1. INTRODUCTION:

The rapid pace of globalisation has brought many corporate responsibilities and additional management challenges for the enterprise in terms of legal compliance. Specifically, the enterprises presents in global level and domestic level comes under many domestic laws as well as international laws and regulations. Mainly, there are two laws such as competition law and company law by which modern enterprises are governed. And from an enterprise perspective, compliance of corporate governance and competition law are the two crucial pillars that project the enterprise in the frontline of business world.The non-compliance of such laws and regulations invited heavy penalties from the regulators and simultaneously loss of good will in terms of reputation damage and financial loss. Therefore, starting from the large corporates to small are equally responsible and accountable upon the violation of such laws and regulations. A suitable action plan is utmost essential towards compliance of such laws in order to avoid any future actions by regulators.

Further, corporate compliance helps enterprise to controls the internal disciplines and governance in terms of relationships between officers, directors, managements and shareholders, and the competition compliance in the other hand, controls all the external conduct of the enterprise in the market.Therefore, competition compliance is understood as the action plan or compliance initiatives taken by enterprises to limit the risks associated with costly managerial mistakes and welfare reducing behavior. Additionally, the recent competition law demands that all the trades and businesses activities should follow their business activities in accordance with its provisions with more responsibilities and accountabilities. These accountabilities and responsibilities are not only restricted to corporates but also towards its staff members such as directors and senior managements etc.

Thus it is important for the enterprise to keep themselves informed, updated and must comply with the laws and regulations, which are complex but essential for better enterprise governance. Though it may appear that both laws are unrelated but compliance of both the laws is important for enterprise’s existence. This article provides the significance of competition compliance from corporate perspective.

2. RELEVANCE OF COMPETITION LAW COMPLIANCE:

The main goals and objectives of the competition law and policy ensures economic growth, consumer welfare and overall welfare by promoting market conditions in which the nature, quality, and price of goods and services are determined by competitive market forces. In addition to that the competition law restricts anticompetitive behavior, ensures full protection to consumers, business and trade in order to liberate customer welfare, dynamic market and enhance productivity and Innovation. But in other hand, the non-compliance of competition law by enterprises to gain and maximize their profits through adept strategic behavior, face-off in serious consequences, which costs corporate houses in terms of economic and social loss at large. An effective compliance has greater benefits than the gain achieved from non-compliance. The compliance of competition law gives the enterprise long-term value in terms of risk of facing anti-competitive enquiry and heavy penalties to the enterprise. Thus the compliance statuses are not the obligations for enterprise rather it brings up the positive corporate governance image and long-term benefits in the business.

In the enterprise, these are few factors that encourage competition compliance such as fear of monetary sanctions imposed on corporations or individuals, fear of imprisonment, fear of damage to individuals or corporate reputation, morality, good training, employer-driven incentives for employees, rewarding compliance and/or penalising non-compliance, desire to avoid the diversion of the company’s attention that competition investigations and litigation cause and finally a competition culture within an enterprise. Similarly, the drivers of non-compliance of competition law includes the factor as uncertainty of laws due to the non-compliance culture, mixed signals of compliance among the senior managements, and the ignorance of the legal consequences.¹

A. Reasons of Compliance of Competition Law

Possibility of monetary sanctions: The possibility of huge financial loss is one of the drivers of competition law compliance. The recent cases and huge financial penalties by different competition authorities across the world are the evidence of such activities. The violation of competition law at the firm level or individual level creates a credible threat of penalties and the amount of the financial penalty must exceed the expected gain from the violation. In this context, the possibilities of financial penalties to firms and individuals are the driver of competition law compliance. However, in the individual case, the decision makers in the firms are sole responsible for non-compliance of such law and therefore to comply with the legal mandates of the law. Similarly, the possibility of civil and criminal sanctions against the individuals, forced to comply with competition law.²

Possibility of imprisonment: As mentioned in the above point, criminal sanctions against the individual decision maker is one of such drivers that encourage firms and decision makers to properly comply with the competition law. In this context, most of the competition authorities across the world have taken steps of criminal sanctions against the individual to fight against the hard-core cartel. Therefore, threat of jail sentence for a businessman is beyond imagination for a business tycoon who spends luxurious life. In addition to that it has a reputational factor that involved with him and to the firm. So it is known as one of the strongest driver that firms and individual generally avoid and comply with the competition law.³ However, in India Criminal sanctions are not in placed by the CA 2002.

