
How important is the cultural aspect when it comes to the tCMS?
Renata Jungo Brüngger: It is very important. A mindset which makes responsibility and integrity the foundation of any action is essential for the success of our tCMS. This also applies to the work on new technologies. It is not the objective of the tCMS to guide our colleagues in each and every of their individual decisions. It is much more important to appeal to their own sense of responsibility, so they seek support when they encounter a challenging or ambiguous situation.
Markus Schäfer: Two aspects are especially essential here: A vivid “speak-up” culture and judgement calls. ”Speak Up“ means: Our colleagues should openly address uncertainties, critical decision-making situations and mistakes and engage in uncomfortable discussions. At the same time, we support our employees in making their decisions consciously and with the best judgement – particularly regarding questions for which there is no clear regulatory answer. Everyone in the company is asked to carry out the principles of our culture of integrity and to live them out of a shared conviction, especially in the area of technology. This is our common responsibility.
Where do you see the challenges in the medium term for product development when it comes to technical compliance?
Markus Schäfer: If you look at the areas of development in the industry, the topics of electrification, automated driving and vehicle software are also certainly playing a key role when it comes to the tCMS. We will continue to deal with these topics extensively in the future.
Renata Jungo Brüngger: In doing so, we do not only deal with technical compliance within our company. We also want to continue to exchange ideas with our business partners and suppliers and develop a common understanding. Because we can only master the industry-wide challenges together.