At the end of June, the UK's Office of Fair Trading (OFT) published its final guidance on how it will assess the extent of an individual director's responsibility for infringements of competition law.
The guidance makes clear that there is no room for complacency in competition law compliance programmes. All directors must understand the principles of competition law, demonstrate a commitment to competition law compliance, ensure their organisation is taking steps to identify and to assess the exposure to competition law risks, and put in place appropriate steps to mitigate those risks. Senior directors of large companies should take particular note as the guidelines set out the standards expected of them so that they may limit the risk of their own disqualification as a director for infringements that they are unaware of but ought to have known about.
Background to the guidance
In 2003, the OFT was given the power to seek a competition disqualification order (CDO) allowing for disqualification of a director for up to 15 years if a company has breached competition law. On 29 June 2010, the OFT published new guidance on the use of CDOs, signalling a more aggressive enforcement stance. Whilst the law itself did not change, the main change to the OFT's position related to the "knowledge standard" for directors. The guidance made clear that the OFT would assess a director's responsibility on a case-by-case basis, and that a director who had reasonable grounds to suspect a breach, but took no steps to prevent it, or was unaware of it but ought to have known that the conduct constituted a breach, could now be susceptible to disqualification. In light of this stricter approach, the OFT agreed that it would be helpful to issue additional guidance aimed at directors in order to minimise the risk of CDOs being awarded against them.
The guidance sets out high level guidance on the standards that the OFT expects of all directors. It provides information on the principles, types of behaviour and extent of knowledge that will be relevant to directors when considering their responsibility under competition law. Key points to note are:
The OFT expects all directors:
- to understand that compliance with competition law is important and that infringing competition law could lead to serious legal consequences for the company and for them as individuals.
- to understand that cartel activity (such as price fixing, bid-rigging, limiting production, market sharing, sharing commercially sensitive information) will constitute a very serious infringement of competition law.
- to have sufficient understanding of the principles of competition law to be able to recognise risks, and to realise when to make further enquiries or seek legal advice.
- to demonstrate a commitment to competition law compliance, and to ensure that their organisation is taking steps to identify and to assess the company's exposure to competition law risks and put in place appropriate steps to mitigate those risks, reviewing these activities on a regular basis.
The OFT suggests that all directors should ask the following questions regarding competition law compliance:
- What are our competition law risks at present?
- Which are the high, medium and low risks?
- What measures are we taking to mitigate these risks?
- When are we next reviewing the risks to check they have not changed?
- When are we next reviewing the effectiveness of our risk mitigation activities?
- The OFT has different expectations of directors depending on their role, in particular whether the director has an executive or non-executive role, the director's specific responsibilities within the company, and the size of the company and wider corporate group.
- The OFT expects executive directors with a higher exposure to competition law risk to have both greater knowledge of competition law concepts and also to take greater steps to prevent, detect, and terminate the infringement. For example the OFT states that "a sales director would be expected to be able to recognise whether the risk of cartel activity within a company is high due to its sales staff having frequent contact with competitors at trade association meetings or through involvement in other industry bodies and ensure that appropriate mitigating activities (such as training, policies and procedures) are in place to bring about any behaviour change that is necessary to achieve compliance".
- Non-executive directors are not expected to have an intimate knowledge of the company's day-to-day transactions, but are expected to challenge the decisions and actions of the executive directors. In particular the OFT expects non-executive directors to "ask appropriate questions of the company's executives, in order to ensure that appropriate compliance measures have been put in place within the company to prevent, detect and bring to an end infringements of competition law".
- The OFT recognises that a company may decide to designate a director with specific responsibility for competition law compliance, but this appointment does not absolve any other directors of their responsibilities under competition law. A compliance director is not expected to have any greater awareness of specific infringements by the company than any other director.
- Whilst directors in larger organisations are not expected to have an intimate knowledge of all day-to-day activities, the OFT expects them to take steps to ensure that there are appropriate systems in place to prevent, detect and bring to an end infringements of competition law.
- In relation to abuse of dominance or other potentially anti-competitive agreements (not involving cartels), the OFT states that where a director is committed to competition law compliance and has taken steps to mitigate competition law risks in a manner that is appropriate to the level of any identified risk, for example through taking legal advice prior to the conduct being undertaken that constituted the breach, the OFT is unlikely to apply for a CDO.
In assessing whether a director ought to have known of a competition law infringement, the OFT states that it will take into account a number of elements, including whether
- a director has direct management responsibility for the individuals concerned in the anti-competitive conduct
- a director is personally involved in the day-to-day activities of the company
- the extent of the risk mitigations introduced by the director and what evidence the director ought to have seen, had he or she put the appropriate compliance measures in place.
- Where a director has overall responsibility for a business area, but no direct management responsibility over the individual directly involved in the infringement, the OFT will consider what evidence that director actually saw, or was presented with, and what evidence that director ought to have seen, having made reasonable enquiries.
Guidance on how businesses can achieve compliance
At the same time as issuing this final guidance on directors' responsibilities, the OFT also published its final guidance on how businesses can achieve compliance with competition law. This sets out the OFT's recommended risk-based four-step approach for creating a culture of compliance within a business, and the practical compliance measures that businesses might be able to take. The OFT notes that while no automatic discount can be expected from any fine for companies that have undertaken compliance activities, it does state that the amount of the fine may be reduced by up to 10% if "adequate steps" have been taken with a view to ensuring compliance.