Mum’s the word for rival companies
So clearly has the message been heard, executives say they don’t even like being seen in the same restaurant
The Competition Commission’s recently released draft guidelines on the exchange of information between competitors is a chilling reminder of just how little communication is allowed between competitors.
A stock exchange announcement with comments on planned reductions in investment, benchmarking and even discussions with the state could get a corporate executive into trouble with the competition authorities. Allan Gray’s role in the appointment of Group Five directors could set off bells at the commission.
None of this will come as a surprise to companies in the construction, dairy, flour and milling industries who have been fingered by the authorities.
Even in sectors where there has not been first-hand experience of the much tougher power of the post-1999 competition authorities (there are remarkably few that haven’t been touched) the message has been heard loud and clear.
Every other day there are reports of another sector being implicated, or of a pending market inquiry. The big four grocery retailers are in a tizz about how to engage with the authorities as they make their way through what looks to be a wide-ranging inquiry into the sector. It’s unlikely executives from these four companies will be playing golf together anytime soon. Likewise for the banking sector, where foreign exchange trading is in the spotlight.
So clearly has the message been heard, executives say they don’t even like being seen in the same restaurant at the same time as an executive from a competitor company,
"That would be enough to start a rumour that they were planning some cartel-like activity," said one former executive from a major food company.
It seems that although many firms have abandoned all thought of communicating with competitors there are some who still believe some forms of communication can be beneficial to consumers and are not anticompetitive.
"From time to time industry associations and other stakeholders request advisory opinions from the commission on setting up information exchange systems and it is apparent there is some uncertainty on what constitutes permissible and impermissible information exchange within the framework of the provisions of section 4 of the [Competition] Act," says the commission. It acknowledges that sharing information "in appropriate circumstances" could have benefits.
The list of benefits include improving investment decisions, improving product positioning, providing organisational learning, facilitating entry into an industry, lowering search costs, benchmarking best practices and a more precise knowledge of market demand.
Sharing data about accounting methods, stock control, new forms of technology and research results could also be acceptable, says the commission, depending on the context.
But it then reminds us of just why the corporate sector is so nervous about incurring the attention, let alone wrath, of the competition authorities.
The Competition Commission is understandably concerned about the anti-competitive implications of exchanges of information and that it is inclined to assume the outcome of such exchanges will be anticompetitiveDerek Lotter
"Information exchange could also be used to facilitate collusive behaviour among competitors ultimately resulting in harm to consumer welfare."
The commission devotes about 20 pages of its draft to describing the sort of information exchange that would be deemed unacceptable and would expose the parties to legal action.
Depending on the context the commission believes information exchange between competitors could make it easy for firms to align their behaviour without the need to enter into an explicit cartel agreement or necessarily being party to a concerted practice.
Derek Lotter, head of Bowman Gilfillan’s competition law practice, welcomes the guidelines, which he says moves the local regulatory system into line with many overseas jurisdictions.
Lotter says the content of the draft guidelines are materially in line with what they currently advise their clients.
He says that the Competition Commission is understandably concerned about the anti-competitive implications of exchanges of information and that it is inclined to assume the outcome of such exchanges will be anticompetitive.
Lotter also welcomes the acknowledgment that there can be procompetitive outcomes.
"It is a complicated debate but the essential message is that competitors should be cautious about exchanging information."
The more historical and the more aggregated the exchanged information the less likely it is to cause offence, says Lotter.
Detailed and forward-looking information is problematic. "Most firms realise if they are meeting competitors they should be cautious about what they discuss."
Norton Rose Fulbright director Rosalind Lake describes the guidelines, which she says were released after engagement with business, as an excellent initiative. The overwhelming chill on information exchange has killed some really useful and pro-competitive information gathering that had been done by trade associations. "At least the commission is signalling there can be some interactions."
But she cautions these are very broad-brush guidelines and are not binding on the commission. "Competitors should be very careful."
The commission has invited interested parties to comment on the draft guidelines.