Competition risk is a growing problem despite the fact that it is illegal. That is why IRM and Competition and Markets Authority (CMA) has teamed up to create a guide to the key risks – with case studies to help businesses mitigate the risks.

Businesses that collude with competitors are cheating consumers and other businesses by inflating prices, reducing choice, and eroding trust in markets. They are also breaking laws. So, no matter what sector the business is in, it is up to those involved to understand the risks and how to mitigate them.

Accountability

The guide provides detailed information on accountability, highlighting how it is the responsibility of directors to ensure their companies comply with competition law – and that risk professionals advising them must make sure they are aware of this.

The guide comes as the CMA secures its 20th disqualification of a company director. One of the most recent examples involved the director of an estate agent who has been prevented from being a director of any UK company for 7 years. This was due to his contribution to an illegal agreement that saw 6 estate agents in Somerset agree to fix a minimum commission rate of 1.5% for residential estate agency services.

As well as imposing fines on companies for breaking competition law, the CMA is increasingly using its power to seek the disqualification of directors. This reflects a toughening of the CMA’s approach to competition-law enforcement over the past year. Alongside the new risk guide, the CMA has a Cheating or competing? campaign page which includes advice for businesses and their advisors to help them recognise, mitigate and report anti-competitive business practices.

“Business leaders must be alive to competition law risk. They should take an active role in ensuring compliance,” Andrea Coscelli, CMA chief executive, said: “Business leaders must be alive to competition law risk. They should take an active role in ensuring compliance.”

Approach

“This guide recommends that organisations should have a zero-risk appetite for breaking the law,” IRM chair Iain Wright, CFIRM, said. “This guide recommends that organisations should have a zero-risk appetite for breaking the law. Yet to achieve this requires not just that the right policies, processes and procedures are in place.”

It is also vital that an organisation’s culture, from boardroom to shop floor, positively supports ethical and legal behaviour, he added. IRM’s suite of training and qualifications helps to arm risk managers with the knowledge and skills to protect organisations.

“The challenge is to recognise and address this risk beyond the boundaries of the immediate organisation out into the extended enterprise including the network of customers, suppliers and partners,” Wright said. “Having a clear understanding of these risks is a necessary first step, and one which this guide aims to support.”

Mitigation

The specific mitigating actions businesses take will depend on the risks identified and the likelihood of the risk occurring in your particular context. In general, businesses have found the following measures to be helpful:

• Training employees in competition law. This might include face to face training for high-risk employees and e-learning awareness training for low-risk employees.
• Implementing an employee code of conduct implementing a company-wide ethics policy to underpin a healthy culture in respect of risk (for more information, see IRM publications on Risk Culture)
• Making sure employees tell you if they are joining a trade association or attending events where they might be meeting with competitors.
• Implementing a system where all contact with competitors is logged
• Producing a checklist to help employees with decision-making, particularly when under pressure
• Establishing a system so that employees can get advice before action (for example, legal advice on a contract) establishing a system for employees to report, on a confidential basis, any competition law concerns that they might have.
• Making anti-competitive behaviour a disciplinary matter in employment contracts and ensuring that it is covered in the company’s disciplinary policy.