Competition law breaches are a corporate governance risk
28/01/2009

Developments contained in the Competition Amendment Bill (B31D-2008) have emphasised the importance of complying with competition law as part of corporate governance and risk management.

The King Report on Corporate Governance for South Africa 2002 (King II) defines risk management as the identification and evaluation of actual and potential risk areas as they pertain to the company, followed by a process of termination, transfer, acceptance or mitigation of each risk.

One expects the architects of King III, the report due to be published by the Institute of Directors this year, to specifically make provision for compliance with competition laws. In view of the unique challenges involved in avoiding competition law violations and the far-reaching implications should such violations occur, it is likely that the King III report would recommend the formation of a separate committee to deal with these risks.

As is apparent from the press, a breach of the competition laws has become one of the most serious risks that companies can face. Companies will have to put in place programmes to minimise this risk, and formulate contingency plans to weather the storm should transgressions occur. Aside from administrative penalties of up to 10% of a company’s turnover in the previous year, which might threaten its sustainability, the Competition Amendment Bill highlights other good reasons to comply.

Some of the changes envisage exposure for persons with “management authority” to criminal charges in terms of Section 73 (A) of the Bill. Such charges could have a destabilising effect on the management of the company, especially as the company and the accused individual would have rival interests calling for separate legal representation and possibly removal from office. Companies could be left in a perilous position with accused directors and managers drawing legal swords with fellow directors – paralysing the company for substantial periods of time. These complications should be dealt with in carefully formulated contingency procedures.

To aggravate matters, if it is found that a person in management authority caused or knowingly acquiesced in the anti-competitive conduct of the company, the company may be exposed to a class action as contemplated in Section 157 of the Companies Bill. This would give claimants (typically the shareholders) legal standing to initiate class actions and would expressly recognise a statutory civil remedy for persons suffering loss or damage. Judging from various billion-dollar awards in foreign jurisdictions, including the US, Canada, and Australia, the risk to companies could be substantial.


The nature of competition law is such that possible violations could occur at almost every level of the company. Further, to the regular business person certain competition law contraventions are not immediately apparent, as other corporate offences might be. Both these factors increase the risk of competition law offences being committed throughout a company, with the perpetrator and the company being blissfully unaware of the possible consequences.

Each company’s competition risk profile will vary in accordance with its size, number of employees and the nature of its business, calling for different measures to mitigate related risks. The following would, however, be paramount:

• Ensuring that employees have a thorough understanding of competition law and the provisions typically relevant to their working environment;
• Regular audits;
• Structures that allow for and protect whistle-blowers within the company;
• Visible commitment from management to competition law compliance.

Companies would be well advised to firm up on competition risk management sooner rather than later.

Jac Marais
Senior Associate
jac-m@adamsadams.co.za