|
...reached by enforcement action alone. Have Australian businesses implemented the type of internal management systems and controls that the Australian Competition and Consumer Commission, industry best practice and research evidence see as desirable Jot trade practices compliance? This article presents findings from survey of 999 of the largest Australian businesses (as determined by number of employees) on the extent to which they have implemented trade practices compliance systems. Outcomes from the study demonstrate that, on the whole, the implementation of trade practices compliance systems is partial, symbolic and half-hearted. Nevertheless, enforcement action by the Australian Competition and Consumer Commission improves" the level of implementation of compliance systems.]
CONTENTS I Introduction II Australian Trade Practices Enforcement and the Significance of Compliance Systems A Compliance Not by Litigation Alone B ACCC Strategies for Deeper and Wider Business Compliance 1 Enforcement Activity 2 Promotion of High Quality Compliance Management C What Is (and Should Be) Expected of Australian Trade Practices Compliance Systems? III Empirical Evidence: Level of Implementation of Trade Practices Compliance Systems A Evidence from Qualitative Interviews with Lawyers B Number of Trade Practices Compliance Staff C Implementation of Trade Practices Compliance System Elements D Four Groups of Compliance System Elements 1 Systems for Receiving and Handling Complaints 2 Communication and Training 3 Management Accountability and Whistleblowing 4 Compliance Performance Measurement and Discipline E Variation in Implementation of Compliance System Elements 1 ACCC Investigation 2 Compliance Culture 3 Size and Industry 4 Results IV Discussion: Partial, Symbolic and Half-Hearted Compliance System Implementation A Reasons for High Implementation of Complaints Handling Systems B Partial Implementation of Other Compliance System Elements C Has ACCC Promotion of Compliance Systems Been Ineffective? D Will Courts and Regulators Be "Duped' by Symbolic Compliance System Implementation? V Conclusion VI Appendix A Methodology 1 Quantitative Survey 2 Qualitative Research B Results of Survey 1 Statistical Information
INTRODUCTION
Since 1991, the Australian Competition and Consumer Commission ('ACCC') has prodded Australian businesses to implement internal competition and consumer protection compliance programmes, (1) The aim has been to deepen businesses' commitment to, and responsibility for, the achievement of the goals of the Trade Practices Act 1974 (Cth) ('TPA'), and to improve compliance amongst a wide range of businesses. The ACCC cannot discover, let alone take enforcement action on, every breach of the TPA by a business. But it does expect every business to be its own enforcement agency--identifying, correcting and preventing its own noncompliance. What effect has the ACCC's strategy had on Australian businesses' implementation of compliance programmes? Have Australian businesses implemented the type of internal management systems and controls that the ACCC, industry best practice and research evidence see as desirable for trade practices compliance?
In recent times, many business regulation enforcement agencies and policymakers have turned their attention towards trying to change internal corporate management processes and cultures to improve internal corporate commitment to, and achievement of, regulatory goals. (2) Laws regulating the social and economic responsibilities of businesses now frequently provide that the extent of corporate liability for damages or penalties will depend at least partly on the extent to which corporations have implemented internal systems designed to identify, correct and prevent wrongdoing or liability (3) Licences and permits in environmental and financial services are now given, and other industry-specific regulation are applied, only after businesses have satisfied the regulator that they have appropriate internal compliance and risk management systems in place. (4) Since the United States' implementation of the post-Enron reforms pursuant to the Public Company Accounting Reform and Investor Protection Act of 2002, (5) general corporate regulation is also increasingly requiring implementation of internal compliance controls. (6)
Regulatory reliance on the implementation of internal business compliance systems has, however, been criticised by some commentators as merely an exercise in 'cosmetic compliance'. (7) It is suggested--and substantial evidence is available to support the suggestion--that companies will implement compliance management systems only to the extent necessary to ensure they look legitimate, or to the extent they are forced to do so. Their management changes will be partial and half-hearted, and courts and regulators will lack the skills and resources to distinguish genuine, substantive and effective compliance commitment from simply 'ticking the boxes'. (8)
This article presents results from a survey of 999 businesses drawn from the 2500 largest Australian businesses determined by number of employees. (9) This article also draws on the results of an earlier qualitative study which involved semi-structured interviews with 100 ACCC staff, trade practices lawyers, compliance advisers, and business people who have been the subject of ACCC enforcement action. (10) The samples and methodologies for both the survey and the preparatory qualitative study are briefly explained in Part VI(A) below, including analysis suggesting no major non-response bias amongst our survey sample by size or by industry.