Possibility of Damages to Individual and Firm reputation: One of the primary objectives of each firm is to protect its reputation in the market by owing consumers trust. The same is applicable to the professional Individual, where big business tycoons are very sensitive to maintain their name and fame in the market. Therefore, this is one of the drivers of competition law compliance, where firms and individuals are very responsible act to comply with the competition law provisions. Because they know that the infringing the competition law, lands them in nowhere in the market and that damage not only hamper the reputation of the firm but also impact on loss of revenue, customers, consumers, partners, employees, and the destruction of shareholder value.

Effective compliance training programs: The adoption of effective compliance programme is one of the key drivers of competition law compliance. The firms must design and train their employees on competition compliance programme starting from the top to bottom on their respective field. These kinds of awareness programme ensure the risk associated with competition law violation by staff. Nonetheless, it has been argued that employees inclined to engage in anticompetitive practices can learn from compliance training programs how to engage more effectively in anticompetitive practices or how to avoid being detected and punished for the infringement of the competition law provisions

Morality and Ethics: These are two primary objectives of the corporate governance norms. The firms and each employee working in should be very responsible and accountable for each action. Therefore, the morality and ethics of each staff and firm must be focus to not violate any laws; regulations and the same time perform honestly without any crime in mind. The corporate crime is one of the important factors that impact the firms and individual equally. A good compliance programme and proper strategy plan may help the firms and staffs on these aspects.

Fear of costly litigation and investigation: Violation of competition law by firms leads to costly litigation and investigation. Therefore, this is one of the driver by which firms comply with the competition law. Generally, firms avoid to be investigated and drag to any litigation on the violation of competition law because they understand that will damage their reputation in the market.⁴ In addition to that there is chance of monetary, compensatory damage along with number of prosecutions possible in the case of private action for the infringement of competition law. That forces the firms to comply with competition law for better business.

Better Compliance Culture: Lack of competition compliance culture among the firms leads the firm towards more complexity and danger in terms of financial damages, reputation damages and stringent penalty. Therefore, firms are now more focused and concerned on competition compliance culture. Corporate culture is the set of enduring and underlying assumptions and norms that determine how things are done in an organization. Hence, a genuine corporate culture is based on shared beliefs, values and understandings that shape the behavior across the organization.

B. Reasons of Non-compliance of Competition Law:

Non-compliance of Corporate Culture: Many countries have adopted competition law recently and few are on the process and that gives enough space for non-compliance of competition law culture among the firms. Further, the role senior managements towards the firm are very crucial but their role towards the non-compliance of competition law culture helps the firm not too serious about competition law. Therefore, the existence of the firm depends upon the strategy, decisions and most importantly the compliance culture developed by these top managements. The top managements and directors must encourage cultivating a competition law compliance culture within business as this will help reduce the risk of fines being imposed upon the enterprise or on them personally.

Lack of legal knowledge and other experts: One of the non-compliance of competition law drivers is lack of competition law knowledge and experts in the firms. Generally, the competition compliance requires the knowledge of economics and law and therefore a firms need experts from legal background and other necessary background for taking any major business decisions. But it has been seen that most of the time the decisions are being taken by top managements without following the basic legal steps and other steps required, to get benefited. In addition to that in certain circumstances the potential violator knowingly violates the competition law due to earn profits because the punishment cost is lower than the benefits earned.

Competition Compliance Department: generally, the firms do not focus on the compliance mechanism, if yes in certain cases but not in stricter sense. The establishment of compliance department should be one of the main concerns for every firm that may be used as a watch dog on different anti-competitive activities of the enterprise. Further, the enterprise should appoints different experts in the competition, who can really add value in terms of advice to the company in different crucial time along with the promotion of compliance culture inside the enterprise. The non-establishment of the competition division is one of the drivers of non-compliance of competition law.

