Paula Rebstock, Commission Chair, 11 August 2006
Good morning and thank you for inviting me to speak with you today. My theme today is Chartered Secretaries: Champions of Compliance Best Practice.
I would like to begin by saying that the Commerce Commission values the role that Chartered Secretaries play in advising companies on their legal and regulatory duties, and drawing compliance issues to the attention of board members, directors or trustees.
The Commerce Commission is often referred to as a "watchdog," and we might think of Chartered Secretaries as also being a kind of watchdog within each organisation, alert to any activity that might threaten the organisation's well being. You have a central role in the governance of New Zealand organisations and I hope that my talk today will help you to help the organisations you work with.
Compliance is a priority for the Commission and a priority for Chartered Secretaries. But we know that some businesses only think of compliance when it's too late. Perhaps they turn on the television and hear customers complaining about faulty goods that haven't been "put right". They might stumble across an email that shows a member of their staff has been breaking the law by urging its suppliers not to supply a competitor. Or they may find the Commerce Commission on their doorstep with a search warrant.
Our experience is that there is nothing like legal action, and the accompanying public embarrassment, to encourage companies to focus on compliance. But for companies, consumers, and the Commission, this focus comes too late. The best case scenario for everyone is that companies see compliance as a worthwhile investment, and hardwire it into every aspect of their business.
Chartered Secretaries have a crucial role to play in that process, selling the benefits of compliance, providing advice on how to implement compliance best practice, and knowing how to take action if something does slip through the net.
You have the expertise to identify the problems, understand the issues and provide the right solutions. Your contribution will keep an organisation on track and help it to prosper and develop.
Today I will give the Commission's perspective on what a good compliance culture looks like, and how to build one in your business. I will focus particularly on compliance with the Commerce Act, although many of the principles I will touch on are equally relevant to Fair Trading Act compliance, and to legal and regulatory compliance in general.
At the end I will take your questions and I look forward to hearing your views on how the Commission can help foster best practice compliance in New Zealand businesses.
Why comply?
As the result of Commission prosecutions, we have seen customers revolt and switch to competitors; key company executives have been sacked; company insurance premiums have risen; and share prices have fallen. In the worst cases, large fines have been imposed and extensive compensation required, and individuals have been fined and received criminal convictions.
Those are the "push" factors for compliance, the negative consequences that can arise from mistreating customers or competitors and breaking the law. But I encourage you to also consider the "pull" factors: those things that make good compliance good for business.
Corporate governance is increasingly focused not just on maximising shareholder returns, but also on safeguarding the welfare of employees, building relationships with customers, and promoting the reputation of the company in the community.
In the Commission's view, compliance best practice is an important aspect of wider business best practice. Just as companies benefit from strong health and safety, employment relations, and accounting practices, so there are benefits in a strong compliance culture.
Compliance with business laws means that company profits are based on honest trading and meeting customers' preferences through product innovation and cost efficiency. The company is able to retain loyal customers and build its brand, and position itself as a responsible corporate citizen. These are the "pull" factors, the positive consequences of compliance best practice.
As champions of compliance, it is important for Chartered Secretaries to promote compliance as an investment in business best practice, not just a cost.
About the Commerce Act
I will turn now to look at the Commerce Act, which has now been in force for twenty years. The purpose of the Commerce Act is to promote competition for the long term benefit of consumers. It is about protecting the competitive process, not about protecting any particular competitor.
I will briefly note some of the most important prohibitions in the Commerce Act.
Section 27 of the Act prohibits persons for entering into arrangements that substantially lessen competition. Safety equipment company Wesfarmers was warned by the Commission in July after employees emailed suppliers urging them not to deal with a new entrant competitor.
Where market power does exist, section 36 of the Act prohibits companies or individuals from taking advantage of that power to harm competition. You will be aware of the recent record fine for cartel behaviour in the wood chemicals industry. These fines were imposed on the Koppers Arch companies in relation to breaches of section 36.
The Koppers Arch companies were also found guilty of breaching section 30 of the Act, which prohibits price fixing and bid rigging, and section 29, which prohibits agreements to exclude a competitor. The proceedings against other parties are ongoing and we expect that further substantial fines against individuals and companies are not far away.
The Act (section 47) also prohibits persons from acquiring assets of a business or shares if that acquisition would substantially lessen competition. In July the High Court stopped New Zealand Bus Limited from acquiring shares in Mana Coach Services because the acquisition would have substantially lessened competition.
These prohibitions of the Commerce Act are not academic: the Commission has taken action against breaches of all these prohibitions in the last twelve months. Both large and small New Zealand companies are breaching the Commerce Act, some intentionally, others unwittingly. The result is a distortion of the competitive process which will ultimately harm competitors and consumers.
Complying with the Commerce Act
There are a few simple steps to take to promote Commerce Act compliance within your company.
You can establish internal compliance programmes to educate staff. The Commerce Commission does not run or endorse company compliance programmes itself - to do so would risk compromising our independence. But many law firms do help businesses develop compliance programmes, and seeking legal advice is a good place to start.
