This article is based on the latest guide from the Competition and Markets Authority (CMA), published on 10 September 2020. It sets out the key issues and risks to consider as a director, owner or senior manager of a business to make sure you and your company stay the right side of the law.
Understanding the increasing risks for company directors
Where the CMA finds a director was involved in a breach of competition law, they may be disqualified for up to 15 years, and their company may well face a higher fine than would have otherwise been imposed
Individuals may be investigated for committing a criminal offence, prosecuted and sentenced to up to five years in prison and/or made to pay a fine. Individuals may also be subject to the confiscation of assets under the Proceeds of Crime Act 2002.
Not knowing is no excuse. Directors must be clear on the risks of breaking competition law and lead by example.
Director disqualification is an increasing risk because the CMA now considers whether to pursue director disqualification in all cases where competition law has been broken.
Anti-competitive behaviour to watch out for: cartels and other potentially anti-competitive agreements
Cartels are the most serious types of anti-competitive agreements, where two or more businesses agree, whether in writing or otherwise, not to compete with each other.
A cartel may also arise where rival businesses exchange commercially sensitive information, or when one business unilaterally discloses such information to another.
Case study: Construction firms fined
In 2019, the CMA fined three construction firms more than £36 million for breaking competition law in supplying certain concrete drainage products for building projects. Two directors have been disqualified for six and a half and seven and a half years, with additional disqualification cases pending in court.
The arrangements were found by the CMA to have continued for nearly seven years and involved meetings attended by senior executives from each of the firms. The CMA recorded a number of these meetings and used the transcripts as evidence when arriving at its final decision.
Key lessons learned from this case:
- Tough market conditions are no excuse for breaking the law.
- Never exchange competitively sensitive information.
- Never agree with rivals not to compete with customers or business.
- The CMA has sophisticated means of capturing evidence.
Case study: Office design and fit-out suppliers fined over £7 million
In 2019, the CMA fined five companies over £7 million and six company directors were disqualified for 'cover bidding'.
Cover bidding is where two or more companies secretly agree that at least one of them will submit a bid that is deliberately high or of poor quality during a competitive tender process. They do this so that another of the companies can win the tender with what appears to be a better offer or proposal.
Key lessons learned from this case:
- Agreeing with a competitor to submit a cover bid is illegal. Never agree to submit a cover bid, even if you do not want to win the tender or take on the work.
- Even if the illegal activity only happened once, or took place a long time ago, it can still have serious consequences for those involved.
- The investigation was started after one of the companies contacted the CMA under its leniency programme to admit its involvement.
Anti-competitive behaviour to watch out for – abuse of a dominant position
A business can breach competition law, even without collusion or agreement with other businesses, if it has a 'dominant position' in a market and it unilaterally abuses that dominant position.
Broadly speaking, a business will have a dominant position if it has market power, and broadly speaking the risk of a dominant position arises with a persistent market share of 40% or more.
A risk-based approach to ensure your business is compliant
Managers at all levels of a business, from the top down, need to demonstrate a commitment to complying with the law.
Step 1: Identify the risks
Identify the key competition law compliance risks faced by your business. These will depend upon the nature and size of your business. Identify areas of your business where you might risk breaking competition law.
Do your employees lack awareness and knowledge about competition laws, the behaviours it covers and the associated risks?
Do your employees have contact with your competitors at industry events or otherwise?
Do your employees seem to have information about your competitors' prices or business plans?
Do you ever work in partnership with your competitors?
Step 2: Analyse and evaluate the risks
Work out how serious the risks you have identified are. Classification may be quantitative, i.e. expressed in monetary terms, or qualitative such as 'high/medium/low'.
Businesses should consider assessing which employees are in high-risk areas. These may include employees who are likely to have contact with competitors and employees in sales and marketing roles.
Step 3: Manage the risks
This step involves setting up policies, procedures and training to reduce the likelihood of the risks you have identified occurring and to reduce the consequent impact on your organisation. What you do will depend on the risks identified and the likelihood of the risk occurring in your particular context.
- Training employees in competition law.
- Implementing an employee code of conduct and company-wide ethics policy to underpin a healthy culture in respect of risk.
- Ensuring employees tell you if they are joining a trade association or attending events where they might be meeting with competitors.
- Implementing a system where all contact with competitors is logged.
- Establishing a system for employees to report, on a confidential basis, any competition law concerns that they might have.
- Making anti-competitive behaviour a disciplinary matter in employment contracts and ensuring that it is covered in the company's disciplinary policy.
Step 4: Monitor and review
Review the steps above and your commitment to compliance regularly, to ensure that your business has an effective compliance culture.
You should also be considering:
- What management information is needed to help management and the board monitor the risk?
- Are you receiving adequate assurance that the measures put in place to manage this risk are effective?
- Are your assurance functions tasked to include this risk in their work and properly coordinated to ensure there are no gaps or overlaps?
- Does your internal audit function have the necessary independence, objectivity, authority and expertise, not only to assure on your risk management and compliance functions, but also assess your risk and control culture and effectiveness of your speaking out mechanisms?
Actions to take if you think competition law has been broken
Businesses and individuals that come forward to report their own involvement in a cartel may have their financial penalty reduced or avoid a penalty altogether (under the CMA leniency programme).
Provided they co-operate, the applicant's directors may also avoid disqualification and its employees and officers may be granted immunity from prosecution.
Our White Collar Crime and Competition teams advise businesses caught up in investigations into alleged competition law breaches, as well as individuals facing potential criminal sanctions or director disqualification. Our expertise as risk managers, understanding of the processes, and knowledge of the enforcement agencies means that we can advise Boards and individuals on how best to respond in any given situation. Mishcon run compliance programmes and training for many clients, and are always happy to discuss a bespoke solution depending on clients' needs and budgets.