Certain market condition: Sometimes market condition itself favors firm, as there are no proper transparency and information to the commission regarding the infringement of the competition law. For instance, markets where there is a small number of players, price transparency, a homogenous product, continuous exchanges of information among competitors, or public signals about planned price or output level, tend to facilitate the formation of cartels. This particular factor leads to the non-compliance of competition law.

3. ROLES AND RESPONSIBILITIES OF SENIOR MANAGEMENTS: FEW CONCERNS:

In contemporary world, most of the enterprises at domestic as well as global level have taken initiatives towards Competition Compliance Programme to avoid the risks and to save the enterprise from enormous costs involved. The support of Senior Management must be visible, active and regularly reinforced. Commitment of senior management must be driven from the topmost level to take responsibility for its implementation. However, many cases the lack of coordination among senior or junior staffs creates unnecessary problems such as non-compliance of many laws.

A. Directors and Senior Managements in Company

Directors are the senior most officers in the enterprise, who engaged with all the compliance culture of the enterprise that restrict the enterprise in terms of risk of fines and penalties. In a modern enterprise, directors, including the non-executives, are expected to have the knowledge of competition law, as the competition compliance is acrucial matter for their enterprise. In EU and UK, the regulators imposed savior penalty on directors of the enterprise those indulge the failure of non-compliance of competition law. In addition to that, the regulator expected that every director must know the price-fixing, market sharing and bid-rigging agreements is unlawful. For example, last year the Competition and Markets Authority (CMA) has banned director for violating competition law⁵. Similarly in India, Competition Act 2002,section 48⁶and section 27 deals with the provision relating to on contravention of any provisions of the act in the enterprise by any person. However, in recent year, the competition commission of India has started seeking individual culpability in different cases not in strict sense but precedent on the subject. However, it has been seen from the past orders passed by CCI in 40 cases, where the CCI has imposed penalty for contravention of the provisions of the Act, approximately in around 9 cases the CCI has either imposed penalty on individual and in approximately 7 cases decided to pass orders imposing penalties on individuals after responses and income tax returns are received from the individuals identified by the Director General (DG) during investigation.⁷ This particular move by CCI has received mix result from the corporate world. Few argued that this cannot be ignored as the individual culpability would help improve compliance of competition. Whereas other groups of corporate opinioned thatindividual culpability will harm the enterprise from taking risks and being innovation as most of the directors’ lose confidence in taking decision. Similarly, the CA 2013 under Section 134(3)(c) read with Section 134(5)(f) requires Directors’ Responsibility Statement, which shall state that the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. As Competition law is applicable to all companies, the directors of corporates in India are required to achieve compliance with the provisions of Competition Law, as well. So in the broader context, this would create directors and the top decision makers more responsible while taking the decision for enterprise. Further, the proper implementation of competition law and compliance of competition law will help the enterprise stand strong with dignity and handful of opportunities.

B. Role of Company Secretary

The CA 2013⁸, states that company secretary comes under the key managerial person in an enterprise, who is responsible and accountable for all enterprise’s compliance activities. It will not be wrong, if the company secretary is called as proactive compliance officers or governance secretary of the modern enterprise. The modern enterprises, engaged company secretary in most of the board meeting to advise them in terms of comply with all statutory duties under the law, disclosure obligations, listing rule requirements and maintain professional standard with internal standards.⁹But these below points are few concerns seen at the enterprise level:

· In many circumstances, the role of company secretary is limited in many cases in terms of taking decisions, advise to board members in an enterprise, which are primarily dominated by other senior officers or directors of the enterprise.

· In an enterprise, a Company Secretary may specialize only in corporate governance certification under Clause 49 of the Listing Agreement and may not specialize in FEMA matters, competition law matters and other regulatory matters.¹⁰

As competition law is one of the important regulatory laws for enterprise, the company secretary required to ensure about the knowledge, expertise of compliance of competition law. Section 35 authorizes a company secretary holding a certificate of practice under Section 6(1) of the Company Secretaries Act, 1980 to appear before CCI. In addition to that the Clause 49 of the Listing agreement of SEBI includes compliance of Competition Act, 2002. Therefore, it becomes the primary duty of a company secretary to guide and give proper direction andadvise the company to comply with provisions of the Competition Act, 2002.

