Conducting an Effective Global Antitrust/Competition Risk Assessment

Transcription

1 Conducting an Effective Global Antitrust/Competition Risk Assessment Bill Batchelor, Partner, Baker & McKenzie, Brussels Katie Funk, Partner, Baker & McKenzie, Washington, DC Stephen Martin, Partner, Baker & McKenzie, Washington, DC Clara Ingen-Housz, Partner, Baker & McKenzie, Hong Kong Carolina Pardo, Partner, Baker & McKenzie, Bogota Anton Subbot, Associate, Baker & McKenzie, Moscow Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm.

2 Agenda Overview of Essential Elements of Compliance Discuss Tips for conducting an Effective Global Risk Assessment Regional and Country specific issues 2

3 Essential Elements of Corporate Compliance Leadership Risk Assessment Standards and Controls Training and Communication Monitoring, Auditing and Response 3

4 Risk Assessment The Foundation

5 The Importance of Risk Assessment Understanding where risk lies will help to ensure: the overall effectiveness of the compliance program; the correct allocation of resources between high risk and low risk; and clarify the relevance and credibility of the compliance program at all levels of the company. 5

6 Assessing antitrust risk No one size fits all methodology Best practices from risk management practices in other areas. Must be able to justify the rationale for the chosen approach. Generally, the risk assessment will include: the possible activities that may implicate the antitrust laws the likelihood or probability of the activities occurring the estimated impact on the company determination of risk management strategy managing the risks 6

7 Understanding the risk factors your company faces Country Risk Correlation between cultural norms and competition risk Immature competition laws and inexperienced enforcers Sectoral Risk Past investigations? Are there competition risks particular to the industry? Importance of intellectual property Use of distributors and agents Market characteristics and structure Market position of the company Level of competitor fragmentation/consolidation Nature of competition (price vs. product differentiation) High growth, mature, stagnating, overcapacity? Interaction with Competitors Trade Associations Joint Ventures/strategic alliances Customer Relationships Hub and spoke 7

8 Risk Assessments: Methodology Risk assessment questionnaires Interviews with employees Use of existing internal resources, for example internal audit reports Review of existing systems and controls Responsibility for assessment: internal vs. external; business, legal, compliance, internal audit, finance 8

9 Planning the risk identification exercise Careful scoping Management buy-in Consider what the output will look like: framing issues presenting data reflect operational structure of business? along geographic or functional lines? Identify sources of comparative data Involve employees from various operational parts of business Identify subject matter experts to help distinguish possible from probable risk 9

10 Competition Law Matrix Price fixing, market share, bid rigging cartel Attendance at industry events where price/volumes discussed or agreed Loyalty rebates/ exclusivity in v. high share product segments Complaints from dealers about other dealers prices or selling to their customers Joint ventures with competitors Export bans in Europe Discussing resale prices, price promotions with dealers R&D joint ventures many other poles of innovation Trade association attendance CEO addressing industry conferences Non-price restrictions in dealer agreements 10

11 Risk assessment: staff exposure Once risks identified and ranked consider degree of staff exposure to those risks Helps the business to tailor appropriate risk mitigation activities High risk staff: senior managerial roles; staff in the sales and marketing departments; staff dealing with competitors etc Medium risk staff: those in management roles that do not involve regular contact with competitors or trading partners may be identified as being medium risk. Low risk staff may include HR staff that do not have contact with their HR counterparts in other businesses 11

12 Risk Assessments: Output Consider carefully the addressees of full risk assessment Use of a summary report for other stakeholders (eg, Board and senior management) Outline your methodology and be clear on scope and limits of assessment Use risk matrices to grade risks into categories Identify areas of uncertainty and those requiring further assessment Put together timetable for updating risk assessments Identify next steps: Policies and Procedures Training and communication 12

13 12 Common Pitfalls 1. Expectations (unclear, undefined, unrealistic) 2. Unrealistic deadlines 3. Lack of resources 4. Ownership 5. Coordination 6. Lack of objectivity, credibility 7. Qualitative skew 8. Narrow and deep vs. shallow and wide 9. Document availability (e.g., policies) 10. Too much focus on the perceived priority risks 11. Lack of follow through 12. One-time event 13

14 9 Tips for Success...and to Stay Sane! Don t rush into it lite may be possible first Use outcomes to improve program structure and focus Use it to prove program efficiency, not vice-versa Strive for objectivity - open-ended questions (3x rule) Document structure is key Know what the measures will be Message clear, concise and unique from Internal Audit Cross-pollinate non-compliance ideas and feedback you are in a unique facilitating position Be prepared to deal with what you find and steer leadership accordingly in ADVANCE 14

15 Regional and Country Specific Issues

16 Latin America: Expectations Employees have little understanding of competition laws Culture of cooperation and gentlemen s clubs Uneven enforcement practice 16

17 Latin America: Enforcement Climate Regulators pushed to enforce rules: Brazil / Mexico deepest technical knowledge, highest fines Chile / Colombia / Perú following the trend Argentina / Venezuela existing rules Ecuador new laws yet to be enforced Credit for Effective Compliance Programmes Brazil: Certification system introduced in 2004, rarely used as incentives insufficient Colombia: recognized as a mitigating factor, no statutory underpinning 17

18 Asia Pacific: Expectations Proliferation of laws BUT limited employee knowledge Business culture can be conducive to breaches Pressure from HQ sometimes ignorant of local realities Absent individual sanctions, questionable effectiveness of training Clear messaging required Local management buy in, local team/language delivery: this is our problem, not red tape forced on us by head office Back to basics: start with clear red lines Build into disciplinary code, internal sanctions clear 18

19 Asia Pacific: Enforcement Climate Cartels and RPM emerging as a priority after slow start Abuse type and IP related infringements attract some speculative litigation, but not yet priority China first international cartel LCD USD 15m fine, ramp up on foreign defendants Malaysia, India bid rigging focus India conscious parallelism challenged Extraterritorial impact of trade practices key risk area e.g., Citric Acid litigation 19

20 Europe: Expectations Mature economies, large companies high awareness, BUT Patchy awareness among SMEs sparks many cartels Some countries: Stammtisch or Friendly Competitor Clubs Reach of the antitrust laws still surprises e.g., info exchange, hub & spoke Refreshers essential, e.g., rash of hub & spoke cases even among highly sophisticated companies Preparedness for risks from smaller rivals, dealer or retailer interaction Don t forget unloved business lines (stagnant, low margin) Cathode Ray Tubes EUR 1.47bn fine 20

21 Europe: Enforcement Climate European Commission overwhelmed with cartel case load National litigation now to be expected UK, Germany, France and Netherlands emerging as hubs Resale price maintenance investigations common before national authorities, imposing high fines National authorities increasingly confident in prosecuting more exotic violations Licensing/patent cases Content platforms Misuse of regulation 21

22 Russia: Expectations Employees becoming more aware of antitrust implications but cutting corners to help company outcompete rivals Local solution seen as only effective way of doing business, head office doesn t understand mentality Setting the bar Local management demonstrable buy in Local delivery, local language Clear red lines, regular refreshers 22

23 Russia: Enforcement Climate Legislative reform is complete, time for enforcement Future plans: Increase enforcement with respect to foreign companies Focus on personal liability through criminal sanctions Hot topics: Public procurement and procurement by state enterprises Abuse of market dominance as a main regulatory tool Authorities take very narrow market definition to show dominance, courts rarely challenge Cartels: low evidential bar, mere parallel conduct can be enough Refusal to deal, discrimination, secondary markets common source of complaints to authorities 23

24 Wrap up