Collusive practices:Should there be consequences for directors of the construction firms involved?
22 July 2013
practices: Should there be consequences
for the directors of the construction firms involved?
The settlement that the Competition
Commission has reached with 15 construction companies is yet another notch in
South Africa's tally stick of corruption. In terms of the settlement agreements
reached and which are likely to be confirmed by the Competitions Tribunal there
will be serious consequences for those firms involved. Many are now raising
questions about whether the directors of these companies should shoulder some
of the blame for what has happened.
To my mind there are two factors that are pertinent on consideration of this matter.
The first is whether the director(s)
had known about the collusive or other anti-competitive practices. The proposed amendments to the Competition Act
which has yet to come in force and which
place directors and managers at risk of personal prosecution state this
in terms of directors and managers causing or knowingly acquiesce to a firm
engaging in a prohibited practice .
It is often assumed that directors must
have known about the collusion but such a blanket assumption is probably
underestimating the complexity of the business environment. The difficulty for
boards is that anti-competitive practices often occur at levels of the business
that directors and especially no-executive directors have no direct contact
with. The collusive tendering that had taken place in the construction sector
is a case in point. Although the Competition Commission settlements were entered
into with the holding companies in the groups,
in some instances it was actually the subsidiary of a subsidiary company
that was involved in the prohibited practice. On the other hand, if there had
been knowledge then consequences should follow. A free market economy requires
a level playing field to operate effectively and we must enforce this
In the event that there was no
knowledge, the second consideration is whether these directors ought to have
known that there had been collusive practices in their companies. This enquiry
could also be phrased as follows: had the directors done all that they could to
put themselves in a position of knowledge? This is a more nuanced question that
brings into focus the value of governance structures and processes that are intended
to prevent, detect and respond to non-compliance, including anti- competitive practices.
Having these in place will put boards in the optimal position to defend against
allegations of negligence.
For example: There needs to be a code
of conduct which provides very clear ground rules on the matter of
anti-competitive behaviour. Training programmes should be introduced as another
preventative measure. Periodic compliance assessments should be done and
whistle-blowing systems should be in place for detection purposes.
All this having been said, when
considering where to allocate responsibility for what has transpired in the
construction industry, the dry dictates of law and governance deal only partly with
this question. Ultimately, the law and governance are just the means to an end,
namely, a better world where ethical behaviour is the norm as opposed to the
news items on corruption that we are confronted with daily. Archimedes said
that with a lever and a place to stand he would move the world. Directors should
use the levers provided in law and governance to move our world. However, the
most burdensome task of leadership can only be performed by leveraging from a
place of responsibility and accountability. Without standing firmly on this ground,
legal and governance provisions lose their power to move and directors become
like children with toy weapons.