The business impact of falling foul of competition regulation is immense.
Under the Competition Act, businesses may be fined up to 10% of global group
turnover. Sometimes, damage to a company’s reputation is the biggest hit of all,
not to mention the increasing threat of private damages actions from parties who
may have lost out through the anticompetitive behaviour. Not only can companies
be held liable, but individuals can be jailed for the worst types of cartel
behaviour, disqualified from acting as directors and stripped of their assets.
And in times of instability, businesses under pressure may feel tempted to
bolster their position by sharing information or co-operating with competitors,
perhaps under the assumption regulators will take a more relaxed view in the
circumstances. However, the UK regulator, the Office of Fair Trading (OFT), has
shown no signs of letting up, continuing its strategy of identifying companies
and industry sectors in breach of the competition rules.
It is in the best interests of any company to ensure compliance with
competition law across the board, from top-level management to representatives
in the field. It is crucial that management realises collusion does not always
begin with illicit meetings between board members in smoke-filled rooms. It may
be those with customer facing roles who risk breaching the law, through what
they may see as innocuous practices. For example, a salesperson chatting
informally to a competing company about confidential business matters could be
regarded as collusion.
Managers cannot be everywhere at once to ensure an inadvertent breach does
not result in a competition investigation. It is also often impractical to
impose a blanket ban on employees contacting competitors, as they may also be
customers or suppliers. So, how can a company be confident employees are aware
of their responsibilities and what steps should they take to prevent a breach?
The most effective method adopted by most companies is to implement a formal
compliance strategy, comprised of three key components: awareness, process and
consequence. Without such a policy, compliance is essentially being left to
chance, which is clearly no way to manage risk.
Although the worst competition infringements such as price fixing or market
sharing are recognised as problematic across the board, many employees are
unaware of where the line between compliance and collusion is. Therefore, an
important part of enforcing compliance is to ensure all relevant staff are clear
about what they should and should not be doing. It is crucial employees realise
ignorance of the law is no excuse for breaking it. This is as relevant to junior
staff on the office floor as it is to the executives in the boardroom.
There should also be an ongoing process of regular updates and checks, to
ensure potentially infringing behaviour does not creep in, as well as clear
steps to deal with the situation, should an infringement occur.
Often, a “hotline” to the company compliance officer is introduced, together
with a yearly training update and sign-off process, requiring staff to think
about and confirm that they have complied over the last year and will continue
to do so over the forthcoming year. This gives the company a helpful audit trail
and, importantly, a means of disciplining staff if, despite the company’s best
efforts, they do break the law. An online compliance system is ideal for this,
providing both a clear view of any areas where staff have, perhaps, not quite
got the message and a readily accessible audit trail.
A policy with no backbone is unlikely to be effective. Compliance should
never simply be a box-ticking exercise, introduced as a reaction to concerning
headlines. If potentially anti-competitive behaviour is uncovered, the worst
thing an organisation can do is try to sweep it under the carpet. Any suspected
infringement must be investigated in more detail, advisers should be consulted
and a damage limitation plan put into action.
It may be possible to apply for what is called ‘leniency’ to the competition
authorities, to obtain immunity from fines in exchange for information on the
infringing behaviour and the other companies involved. It pays to bring any
skeletons out of the cupboard as early as possible, however, as only the first
to come forward can be granted full immunity.
In this difficult economic climate, spending scarce resources on risk
management may appear to be a luxury. But the cost and time involved in
implementation pale into insignificance compared with the consequences of
Introducing a solid competition compliance policy need not be a cumbersome
process and, by doing so, a company can effectively manage the risk.
Catriona Munro is a partner in the EU and regulatory team at Maclay
Murray & Spens LLP
A FINE MESS
The levels of fines are increasing for those falling foul of competition
rules, with a record £121.5m imposed by the OFT on British Airways and £116m on
supermarkets and dairy producers. In a recent speech, John Fingleton, chief
executive of the Office of Fair Trading, emphasized the importance of
maintaining strict competition regulation as a means of helping to deal with the
current economic climate. Learning the lessons of history, he noted that, in
1933, the Roosevelt administration is argued to have prolonged the Great
Depression by suspending the operation of the US competition rules.
He added: “The priority for competition agencies should be to continue to
demonstrate the benefits of the [competition] framework, and to do so
consistently internationally so that our economies are poised to grow on the
back of strong competition and open markets.”
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