The Case for Competition

Compliance Programs

Prepared for

University of East Anglia Center for Competition Policy

Norwich, U.K.

December 7, 2010

Joe Murphy Donna Boehme

•

Joe Murphy, of counsel to Compliance Systems Legal Group, and co-founder of

Integrity Interactive Corporation, has worked in the organizational compliance and

ethics area for over thirty years. Joe is Co-Editor of Ethikos, a bi-monthly

publication on corporate compliance and ethics. He has worked on compliance

and ethics matters on six continents, and has worked with government agencies,

NGOs and companies across a broad range of industries. Joe is the former vice-

chairman of the board of Integrity Interactive Corporation and Senior Attorney,

Corporate Compliance, at Bell Atlantic Corporation, where he was the lawyer for

Bell Atlantic's worldwide corporate compliance program. Joe has lectured and

written extensively on corporate compliance and ethics issues, is on the board of

the Society of Corporate Compliance and Ethics (SCCE), and is the SCCE's Director

of Public Policy (pro bono). He has represented SCCE as a consultative partner to

the OECD's Working Group on Foreign Bribery in Paris, and testified before the US

Sentencing Commission on the proposed revisions to the Sentencing Guidelines.

Donna Boehme is an internationally recognized expert in organizational compliance and ethics and advises a wide spectrum of private, public and non-profit companies as Principal, Compliance Strategists LLC and Special Advisor, Compliance Systems Legal Group. She has 20+ years of experience in the field, including as the founder of the first compliance and ethics functions and programs for two leading multinationals, BOC Group and BP plc. Donna is a member of the respective boards of RAND Center for Corporate Ethics and Governance, Society for Corporate Compliance and Ethics, and South Texas School of Law - Corporate Compliance Center, and is Emeritus Member of the Ethics & Compliance Officer Association. She is Contributing Editor of Ethikos, a leading business ethics publication, a frequent speaker to industry groups, and is regularly quoted as an expert in leading media including Wall Street Journal, the Economist, Financial Times, Reuters and Washington Times.

Premise: compliance programs don’t work

– Programs cannot prevent cartels

– Small and medium-sized enterprises cannot afford

the bureaucracy/ lawyers’ fees

– What we really need are big criminal fines and

long jail sentences

What is a competition/antitrust compliance program?

Management commitment to doing the right thing

Management steps to make that happen

What are the elements of a typical competition compliance program?

– Exclusive domain of the lawyers

– A Manual

– Training – by lawyers

– CEO letter – written by lawyers

– Certification – written by lawyers

– Isolation from the rest of the company’s

compliance and ethics framework

In contrast, what are the elements of a program that works? (1)

– Assessing, on an ongoing basis, what the risks are,

even within each risk area

– Standards and rules that people can understand

– Internal controls to make it impossible or at least

more difficult to commit violations

– A senior officer CECO with clout, independence,

connection to what is happening, and professional

– Compliance infrastructure throughout the business

– Care and checking on who you hire and promote

Program that works (2)

– Training people effectively, including potential

perpetrators, their bosses, potential helpers and witnesses

– Communicating the message effectively to this same group

– Effectively addressing the risks raised by third parties –

through selection, oversight, and promoting their own C&E

programs

– Auditing to detect crimes and other misconduct

– Using other measurement tools to detect misconduct –

surveys, statistical screening, focus groups, tests, exit

interviews, deep dives

– Assessing the effectiveness of the program periodically

– System where employees and third parties can report

misconduct without fear of retaliation, that gets results

Program that works (3)

– System where employees can get advice, including urgent

advice in difficult situations

– Discipline for violations, including violations of the C&E

program and for managers’ failure to take reasonable steps

to prevent and detect violations

– Incentives to promote the compliance and ethics program

and ethical conduct

– System to respond professionally to reports of misconduct,

including objective investigations by professionals, and

steps to find and fix root causes of violations

– Diligence in keeping up with industry practice in the

development of effective programs

Examples of very serious steps

– Publishing disciplinary cases

– Statistical/computer screening to identify red flags of

collusion

– CECO reports to the board, and only the board can

downgrade/fire CECO

– A compliance officer from another company on your board

– A compliance and ethics leader in each business unit

– CECO can veto the company incentive plans and programs

– Selection criteria for agents, distributors and other third

parties includes whether they have a C&E program, and the

company provides a workshop for its third parties on how

to have a program

Observations from the trenches

– Training creates awareness & guidance in gray areas

– Trained employees on the ground are in the best position

to see and report anticompetitive behavior

– Many ways to implement programs on little or no budget *

– Large criminal fines & long jail sentences are good

deterrence, but need to be part of the overall approach

* Compliance on A Dollar A Day (Murphy 2009)

Some thoughts on training

Benefits of behavior based scenarios

Outreach to well-intentioned employees who don’t

recognize behavior as anticompetitive

Even though “bad apples” remain, we can educate and

engage those around them

Training surfaces many issues

- The 6 month manager

- The concerned underling

Some thoughts on auditing & monitoring

Conducting unannounced audits

Maintaining channels to report concerns

Critical analysis of data (objective metrics and anecdotal)

Reports to CEO and the Board

U.S. antitrust division approach

– The only carve-out in the USSGs

– The only carve-out in the US Attorneys manual

– Refers to them as “failed” programs

– Since 1991, not one company has received any credit for a

C&E program

– Practitioners tell me DOJ is not interested

– All that matters is voluntary disclosure

– They do impose - programs in settlements, but boiler plate

- send the decree and have them certify

• My experience in the AT&T case

• Ted Banks’ example

DG competition approach

– Previously gave credit even if instituted after the violation

– ADM case – no credit (but they deserved none)

– Penalty policy – can plead poverty, but not your program.