C. Other Issues related to different division:

In most of the time, it has been observed that the huge challengesfaced by enterprises for adoption of a good competition compliance programmeare the enterprise behavior itself. There are few concerns, which every enterprise should look at for smooth compliance of laws.

1: Enterprise Internal Governance: The enterprise’s internal governance and ethical standards is one of the area concerns where the enterprise commitments, a genuine competition compliance programme and finally the initiatives of top managements towards the compliance are few areas where enterprise fails to maintain a good competition compliance programme.

2. Lack of Compliance Training Programme:It has been seen that most of the enterprises failed to maintain the competition compliance need of the enterprises. One of the issues may be the lack of effective competition compliance programmeinside the enterprise, in terms of providing training programmes and awareness programmes,which restrict the employees to understand the competition law. It is important for every enterprise to focus on the awareness and training programmes for its employees, especially those staffs who handle the competition compliance section.

Lack of Compliance Culture: Generally, enterprises mainly focused on corporate governance standards and not serious about the compliance of competition law. The behavior of the enterprise leads the enterprises towards more complexity and danger. The lack of competition compliance culture, violates competition law provisions that hugely impact the enterprises and its associates in terms of financial damages, reputation damages and stringent penalty. Therefore, enterprises should follow the corporate governance standards along with the competition compliance to establish a better compliance culture inside.

Competition Compliance Department:In India, enterprises do not focus on the compliance mechanism, if yes in certain cases but not in stricter sense. The establishment of compliance department should be one of the main concerns for every enterprise that may be used as a watch dog on different anti-competitive activities of the enterprise. Further, the enterprise should appoints different experts in the competition, who can really add value in terms of advise to the company in different crucial time along with the promotion of compliance culture inside the enterprise.

Knowledge and Awareness on Competition Law: Many enterprises face challenges due to lack of legal and business knowledge expertise relating to competition law, which lead them into non-compliance. Compliance of competition law requires expertise’s that have proper legal knowledge of competition law and the commitments of managements to support and equally dedicate them for the same. In India, competition law is a new subject and the experts in competition laws are in few numbers. Therefore, this may be one of the concerns for enterprises to seriously look at the legal expert which can save them from infringement of competition law.

4. CORPORATELEVEL: ACTION PLAN REQUIRED:

Compliance Culture for Good Corporate Governance:

In an enterprise, the senior managements are the sole decision makers of day-to-day business activities including the long-term strategy makers. Therefore, the existence of the enterprise depends upon the strategy, decisions and most importantly the compliance culture developed by these top managements. The top managements and directors must encourage cultivating a competition law compliance culture within business as this will help reduce the risk of fines being imposed upon the enterprise or on them personally. The fact that one director has a compliance function does not absolve other directors from their overall responsibilities for compliance with competition law

Further, it is the duty of the top managements to encompass the important function and should ensure different education programme such as board programmes, competition law programmes for every staff starting from the board to the junior staffs according to their profile and functions. In addition to that they should timely review the training programmesoffered and update the relevance of the programme for better compliance. Likewise, a positive awareness and approach is essential for an enterprise to train their staffs about the key competition issues by giving competition law training.

Key Managerial Personnel as Corporate Gatekeepers

In modern enterprise, the competition compliance requires the knowledge of economics and law. As board members, compliance officers and other senior officers of the company, must go for compliance programme or conduct such programmes in house for training and awareness purpose that strengthen the corporate governance standards, helps in knowledge enhancement of the employees to other senior staffs in adoption of competition compliance culture for the enterprise. Similarly, the legal officers and compliance officers are responsible for stakeholder relationships with key regulators to meet their demands and comply with the different standards of laws.¹¹

Further, the enterprises need to focus on their internal audit system along with competition compliance audit. The competition compliance audit helps enterprise to review the business practices and find the risk associated with legal prohibitions or detect the actual and potential violations of competition laws. The competition audit further ensures about good competition compliance programme for enterprise along with the review of each agreements, company documents, contracts including electronic files and interviews with relevant employees and key officers of the enterprise who deal with competitors, customers or suppliers. Therefore, competition audit is one of the important aspects of competition compliance for enterprises.

