concrete guidance provided to directors of the circumstances in
which the OFT would seek a director disqualification order in
cases where the OFT believes a director “ought” to have known
of cartel conduct but had no actual knowledge. Cartel conduct is
by its nature covert and the individuals involved (often rogue employees)
may go to great lengths to conceal it. As a result, directors
will be judged – with the benefit of hindsight – about whether
facts were such that they should have known that the company
was involved in a cartel with its competitors.
This issue is exacerbated by lack of precedent. Despite its
apparent current tougher enforcement stance, the OFT has not, in
practice, sought an order for a director’s disqualification for breach
of competition law since the Act was amended to provide for a
competition disqualification order in 2003. As a result, says Kar,
there is no precedent to inform a director of the appropriate standard
of due process which he or she is meant to attain, and that,
she says, is “very unsatisfactory in circumstances where a director’s
employment and career prospects may be seriously jeopardised”.
Lawyers also point out that the OFT’s proposals may
“cloud” the way that a director reacts when faced with the prospect
of an OFT investigation. As directors can now be made personally
liable for anti-competitive practices taking place in their
organisations – with or without their knowledge or consent – they
may act in their own interests to seek leniency for themselves,
How directors and
companies can
protect themselves
Directors and companies can best protect
themselves by taking measures to prevent
and detect competition law breaches.
The former could include instituting a
competition compliance programme and
training “higher risk” divisions of the
company, such as sales, purchasing and
marketing teams. Companies will also
need to seriously consider employing a
compliance officer or setting up a compliance
hotline (with, for example, external
lawyers) to answer practical questions
about the permissibility of conduct, as
well as requiring employees to sign annual
competition compliance certifications,
seek consent before attending trade
association meetings (a fertile source of
anti-trust breaches) and to file reports
on meetings with competitors. Other
measures aimed at detecting competition
law breaches could include establishing
a whistleblower hotline, as well as conducting
spot competition audits of “higher
risk” divisions or individuals.
Cartel conduct is by its nature covert and the
individuals involved (often rogue employees)
may go to great lengths to conceal it
The global scene
The UK is not the only country to consider
revising its regulations on anti-competitive
practices. A number of jurisdictions
have recently introduced or are in the
process of considering the introduction
of director disqualification in relation to
competition law breaches, or more specifically,
cartel conduct.
For example, provisions permitting
director disqualification were introduced in
Sweden’s new Competition Act which came
into force on 1 November 2008, and in
2007 amendments to Russia’s Code on Administrative
Violations were made. Similar
provisions already exist in Australia under
the country’s Trade Practices Act.
Director disqualification is being
considered in relation to proposed competition
legislation in Hong Kong, and a
number of jurisdictions including the US,
Canada, and South Africa, provide for director
disqualification under company law
as a result of an individual being sentenced
to imprisonment. According to Robert
Heym, partner in the Munich office of
Reed Smith, in Germany “a director can be
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World Finance | Nov - Dec 2009
rather than act in the best interests of the company. For example,
as Kar points out, a corporate decision to seek leniency is often a
difficult one, involving fine judgments as to the sufficiency of the
evidence available (and whether further investigation is required
before any approach to a regulator should be made) and the financial
and reputational impacts on the corporate both of the conduct
discovered and of a leniency application. If the OFT gets its
way, however, “a director is obliged to act in the best interests of
his or her company but will now have significant considerations
of personal liability to factor into any ‘corporate’ decision to seek
leniency,” she warns.
While lawyers are agreed that tougher enforcement against
anti-competitive practices may be welcome, they can also see the
potential pitfalls. Some are worried that the proposals could cause
more harm than good. As Kellaway at Eversheds points out: “The
new guidelines are said to reflect the need to deter individuals and
not just to punish shareholders through fines, but this seems to ignore
the fact that depriving a company of its experienced directors
will unquestionably punish shareholders – in the case of smaller
companies possibly even more than any fine. The new approach
will also fall exceptionally harshly on smaller businesses where
directors are inevitably more hands on. And yet those businesses
often have less access to advice in an area of law which is specialised
and complex.”
recalled at any time from his position by
the shareholders or a supervisory board
of a stock corporation if the corporate
body is of the opinion that a director has
violated the law and caused a material
damage for the company.”
However, some countries have
had their efforts to introduce more stringent
rules against directors rebuffed.
In Hungary, for example, provisions
intended to provide for two year occupational
bans of executives working for
enterprises found to have been involved
in cartels were declared unconstitutional.
This was because their proposed
implementation did not provide sufficient
protections for the individuals’
rights of defence.
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