– Asks for programs in dawn raids, but only to help prove

intent by showing you knew the rules

– Opposes privilege for in-house counsel – discourages

reporting concerns to in-house counsel, and company

employees are not typically allowed to call outside counsel

on their own.

– Have privacy laws been misused to undercut compliance

programs? (see French privacy standard on helplines)

Is EU making it easier to collude? • Discourage interference by compliance programs

• Eliminate interference by in-house lawyers

• Eliminate the ability of employees to report violations

by a helpline

• Force employees to report violations to the same

managers who are committing them

• When cartels are found, impose giant fines paid by the

public shareholders

• No penalties for the colluding senior managers

• So – after a ten-year run of fat margins and a luxurious

life, when the cartel starts to decay, one conspirator

gets off completely, and the other cartel officers retire

with their gains, or even seek employment elsewhere

• Who and what does this system deter?

Antitrust & competition enforcers meet to discuss what’s important

– ICN – no discussion items on compliance and ethics

programs

– OECD – no discussion items on compliance and ethics

programs

What is success in competition law enforcement?

– Bigger cases, more fines?

– Who actually pays the fines – whose money is it?

– What happens to DG Competition and the US Antitrust

Division if compliance programs do become more effective?

Does that make their work less exciting and give them less

money? Why would a government agency be hostile to

efforts to prevent illegal conduct?

– Does anyone actually care about cartel behavior?

– Will we know enforcers have been successful when we have

the first billion dollar fine, and we impose capital

punishment on a cartel participant? Or will it be when

there has not been a ten-year long global cartel?

Is there a split?

US Antitrust Division and DG competition

vs.

UK, Canada, France, Singapore, India, Israel

Leniency & disclosure programs

– Just report on your friends and you get off

– You do not need to have a compliance program in

order to report

– You do not even need one AFTER you report

– The Stoldt-Nielsen case – programs matter to

courts

– Compare to the World Bank’s leniency program on

corruption

• Must institute a program

• This program will be monitored

The Canadian Model

– Bulletin on programs

– Opened up to industry for comments, input

– Acknowledges context of other compliance risks

and program

– Result is very practical

– Credit is given to programs, even if a senior person

is involved

The UK Model

– OFT Guidebook

– Survey and analysis of industry practice

– Plans for new guidance

– Maybe a 10% reduction in penalty

Anticorruption Compliance & the OECD Working Group Model

– Recommendations – government’s role

– GPG – what should be in a program

– Reaching out to SMEs

– US SEC & DOJ Criminal

• Provide guidance on C&E

• Publicly acknowledge its importance

• Advanced approaches to C&E in settlements

• SEC FCPA bootcamp included “how to” training on

compliance programs

Possible research questions (1)

– Does certification by employees even matter?

Governments, lawyers and academics love these things,

but do employees see it as a management trick?

– Why with all these enormous fines (and long jail sentences

in the US) there are still 10-year cartels? Do fines and

prison cases really reach actors within organizations?

– Is cartel behavior really considered improper, immoral or

illegal in the EU?

– Does the public really see any victims from cartel behavior?

Do people in government even believe there is real harm

and real victims? Or is this just an enforcement adventure?

– Have antitrust compliance programs atrophied, compared

to developments in other parts of the C&E field?

Possible research questions (2)

– Are there surveys of what companies are doing (and could

you even believe them?)

• How could you survey this, when participants have no

incentive to be accurate?

– There was academic literature on antitrust programs in the

1960’s – what happened?

– “The Price” in the 1970s was the first compliance docu-

drama and set the pace for compliance and ethics – what

happened since?

– In the Antitrust Division and DG Competition, for personal

advancement and recognition, are all the incentives

skewed toward imposing penalties, and not toward actually

preventing cartels?

–

Next steps

– Research some of these questions

– Raise some of the troublesome questions

– Let’s surface this and start a discussion

Contacts

Joe Murphy

Of Counsel, Compliance Systems Legal Group

www.cslg.com

jemurphy@cslg.com

Donna Boehme

Principal, Compliance Strategists LLC

www.compliancestrategists.com

dboehme@compliancestrategists.com

visible senior

management

commitment

clear written

standards

training,

communication

& engagement

monitoring & self

assessment

consistent

enforcement &

incentives

substantial

authority personnel

programme

oversight

7 Elements of an Effective Program

(to embed an ethical culture)*

• Code of Conduct

• Internal Controls

• Behavior-based

•“Walk the Talk”

• Senior level CECO

• Resources

• Job related

• Ongoing

• Multimedia

• Confidential channel

• Audits/monitoring

• Mmt & Board reports

• No “untouchables”

• Link to compensation

• Non-retaliation

• Avoid discretionary

authority to managers

likely to violate

• Screening/ track record

• Review and amend

after problems

• Continuous risk

assessment

* US Organizational

Sentencing Guidelines