Jul 9,2013 / News / Legal Brief

Due to the combination of more onerous fiduciary duties and increasingly complex regulation, it has become critically important for directors of organisations to have a clear view of the activities and behaviour of employees within their companies. Such transparency could clarify and highlight potential risk areas, enhance governance and establish accountability which ultimately could mitigate the risk of companies and the respective company directors from contravening the Competition Act.

RECENT ILLUSTRATIONS

Following the outcome of the investigation into the construction industry, it would seem that some construction companies lacked a clear understanding of the impact of competition law and regulation; as well as what activities and behaviour certain of their employees engaged in. Lacking a clear view resulted in 15 construction firms being found to have engaged in collusive tendering, in contravention of section 4(1)(b)(iii) of the Competition Act. These firms have collectively been fined R1.46bn.

DIRECTING THE ROUTE TO COMPLIANCE

The question can therefore be asked; can company directors pro-actively formulate a clear view as to the risk areas within the organisation, the what and the how of competition law compliance? It is submitted that they should consider putting in place mechanisms – for instance a technology-enabled risk management tool that could provide them with the insight required to administer an integrated competition law compliance, risk-based, audit and incident management plan across the organisation. Such a competition law risk assessment tool can provide for complete performance visibility through real-time reports, highlighting areas of concern when considering potential contraventions of competition law. Such a tool can enable organisations to manage competition law risks pro-actively.

Historically what we have seen is that there has been limited pro-active mapping of competition law compliance issues and risk to determine business impact and prioritisation of resources to address competition law risk areas within organisations. In general, compliance has been reactive; putting out fires instead of pro-actively interpreting and predicting competition law compliance risk issues, and developing treatment plans to mitigate or avoid damage to the organisation.

CLOSENESS TO THE BUSINESS SUPPORTS COMPLIANCE

It is important that directors know their business, including the potential competition law risks within their organisations. This requires an established risk-monitoring framework to be put in place. Without a robust risk monitoring framework, it is not possible to establish pre-emptive preventative controls. Due diligence controls must be in place to ensure that organisations are behaving ethically. If there is a high risk of non-compliance, additional preventive and detection controls must be put in place. In addition, due diligence and risk assessment controls must be kept current. These are not only point-in-time interventions, but must be done on a regular basis or when a business becomes aware of conditions that point to an increased risk of non-compliance issues.

How organisations implement compliance procedures and controls must be based on the proportionality of the competition law risk faced. Only once directors clearly understand the competition law risk areas within the company, will they be able to identify and put in place the necessary measures and use a mitigation strategy to combat competition law risks identified.

An understanding of, and information on, changes to the regulatory environment is critical. New laws, changed regulations, court rulings, and standards of practice are all constantly changing what is required of an organisation. Through compliance and risk management procedures, tools and technologies, companies have the opportunity to monitor the risk of changes in the regulatory environment and ensure that they do not fall foul of what is required.

A compliance risk management programme needs to be fully supported by the board of directors and executives. Leadership must communicate what is both acceptable and unacceptable risk, and support the competition law compliance programme. But even more importantly, executives and the board must be informed about the effectiveness and operations of the compliance and risk management strategy to fulfill their fiduciary obligations in light of the potential risk areas.

PROTECTING ORGANISATIONAL INTEGRITY

At all times it is important that the organisation monitors the business for changes that can impact its compliance programme or introduce greater risk to its corporate integrity. The only way an organisation can manage risk appropriately is if acceptable and unacceptable risk tolerances and appetites are defined and managed. The board and management must clearly define and communicate the organisation’s culture of confronting risk. If the governance function does not do this, risk strategy is left up to individuals and the integrity of the organisation is in jeopardy.

A mature competition law risk management programme does not operate in isolation from the business. A mature competition law risk management programme is integrated with corporate performance, strategy, and objective management. This requires that the organisation links performance to risk, allows for multiple inputs impacting the risk environment from both internal and external contexts, and has a variety of ways to look at risk information to analyse, model, and relate risk back to performance and strategy.

One cannot but advocate for a robust risk management process and governance when considering, inter alia, compliance with competition law. Superior governance and transparency can only be achieved in organisations that clearly understand the existing DNA within the organisation. Such superior governance and transparency will allow for companies to identify, assess, control, exploit and monitor risks from all sources and at all levels of the organisation; for the purpose of minimising the risk of contravening the Competition Act.

CONCLUSION

A mature competition law risk management programme is a seamless part of business performance, strategy, and objective management Competition law risk must be managed within the parameters of all business activities. This requires the organisation to take a top-down view of competition law risk led by the executives and board, and make it part of the fabric of business – not an unattached layer of oversight.

Therefore, organisations should clearly understand the competition law risks within their business and ask themselves what they have put in place to give them a clear view as to potential risk areas. These questions cannot be ignored and require serious consideration by all company executives. Each and every company cannot operate without having a clear competition law compliance reporting system in place and a live action plan, based on a robust understanding of the competition law risks that may exist within the organisation. Directors need to ask themselves what the organisation looks like and how they as directors are discharging their fiduciary duties with regard to compliance with competition law to mitigate against fines as imposed on the construction industry and companies. But most importantly, they need to ask how they as directors can form a clear view as to the potential risks that might exist within their organisation.