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What is an antitrust compliance program?By Joe Murphy, CCEPWhat is an antitrust compliance program? One might think that in 2013 asking this question is simply a rhetorical exercise. We have been living with the US Sentencing Guidelines’ standards for programs since 1991, and companies have had compliance programs in different areas of the law since well before that time. But at least in the field of antitrust it is a mistake to think that the concept is understood. Resistance to compliance programs in antitrust. In other areas of the law compliance programs are fundamentally accepted as an appropriate tool in the fight against organizational crime and misconduct. But in antitrust there remains a significant sector apparently animated by a dislike for the entire subject. Indeed, in the extremes some of the writers in this field even view compliance programs themselves as instruments of dark and foreboding motives. They oppose any suggestion that compliance programs should be actively encouraged by government. Some go so far as to oppose any effort by government to assess company programs, or impose them in resolutions of cases. They are so adamant that they take an absolute, no exceptions position. In no case, under no conceivable set of facts, do they believe any competition law enforcement agency should ever consider a company’s compliance and ethics program. What is the reason for this animus? It appears that those in these enforcement positions and their supporters in academia do not really know their subject. Rather than accepting compliance and ethics as an actual, legitimate field worthy of in-depth study, they pick out a few elements that are part of compliance programs and start their campaigns from that point. So we find writers condemning the existence of “cosmetic” compliance programs as if a simple paint job could cover up cartel conduct. They may declare that a compliance program can simply be bypassed by such devices as the creation of incentive systems to encourage cartels and other corporate crime. They might flatly conclude that compliance programs do not work after first defining programs in a way that ensures their conclusion. The weakness in their approaches is this absence of careful study of the subject. Many may still believe that having a code of conduct is the same as a compliance program. Others posit that compliance programs are ineffective against anticompetitive conduct, because antitrust cartel conduct is deliberate whereas a compliance program in their view is simply training and codes.A few have evolved to recognize that compliance programs also use audits, but dismiss these as being unable to detect cartels. Some have even conjured up the fanciful concept that companies would in fact only do audits to seek out those creating cartels so that they could be rewarded and the cartel conduct even better hidden from sight (perhaps like the little dog that digs up its bones only to bury them again). What is a compliance program? But, in fact, what is a compliance program? A compliance program is paradoxically very simple and exceedingly complex. It is simple because it has two core elements: a management commitment to do the right thing, and management steps to make that happen. It is complex because management steps are actually the way anything gets done in companies. An effective compliance program will use the very tools that history has shown us work in organizations. This must be very frustrating for the writers and compliance adversaries who seem to have an urgent need to reduce programs to a very small number of elements. As noted, some will equate even one paper item, such as a code of conduct, to having an actual compliance program. At least the better mini-lists may say that a program consists of education and controls. This is an improvement over those who are still stuck in the world of codes and lectures by lawyers, but it is not a good definition, and does not show a thorough understanding of the topic. The elements of real compliance programs. The US Sentencing Guidelines contain a good list of the types of things that constitute an effective program. This is not the result of luck or good fortune. The Commission has opened its doors to those who actually do this work in companies and developed over time its “seven” elements. It should be noted, at this point, that the number 7 is not much more than a convenience; the same elements could just as easily have been converted to a list of 8, or 10 or 12, but would still have the same points. Those who have not had first-hand experience implementing compliance and ethics programs may believe they are simply paper and formal matters: issue policies and a booklet, deliver a few presentations, and that is the program. But an effective compliance and ethics program must have much more, both to meet the generally accepted standards for such programs and to be effective. In dealing with cartels there are certain key points that require a tough, no nonsense approach. These aspects of programs are referred to here as the “harder edge” of compliance and ethics. In particular they would include:A strong, empowered and independent compliance and ethics infrastructure, led by an executive level chief ethics and compliance officer (CECO) directly responsible to (and removable only by) the board;Competition law compliance is integrated into the compliance and ethics infrastructure, not standalone and isolated;Actual senior management support is characterized by action, not just words;Controls designed to raise barriers to engaging in violations, and even to make violations as close to impossible as a management system can get;Audits, monitoring and other techniques targeted to discover violations;Systems for employees and others to surface misconduct safely;Strong protections against retaliation for those who raise concerns;Ongoing evaluations of the implementation and effectiveness of the program;Discipline, including anti-scapegoating measures to discipline managers and executives who fail to act to prevent violations and publicity for instructive disciplinary cases;Use of incentives to give the program potency; andMechanisms for professional investigations, including root cause analyses to prevent recurrence of violations.These types of techniques go beyond simply sending messages out to the employees and hoping they do the right thing. They do not depend on trust and good faith. Rather, they use management tools to ensure that people abide by the law.We could discuss here at length what is involved in each of these techniques. In fact, there is an entire literature on, and a variety of best practice examples of, most of these techniques, and they are often covered separately in training for compliance and ethics professionals.Incentives. Each of these elements bears careful study, but consider first just one piece: the requirement for attention to incentives. This is a point that those opposed to considering compliance programs tend to ignore, but it is an essential element if a program is to be effective. It means that aligning incentives with the compliance objective is a minimum element for any program to be judged effective. What would this mean?If a company had an effective program, there would be an empowered, autonomous, executive level chief ethics and compliance officer who was part of the process of setting incentives for employees. Promotions would be heavily influenced by candidates’ performance in supporting the compliance program and the company’s values. Managers’ evaluations and incentive pay would be strongly affected by their commitment to and support of the compliance and ethics program. Those who showed leadership in compliance and ethics would be recognized and singled out for praise and rewards. Screening. Another technique that deserves special attention with respect to competition law compliance, both because of its potential, and because it is likely never or rarely ever used in companies, is screening, or using