Last month we discussed antitrust law: what it tries to achieve, how it works, and examples of antitrust law around the world. Today let’s continue that exploration with the next logical step for corporations: antitrust compliance.
What is an Antitrust Compliance Program?
Antitrust compliance programs are just what the name implies: a set of policies, procedures, and internal controls to help a company comply with its obligations under antitrust law.
Since most countries have some sort of antitrust law, and antitrust offenses can vary in how they unfold and the harm they do, these compliance programs can involve quite a number of moving parts.
For example, one antitrust offense is bid-rigging, where several companies conspire to coordinate their bids on a transaction—say, building a bridge or buying raw materials. Another offense is monopolization, where one company amasses so much power in a market that it can raise prices on consumers with impunity.
Both actions violate antitrust law, but they’re very different types of misconduct. An effective antitrust compliance program would need to police against both types of abuses. That would involve everything from policy development and documentation (for bid-rigging) to due diligence and internal control (for monopolization).
And those are only two generic examples of antitrust compliance. The full range of antitrust issues is much more complex than that and poses a formidable challenge to corporate compliance officers.
Key Points of an Effective Antitrust Compliance Program
The good news is that antitrust compliance programs should follow the same basic structure as any other compliance program, as laid out by the U.S. Sentencing Guidelines and the Justice Department's Guidance on Effective Corporate Compliance Programs. Those components should sound familiar to any compliance officer who has already worked on anti-corruption, fair labor practices, or other regulatory issues.
Risk Assessment
Antitrust abuses come in many forms. The compliance program should be able to assess how the company’s operations—everything from contract preparation, to acquisition strategy, to sales communications, to idle chit-chat employees might have with competitors at the airport—might violate antitrust law. The risk assessment should also dissect how the company’s current policies and controls do (or don’t) keep those risks at acceptable levels.
Policies and Procedures
Once the company does know its antitrust risks, it should go about crafting any policies or procedures necessary to keep the risks in check. For example, the company might need a clear, written policy against “tying,” the practice of not selling Product 1 to a customer unless he or she also agrees to buy Product 2. Or the company might need a procedure to review bid submissions, to assure that employees aren’t quietly working with rivals to take turns on lucrative contracts.
Internal Reporting Channels
As always, the company should have some system to allow employees or other third parties (including competitors or joint venture partners) to raise questions about potential antitrust abuses. This particular component can be fairly straightforward for compliance programs since most large businesses already have reporting channels for a wide range of concerns; antitrust can be just one more, piggy-backed on the existing system.
Training and Communication
Employees will need guidance on what is or isn’t an antitrust violation, in the form of training that they can understand and is relevant to their daily routines. This is especially important because at least some antitrust violations might stem from the employee believing he or she is acting in the best interests of the company: “Of course I wanted to tie all these product purchases together—that means more sales!” Employees should receive training on what a violation is, how it might happen given what they do in their jobs, and what they should do if they believe a violation has occurred.
Mergers & Acquisitions
Mergers and acquisitions pose two challenges for antitrust compliance. First, any antitrust abuses that happen at an acquired subsidiary will now become the parent company’s problem—so, as always, due diligence should be performed on M&A targets to identify possible misconduct and develop remediation plans. Second, M&A deals can be an antitrust risk unto themselves, if the deal would result in too much power concentrated in one firm—so each deal should be reviewed to study market share, pricing power, and disclosure requirements under the Hart-Scott-Rodino Act.
Periodic Assessments of Effectiveness
The compliance program should evolve with company operations, which means regular assessments of how well the program is working. For example, a new CEO might embrace a highly acquisitive growth strategy; so the compliance program will need stronger M&A analysis capability. Or the company might decide to sell follow-on services in addition to products; that might require new policies about tying. As a rule of thumb, the compliance program should be evaluated at least once every few years, or any time the company undergoes a strategic shift that brings new antitrust risk.
Tone at the Top
Lastly, leadership matters. Senior executives should stress in the Code of Conduct, employee meetings, and other messaging that the company always strives to obey the law and conduct itself fairly—and that the standard of ethical rigor applies to antitrust issues as much as it does corruption, harassment, or any other corporate misconduct.
Why Are Antitrust Compliance Programs Important?
If for no other reason, antitrust compliance programs are important because the consequences of antitrust violations can be severe.
For example, the Justice Department can bring civil or criminal charges against a company or individual for antitrust violations. Just this month, we saw the former CEO of one of the country’s largest poultry businesses indicted for price-fixing. In another case, the former CEO of a large tuna manufacturer was sentenced to 40 months in prison in a price-fixing case, and the company itself paid a $25 million fine. Another tuna company involved in the scheme paid $100 million.
State attorneys general and even civil litigants can also bring actions against companies over antitrust issues, with settlements sometimes running into the hundreds of millions or even billions of dollars. So the financial consequences of antitrust violations can be painful.
The consequences of reckless M&A deals can also be expensive. Both the Justice Department and the Federal Trade Commission have the authority to review proposed mergers and insist on changes, such as divestiture of certain operations or restrictions on future business practices. In the worst scenarios, regulators can file litigation to block or undo a merger. Such proceedings can take forever to resolve, cost a fortune, and be strategically disastrous.
On a practical level, antitrust violations often involve multiple companies conspiring together—and the first company to cooperate with regulators in any investigation will typically receive the most lenient treatment. So antitrust compliance programs that promote voluntary self-disclosure and cooperation with government investigations are crucial, because if your company doesn’t go first, others might, and then you’re left to face more serious consequences.
To start developing your antitrust program, make sure you read our blog on How to Build a Compliance Antitrust Process.
Matt Kelly is an independent compliance consultant and the founder of Radical Compliance, which offers consulting and commentary on corporate compliance, audit, governance, and risk management. Radical Compliance also hosts Matt’s personal blog, where he discusses compliance and governance issues, and the Compliance Jobs Report, covering industry moves and news. Kelly was formerly the editor of Compliance Week. from 2006 to 2015. He was recognized as a "Rising Star of Corporate Governance" by the Millstein Center in 2008 and was listed among Ethisphere’s "Most Influential in Business Ethics" in 2011 (no. 91) and 2013 (no. 77). He resides in Boston, Mass.