Competition Compliance Programme for Enterprises
(A Suggested Framework for Compliance of the Competition Act, 2002, (as amended), [the Act] by Enterprises)
COMPLIANCE ARRANGEMENTS BY ENTERPRISES
Q.1 What is meant by a Competition Compliance Programme (CPP)?
Ans. Compliance involves the active efforts on the part of an enterprise to comply with the provisions of the Act. When the enterprise takes certain necessary and concrete steps to ensure that knowingly or unknowingly it does not infringe the provisions of the Competition Act, 2002, it can be stated to follow a ‘Competition Compliance Programme’.
Q.2 What are the objectives of Competition Compliance Programme?
Ans. The Competition Compliance Programme should have thefollowing three main objectives:
Prevent violation of law, i.e. the Competition Act 2002 and all Rules, Regulations & Orders made there-under. Promote a culture of compliance, and(iii) Encourage good corporate citizenship
Q.3 What are the advantages of maintaining a Competition Compliance Programme?
Ans. Broadly, Competition Compliance Programme offers the following advantages:
Q.4 What are some of the major costs of non-compliance?
Ans. Non compliance can be very costly for enterprises. The chances of conviction are, therefore, high for non compliant enterprises. The consequent cost to the enterprise may be one or more of the following:
Q.5 What are the benefits of compliance with Competition Act? Ans. The benefits of compliance include the following:
Q.6 What are the elements of a Competition Compliance Programme?
Ans. A well formulated and adequate compliance programme should address the business realities faced by the enterprise concerned.
The basic issue is its situation in the market – whether it is a dominant player, going by the definition in the Act. A dominant enterprise needs to be particularly cautious about its behaviour in the market as the law explicitly prohibits certain types of behaviour by dominant enterprises. The law also recognizes group dominance. Every dominant enterprise should make it a point to educate its employees, especially senior executives, about the type of behaviour that should be carefully avoided.
Enterprises that have entered into agreements or are in the process of negotiating agreements, especially agreements with competitors should take precautions to ensure that they remain on the right side of law.
Enterprises that are members of industry/business associations need to have a clear idea about the competition law.
A Compliance Programme should be implemented to ensure that it is of practical use on a day-to-day basis. A sophisticated legal treatise may not be the appropriate document for the employees who look after the work on a day to day basis and may not be legally trained.
Compliance Programmes will have to be custom-made for each enterprise and an “off the shelf’ programme is very unlikely to serve the purpose.
Practical guidelines should be made available to reflect the market position of the company.
Some of the areas that may be covered in Guidelines are:
Q.7 What are the essential features of a Competition Compliance Programme?
Ans. The essential features of a Competition Compliance Programme are:
Q.8 How can the commitment of Senior Management be made explicit?
Ans. 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. The element of commitment can best be achieved in a number of ways, including:
√ A personal message to staff from the most senior officials in the enterprise stating their commitment to the compliance programme
√ Referring to the compliance policy in the company’s‘Mission Statement’ or Code of Conduct and Ethics
√ Making adherence to the programme one of the overall objectives of the enterprise
√ Designating a member of senior management team to take overall responsibility (Compliance Officer) for ensuring that the compliance programme is:
– properly designed
– regularly monitored
– effectively implemented
– reported upon at regular intervals to the Board
Effectiveness of a Compliance Policy will be enhanced if it is linked to an enterprise’s human resource (HR) and disciplinary policy. This would prompt employees to attach seriousness to the compliance issues. Besides, this would reflect the seriousness of the management to compliance, as far as the competition authority is concerned. Different levels of infringements can be dealt with by increasing levels of sanction, resulting ultimately in dismissal for the most serious infringement.
Competition compliance can also be built into the existing staff appraisal procedures, so that employees are regularly asked to sign a form to confirm that they are not aware of any existing compliance breaches. This will help detecting any anti-competitive practice that may exist at early stage.
Most of the enterprises have a policy in place for retaining financial information for accounting and tax purposes. Documents relevant to prove the compliance of the enterprise and its employees with competition law provisions will have to be retained for adequate period to save the embarrassment of not being able to defend in case of allegation related to infringement.
Effectiveness of a Compliance Policy will be enhanced if it is linked to an enterprise’s human resource (HR) and disciplinary policy.
Q.9 What is the role of training in a Competition Compliance Programme?
Ans. An enterprise should consider having an active training programme that includes instruction by knowledgeable professionals having expertise and experience in corporate compliances. The training should be as practical as possible, including case studies drawn from the enterprise’s actual experiences. It should also highlight the consequences of violations.
The objective is to enable all officers and employees to develop capabilities to recognize and identify law-violating activity related to their business. Compliance education must contain sufficient practical explanation/examples on difficult legal concepts and issues. It is, therefore, advisable that enterprises integrate compliance education as part of overall training and education programme of the enterprise.