Competition Compliance Programme:¹²

The advantages of setting up a competition compliance programme helps enterprises in many ways, these are: (a) helps enterprises to track or follow the various laws, statues, rules, policies time to time (b) It also works as a watch dog on all anti-competitive practices (c) the compliance officers and other senior officers are also benefited and updated about the changes in any laws and finally, it not only helps in reducing the risk of contraventions but also facilitates timely detections and can be useful in mitigating penalties by suggesting disclosure of information at the first opportunity.

Compliance Manual: Compliance manual is one of the important aspects where the enterprises should not only focus but also take initiatives to develop the manual for all round development of the enterprise. Further, the enterprise also need to develop the compliance manual with proper guidance and inputs from experts from legal, economics, accounts and finance sectors. This manual should be distributed to each staffs of the enterprise with an instruction to compliance of the provision of the act including the obligation to inform the Compliance Officer of any changes in the business environment and market scenario that may have bearing on compliance.¹³

5. CONCLUSION:

In recent decades, enterprises face heavy penalties by infringing the competition law. The non-compliance of competition law, the CCI gets enough power to investigate and impose penalty that may cost enterprises in terms of reputational damage, heavy fines and loss of business opportunities. As we know, the modern enterprises are more focused towards achieving the vision and mission targets. The primary duty of the enterprise should be the establishment of good corporate compliance culture and proper training to the staffs. The roles of the senior managements of the enterprise are crucial in all aspects. Therefore, the responsibility starts from the management to the lower staffs for a better governance practice and successful business.

6. REFERENCE:

1. Promoting Compliance with Competition Law 2011, Competition Law and Policy, OECD. Available at http://www.oecd.org/daf/competition/Promotingcompliancewithcompetitionlaw2011.pdf.

2. Becker, Gary S. (1968), ‘Crime and Punishment: An Economic Approach’. 76 Journals of Political Economy, p. 169; and Landes, William M. (1983), ‘Optimal Sanctions for Antitrust Violations’. 50 The University of Chicago Law Review, p. 652.

3. OECD (2003), p. 18; OFT (2010A), Drivers of Compliance and Non-compliance with Competition Law: An OFT Report, May 2010, p. 30.

4. William Kovacic describing the characteristics of U.S. private antitrust litigation and how this promotes better compliance of the antitrust rules: KOVACIC, William E. (2003), ‘Private Participation in the Enforcement of Public Competition Laws’. British Institution of International and Comparative Law. Third Annual Conference on International and Comparative Competition Law: The Transatlantic Antitrust Dialogue. London, May 15, 2003.

5. The Competition and Markets Authority (CMA) has, for the first time, used its power to ban a director for breaches of competition law. In August 2016 the CMA found that Trod Ltd and GB eye Ltd had entered into an anti-competitive arrangement for retail sales of licensed sport and entertainment posters and frames (including poster frames) which they both sold on Amazon UK, having agreed not to undercut each other on prices where there was no cheaper third party seller on Amazon UK. They had utilised automated software to implement the arrangement. Trod Ltd was fined £163, 271. In December, the CMA announced further action, this time against Mr Daniel Aston, who was Trod's managing director at the relevant time. The CMA found that Mr. Aston had personally contributed to the breach of competition law, and concluded that his conduct made him unfit to be a company director for a specified period. The CMA may, under the Company Directors Disqualification Act, seek the disqualification of an individual, either by court order or legally binding undertaking, from holding company directorships or performing certain roles in relation to a company for up to 15 years, where that individual has been director of a company which has breached competition law. The CMA accepted an undertaking from Mr. Aston not to act as a director of any UK company for five years. Like a formal disqualification order, the undertaking means that Mr. Aston must not act as a director of any company registered in the UK or of any overseas company with UK connections such as running a business or having assets here, nor may he be involved in forming, marketing or running a company even if not appointed as a director. Available at Danielle Harris and MauzimaBhamji, UK: Company Director Banned For Competition Law Breach, 2017. Available at http://www.mondaq.com/x/560302/Directors+Officers/Company+Director+Banned+For+Competition+Law+Breach