In this article, we first briefly describe the ways in which the ACCC seeks to encourage or enforce implementation of compliance systems, and the wider significance of the encouragement of compliance systems as a regulatory policy strategy. Second, we set out the major descriptive results from our survey indicating the extent of implementation of trade practices compliance systems by Australian businesses. We also examine the aspects of compliance systems that are most commonly implemented and the extent to which implementation is influenced by ACCC enforcement activity. Third, we discuss these empirical results to explain what they tell us about the approach to trade practices compliance system implementation adopted by Australian businesses, and whether the strategy of the ACCC of promoting trade practices compliance system implementation has been effective and wise. Finally, the article summarises the conclusions we have drawn from the data generated by the survey. The evidence presented in this article suggests that on the whole Australian businesses' implementation of trade practices compliance systems is partial, symbolic and half-hearted. But this does not necessarily mean that the ACCC should abandon its strategy of encouraging, promoting and enforcing implementation of trade practices compliance systems by businesses. Indeed we find that ACCC enforcement action does improve compliance system implementation.
II AUSTRALIAN TRADE PRACTICES ENFORCEMENT AND THE SIGNIFICANCE OF COMPLIANCE SYSTEMS
A Compliance Not by Litigation Alone
The ACCC is the federal competition and consumer law regulator for Australia, responsible for enforcing provisions of the TPA that apply to all Australian businesses. This involves the policing of certain anti-competitive conduct (for example, price-fixing and abuse of market power), (11) unfair trading practices (especially misleading and deceptive advertising), (12) noncompliance with legislated product safety standards, and unconscionable conduct in dealings between businesses and between businesses and consumers. (13) The ACCC has powers only to investigate potential contraventions and to take alleged offenders to court for the imposition of monetary penalties, injunctions and other orders. It has no powers of its own to fine or penalise businesses. Nor does it engage in substantial proactive monitoring of business compliance with the TPA. It is a reactive enforcement agency, usually waiting to receive complaints before taking any action. Indeed the ACCC receives thousands of complaints every year, and investigates only a tiny proportion of these cases. According to ACCC Commissioner David Smith,
in the 2003-2004 financial year the ACCC received 48 724 complaints and inquiries relating to the Trade Practices Act. Just 634, or 1.3 percent of complaints, were escalated to investigation. 220 then went to serious investigation and only 20 proceeded to litigation. These figures are not atypical of past years as well. (14)
The ACCC has long recognised that it does not have sufficient resources to rely only on enforcement litigation to promote business compliance with the TPA: 'In the face of these numbers it's a fact of life that the ACCC does NOT have unlimited resources and therefore needs to be selective.' (15) It has therefore used its enforcement, as well as its educative and liaison activities, to encourage the adoption of compliance systems. In doing so, the ACCC hopes to garner both deeper and wider business commitment to, and achievement of, competition and consumer protection goals than it can accomplish through litigation alone.
B ACCC Strategies for Deeper and Wider Business Compliance
1 Enforcement Activity
First, the ACCC has used its enforcement activity to make businesses implement compliance systems. The enforcement side of the ACCC's strategy for encouraging implementation of compliance systems is aimed at deeper business commitment to, and achievement of regulatory goals. As Deputy Chair of the ACCC Louise Sylvan has stated, 'traditional regulatory enforcement strategies (penalties, injunctions, declarations, other orders etc)--despite being a big hit on a company--have not always been able to bring about a lasting change in corporate behaviour.' (16) The ACCC has therefore sought to foster deeper, more substantive changes in business behaviour and commitment by expecting businesses to respond to ACCC investigation or prosecution by the implementation of an internal trade practices compliance system (or review their existing system).