Industry bodies are a valuable way of sharing information on compliance - but they are also an opportunity for people to break the law as they share information with competitors and make connections that can result in collusion. We recommend that you have independent advisers at meetings where competitors are present. They can intervene if the discussion goes off course. It may be that, as the Chartered Secretary, you can attend meetings and play this "watchdog" role.
It is particularly important to monitor your company's behaviour if it has a substantial degree of market power, or if you operate in a relatively concentrated market with just a handful of major players. These are the conditions that breed anti-competitive behaviour.
What to look for
Collusive anti-competitive conduct is difficult for the Commission to detect, and it may be almost as difficult for you to discover it in your own company.
In our recent experience key players in collusive arrangements include Chief Executives, General Managers and sales management. Pricing and tender preparation specialists in business-to-business markets can also be involved.
So what are the warning signs that people in your business are up to no good?
A cosy relationship with your competitors can be one sign. Do your managers or Chief Executive regularly meet competitors when they attend industry meetings and industry conferences? Do they have lunch with a competitor, or play golf at the same club? In the car wash cartel we successfully prosecuted, the initial agreement was reached between oil company executives who met because their children attended the same kindergarten.
Sometimes good news about company performance really is too good to be true. You may want to look more closely if your company consistently achieves what some may call unrealistic sales targets, and staff always collect their target bonus. Do your sales people always manage to win some contracts, put prices up and maintain market share? Or do you notice that sales and market share are maintained at a steady level, but not growing? If your staff have high targets and performance-dependent pay, you need to ask if they are being driven to break the law just to maintain their income levels.
Another question worth asking is, do your operational people think there is something funny going on? It is crucial to encourage a culture of openness and ensure that staff know where to go if they want to blow the whistle. You should undertake compliance training and ask for staff to sign that they have completed the training and will detail any untoward activity. We are currently investigating one cartel that came to light through this approach.
Dealing with the Commission
So what happens if you do discover the worst, and find out that someone in your organisation is involved in anti-competitive behaviour?
The first thing to consider is that the individual may be eligible for leniency. If the conduct discovered is not already the subject of a Commission investigation, an application for leniency can be made under the Commission's Leniency Policy. If its terms are met, immunity from prosecution will be granted to the applicant. This opportunity is only available to the first party through the door.
If an investigation is already underway, then cooperation may be sought under our Cooperation Policy. The Commission at its discretion may take a lower level of action or no action according to the level of cooperation and where relevant, the amount of assistance provided to pursue other parties. The opportunity to cooperate with the Commission is available to all parties involved in an investigation and more than one cooperation agreement can be entered into if appropriate.
Full, free, and frank information is the key to satisfying any agreements sought under the leniency and cooperation policies. Those parties who do not fulfill their obligations risk their agreements being revoked, and their information used in proceedings against them.
There is detailed information on the Commission's website about the conditions that need to be met by applicants under our leniency and cooperation policies.
Regardless of how allegedly anti-competitive behaviour has come to our attention, the Commission has statutory powers to gather information when undertaking investigations.
If notices are served on your company requiring documents and/or information due care and responsibility must be taken to produce the required documents and information. A participant in the wood chemicals cartel was recently fined for hiding documents, and we have recently taken action against another party which did not properly search its records.
There is no question that complying with a Commission investigation takes time. If the Commission is investigating your company and/or you come forward, you should allow for a considerable amount of management time to be able to respond properly to the Commission's investigation. We often find that, if sufficient time is not given to provide information early on, even more company time and resources will be required further down the track.
When an investigation is underway, the interests of individuals and of the organisation may not be identical. Executives and/or managers may require their own independent legal advice due to their potential personal exposure to Commerce Act proceedings. You should advise the company you work with not to discourage or prevent this from happening.
Of course, you may also want to get in touch with the Commission if you feel your company is the victim of anti-competitive conduct. In this instance, contact the Commission through our contact centre. They are trained to gather information and pass it on to the Commission's Commerce Act team for consideration.
Building a compliance culture
I have spoken about how to detect anti-competitive behaviour and what to do if it is discovered. But there are a number of proactive ways that you can develop a compliance culture in the organisations you work with. In the case of anti-competitive conduct, prevention is definitely better than the "cure" of legal action.
One of the simplest ways to build a compliance culture is to introduce or revitalise a whistleblowers policy. Not only does this make you more likely to discover illegal behaviour if it occurs, it also has a deterrent effect, and sends a clear message about your organisation's values.
If you are a buyer, you could copy a trend that has emerged in the United States and specify that tenders should be certified to state that the bidder has not colluded in the preparation of the tender. A court would potentially frown more heavily on a company if it had also misrepresented itself in this regard.
As Chartered Secretaries, you can keep a watching brief on cases taken by the Commission, and share the lessons with your organisation. The Commission publishes a large amount of information each year on its activities, from our Annual Report and newsletter Communique, to the decisions and media releases posted on our website. I encourage you to familiarise yourself with our work to better protect your company from the risk of non-compliance.
Conclusion
In conclusion, Chartered Secretaries are uniquely placed to raise the level of compliance in New Zealand.
