United Kingdom
Competition compliance: size doesn’t matter - Kevin Haywood Crouch
In December 2011, the Office of Fair Trading (OFT) published a study, based on a survey of company directors’ understanding of the impact of regulatory intervention and compliance with the UK’s competition laws. These laws deal with the market behaviour of companies and prohibit anti-competitive contacts and agreements between companies resulting in direct and indirect price fixing, market sharing, supply restrictions and bid rigging. They also prohibit businesses with significant market shares unfairly exploiting their strong market positions by imposing unfair trading terms including exclusionary tying and bundling, engaging in excessive, predatory or discriminatory pricing, and refusing to supply or provide access to essential facilities. All UK companies are subject to these rules.
The study focused on trying to understand both what drives businesses to comply with competition law and what deters them from acting anti-competitively.
The results of the survey identified that the key drivers of deterring anti-competitive behaviour were firstly the risk of reputational damage resulting from enforcement action, followed by the threat of criminal sanctions for individuals. This threat of criminal sanction came above the prospect of financial penalties for businesses (of up to 10 percent of worldwide turnover), meaning the threat to personal liberty was regarded as more of a deterrent than the threat to corporate financial interests.
Unsurprisingly, the study revealed that the most important driver of non-compliance was a lack of understanding about the competition law regime. Nearly half of the large companies surveyed (>200 employees) reported that they felt they were neither very knowledgeable, nor even fairly knowledgeable, about competition law, and for small companies (<200 employees) that figure rose to nearly two-thirds of those surveyed.
In addition, nearly 60 per cent of small companies and one-third of large companies reported that they had no competition compliance measures in place. This was primarily because of a lack of awareness about competition law. The study does concede, however, that the risk of excessive compliance costs might lead some companies to deal with compliance issues on a more ad-hoc basis, albeit that this was more likely to increase the risks associated with lack of knowledge of competition law.
Overall, this study forms part of the OFT's wider drive to engage with businesses to ensure that the benefits of strong competition are fully realised. In practice, this means both advocating wider compliance initiatives, but also educating businesses to recognise when they themselves may be the victim of anti-competitive behaviour, and how to respond in such a situation. Awareness of the issues rather than an abstract commitment to compliance is therefore key.
To be effective, competition compliance programmes need to be tailored to individual companies, and the OFT acknowledges this. Key risks arising from competition law often vary depending on the nature and size of a business. Identifying these key risks involves identifying factors within the business sector in which the company operates the characteristics of the particular product or service market involved, the frequency and level of interaction with competitors, and the specific responsibilities of employees which may put them at greater risk of infringement.
In this context, the OFT has also recently taken the opportunity to re-emphasise the importance of directors’ commitment to compliance programmes. Under Competition Disqualification Orders (CDOs), the OFT can apply for directors to be disqualified for up to 15 years, in addition to seeking possible imprisonment. The OFT has publicly stated that in the future it will apply for CDOs not only where a director was directly involved in a breach of the relevant competition rules, but also where a director 'ought to have known' about the breach. All directors now have a direct incentive to ensure that their company has an effective competition law compliance culture. The subtext is that the appointment of a compliance director responsible for competition compliance does not in itself absolve the other directors of their own responsibilities under competition law.
The OFT’s publication of this study, following hard on the heels of two previous guidance documents published in June 2011 appears to be a clear statement of intent. With the European Commission also recently publishing guidance, less regulatory tolerance is inevitable. In the current competitive economic situation the OFT has already seen an upturn in whistle-blowing reports from businesses requesting investigation of competitors’ behaviour. With the OFT publicly stating that it will be focusing its resources on high impact enforcement work ‘that delivers the maximum compliance with competition law’ during 2012, the level of investigative scrutiny is likely to increase, and a lack of awareness of a businesses’ obligations will not be a defence.
**As a postscript to the OFT’s trumpeted need for a commitment to compliance, on 15 March the Government published its proposals to create a new Competition and Markets Authority, updating the existing UK competition regime. One of the stated goals for the proposed changes is to achieve better deterrence for anti-competitive practices that impact both businesses and consumers. The aim is to achieve this with a more efficient throughput of cases and more fundamentally, by removing the ‘dishonesty’ element from the criminal cartel offence which the Government believes will improve the enforceability of the offence. This change, when it is implemented, will lower the bar to criminal prosecutions for cartel arrangements, in turn meaning that less blatant conduct that people may not even recognise as wrongful behaviour could give rise to such prosecutions. The consequence is that the need to understand what is and is not allowed from a competition law perspective will become even greater, meaning that in the not too distant future relevant training and compliance programmes will become even more important.
19 March 2012
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