Florence Thépot provides the fi rst systematic account of the interaction between competition law and corporate governance She challenges the ‘black box’ conception of the fi rm – or ‘undertaking’ – in competition law, as applied to increasingly complex corporate relations The book opens the ‘black box’ of the fi rm to understand the internal drivers of collusive behaviour, and proposes a unifi ed approach to cartel enforcement, based on the agency theory It explores key issues including corporate compliance programmes, the competitors; and should be read by anyone interested in how the evolution of the corporate landscape impacts competition law Florence Thépot is a lecturer in competition law at the University of Glasgow and holds a PhD from University College London Her research focuses on the law and economics of competition, with an emphasis on issues at the interface with corporate governance She received the Young Writers’ Award from Kluwer Law International for an article on two-sided platforms In 2014, she was an American Bar Association International Scholar in Residence Cover image: Thibault Jehl and Florence Thépot Cover designed by Hart McLeod Ltd The Interaction Between Competition Law and Corporate Governance attribution of liability in corporate groups, and structural links between Thépot 9781108422499 THÉPOT – THE INTER ACTION BE T WEEN COMPE TITION L AW AND CORPOR ATE GOVERNANCE PPC C M Y K Global Competition Law and Economics Policy The Interaction Between Competition Law and Corporate Governance Opening the ‘Black Box’ Florence Thépot the interaction between competition law and corporate governance Florence The´pot provides the first systematic account of the interaction between competition law and corporate governance She challenges the ‘black box’ conception of the firm – or ‘undertaking’ – in competition law, as applied to increasingly complex corporate relations The book opens the ‘black box’ of the firm to understand the internal drivers of collusive behaviour, and proposes a unified approach to cartel enforcement, based on the agency theory It explores key issues including corporate compliance programmes, the attribution of liability in corporate groups, and structural links between competitors; and should be read by anyone interested in how the evolution of the corporate landscape impacts competition law Florence The´pot is a lecturer in competition law at the University of Glasgow and holds a PhD from University College London Her research focuses on the law and economics of competition, with an emphasis on issues at the interface with corporate governance She received the Young Writers’ Award from Kluwer Law International for an article on two-sided platforms In 2014, she was an American Bar Association International Scholar in Residence Global Competition Law and Economics Policy This series publishes monographs highlighting the interdisciplinary and multijurisdictional nature of competition law, economics, and policy Global in coverage, the series should appeal to competition and antitrust specialists working as scholars, practitioners, and judges General Editors: Ioannis Lianos, University College London; Thomas Cheng, University of Hong Kong; Simon Roberts, University of Johannesburg; Maarten Pieter Schinkel, University of Amsterdam; Maurice Stucke, University of Tennessee The Interaction Between Competition Law and Corporate Governance opening the ‘black box’ FLORENCE THE´ POT University of Glasgow University Printing House, Cambridge cb2 8bs, United Kingdom One Liberty Plaza, 20th Floor, New York, ny 10006, USA 477 Williamstown Road, Port Melbourne, vic 3207, Australia 314–321, 3rd Floor, Plot 3, Splendor Forum, Jasola District Centre, New Delhi – 110025, India 79 Anson Road, #06–04/06, Singapore 079906 Cambridge University Press is part of the University of Cambridge It furthers the University’s mission by disseminating knowledge in the pursuit of education, learning, and research at the highest international levels of excellence www.cambridge.org Information on this title: www.cambridge.org/9781108422499 doi: 10.1017/9781108505185 © Florence The´pot 2019 This publication is in copyright Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press First published 2019 Printed and bound in Great Britain by Clays Ltd, Elcograf S.p.A A catalogue record for this publication is available from the British Library Library of Congress Cataloging-in-Publication Data names: The´pot, Florence, author title: The interaction between competition law and corporate governance : opening the ‘black box’ / Florence The´pot description: New York : Cambridge University Press, 2018 | Series: Global Competition Law and Economics Policy identifiers: lccn 2018041016 | isbn 9781108422499 (hardback) subjects: lcsh: Competition, Unfair | Antitrust law | Corporate governance – Law and legislation | BISAC: LAW / Antitrust classification: lcc k3850 t475 2018 | ddc 343.04/21–dc23 LC record available at https://lccn.loc.gov/2018041016 isbn 978-1-108-42249-9 Hardback isbn 978-1-108-43542-0 Paperback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party internet websites referred to in this publication and does not guarantee that any content on such websites is, or will remain, accurate or appropriate Contents page viii List of Figures and Tables Preface and Acknowledgements ix List of Abbreviations xi Table of Cases xiii Table of Legislation, Official Papers and