News & Press: IoDSA in the Press

Collusive practices:Should there be consequences for directors of the construction firms involved?

Monday, 26 August 2013  
Share |

Collusive practices: Should there be consequences for the directors of the construction firms involved?
Authored by: Ansie Ramalho, CEO, Institute of Directors in Southern Africa (IoDSA)

The settlement reached between the Competition Commission and 15 construction companies is yet another notch in South Africa's tally stick in the fight against corruption. In terms of the settlement agreements reached – likely to be confirmed by the Competitions Tribunal – there will be serious consequences for those firms involved. This gives rise to questions about whether the directors of these companies should shoulder some of the blame for what has happened.

To my mind there are two pertinent factors to consider on 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 risk 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 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 non-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 indeed been knowledge of collusion, then consequences should follow. A free market economy requires a level playing field to operate effectively and we must enforce this vigorously.

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 that 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.