In support of this expectation, the ACCC has successfully argued that a court should take into account whether the defendant business has implemented a compliance system in determining the level and type of penalties and orders to be granted. (17) The test is that the business must have implemented 'a substantial compliance program ... which was actively implemented' and that implementation must be 'successful'. (18) Where there is no evidence to show that this is the case, the penalty will be larger, and injunctions to refrain from future contravening conduct are more likely to be granted. (19)
Where a business does not respond to investigation and prosecution by implementing a compliance programme of an adequate standard, the ACCC has also argued that the court should order the business to do so in order to prevent subsequent breaches. The ACCC has had varying degrees of success in obtaining such orders. However, at the ACCC's recommendation, the TPA has now been amended to specifically authorise the courts to make 'probation orders' under s 86C, which can include orders for the implementation of compliance systems (or parts of a compliance system). (20) Moreover, where the ACCC settles potential enforcement actions through the voluntary agreement of the business under investigation, the ACCC almost always requires the business to implement a compliance system as a condition of settlement. (21)
Each of the ACCC strategies described thus far are aimed at prompting a deeper commitment to compliance amongst businesses that actually come into direct contact with the ACCC. As Sylvan stated, 'if a company does not have an effective compliance program in place, they most certainly will have one when we catch them.' (22) We would expect that, if the strategy of the ACCC has been successful, those organisations that have been investigated for breaches of the TPA, and had enforcement action brought against them (particularly those which have been forced to put in place a compliance system as a result of enforcement action), would have a deeper level of commitment to compliance system implementation.
2 Promotion of High Quality Compliance Management
The ACCC has also self-consciously nurtured trade practices compliance skills and standards in Australian businesses in order to promote high quality compliance management more widely than would have been possible through enforcement action alone.
The ACCC has been particularly active in creating a market for trade practices compliance advisory services, fostering the trade practices compliance industry and communicating standards and guidelines to the industry once established. In the early 1990s the ACCC established a Compliance Education Unit, which has since been disbanded, (23) and developed the Best and Fairest Compliance Manual, a model compliance programme and set of training modules for businesses to use with managers and staff. (24) The Compliance Education Unit was also available to act as compliance consultants for companies who had entered into TPA s 87B undertakings or who voluntarily wished to set up a compliance programme. The ACCC was also instrumental in educating and equipping (external and in-house) business lawyers and compliance advisers to help businesses improve their internal trade practices compliance processes. The ACCC helped set up the Society of Consumer Affairs Professionals in Business Australia in 1993 and the Association for Compliance Professionals of Australia (now the Australasian Compliance Institute ('ACI')) in 1996. Both organisations grew quickly in membership and status.
Together with the ACI, the ACCC also requested and helped develop AS 3806 on 'Compliance Programs' under the processes of Standards Australia. (25) AS 3806 provides a management system standard for ensuring internal regulatory compliance (not just with trade practices law but with any regulatory or self-regulatory obligations) and is widely accepted as the management system standard for compliance in Australia. (26) It is promoted as such by the ACI, and also adopted by the ACCC and the Australian Securities and Investments Commission ('ASIC') as a useful guide for compliance systems. (27) Previously the ACCC had also been involved in initiating and developing AS 4269 (February 1995) on 'Complaints Handling' under the processes of Standards Australia. The ACCC has continued to prioritise compliance education and liaison activities through small business and rural and regional outreach programmes, numerous speeches and attendances at meetings, conferences and other fora within businesses, and at industry and professional group meetings. It has also continued to develop and update numerous publications on TPA compliance issues, as well as been involved in developing or reviewing industry codes of conduct. (28)
This set of ACCC strategies is aimed at making it more likely that a greater number of organisations will adopt higher standards in the implementation of compliance systems. The hope is that the deterrent effect of ACCC enforcement activity will have a deeper impact in encouraging a wider range of businesses to implement trade practices compliance systems. The strategy is that when businesses (even those that have not had any direct contact with the ACCC) seek advice, or look for information on how to comply with the TPA (whether from lawyers, consultants, compliance advisers or industry associations), the ACCC will have already ensured that the available information and professional advice all emphasise the need to implement substantial internal compliance programmes of a high standard. As ACCC Commissioner Smith explained:
The ACCC much prefers compliance over confrontation or crackdown. But, having said that, the ACCC also sends a clear message--that message is that we will never hesitate to confront any business or crackdown on any behaviour which flouts the clear obligations all business has to comply with the Trade Practices Act. We believe it is eminently more sensible to have business comply with the Act, instead of have them act in a way that does damage to both consumers and the business, and then have to try to undo that damage later. (29)
If this ACCC strategy is successful, we would expect to see a wide range of organisations beyond those which have had direct contact with the ACCC implementing substantial trade practices compliance systems.