6. Section 48 (1) Where a person committing contravention of any of the provisions of this Act or of any rule, regulation, order made or direction issued thereunder is a company, every person who, at the time the contravention was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the contravention was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such contravention. (2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of any rule, regulation, order made or direction issued thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that contravention and shall be liable to be proceeded against and punished accordingly. Explanation.—For the purposes of this section,— (a) ”company” means a body corporate and includes a firm or other association of individuals; and (b) ”director”, in relation to a firm, means a partner in the firm.

7. Section 27 Where after inquiry the Commission finds that any agreement referred to in section 3 or action of an enterprise in a dominant position, is in contravention of section 3 or section 4, as the case may be, it may pass all or any of the following orders, namely: (26) (a) direct any enterprise or association of enterprises or person or association of persons, as the case may be, involved in such agreement, or abuse of dominant position, to discontinue and not to re-enter such agreement or discontinue such abuse of dominant position, as the case may be; (b) impose such penalty, as it may deem fit which shall be not more than ten percent. of the average of the turnover for the last three preceding financial years, upon each of such person or enterprises which are parties to such agreements or abuse.

8. Deeksha Manchanda, Liability of individuals under the Competition Act, 2002, Chartered Secretary, the Journal for Corporate Professional, VOL 46 I NO. : 11 I Pg. 1-168 I NOVEMBER 2016. https://www.icsi.edu/WebModules/LinksOfWeeks/ICSI_CS_Nov2016.pdf

9. Section 2(51) of the Companies Act, 2013. The said Section states as under: “key managerial personnel”, in relation to a company, means-(i) the Chief Executive Officer or the managing director or the manager;(ii) the company secretary;(iii) the whole-time director;(iv) the Chief Financial Officer; and(v) such other officer as may be prescribed. http://www.mca.gov.in/SearchableActs/Section205.htm

10. Section 205(1)(a) of the Companies Act, 2013 stipulates the (1) The functions of the company secretary shall include,-(a) to report to the Board about compliance with the provisions of this Act, the rules made thereunder and other laws applicable to the company; (b) to ensure that the company complies with the applicable secretarial standards;(c) to discharge such other duties as may be prescribed.

11. Dr. S K Dixit andVinay Kumar Sanduja, Role of Company Secretaries in Compliance of Competition Law, 8th National Conference of Practicing Company Secretaries, ICSI. https://www.icsi.edu/WebModules/Programmes/PCS/8PCS/8PCS-BACKGROUNDER.pdf

12. Loren Wulfsohn, The Company Secretary as Polymath, IFC Corporate Governance Knowledge Publication, Private Sector Opinion, Issue 34. 2014. https://www.ifc.org/wps/wcm/connect/43b28d80444007aab5f9f72a3fbe5e0b/PSO_34.pdf?MOD=AJPERES

13. In some countries like Italy, United Kingdom etc. an active CCP acts as a mitigating factor while evaluating the penalty or the punishment, if there is any transgression of the law. However, the same is not applicable in all countries. For instance, Germany doesn’t provide any reward for having a CCP as it considers that complying with competition is the legal obligation of an enterprise. In the early eighties, the European Commission considered having a compliance programme as a mitigating factor but now it is no longer the case. “In other words it means that there would be no reduction in fine or other preferential treatment for having a failed compliance programme20” (JoaquínAlmuñia, 2010). However, the Competition Act, 2002 is silent on whether having CCP would prove to be a mitigating factor in cases of contravention, yet the importance and advantage of having a CCP can’t be overlooked upon.

14. Introduction to Competition Law, Competition Commission of India, http://www.cci.gov.in/sites/default/files/advocacy_booklet_document/Part%206%20Compliance%2021%20Nov.pdf

Received on 11.05.2018 Modified on 09.06.2018

Int. J. Rev. and Res. Social Sci. 2018; 6(2): 141-147.

DOI: 10.5958/2454-2687.2018.00012.6