computer-based statistical analysis. In companies there may be a sense of fatalism about cartel behavior. The author has heard lawyers say, “we trained them, what more could we have done?” There are laments about how a large company could ever know, in its far-flung global outposts, whether a local manager was engaged in cartel behavior. Yet the types of harder edge methods listed above, if done well, provide a very good avenue for surfacing even hidden misconduct. But there is one method that can be especially useful in uncovering cartels and other conspiracies. The use of screening can find unusual competitive patterns that would not even be discernable to the unguided eye. But with the right systems and expertise, patterns can emerge. These could include market shares that are unusually stable, margins that are uncharacteristically high, and even bidding numbers that raise questions under Benford’s law. This technique does not, on its own, find enough information to determine that a violation has definitely occurred, but when used intelligently it can narrow the focus of audits and other detection techniques to allow them to be targeted on a cost-effective basis. Indeed, just the existence of sophisticated detection techniques can act as a serious deterrent to those who would otherwise believe their violations would be undetectable.What about antitrust compliance programs today? The absence of knowledge by those who oppose programs in government and the literature may, paradoxically enough, be drivers in a terrible, self-fulfilling prophecy. By so consistently denigrating the field of compliance and ethics, treating programs as ineffective and in extreme cases actually malevolent, and taking enforcement positions that remove any incentive to drive the development of effective compliance program techniques, they have helped create an unusual environment that is hostile to innovation and effectiveness in antitrust compliance programs. One reason for this downward spiral goes to the nature of truly effective compliance programs. As noted, if all a company does is provide antitrust education, it is not operating a program and is not using the tools that work against cartels. Why is this? Cartel violations, like most serious corporate crime, typically involve higher level managers in a company – the people with power in companies. Any study of power will demonstrate that those with power do not typically yield it unless forced to do so. Here is where government comes in. If government makes it clear that its enforcement power will be used harshly against companies that do not have real programs, only this step gives the proponents of effective programs the power leverage they need to implement effective compliance methods. In other words, if government does not recognize effective programs, then management will be content that it is doing enough merely by having codes and lectures, and these, in turn, will fail, thus proving the opponents of programs were right all along. Those in companies working on compliance and ethics will focus their efforts on risks like anti-corruption, where government support and direction are strong, and divert resources from areas where government ignores programs or even uses them against companies, as has been the case with the European Commission’s approach to programs. By contrast, if government makes it clear that only programs that embrace the harder edge will get credit, this can cause companies to adopt real programs. The heavy-hitting elements really needed to make programs work depend on government championship to make them happen, because at bottom they restrict the power of those in companies not accustomed to having any limits on their power. But the enforcers and their academic supporters have helped create a downward spiral in antitrust compliance, to the point where the key elements are not considered in antitrust compliance programs.What’s wrong with antitrust compliance programs? Today in companies we generally see antitrust compliance efforts that do not usually come close to meeting the minimum standards. For example:Competition law programs may tend to be siloed and managed by lawyers, rather than fully integrated into a broader, empowered compliance and ethics program. As the OECD stated in the context of anti-corruption programs, “to be effective, such programmes or measures should be interconnected with a company’s overall compliance framework”;There is little understanding of the essential role of the chief ethics and compliance officer (“CECO”) and the need for informed oversight by the board, despite the fact that the really serious violations most often involve executives; absence of empowerment and independence for the CECO is perhaps the most lethal weakness in any program. In the words of the OECD, again in the anti-bribery context, those running the program should be “senior corporate officers, with an adequate level of autonomy from management, resources, and authority” and “including the authority to report matters directly to” the board;“Tone at the top” is now much talked about but is typically translated into “talk at the top” and not action at the top;Compliance audits appear to exist more in talk than in implementation; some commentators even confuse them with risk assessment. They are not targeted using sophisticated screening techniques. Nor are the other compliance and ethics measurement techniques such as focus groups, deep dives, exit interviews, integrity tests, etc., much discussed in the competition and antitrust field;Little mention is ever made of the use of and control over incentives;Little is said about disciplinary processes, and particularly disciplining managers for failure to take steps to prevent violations and the need to publicize actual disciplinary cases internally; Little is said about the use of controls – techniques that work as barriers to violations, sometimes almost mechanically, and often by removing the ability to commit improper acts; and,Training is much discussed, but not with a spotlight on the need to provide the most pointed, interactive and extensive (rather than the briefest) training sessions targeted at the senior executives, the ones most likely to break the law. What we may be seeing is that competition law compliance tends to be more the domain of lawyers, becoming somewhat isolated from the broader and more dynamic community of compliance and ethics professionals. Competition law programs may be detached from experts who can focus on the types of things that can drive an effective program, like adult education and training, and the actual human motivations for doing the right (or wrong) thing. Compliance programs are arguably based on the lawyers’ view of what employees need to know, like a law school course, with insufficient thought about management techniques or what actually motivates corporate behavior. In short, the downward spiral is contributing to the loss of serious efforts in the private sector to fight the scourge of cartels. I have worked in the field of compliance and ethics for 35 years. I may have a distinct perspective on compliance and ethics programs along with a special admiration for the heroic managers in companies who champion this cause on a daily basis. I do not expect those who write about the subject to have this much depth. But I do think it is fair to ask them, before they write more about the subject, to first learn what that subject is. There are many opportunities to do this. They could spend a little time on the Society of Corporate Compliance and Ethics’ (“SCCE”) social network. They could talk with some CECOs and their subordinates. They could spend a week at an SCCE academy or attend one of the SCCE Compliance and Ethics Institutes. My advice is that anyone who writes about this topic should show the people who are fighting these daily battles the respect they deserve. Then, and only then, should they be publishing opinions about compliance programs. ................
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