C What Is (and Should Be) Expected of Australian Trade Practices Compliance Systems?
In order to evaluate whether the ACCC's strategies have had any impact, we need to know what the ACCC does, and should, expect of business implementation of trade practices compliance systems. What are the standards or benchmarks for these systems? As we have seen, the test that the courts use to evaluate business implementation of trade practices compliance systems is that the business must have 'a substantial compliance program ... which was actively implemented' and that implementation must be 'successful'. (30) AS 3806 provides a more specific set of criteria for best practice compliance programmes. (31) The ACCC also provides detailed guidance as to the features it expects of compliance systems implemented under enforceable undertakings. The ACCC sees its guidance as consistent with AS 3806. (32) According to these guidance templates, the ACCC expects that the trade practices compliance systems of larger businesses should involve:
* appointment of a director or senior manager with suitable qualifications or experience as a compliance officer, with responsibility for ensuring that the compliance programme is effectively designed, implemented and maintained;
* a risk assessment for potential breaches of the TPA and procedures for managing those risks;
* a policy statement outlining the commitment of the company to trade practices compliance and a strategic outline of how that commitment to trade practices compliance will be realised, including a requirement for staff to report compliance issues and concerns to the compliance officer, a guarantee of protection to whistleblowers, and a statement that the company will take internal action against any persons who are knowingly or recklessly concerned in a breach and will not indemnify them for any external action taken against them;
* a trade practices complaints handling system;
* regular reports from the compliance officer to the board and/or senior management on the continuing effectiveness of the compliance programme;
* regular and practical trade practices training for all directors, officers, employees, representatives and agents whose duties may put them at risk of contravening the TPA, including their incorporation into induction training; and
* regular reviews of the operation and effectiveness of the compliance programme. (33)
This set of requirements is broadly consistent with what scholarly evaluations of corporate compliance programmes find to be effective. (34) Christine Parker has previously argued--on the basis of empirical fieldwork on best practice and a review of the literature--that at the very least a corporate self-regulation or compliance system should encompass the following:
1 That there should be clearly defined responsibility for compliance that is shared between:
* A specialised compliance function (for example, a compliance officer) with clout to determine strategies and priorities for legal and social responsibility issues, monitor compliance, receive complaints from internal and external stakeholders, and be responsible for coordinating reports on the responsibility performance of the company to government agencies and the public; (35) and
* A clear board-level compliance/self-regulation oversight agenda. This might be achieved by a board audit or compliance...
NOTE: All illustrations and photos
have been removed from this article.
More articles from Melbourne University Law Review
To Have but Not To Hold: A History of Attitudes to Marriage and Divorc..., August 01, 2006
Judicial activism: power without responsibility? No, appropriate activ..., August 01, 2006
Concern about judicial method.(Australia), August 01, 2006
Defending the unpopular down-under.(ethical practices of lawyers), August 01, 2006
Looking for additional articles?
Search our database of over 3 million articles.
Looking for more in-depth information on this industry?
Search our complete database of Industry & Market reports by text, subject, publication
name or publication date.
About Goliath
Whether you're looking for sales prospects, competitive information, company
analysis or best practices in managing your organization,
Goliath can help you meet your business needs.
Our extensive business information databases empower business
professionals with both the breadth and depth of credible,
authoritative information they need to support their business
goals. Whether it be strategic planning, sales prospecting,
company research or defining management best practices -
Goliath is your leading source for accurate information.
|
