Competition law, anti-bribery and anti-corruption (ABC), and personal data protection are all essential (but not exclusive) components of a robust legal compliance program. In companies where no such program is in place, employees may nevertheless obtain a general understanding of ABC compliance via mainstream media, and of personal data protection via the numerous GDPR awareness campaigns on social media. Awareness and understanding of competition law, however, is often less robust, and this is especially true outside the United States.
This article provides thoughts, observations, and practical guidance from both the in-house and outside counsel perspectives to help ensure your company practices effective competition law compliance. We know that every company’s in-house legal and/or compliance functions differ in size, scope, and role, but we believe that many of these thoughts and observations are applicable to all.
From the In-House Perspective
Where to Begin
A targeted approach to delivering an effective competition law compliance program (as part of a wider legal compliance program) is vital to ensure that the key messages are absorbed and practiced by all colleagues, including those who have never worked with in-house lawyers. This process can be challenging, especially for the sales and legal teams, because it can reveal cultural differences between in-house lawyers and their nonlegal colleagues. Sales colleagues, for instance, may on occasion push back if they perceive in-house lawyers as blocking essential sales activities; therefore, it is crucial that a competition law program wins credibility by demonstrating added value to commercial activities. When this confidence and trust are established, they can serve to empower a mindset and organizational culture of compliant sales.
Make It Relevant
There is no better way to establish trust than to show colleagues that your role is to support their role and activities. So, treat colleagues as customers, and ensure that you understand the way they do business before advising them on competition law compliance. In practical terms, this means identifying their unique processes in the documents and training materials that you create.
Using templates and one-size-fits-all materials, without tailoring them to the particular issues and business, risks undermining the opportunity to build a relationship of trust. However, working together to create policies, processes, guidelines, and training that support the creation of legally compliant methods can produce significant results. It is also equally important to demonstrate a commitment to supporting commercial activities by being solution-orientated. For example, establishing an ethical wall between purchasing and sales that allows an important activity to take place while ensuring that restricted information flows are not compromised is a common example of a practical solution that also reduces risk.
Make It Understandable
Even lawyers don’t like legalese, so we do not recommend imposing it on your nonlegal colleagues. Instead, draft practical policies and guidelines in plain language and include examples that relate to the business at issue. Remind colleagues from time to time that competition law programs are there to protect the profits of the business by avoiding fines, investigations, and litigation. Compliance programs provide important policies and training that aim to protect the company against revenue loss and reputational damage, and to protect employees from potential personal liability. Periodically, share with business colleagues recent news items relating to other companies in the same (or similar) industry that ran afoul of competition laws. Highlight the impact on both the infringing company’s business and personnel, and consider using these examples as case studies in any future training sessions. These messages, alongside a tailored competition law compliance program, will begin to demonstrate the real added value of the program and help gain the trust of colleagues.
Make It Visible
We recommend that you create and maintain a dedicated and easy-to-locate space on the company intranet to post policies, processes, and guidelines. Promote new policies, processes, and guidelines internally. Don’t overload colleagues with too much information, but create sufficient awareness so that they know how to identify a potential competition law issue and who to contact within the compliance team for inquiries. Then, make yourself approachable and accessible for discussion of these issues with colleagues to enhance their understanding of the law, to troubleshoot, and to find a solution to their situation within the competition law compliance parameters.
All-employee meetings or other large business meetings can be used to deliver presentations that review competition law concepts or introduce new competition law initiatives. Introduce daily reminders—for instance, following a recent meeting, Kyocera Legal provided nonlegal colleagues with a competition law desk card setting out key principles in bullet points. It was a useful and fun takeaway from the meeting, and Kyocera’s nonlegal colleagues are now encouraged to keep these cards on their desks for easy reference. Their presence contributes to creating the mindset and organizational culture of competition law compliance.
We have found that different people learn in different ways, so using varied approaches—for example, formal presentations, informal discussions, and/or daily reminders—will enhance the effectiveness of your competition law compliance program. It is also important to recognize that different personnel come to your company with different knowledge of, and attitudes toward, competition law. Some personnel have worked at organizations where legal compliance and understanding were important values. Others may come from organizations where the law and the legal department were viewed as obstacles to avoid or ignore. The most effective legal compliance leaders will actively seek to identify personnel in this latter group and take steps to educate them, helping them to develop new values that are consistent with their new company’s views on compliance.
Choosing External Competition Law Advisors
The purpose of a competition law program is to support a serious message. Creating an interesting or fun initiative that aims to maximize learning and engagement is important but should not detract from the premise that the legal principles of competition law are non-negotiable. Strengthening this critical message will require expertise on competition law topics in addition to implementing operational activities. It is vital to select external competition law advisors with whom you can effortlessly communicate so that you can absorb the information they provide and, in turn, confidently explain the legal issues to the business.
