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10 листопада 2014

Competition Law Compliance on Corporate Governance Agenda

Автор: Сергій Глущенко
Джерело: The Ukrainian Journal of Business Law. – 2014. – листопад. – с.18-20

Статтю можна прочитати нижче мовою оригіналу.

Competition Law Compliance on Corporate Governance Agenda

Competition law and corporate governance are two relatively separate bodies of law. The former concerns companies' external conduct in the market and prohibits certain anti-competitive actions. In contrast, the latter primarily concerns internal relationship between officers, directors and shareholders. What links them both is corporate compliance, a tool to equally address risks associated with costly managerial mistakes and welfare-reducing behaviour. Ever-increasing fines imposed by competition agencies across the globe have lifted competition law to the top of corporate compliance agenda. Along with other legal areas (e.g., anti-bribery and corruption, data privacy, security and financial fraud, health security and safety, etc.), competition law and competition compliance programmes (CCPs) are among the main elements of business risk management.

In response to this growing demand on CCPs, mixed messages have been sent by competition agencies around the world. Some1 promote them by offering fine reductions for violators, whose efforts failed to prevent infringement. Others2 treat CCPs as a neutral factor considering them as neither attenuating nor aggravating circumstance. Despite some lack of consensus, competition agencies mutually encourage companies to put in place diligent, effective and robust CCPs. Certain agencies3 issued valuable guidelines on how companies can build a genuine CCP. These publications suggest similar approach drawing inspiration from the COSO internal control framework4. In so doing, they unanimously speak out against "one size fits all" CCPs. Instead, risk-based approach is preferable and competition agencies will expect the companies to demonstrate that compliance efforts are tailored to their sector and risks. They will also support a principles-based approach to compliance, rather than a rules-based one. That is, where compliance focuses on substance (i.e. a set of core principles addressing unlawful conduct) rather than form (i.e. difficult shades of grey of each and every anti-competitive conduct). Such principles, well-known to all compliance topics, are outlined below.

Top-level commitment

Top-level management is on a front-line in development of a good CCP. This involves active and visible articulation to all employees and business partners of a negative stance towards anti-competitive conduct. The rationale behind this is to ensure a culture across the company where anti-competitive behaviour is considered as inherently wrong, not just incompliant with laws and regulations.

While choosing the method of articulation, management may consider various forms of communication, either active (e.g., face-to-face meetings, presentations) or passive (e.g., periodic statements on company's intranet or web page), informal (e.g., emails, text messages or social media postings) or formal (e.g., code of conducts, official memos).

It is vitally important that the voice from the top is free of any undue pressure that causes employees to fear the consequences of not achieving objectives and circumvent processes or engage in anticompetitive conduct. Otherwise, any ambiguity in objectives set by seniors may well prompt competition agencies into a belief that the CCP is a sham, covering a mere intent to make anti-competitive conduct cheaper for corporate treasury.

Ideally, demonstration of the top-level commitment additionally requires not just words but actions. These may include the direct involvement of top-level management in the recruiting of a compliance officer, regular calls to compliance helpline with questions, face-to-face meetings with high-risk employees, personal recognising of outstanding compliance and ethics performance, personal insisting on the toughest discipline measures to be taken to employees breaching the rules, etc.5

Risk assessment

A successful CCP would be based on a comprehensive analysis of the areas in which the company, including any of its affiliates, is most likely to run a risk of infringing competition rules6. Such analysis should consider all significant interactions internal to the company and between the company and its potential and existing competitors, suppliers, buyers.

An internal inquiry may be more important in the context of cartels. The company may decide to identify the risk-related employees, who are usually prone to such infringement. These tend to include those in roles such as sales and procurement, line managers and those who attended trade association meetings. Appointments of new employees joining the company from a competitor on the above positions merit special attention.

External examination is more justified in cases related to unilateral conduct or vertical restraints, when substantive assessment of the market structure (i.e. its saturation, dynamics, structure, type of product (whether it is homogeneous), countervailing buyer power, etc.) can help to draw a line between the infringement and benign pro-competitive behaviour.

Having identified potential risks, the next step is to assess them. Working out how serious they are, the company may find out that some of them have a higher likelihood of occurrence and potential impact than others. For example, if the company is active in highly fragmented markets where players all have insignificant market shares, the risk of infringement of unilateral conduct rules will be low. Similarly, retailers are less likely to have tying arrangements concerns as opposed to original equipment manufacturer suppliers. Consequently, each of these companies does not require a detailed response to risks that are unlikely to occur generally. Knowing a company's specific risk profile will allow developing and implementing adequate prevention policies, procedures and training.

Proportionate procedures and training

Size can be an important factor affecting the company's risk profile and measures it should take to mitigate them. For example, the efforts of top-level management of a medium-sized company to reinforce a culture of compliance may be less formalistic than those in large multi-national companies. While the former may rely heavily on periodic face-to-face meetings of management with employees, the latter will certainly require extensive written communication7. The same applies to policies and procedures implementing them. In smaller companies these can be communicated orally. In turn, in larger ones unwritten policies and procedures can be easier to circumvent.

Further and again, small or medium companies are unlikely to face risks associated with unlawful unilateral conduct. Thus, there is no need to train their employees on such issues as, for example, refusal to supply or non-cost justified rebates and discounts. However, whether large companies that do face such a risk actually need specific training on dominance is being disputed. For example, torturing employees by trying to explain different price-cost benchmarks relevant in predatory pricing cases may be a fool's errand.