It is advisable for an enterprise introducing the Compliance Programme for the first time to make the compliance education mandatory for all officers and employees, in respect of the enterprise’s compliance policy, purpose of the programme, and compliance measures.
Those enterprises which are effectively operating and implementing the Compliance Programme should regularly revise the programme rather than repeating the same year after year, keeping in view the:
PREPARING The EMPLOYEES for Investigation
When faced with an inquiry, investigators will interact with the employees responsible for the task. However, employees, in general, should be aware of the possibility of such investigations.
A ‘dawn raid’, for example, is a possibility when the Competition Commission, is cracking down on cartels. Every employee in the organization should have basic knowledge about the law so that he/she able to react suitably when faced with investigating team all of a sudden in the office premises.
Identify EMPLOYEES And division at Risk
It is necessary to identify the employees and divisions that are likely to be exposed to competition law risks. These can normally be: a those doing sales and marketing;
Engagement of senior management is a must for the compliance programme to be taken seriously by employees.
Unless confidentiality is assured employees may not turn up to inform about alleged infringement, especially if known people are involved. Contacting the Compliance Officer to inform verbally in the first instance may work towards confidentiality. Documentation has to follow and action taken report also will have to be documented so as to ensure that the issue has not been ignored or tacitly approved.
Q.10 What is active risk management (ARM) and why is ARM approach to compliance important?
Ans. Compliance Programme is aimed at avoiding or minimizing the risk of nfringement/noncompliance, with all its consequences for the enterprise.
However, as the law evolves, procedures and regulations are regularly streamlined and views and outlook on issues change. A static policy towards risk management through Compliance Programme may not serve the purpose; it may even turn out to be counterproductive.
A dynamic environment necessitates active risk management. What is consistent with the competition law yesterday may be declared inconsistent today; or the conditions under which behaviour is considered consistent today may become consistent only under different conditions tomorrow. Therefore, an active risk management is called for. This is all the more important in the case of agreements.
Active Risk Management
IN ThE CASE Of AGREEMENTS a It is important to keep a record of all the agreements signed by the company and assessed for competition compatibility. The risk from an agreement being found null and void by the Commission may be very costly for the enterprise.a There should be a time table for review of the status of the agreement from competition angle. There should be a system for reminding the official concerned about this. The responsibility could be entrusted to a senior executive of the commercial division since the risk is most felt by the commercial wing.a Marketing/sales/procurement department should liaise with the legal department. Every agreement on record should be subjected to competition review every three to five years. For very large enterprises such review could be on yearly basis.a When such active risk management is not found feasible in-house, assistance of specialized external agencies should be sought.
An effective Compliance Programme may also include a system of audit. At the time of the start of the compliance programme an internal audit of procedures and documents, including email, may be introduced. This may be repeated at intervals to ascertain if the policy is working. The nature of such audit will have to be tailored to the nature of the enterprise concerned.
While auditing the procedures, documents and emails of each and every employee may be a herculean task, it would be always possible to identify those individuals who are most at risk and to conduct an audit of a “snap shot” of their e-mails on a given day. External legal advisers could be employed to do such auditing to avoid embarrassment to the employees concerned while auditing their correspondence/e-mail.
Q.11 Is it essential to evaluate and review the Competition Compliance Programme?
Ans. Enterprises are advised to ensure that the Compliance Programme represents current best practices, remains relevant, comprehensive and effective. Periodic evaluation of Compliance Programme is suggested to keep it relevant. The process may include evaluation of individual employees’ knowledge of law, policy and procedures. Adherence to compliance policy could also be used as one of the criteria for individual’s and department’s/ division’s performance appraisal. It is important to ensure that the evaluation process remains as transparent and open as possible.
The evaluation should also include as to whether the Compliance Programme achieves expected results, and whether the system is appropriate and effective. The evaluation findings should be appropriately reflected in the overall operational system, including compliance monitoring, education programs, and the compliance manual.
It is worth emphasizing that evaluating implementation of Compliance Programme depends on motivation for compliance, impetus of leadership, distribution of authority and responsibility,
support of human and physical resources, and communication within the enterprise. The enterprises are, therefore, advised to set evaluation criteria conforming to their compliance policy.
Q.12 What are the performance indices for evaluation of Competition Compliance Programme?
Ans. The enterprises may also consider devising performance indices to evaluate the Compliance Programme. An illustrative list of performance indices may include:
Q.13 What care should be taken by executives/employees
while dealing with Trade Associations?
Ans. Executives/employees of enterprises should avoid discussing the following topics while dealing with trade associations and/or with competitors:
Q.14 What is the role of Compliance Officer?
Ans. In order to ensure effectiveness of compliance programme, it is desirable that a Compliance Officer with appropriate delegation of authority be appointed to enforce the Compliance Programme.
15. How is the Compliance Manual important?
Ans. To facilitate compliance, the enterprises should develop
COMPETITION COMPLIANCE PROGRAMME CHECKLIST