Supporting as Outside Counsel
Beginning Basics and a Reaffirmed Importance
According to business leaders, competition law is one of the top-three threats to organizations (along with IT and fraud), yet it is not uncommon to see low compliance effectiveness in the competition area. The biggest barrier that we see to effective competition law compliance programs is the traditional attitude of some businesses toward compliance and the way in which compliance teams are kept at arm’s length, separate from key business decisions.
Compliance programs work largely out of sight to protect companies from risk in the form of, among other things, investigations, regulatory violations, and litigation. When they are working well, there is little need for business leaders to consider their function and, as a result, the contribution of compliance is counted in cost rather than in value. Perhaps unfairly, compliance functions are often viewed as the police rather than as partners, and as a hindrance to growth and innovation.
This misconception belies the significant responsibility shouldered by compliance teams in today’s increasingly complex and punitive regulatory environment, and fails to acknowledge the crucial role those teams play in protecting a company’s value and brand. Indeed, research shows that an effective “connected compliance” program has a positive impact on the top, as well as the bottom, line. Strong compliance is not only good practice, it is good business. For instance, an executive’s knowledge of the competition laws can be the difference between breaking the law—and potentially facing a prison sentence—and not.
Connected compliance envisages a fully integrated compliance function that is connected to the business and plays an active role in strategic thinking and growth decisions. It rejects the traditional image of a siloed compliance team, where there is no collaboration among departments and where, to employees, compliance means an annual “tick box” exercise, a multitude of complex policies, and a high degree of self-management based on an employee’s own “moral compass.” Indeed, although we observe that business managers have taken more interest in compliance—as they observe longer jail sentences for antitrust violations in the United States—an overwhelming 60 percent still believe that the compliance team takes sole responsibility for good governance.
It Is Everyone’s Responsibility for a Reason
In effective programs, clear responsibility for compliance is given to specific individuals, or “compliance contacts,” who sit within strategic business lines and are involved in determining a company’s growth plan and risk appetite. Clear, simple policies and procedures are outlined, but most importantly, responsibility for compliance is shared across every business division and every organization. This creates a culture of compliance from the top (i.e., senior-most leadership) down so that compliance becomes everyone’s concern and everyone’s responsibility.
Such compliance integration is not a new concept, but some in the business community have been slow to embrace it. Research shows that companies have made little progress in improving critical connections among different business functions or in addressing gaps in compliance accountability among employees at all levels of the business.
For example, take M&A activity, which is on the rise as companies pursue aggressive growth and innovation. M&A activity necessarily involves high risks, cultural upheaval, and regulatory scrutiny, but we observe that many compliance teams are not consistently included when planning and implementing deals. Research by Baker McKenzie shows that fewer than one in five companies involves compliance “substantively” in planning and implementing M&A deals, whereas almost half bring in compliance when selecting new business partners. More than a quarter of respondents admitted to deliberately keeping compliance out of the loop for fear of issues being uncovered and plans derailed. This has serious consequences: on average, 40 percent of organizations that acquired a new business admitted to uncovering compliance issues within that business only after the acquisition.
Not only does this approach increase a company’s risk exposure, it also negates a company’s opportunity to tackle compliance risks during the deal process and to best negotiate the terms of the deal. In short, it risks undermining the value of the investment the company has just made. Most seriously, legislation empowers authorities to hold companies accountable for failing to prevent noncompliant activity, so the “don’t ask, don’t tell” approach sometimes adopted by companies is an insufficient defense in many circumstances.
What Does It Mean?
Promoting an effective compliance program is not only in a company’s interest in the long term, but is arguably an immediate necessity as well. More than half of respondents to a survey conducted by Baker McKenzie are aware of a hidden compliance breach in their organization that is yet to surface to the regulator or the public. Two-thirds of compliance chiefs expect breaches to rise as regulation becomes more complex, and as agencies and prosecutors promote more aggressive enforcement policies. Such enforcement has been particularly apparent for competition law violations, where recent high-profile, high-penalty cases have raised the perceived risk level. Indeed, leaders view competition law as the number-one threat for business compliance, yet competition law is not a top priority in many strained compliance budgets, which often focus on developing “adequate procedures” as a compliance defense in other legal areas, such as bribery and tax evasion.
In spite of these growing risks, more than a third of companies are planning to reduce the compliance services offered to the business as a way of cutting costs. Although there are strong commercial realities—and we know that in-house legal and compliance departments face significant workloads beyond their “compliance” work—businesses must not lose their focus on compliance. Businesses should and can adapt their compliance functions to match the evolving landscape, much like any other business segment. Developing a compliance program that is agile, collaborative, and above all connected will ensure its effectiveness and protect the company’s brand and value.
There are many aspects to developing, implementing, and maintaining a comprehensive compliance program, and this article does not endeavor to cover them all. However, we hope that our observations and practical guidance provide an overview of the importance of developing a comprehensive and dynamic compliance program.