Blog post by Jessica Radke, Director of Litigation, The Competition & Markets Authority.
Supporting Commentary from Louis Cooper, CEO, NEDA
Blog Post from Jessica Radke
Why this is important
At the Competition and Markets Authority (CMA) we have been ramping up the use of our disqualification powers to hold to account individual directors whose companies break competition law. The consequences if your company is found to have broken competition law are severe (including fines for the business) – and can have very personal implications.
In recent months, we have secured the disqualification of 6 directors for a combined total of 28 and a half years. The risk of disqualification has never been higher for those whose companies engage in cartel activity, be that by price fixing, bid rigging (including cover bidding) or market sharing.
Directors have a special responsibility to be well informed about what is happening within the companies they manage and lead by example, promoting a top-down programme of compliance with the law. If something goes wrong and the law is broken, ultimately the buck stops with the board and those at the top could be liable.
How our disqualification power works
Under the Company Directors Disqualification Act we can seek the disqualification of a director and ban them from holding company directorships, or performing certain roles in relation to a company, for up to 15 years.
We can do this in two ways:
- by accepting a legally binding undertaking (commitment) from the individual, or
- by seeking a court order to disqualify
The main benefit of cooperating with us (option 1) and offering a disqualification undertaking is the possibility of a reduced disqualification period.
Where a company comes forward to tell us they have been involved in a cartel and qualifies for leniency, current and former directors will be guaranteed immunity from disqualification in respect of the reported cartel, provided they fully cooperate with the CMA’s investigation. The company may also qualify for complete immunity if it is the first to come forward, and there is the possibility of a leniency discount to later applicants too.
How we are using our disqualification power in new ways
We’ve updated our processes to fit better with the court system - increasing our efficiency to use this power, meaning we can pursue more cases. To date, a total of 9 directors have been disqualified for their involvement in illegal anti-competitive practices and we are actively pursuing others.
In addition, we now consider whether to pursue director disqualification in all cases where competition law has been broken.
We scrutinise the responsibility of individual directors. There are different hierarchies of risk when it comes to director involvement:
- You’ve got your hands all over it and are complicit in law breaking – you may be directly involved in the unlawful behaviour or you may have ordered or encouraged it.
- It happened on your watch but you turned a blind eye and failed to stop it.
- It happened on your watch without your knowing but you weren’t diligent, you should have known and taken action.
All the above put you at risk of disqualification if your business is investigated and proven to have breached competition law.
Where we find a director was actively involved in the breach, any fine which is imposed on their company may be increased as well.
So how can you protect yourself and your business?
At the CMA we have a wealth of advice and information to help, including: a quick guide on how to avoid disqualification, and a checklist on how to comply with competition law. You should draw on this advice to brief senior colleagues.
To help you mitigate risks here are 10 questions to consider:
- Do we have a clear compliance programme for competition law and are we communicating this through the business adequately?
- What are our present competition law compliance risks?
- Which activities in our business model are likely to create situations where competition law becomes an issue?
- Do we have a healthy culture in our organisation in respect of risk?
- What are the high, medium and low risks?
- Do we provide good channels for staff to get advice on possible problems easily?
- What measures are we taking to mitigate cartel risks in our business?
- Where can staff go to voice concerns about business practices – when did we last review our whistleblowing policy and is it still fit for purpose?
- When are we next reviewing the effectiveness of our risk mitigation activities/ compliance programme?
- What training do we have in place for staff on competition law rules?
What this means for you
My message to all directors is this: you must be clear on the risks of breaking competition law and lead by example – promoting a culture of compliance led from the top down is key.
Ensure you have good whistle blowing processes in place so illegal activity can be rooted out and dealt with appropriately.
If you think that you or your business may have been involved in illegal cartel activity, then it’s better to “Be Safe, Not Sorry” and report it to us. Even if the cartel activity only happened once, or took place a long time ago, it can still have serious consequences for the businesses and individuals involved – we have case studies of companies who only took part in one or two instances of illegal behaviour, and some as far back as 2006, who were still taken to task for falling foul of the law.
You may be able to benefit from lenient treatment and protection from disqualification for your company’s current and former directors by coming forward and confessing to the CMA. Call our leniency number on 0203 738 6833.
If you have information about the cartel activity of others and wish to report it, you can contact the CMA by using our online form, calling the cartels hotline on 020 3738 6888 or emailing firstname.lastname@example.org.
Always seek independent legal advice.
For more information on what a cartel is and how to report go to: www.gov.uk/stopcartels
Supporting Commentary from Louis Cooper
The Non-Executive Directors’ Association (NEDA) has been promoting and supporting the work of CMA through a series of dedicated events and presentations, as well as regular on-line updates with the circulation of CMA news updates and the range of user-friendly publications. Louis Cooper NEDA CEO commented: “We educate NEDs on the competition law requirements and the work of the CMA on all of our NED training programmes, because this is an area that in the past has been underplayed or lost in “not relevant to me” thinking. NEDs at all levels of experience need to be aware of the issues and ask the right questions – the 10 questions noted above”.
As part of their corporate governance brief NEDs need to be holding the executive team to account and should be challenging them on how they have complied with the law, especially in areas such as competition because it is important that businesses trade on a level playing field and are mindful of being fair to their customers. As a director of a company there is also a renewed focus on the main duties and responsibilities, and adherence to S172 of the Companies Act has raised the profile of how you have considered key stakeholders such as customers.
Competition law is a real and tangible risk that needs to be appropriately profiled and organisations should have a zero tolerance or appetite for breaking the law. NEDs in particular are well placed to scrutinise and positively challenge all areas of business activity and need to ensure that the board sets the appropriate tone from the top.