Increasing the effectiveness of competition law is high on the government’s agenda, and the Competition and Markets Authority (CMA) wants to increase enforcement.
This places company directors In particular in the crosshairs and gives them a personal and professional interest in ensuring that the company has a competition law compliance culture – for example, if a director’s conduct makes him/her unfit to be in the management, s/he can be disqualified from being a director for up to 15 years.
As an initial point, the CMA expects all companies to have cartel compliance programmes in place – the FCA recently repeated this expectation. Directors are in a somewhat unenviable position of bearing overall responsibility for competition compliance. Even if a director is not aware of a competition abuse s/he may still be personally liable, which increases their responsibilities:
A firm that breaches competition law,
- can face fines of up to 10% of group global turnover (parent companies may be liable for subsidiaries’ abuses, which is likely to increase the turnover calculation);
- risks having commercial agreements declared void and unenforceable,
- can be injuncted from continuing a course of behaviour,
- runs the risk of those harmed (customers and competitors) claiming for damages, and
- risks adverse publicity.
In addition, directors may be disqualified for up to 15 years.
Individual Penalties for Criminal Activity
For the individuals involved in the ‘cartel offence’ – which can be directors, but may be limited to lower level personnel:
- up to 5 years’ imprisonment and/or an unlimited fine (if you do business in the United States, corporate criminal liability is also an option),
- the confiscation of assets under the Proceeds of Crime Act 2002.
Fulfilling a Director’s Duty – Competition Compliance Policies
Having a compliance policy in place can ultimately prevent competition law abuses, and is actually expected by the authorities. No system is perfect however, and even with the best will in the world, abuses can still occur.
If there is an abuse, a compliance policy can:
- mitigate sanctions against a company,
- depending on the company, be required under Employment Law,
- limit the scope of the abuse (i.e. limit those individuals that are involved in the abuse),
- mitigate sanctions against a director,
- mitigate civil actions against directors for failure to meet their fiduciary duties.
Director Disqualification Matters
Under the Company Directors Disqualification Act 1986 (as amended), a court must make a disqualification order if the company commits a breach of competition law, and the director’s conduct makes him/her unfit to be concerned in the management of a company.
In determining the length of an Order – there must be an Order, but its length is variable – the following are relevant, whether:
- the conduct contributed to the breach of competition law
- where the conduct did not contribute to the breach, but s/he had reasonable grounds to suspect the breach and took no steps to prevent it, or
- s/he did not know but ought to have known that the conduct constituted the breach.
The need for a director to be individually competition-compliant is self evident, as is the need for the company concerned to be compliant.
Conclusion – Embedding Compliance
The CMA has emphasised the need for a culture of competition compliance to be ‘embedded’ throughout a company’s employees and structures. This is a good choice of words: director’s responsibilities are very wide and it is virtually impossible for a director to be aware of every aspect of corporate life.
By way of a real world example, a UK-based salesman was at a trade conference and at 2am after engaging in substantial liquid refreshment, volunteered that his boss was an idiot – “He is even going to reduce prices by 10%.”
That off-the-cuff comment forced the company to take evasive ‘cartel avoidance action’ – it decided to restructure prices that had taken months to analyse. The company had a competition compliance policy but, to protect directors, independent lawyers advised board members.
Overall the exercise was very risky, expensive, disrupted business and was expensive. The twist is that the salesman had no idea that he had done anything wrong, because no one had told him not to share pricing information!
 A CMA publication found “only 23% of businesses felt they knew competition law well, … 45% who had never heard of competition law or did not know it at all well.” (NAO Report “The UK competition regime”, 5 February 2016)