There are a number of ways you can build a compliance culture in the organisations you work with.
You can implement compliance training and whistle-blower policies. You can build your own understanding of Commerce Act compliance and share this knowledge with boards, trustees and directors. And, should your company ever break the law or be involved in an investigation, you can advise on how best to deal with the Commission.
Those are specific actions that can improve compliance. But perhaps more important is your role in ensuring that everyone in the organisation understands not only the risks of non-compliance, but also the benefits of compliance.
There is more to compliance than avoiding legal risk. A strong compliance culture means your organisation is doing the right thing by its customers, is a good corporate citizen, and is making its profits through innovation and efficiency, not through anti-competitive conduct.
To put it simply, a strong compliance culture is the sign of a healthy organisation, well equipped to face the challenges of a competitive marketplace. I am confident that Chartered Secretaries will take whatever steps are necessary to ensure that your organisation gets a clean bill of health.
Thank you for your time today, and I look forward to hearing your views and answering any questions you may have on compliance and the Commission's work.
About ICSA
ICSA International is an international professional body with 44,000 members worldwide. It was founded in England in 1891 and granted its Royal Charter in 1902. The New Zealand Division of the Institute was formed in 1937.
CSNZ has 1,600 members in New Zealand, and was established to promote and maintain professionalism in the fields of commerce and administration. As the commercial and corporate legislative scene in New Zealand changed CSNZ expanded to reflect its members' involvement in such diverse areas as banking, education, government and law.
Members hold administrative posts in most sectors of the business world. In New Zealand just over half the members are in industry and commerce, a third of them are in the company secretarial field; the remainder are engaged in a wide variety of administrative and management roles. In the public sector a high proportion are in local government. The qualification is widely respected in government service and other public sector organisations.
"the promotion and advancement of the efficient administration of commerce, industry and public affairs "
Chartered Secretaries New Zealand is the New Zealand Division of the Institute of Chartered Secretaries and Administrators established as a professional body by Royal Charter in 1902.
Our professional standards, and our educational qualifications are recognised internationally especially throughout the Commonwealth.
Portability of membership means enhanced employment opportunities for those wishing to work in other member countries.
Our members perform the role of Chartered Secretary, whatever that position is called.
We train our people to chart a course through a rising sea of legislation and regulation. Members are expected to understand the issues, to identify the problems, and provide appropriate solutions to their employers.
Public and political concern about corporate governance, ethics, probity, accountability and international best practice is at an all time high. CSNZ members are therefore valued by the business community, and they in turn value their membership.
As a deemed director of the company at the centre of the decision making process, the Chartered Secretary is in a powerful position of influence. The Chartered Secretary should assist and guide the directors in their pursuit of profit and growth, but should also act with integrity and independence to protect the interests of the company, shareholders, stakeholders and employees. Today's Chartered Secretary more than ever before should play a proactive and central role in the governance of their organisation.
The Role of Chartered Secretary
A Challenging and Rewarding Profession
The work of a Company Secretary is essential to the direction, governance, administration and management of a company.
In today's fast-moving business world, demands for positive results, keen competitiveness and winning strategies in global markets are increasing. Public and political concern about governance, ethics, probity, accountability and good practice is higher than ever before - as is the risk of getting it wrong.
To succeed in this climate - whether in the public, private or not-for-profit sectors - it is essential to have people who can chart a course through the jungle of legislation, regulation and best practice; people who are authoritative, identify the problems, understand the issues and have the expertise to provide the right solutions; people who will keep an organisation on track and help it to prosper and develop. These people are members of Chartered Secretaries New Zealand.
The core of the profession is integrity - a protection of the rights and interests of all elements of an organisation - a protection that comes from key business knowledge, the understanding of regulatory environments and the ability to deliver effective operations.
In New Zealand just over half the members are in industry and commerce, a third are in the company secretarial field; the remainder are engaged in a wide variety of administrative and management roles. In the public sector a high proportion are in local government. The Institute's qualification is widely respected in government service and other public sector organisations.
Typical responsibilities:
- Ensuring compliance with law, regulation, the organisation's constitution and codes of practice
- Raising matters which may warrant the attention of the board/trustees, especially legal and governance matters
- Advising the board/trustees/directors as to their responsibilities to uphold good corporate governance and on constitutional and legal issues
- Maintaining Statutory Records and submitting records to relevant regulators/registrars such as Companies House
- Communicating with shareholders or external stakeholders in the organisation
- Taking minutes of meetings, preparing agendas and ensuring that the necessary action is taken
- Managing Pensions, Contracts, Employee Benefits, Insurance, Property, Risk or Health and Safety
Chartered Secretaries who work in public practice (offering their services to a range of clients) provide one or more of the following services:
- Accounting / bookkeeping
- Company formation
- Company secretarial
- Internal auditing
- Management consultancy
- Payroll services
- Personnel management
- Tax advice
By training on the CSNZ Qualifying Scheme, Chartered Secretaries gain core competencies in corporate governance, management practice, corporate law, member and shareholder relationships, corporate finance and administration. Chartered Secretaries are the only professionals specifically trained for the company secretarial role.
