tion. This has been used to controversial effect in cases such as the
£121.5m fine against British Airways in August 2007 after the airline
admitted collusion in fixing the prices of fuel surcharges, while
giving a “no-action letter” – essentially a pardon in exchange for
information to encourage companies to inform on fellow operators
– to Virgin Atlantic, which had colluded in the price-fixing arrangement
on six occasions before blowing the whistle.
More OFTen than not
Presently, the OFT will not apply for the disqualification of a current
director of a company which has benefited from any form of
leniency. This is because it wants to encourage companies to come
forward with information in exchange for leniency for their role in
the unfair practice. As the OFT still wants to encourage the early
offering of information on cartels, it has said that it would not seek
disqualification orders against first whistle-blowers or in other cases
where a company has qualified for the highest levels of leniency.
Launching the consultation in August, Ali Nikpay, the
OFT’s senior director
of policy,
said: “We know
that the prospect
of being
disqualified as a
director is one of
the most powerful
deterrents to
anti-competitive
behaviour. Our
proposals aim to increase the incentives on company directors to
take responsibility for competition law compliance and tackle behaviour
that harms competition.”
Lawyers believe that the OFT’s proposals are a strong inducement
to make compliance a major boardroom issue. “These
proposals are significant in that they increase the dangers for individuals
in being involved in cartels, which the OFT hopes will feed
through to corporate behaviour,” says Liz Fowler, competitions
lawyer at City law firm CMS Cameron McKenna. “While there
may be room for argument on the facts in individual cases about
whether a director ‘ought to have known’, the OFT’s proposals
will in any case up the ante in what is already a very stressful time
for company directors. The proposals re-emphasise the need to
know what is going on at all levels of your organisation and to
make competition law compliance a company priority.”
Ros Kellaway, partner and head of competition at law firm
Eversheds, says that “the OFT seems to have moved from zero to
100 mph on this subject”. “The OFT has never used its powers
of director disqualification under the old guidelines but its lack of
experience hasn’t stopped it from producing a very aggressive new
set of proposals which make it far more likely that disqualification
will become a real possibility.”
Lawyers agree that the OFT wants to have a greater range
of threats than just levying fines. “The OFT has noticed that fines
don’t seem to act as a deterrent,” says Stephen Hornsby, specialist
competition lawyer at solicitors Davenport Lyons. “Some industries
are characterised by recidivism and it is innocent shareholders who
pay the fine,” he adds. “In addition, in some cases, the workforce
may be affected. It is natural, therefore, to focus on other means of
securing compliance and in this context widening the circumstances
in which directors can be disqualified is understandable.”
Nicole Kar, competition partner at Linklaters, says that the
proposals are significant in that they indicate a much tougher stance
toward directors of companies involved in cartel conduct. She
warns that “the consultation period should be viewed by directors
as a notice period within which to have their companies’ compliance
and early detection systems put in order as increased enforcement
activity against directors of companies breaching competition
law seems an inevitability of the OFT’s current proposals.”
In the hot seat
The ramifications of the proposals for companies are likely to be
twofold, says Kar. Firstly, companies should expect greater challenge
from directors about their compliance efforts and may find that directors
require as a matter of policy that they are provided with audit
reports and receive early warning of competition law concerns.
“The proposals will prompt directors to make inquiries of the companies
they are
involved with
“We know that the prospect of being
disqualified as a director is one of
the most powerful deterrents to anticompetitive
behaviour”
71
World Finance | Nov - Dec 2009
in terms of their
compliance programmes,training
and early detection
systems,
such as whistleblower
hotlines,
and spot audits,”
she says. Typical
hot-spot areas that will need increased director scrutiny include the
sales and marketing divisions which tend to be at higher risk of
cartel conduct than other divisions with little or no interaction with
competitors or customers, such as finance and IT, she says.
Secondly, says Kar, companies should expect that the divide
between corporate and individual interests will widen further as
a result of the measures, which form the most recent part of a
package of proposals adopted by the OFT to strengthen the deterrence
effect of competition law. Another significant measure
from the corporate perspective in this vein are amendments to the
OFT’s leniency policy which prevent a corporate from securing
immunity where a director or employee was the first to blow the
whistle on a cartel.
Kar also believes that seniority of directors is also likely to be
a factor in terms of how culpable they may be regarded if a prosecution
should take place. In December 2007 the OFT charged three
businessmen with dishonestly participating in a cartel to allocate
markets and customers, restrict supplies, fix prices and rig bids for
the supply of marine hoses and ancillary equipment in the UK over
a four-year period. However, the County Court judge was significantly
influenced in his sentencing of one of the Dunlop executives
by the fact that he was managing director. The judge stated that
“even though you may not have been as deeply involved as [the
other Dunlop defendant] in the everyday workings of the cartel,
I have no doubt that your responsibility in the dishonest management
of your company was greater than his”.
Yet despite the potential benefits of “beefing up” the OFT’s
ability to threaten directors into compliance, the regulator’s proposals
are not without significant problems. Crucially, there is no
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