Directors have a special responsibility to be well informed about what is happening within the companies they oversee
Directors are critical role models, setting the tone for how business is conducted. Staff look to senior teams for guidance and will mirror their attitudes. If a director has a cavalier attitude to the law, the wider business will most likely follow suit. This is dangerous territory. Ultimately, if something goes wrong and the law is broken, the buck stops with the board and those at the top can face serious personal consequences.
At the Competition and Markets Authority (CMA) we've been ramping up the use of our disqualification power to hold to account individual directors whose companies break competition law. As a result, the risk of director disqualification for those whose companies engage in cartel activity - be that by price fixing, bid rigging (including cover bidding), or market sharing -has never been higher.
The risk of being banned from running their company should get directors sitting up, for obvious reasons. Now you have their attention - here is what you (as trusted board advisors), and they (as business leaders), need to know.
How our disqualification power works
Under the Company Directors Disqualification Act (1986) we can seek the disqualification of a director and ban them from holding company directorships, or from performing certain roles in relation to a company for up to 15 years.
We can do this in two ways:
- By accepting a legally binding undertaking (commitment) from the individual
- By seeking a court order to disqualify.
The main benefit of cooperating with us (option 1) and offering a disqualification undertaking is the possibility of a reduced disqualification period.
How we are using our disqualification power in new ways
We've updated our processes to fit better with the court system - increasing our efficiency to use this power, meaning we can pursue more cases.
In addition, we now consider whether to pursue director disqualification in all cases where competition law has been broken. We scrutinise the responsibility of individual directors to see whether they contributed to the breach, had reason to suspect it but failed to stop it, or ought to have known about it. This has resulted in a spate of disqualifications in 2018/2019.
To date, a total of nine directors have been disqualified for their involvement in illegal anti-competitive practices and we are actively pursuing others.
What our disqualification powers mean for directors at large
Where we find a director was involved in a competition law breach, they might be disqualified and their company can face a fine uplift (increase) as well.
Not knowing is no excuse. Where a director had reason to suspect the breach but failed to stop it or ought to have known about it may also be grounds for disqualification.
Yet despite the dangers, our research shows that competition law risk remains low on boardroom agendas. Just 18% of those polled in our research said their business had senior level discussions about competition law or offered any training on it, trailing far behind health and safety and employment law.
Being clear on competition rules is critical to safeguarding the reputation of your business and the personal standing of the directors that sit on your board. As company secretaries and governance professionals, you play a pivotal role in putting this on the radar of your business leaders.
So how can you help the board get to grips with competition law risks in the business?
At the CMA we have a wealth of advice and information to help, including a quick guide on how to avoid disqualification, and a checklist on how to comply with competition law. You should draw on this advice to brief senior colleagues.
To help you mitigate cartel risks here are 10 questions to ask at board meetings:
- Do we have a clear compliance programme for competition law and are we communicating this through the business adequately?
- What are our present competition law compliance risks?
- Which activities in our business model are likely to create situations where competition law becomes an issue?
- Do we have a healthy culture in our organisation in respect of risk?
- What are the high, medium and low risks?
- Do we provide good channels for staff to get advice on possible problems easily?
- What measures are we taking to mitigate cartel risks in our business?
- Where can staff go to voice concerns about business practices? When did we last review our whistleblowing policy and is it still fit for purpose?
- When are we next reviewing the effectiveness of our risk mitigation activities/compliance programme?
- What training do we have in place for staff on competition law rules?
Recent CMA cases underline the serious repercussions of breaking competition law and what this can mean for directors.
Jessica Radke is Director of Litigation at the Competition and Markets Authority
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.