Competition law: 5 ways to avoid breaking it

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Competition law

Breaking competition law. It can have serious consequences for a business and its directors. Alex Chisholm, CEO of the Competition and Markets Authority (CMA), explains why it is crucial for leaders to understand the risks

The word ‘cartel’ can be confusing. For many, it conjures up images of drug lords, bullet-ridden border towns and illicit smuggling. The reality is that a cartel can be much closer to home, hiding under the cover of seemingly innocuous email exchanges, lunchtime meetings and social work events. Understanding cartels, and by extension competition law, is therefore essential for business leaders to ensure they don’t find themselves on the wrong end of an investigation.

Key to this is demystifying the words ‘cartel’ and ‘competition law’. In simple terms, a cartel is an agreement between businesses not to compete with each other. The agreement is usually secret, and often informal. Competition law exists to allow businesses to compete openly and fairly with each other. Where businesses get together to try to circumvent this, the CMA has powers to bring
legal proceedings.

Earlier this year, the CMA published research on how much senior business people know about cartels and competition law. It revealed a significant lack of knowledge of the behaviours that can be illegal – 77 per cent admitted that they didn’t know the law well, only 19 per cent said they had senior-level discussions about it in the past year and many didn’t recognise that certain practices (such as discussing bids or sharing customers with competitors)
are illegal.

Given the grave consequences that businesses and individuals can face for breaking competition law – which include fines of up to 10 per cent of global turnover, director disqualification and jail terms for individuals in the case of cartels – this general lack of awareness should sound a clear warning bell. With this in mind, here are five key things that all company directors should know…

1. You must make entirely independent decisions

Arrangements between businesses that seek to limit or control how they compete against one another are likely to be unlawful. Such arrangements are particularly at risk of arising within trade and member associations – or even on the fringes of the meetings of such associations – where businesses may agree that some form of co-ordination is better than competition.

Such associations and their members should also be wary of having discussions where sensitive information could be shared. While discussing general industry trends might not be unlawful, talking about how you might respond to market conditions – for example, your future commercial and pricing plans – is likely to cause issues. A business should make its commercial decisions independently and not as a result of collusion with competitors.

2. Beware what you share

Eighty three per cent of those surveyed said they had some form of contact with others in their industry. While some contact may be perfectly legitimate, competitors risk triggering an anti-competitive arrangement where they share sensitive information about their pricing, output levels, customers or future commercial intentions.

It is against the law for competing businesses to fix prices, share markets or discuss which of them will win a specific tender, whether that is by agreement or by means of a lesser form of co-operation. Ensuring that staff are properly trained on what it is appropriate to discuss with external contacts is vital to protect a business from slipping into dangerous territory.

3. Small businesses should never think they’re immune

While high-profile investigations may make more headlines, many competition law cases involve small to medium-sized businesses operating in local, specialised markets. It is dangerous to think that you’re “too small to matter” – if the CMA discovers a cartel or other serious anti-competitive activity, businesses should not assume that the CMA won’t investigate them because of their size. The subsequent fines for breaking competition law can also have a significant impact for smaller firms. In a 2013 case that exposed a series of separate anti-competitive agreements involving commercial dealers
of Mercedes-Benz trucks and vans, fines wiped out up to 18 months’ worth of profit for the dealers involved.

4. It’s better to come clean

Those we surveyed had little knowledge of the options for their business if they discover it has been involved in anti-competitive activity, such as
a cartel. Only 15 per cent knew that the CMA operates a leniency policy which can offer immunity from penalties if a business comes forward and confesses its involvement. Key to securing this is to be the ‘first one in’
and to co-operate fully in helping the CMA carry out an investigation. This is where it pays to be diligent and proactive if you discover wrongdoing – as the full benefits of leniency are only available to the first business that applies. Waiting to see what others do first could be a very costly decision.

5. You need to encourage a culture of compliance to competition law

As a business leader, you must take overall responsibility for instilling a culture of compliance within your organisation. Including competition law compliance as part of an existing risk or compliance programme is an important way to do this. Directors will know their business best and understand how compliance messages can be spread effectively throughout their organisation. By tailoring your approach to the specifics of your company, you can maximise the likelihood of reducing competition law risks while ensuring the process works with the grain of your business.

The CMA has a range of guidance materials to help businesses understand and comply with competition law, including advice for company directors and trade associations. The CMA is also currently producing a suite of bespoke materials for SMEs, due for release in November. For more information, go to gov.uk/cma

CV

Who Alex Chisholm

Role Chief executive of the Competition and Markets Authority (CMA)

Also Trustee and deputy chair of international charity Breadline Africa

Previous positions Commissioner of ComReg (Irish communications regulator); chair of Economic Regulators Network in Ireland; senior executive positions in the media, technology and e-commerce sectors, with Pearson, Financial Times Group, eCountries Inc
and Ecceleration

About author

Chris Maxwell

Chris Maxwell

Director’s editor spent nine years interviewing TV and film stars for Sky before joining the IoD in 2011 and turning the microphone on Britain’s business leaders. Since then he’s grilled everyone from Boris to Branson and, away from work, maintains an unhealthy obsession with lower league football.

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