A sound corporate governance policy requires managing directors to guarantee compliance with competition law in the organisation. Violations can lead to penalties of millions of euros, and serious damage to the reputation of the organisation and the persons involved. In practice, it is difficult to identify and control competition law risks. This problem can be avoided by introducing a compliance program. Such programs are an internal control mechanism that promote compliance by making employees aware of the dos and don’ts in competition law.
Competition law prohibits, among other things, price-fixing or market allocation agreements and the exchange of sensitive competitive information. Several forms of co-operation between competitors are therefore prohibited. Agreements between non-competitors, such as customer or territorial restrictions, and price restrictions in the context of a distribution relationship, may also be sensitive from a competition law perspective. Companies with a dominant market position may not abuse their position, force competitors off the market, or exploit customers by charging extremely low or high prices.
Competition law has been one of the few boom areas of the past few years. The Netherlands has changed from a cartel paradise to a country with active enforcement by the Netherlands Competition Authority (NMa) and the European Commission. Penalties for the violation of competition rules are increasingly high and may be as much as 10% of the company or group’s annual turnover. NMa has recently been given the right to impose maximum penalties of €450,000 on those involved in anti-competitive practices. It is likely that the violation of competition rules in the Netherlands will, in the near future, result in imprisonment.
A compliance program offers various advantages:
- It reduces the risk of a high penalty or other sanction. The Commission has stated that, in some circumstances, a compliance program can even be reason to mitigate the penalty if the rules are accidentally violated.
- It guarantees an organisation’s integrity and offers protection against serious damage to its reputation. It should also reduce the risk of claims for damages from competitors, suppliers or customers. Market parties are increasingly attempting to recover losses incurred as a result of restraints of trade from companies involved in anti-competitive practices.
- It can help to avoid a situation in which it becomes apparent at a late stage that crucial agreements are not enforceable or that certain actions must be changed in the interim. An important aspect in this context is an analysis of the day-to-day management and new market initiatives.
- It limits the risk of market parties making a formal complaint about an organisation to NMa or the Commission, which may result in close monitoring by competition authorities. By establishing a compliance program, organisations avoid the loss of management time and resources entailed by time-consuming and expensive investigations. In the past, the introduction of such programs in the pharmacy, metal-working and insurance industries has resulted in NMa ending its investigation of prohibited conduct.
The main objective of a compliance program is to promote compliance with competition rules in an organisation. This is primarily achieved by giving more internal publicity to the applicable rules and risks. Employees can also be instructed on how to recognise situations in which action can be taken against restraints of trade by other market parties, such as suppliers or competitors. Organisations must also ensure that agreements and arrangements are structured to minimise the risk of violation. It is advisable to instruct employees to avoid the use of any wording in documents and correspondence that may lead to an investigation by NMa or the Commission. Employees also need to know how to deal with correspondence, documents or advice exchanged with an attorney or in-house lawyer. These documents are usually legally privileged. An organisation should also inform its employees about their rights and obligations in the event of a company visit by one of the competition authorities. For example, they must co-operate with an investigation but are not required to answer questions that might incriminate themselves or the organisation.
NMa has announced that an effective compliance program must consist of several fixed components, the most important of which is education. Employees must have sufficient basic knowledge of competition regulations and that knowledge must be continually updated. This can be achieved, for example, by organising an internal workshop each year. It is also important to introduce a control system to the organisation. This is usually achieved by appointing a compliance officer, often an in-house lawyer, responsible for actively monitoring compliance with competition rules and acting as a source of information for employees (anonymously, if necessary).
An effective compliance program also requires sanctions on violation of the rules. Employees must formally declare that they will observe the applicable regulations and will report any violations internally, or face disciplinary measures. Another obligatory component is that restraints of trade, if discovered, must immediately be terminated. Contact with competitors who are known to have violated regulations must also be ended.
Several components can be added to a compliance program to protect an organisation against the violation of competition rules more effectively. For example, a risk analysis of an organisation can be made by a review of its contracts and correspondence.
Employees can also be obliged to observe specific rules of conduct. An example is the ‘ten golden rules’ that employees must follow when in contact with market parties. These rules of conduct can be recorded in employment contracts or standing employment conditions. Employees can be required to answer several on the applicable regulations when entering the company’s service or on an annual basis. Such a ‘Highway Code’ examination can, of course, also be taken electronically. It is also possible, after an organisation has introduced a compliance program and risk analysis, to obtain a positive recommendation by competition authorities that an organisation complies with current regulations.
Organisations can draw up their own compliance programs. However, it is usually advisable to engage an external expert, particularly in light of the obligatory training of employees and the organisation’s risk analysis, if any. Employees do not usually have sufficiently detailed knowledge of competition law. There is also the risk that employees are not able to form a sufficiently objective opinion on the risks in their organisation and companies often do not have sufficient capacity to make an employee available to set up such a program. An external expert is usually cheaper because they can work more effectively and efficiently, allowing employees to focus on their key tasks.
Time and costs
The introduction of a compliance program need not take a great deal of time or money. Programs can often be introduced at an organisation in a period of one month. Naturally, that will depend on the form chosen. Boekel De Nerée will be pleased to advise on how to set up or amend a program that best suits a specific organisation.
Boekel De Nerée is a leading independent Dutch law firm of advocaten and civil law notaries.
Based in Amsterdam, it offers specialist advice to clients in a wide range of industries. Its corporate practice includes an Anglo-American advisory group specifically geared to serving the interests of clients from English-speaking parts of the world, providing clients with a peace of mind when dealing with matters in the Netherlands jurisdiction.