The message may be simply ignored or misunderstood. This area of competition policy, therefore, does not lend itself so well to CCPs, in comparison to anti-cartel policies, procedures and training8 that in fact are relevant to all companies regardless of the size.

The size of the company may also affect the format of the training. Employees in medium-sized companies will most likely be trained by external lawyers in the traditional classroom seminar format, while large companies will likely have an opportunity to recruit a dedicated counsel and equip themselves with e-learning and other web-based tools customized for each major competition law jurisdiction being served by them. Any larger company, which is active globally, should take the issue of extraterritoriality into account. Competition laws are designed in a way to reach the activity that occurs outside of, but has or may have an effect in the jurisdiction. Good CCP should envisage conflicts that may arise between different competition laws, including when one law has a higher standard of behaviour in one jurisdiction than the other. Separately, when a large multi-national company relies on global web-based tools, all translations into local languages of relevant jurisdictions have to be done sensitively, while training materials modified accurately. In particular, the company should think twice before circulating "off the shelf" untailored e-learning materials instructing that dominance is not likely if the undertaking's market share is below certain level across jurisdictions having a statutory rebut table presumption of dominance.

Whatever the format chosen, training should be interactive, extensive and, most crucially, directed at those who are most likely to break the law. These are high risk employees, including new staff joining the sales and marketing department from competitors. At the same time, it may be helpful to train not only high-risk employees, but those who can help or witness the infringement. This could be a medium-risk employees, like those on management roles that do not involve regular contact with competitors or trading partners or staff in other departments (such as finance, communications, operations). Through training these employees may learn how serious the conduct really is and follow up using the company's whistle-blower hotline.

Consideration might also be given to whether CCP should include mock dawn raid training. While it is obviously important for employees to see what happens in an investigation, the company should be ready to prove to the competition agency that such training was aimed at showing its employees their duty of cooperation, rather than teaching them how to conceal evidence.

Continuous improvement

The company's risks portfolio will often change over time. Consequently, its policies and procedures may become obsolete and less effective. To ascertain that each component of the CCP remains functioning and needed certain monitoring activities should be selected, developed and performed. Such activities may identify possible gaps or deficiencies that require an instant response.

Monitoring can be ongoing and/ or separate. Ongoing monitoring evaluates routine operations and is performed on a real-time basis. This may cover various issues relating to the on-boarding of new employees from competing businesses, reviewing agendas for all trade associations meetings, constant review of legislative changes, etc. Not least, manual and ongoing monitoring is necessary to evaluate the effectiveness of the CCP itself. There is a wide range of mechanisms for this, including surveys, informal post-training follow-up meetings, regular knowledge tests, helpline statistics reviews, etc. This should be carried out as openly as possible to indicate to employees that their conduct is constantly subject to review against the terms of the CCP.

Sometimes, evaluation focuses beyond day-to-day activities and requires separate substantive "deep dives". For example, this may happen in M&A situations. However, the most common catalyst is a probe by the competition agency into the company's business. The latter may well suggest that the CCP has failed to accomplish its objectives and a full-scale due diligence with complete document searches is necessary to root out compliance gaps. While preparing for this internal investigation the company must take into account other legal issues relating to data protection, employment law and legal professional privilege. Some investigations may uncover deliberate hardcore illegal conduct demonstrating a lack of commitment to compliance from the top down. If that is the case, appropriate disciplinary measures taken across the company from the boardroom to the supply room9 are essential for an effective and genuine CCP.

Ultimately, appropriate monitoring activities allow the company to keep abreast of possible new risks, revise its policies and procedures against them and/or fresh legislative criteria, as well as ensure that the CCP is understood and not ignored.


We have demonstrated above that CCPs are gaining popularity now. However, among competition agencies around the world there is a lack of unanimity in relation to them, including whether reductions in fines should be provided or not if the company has rolled out one. Despite this, there is common understanding that genuine CCPs are generally welcomed. What constitutes a genuine CCP is a vast topic, though it can be readily answered that it is not just a presentation where an employee can simply sign in and sleep through it. This is substantial and ongoing work revolving around the central tenet of a top-level management commitment. The key point is that the company should find an effective means of identifying, assessing, mitigating and reviewing its competition law risks in order to create and maintain a culture of compliance that works for its organisation.

1 e.g., in the UK, France and the United States.

2 e.g., the European Commission.

3 e.g., in the United Sates, the EU, the UK, Australia, Canada, Japan, the Netherlands, Brazil, Korea and South Africa.

4 Internal Control — Integrated Framework published by the Committee of Sponsoring Organisations of the Tread way Commission (COSO), 2012.

5 OECD Roundtable on Promoting Compliance, "Promoting Compliance with Competition Law" (2011), page 262.

6 EU Commission, "Compliance matters: What companies can do better to respect EU competition rules" (ISBN: 978-92-79-22094-4), page 16.

7 Ministry of Justice, 'The Bribery Act 2010 — Guidance about procedures which relevant commercial organizations can put into place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010), page 21.

8 OECD Roundtable on Promoting Compliance, page 43.

9 Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission, A Resource Guide to the U.S. Foreign Corrupt Practices Act (2012), page 59

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