Symbiosis Law School, Pune
In India, as per the enactment of Competition Act, 2002 (the Act) w.e.f. 14.01.03, Competition Compliance Programs (CCPs) are necessarily required to be set up within the organization or the requisite services may be outsourced. Essentially, CCPs are required because all enterprises are expected to act in consonance with the competition laws of the country. This would ensure that the markets are competitive and there is no abuse of dominance by any player in the market. The key factors that make CCP a necessary requirement are, to prevent violation of competition laws, to encourage a healthy culture of compliance and for good corporate governance. Although, CCP is much broader than corporate governance, it in fact, helps in good governance and thus facilitates in enhancing the reputation of the enterprise.
CCPs are necessary in all kinds and sizes of organizations. There may not be a formalized CCP framework in small organizations but the same must be implemented in some other way in order to generate awareness. CCP is a vital part of competition advocacy and awareness and hence it must meet the changing requirements and should undergo a regular evaluation process. It is an important management tool for good business practice as it clearly defines behavioral standards. Defined standards give the employees knowledge of the regulatory risks faced by the organization in case of violating the standards. This, in the long run is beneficial to both, the organization as well as the consumers. The major advantages of CCP are low risk of an investigation into the enterprise by the Competition Authorities, lesser chances of agreements being void and unenforceable, lesser risk of reputation being hampered, avoidance of litigation due to unlawful conduct.
CCPs not only generate awareness regarding the concerned laws but also train the personnel in an enterprise to follow the said laws. They also help identify the potential discrepancies or disputes that may arise in the near future. The knowledge of competition laws will prepare the employees in a manner to recognize and handle the issues when the enterprise is affected by any anti-competitive agreements. Also, the legal costs of the enterprise are reduced by avoiding violation of competition laws. The enterprises, thus, save time and money by reducing the tedious litigation caused due to anti-competitive behavior.
At the outset, it is necessary to identify the application of competition laws in the sector in which the particular enterprise falls. The risks involved in the said sector should be adjudged and if the same are high, then a convoluted CCP should be set up. The market position of the organization should also be kept in mind while developing a CCP for it. The possibility of the organization having a ‘dominant position’ in the market should also be taken into consideration. All the above mentioned factors will help in devising a suitable CCP for the organization.
At this juncture it may be pertinent to discuss the CCPs introduced by a few other jurisdictions and their comparison with the Indian CCP. It may be relevant to begin with the CCP of the United Kingdom (UK) introduced by the Office of Fair Trading (OFT). According to the OFT, the most important factor leading to an effective CCP is the management’s commitment to compliance. The OFT has also identified the key steps to an effective CCP which are risk identification, risk assessment, risk mitigation and process review. These four steps would ensure that the enterprise is able to identify the potential risks of anti competitive agreements and violations of competition laws. They would also assist the enterprise assessing the said risks beforehand and having solutions to cope with them.
The OFT does not stress on a standard or a rigid CCP but defines four essential elements of a CCP. These may be listed as support of senior management, appropriate policies and procedures, effective training and regular evaluation. The OFT stresses upon updating the CCPs from time to time in order to keep up with the current best practices.
The OFT does not endorse individual compliance programs. According to the OFT, compliance programs must be capable of meeting the changing requirements of the industry and the enterprise must make efforts as part of the regular evaluation process to ensure that the compliance program continues to be relevant. In these circumstances endorsement would be inappropriate. The OFT states that in addition to their powers under the Competition Act 1998, the sector regulators continue to have powers under the legislation specific to the sectors they regulate. In certain circumstances they may use these powers to order a business to submit a compliance program. This does not, however, mean that OFT would be willing to endorse individual program.
It may be pertinent to draw light upon the CCP devised in the United States of America (USA). Antitrust laws in the USA are regulated by two agencies namely, the Federal Trade Commission’s (FTC) Bureau of Competition and the U.S. Department of Justice Antitrust Division. According to these agencies, a sound antitrust compliance program should have two principal objectives, prevention and detection.
These agencies state that a corporate compliance program generally does not protect the enterprise from prosecution neither does it protect it from potential liability. Therefore, every enterprise’s first objective in its compliance program should be to prevent wrongdoing. A well-designed compliance program may also, in some circumstances; help the enterprise qualify for sentence mitigation under the sentencing guidelines of the agencies. But it may be relevant to stress upon the fact that once a violation occurs, a compliance program can do little, if anything, to persuade the Antitrust Division of the U.S. Department of Justice not to prosecute.
The U.S. sentencing guidelines set down seven minimum requirements that a compliance program must satisfy in order to qualify for sentence mitigation. These are, clearly established compliance standards, assigning overall responsibility to oversee compliance to high-level executives within the company, exercising due care not to delegate responsibility to employees who have a propensity to engage in illegal conduct, taking reasonable steps to communicate standards and procedures effectively to all employees, taking reasonable steps to achieve compliance with standards, consistent enforcement of standards through appropriate disciplinary mechanisms, and taking reasonable steps when an offense occurs to respond and to present future violations.
It has been further stated by the agencies that culture of competition must be inculcated at the top management level of the company. Senior management must value competition and must be vocal in making that commitment known to employees. In addition to strong, positive leadership, it is important also that an enterprise should have sound incentive structures in place. There should be strong negative incentives against violating the antitrust laws and strong positive incentives for reporting and deterring violations. But enterprises should also have incentives that reward tough competition, not collusion.
Lastly, it would be relevant to take a look at the guidelines issued by the European Commission (EC) to devise a sound CCP for the enterprises in the European Union countries. According to the EC, the risks of non compliance of competition laws are employment sanctions, criminal sanctions, actions against the plan, large civil damage awards, disclosure of confidential commercial information, loss of time and business losses.
The EC further stresses upon the importance of a compliance officer in every enterprise and his duties. EC states that the compliance officer has an overall responsibility for ensuring compliance with the enterprise’s anti-competition policy. Potential violations of the anti-competition policy or the anti-competition laws should be reported to such officers and the officer has a duty to take it up to the senior management.
After looking into the CCP guidelines laid down by the various jurisdictions including India, it may reasonably concluded that a well planned and exhaustive CCP would be beneficial to all enterprises irrespective of their size, area of operation, jurisdiction involved, nature of products supplied or services rendered. Such a CCP would also facilitate the enterprise to make better use of the Authorities in taking remedial action if it is affected or likely to be affected by any anti-competitive behavior of its competitors. It may be suggested that enterprises need to undertake review of their marketing arrangements, market position and policies, restructuring , if any, in the pipeline so that they can take timely corrective measures or align their policies conforming to new competition regime.