Policy Documents xxv Introduction 1.1 1.2 1.3 1.4 1.5 1.6 Competition Law and Corporate Governance: Two Distinct Orders State of Play of the Interaction of Competition Law and Corporate Governance The Significance of Opening the ‘Black Box’ 10 Scope and Methodology 12 Originality 14 Outline 15 Theoretical Foundations 2.1 2.2 2.3 2.4 18 Introduction Why Does Organisation Matter? The Nature and the Boundaries of the Firm The Agency Theory part i the conception of the firm: moving boundaries The Firm in Competition Law 3.1 3.2 3.3 3.4 18 18 21 27 31 33 Introduction The Meaning of ‘Undertaking’ in Competition Law The Single Entity Doctrine Conclusion v 33 34 41 46 vi Contents The Single Entity Doctrine in Vertical Relationships 4.1 4.2 4.3 4.4 4.5 The Single Entity Doctrine in Horizontal Relationships 5.1 5.2 5.3 5.4 78 78 79 85 129 130 part ii: 133 opening the ‘black box’: the case of cartels Corporate Governance Insights into Cartels Introduction Collusive Behaviour as a Type of Agency Problem Corporate Governance and Collusion Conclusion Cartel Enforcement: Sanctions and Leniency 7.1 7.2 7.3 7.4 7.5 7.6 Introduction Joint Ventures Among Competitors Structural Links Between Competitors Conclusion 47 48 65 75 77 Conclusion of Part I 6.1 6.2 6.3 6.4 Introduction Parent–Subsidiary Relationships Commercial Agency Agreements The Single Entity Doctrine and Private Enforcement Conclusion 47 Introduction Agency Relationships in the Context of Forming and Sustaining a Cartel Enforcement Instruments That Aim to Deter Cartels Enforcement Instruments That Aim to Detect Cartels Ex Post: the Reaction of Shareholders Conclusion Cartel Enforcement: Corporate Compliance Programmes 8.1 8.2 8.3 Introduction Overview of Regulatory Approaches to Compliance Opening the ‘Black Box’ of Compliance for Greater Effectiveness of Enforcement 135 135 136 144 157 158 158 160 163 180 189 195 196 196 199 211 Contents vii 8.4 For a Pragmatic and Incentive-Based Approach to Corporate Compliance 8.5 Conclusion 220 237 Conclusion of Part II 238 Conclusion 240 9.1 9.2 9.3 9.4 9.5 Introduction The Firm as a ‘Black Box’ to Competition Law The Competition Law Conception of the Firm Main Policy Implications Epilogue 240 240 241 244 250 Bibliography 251 Index 272 Figures and Tables Figures The EU approach to structural links The US approach to structural links page 95 96 Tables Cartel recidivism per country of incorporation viii page 154 Index Adams, Stanley, 188–9 ADM See Archer Daniels Midland (ADM) Adverse selection, 20 Aer Lingus, 96–7, 120 Agency costs in agency theory, 28 collusive behaviour and, 136, 142 Agency theory overview, 27 agency costs overview, 28 collusive behaviour and, 136, 142 agents overview, 27, 136 in cartels, 160–162 corporate compliance programmes versus sanctions targeting, 217–18 leniency policy and, 185–6 (See also Leniency policy) sanctions targeting (See Sanctions) bonding, 28, 136 cartels, agency relationships in alignment of interests, 162–3 delegation of authority, 160–1 examples, 160–2 outside boundaries of firm, 162 principal versus agent, 160–1 collusive behaviour as agency problem (See Collusive behaviour) commercial agency agreements (See Commercial agency agreements) corporate governance and, 28 monitoring, 28, 136 moral hazard in, 136, 138–9 principals overview, 27, 136 in cartels, 160 272 corporate compliance programmes versus sanctions targeting, 216–17 leniency policy and, 183–4 sanctions targeting (See Sanctions) relevance of, 28–9 residual loss, 28, 136 residual rights of control and, 27 specificity to Anglo-American system, 12 Agents overview, 27, 136 in cartels, 160–162 corporate compliance programmes versus sanctions targeting, 217–18 leniency policy and, 185–6 agency relationships, destabilisation of, 185 prosecution of firm and, 185 tension between firm and individuals and, 185 sanctions targeting (See Sanctions) Aguzzoni, L., 140 Air Cargo, 228 Akzo Nobel, 184 Alchian, A.A., 24–5 Alexander, C.R., 141 Allis-Chalmers Mfg Co., 192 Allocation of fines, Allocative efficiency, 4, 19 ALMO, 103–4 Almunia, Joaquin, 198, 200 Anti-corruption regulations in Bulgaria, 215 competition law versus, 209–11, 215, 237 in EU, 209, 215 in France, 210 in Hungary, 215 in Italy, 210, 215 in Netherlands, 210 in UK, 209–10 Index in Ukraine, 215 in US, 209 Antitrust law See Competition law Apple Computers, 114 Archer Daniels Midland (ADM), 11, 147–8, 161–2, 175, 185–6, 190–1, 201–2 Arlen, J., 216 Aschaffenburger Versorgungs GmbH (AVG), 121–2 Asymmetry of information, 38 Australia, corporate compliance programmes in, 208, 235–6 Austria minority shareholdings in, 124–5 sanctions targeting agents in, 172 Axel-Springer Verlag (ASV), 121 Azar, J., 91 Bagley, C.E., 223 Baker, W.E., 161 BASF, 184 Bayer Corp., 72 Becker, G.S., 167 Belgium, sanctions targeting agents in, 172 Berle, A.A., 27 ‘Black box’ concept overview, 10 cartels, enforcement purposes, 11 competition law, firm as in, 240–1 corporate compliance programmes and overview, 211, 241 in EU, 200–2 firm as, 240–1 incentive versus ability in, 243–4 liability attribution and, 241 moving boundaries between firm and market and, 10–11 sanctions and, 241 Blumberg, P., 58, 247 Boards of directors executive directors, 145–6 internal monitoring by, 144–6 one-tier boards, 145–6 supervisory directors, 145–6 two-tier boards, 145–6 Bonuses, 149 Bounty programmes See also specific country overview, 158–9, 180, 186, 195 design of, 188–9 effectiveness of, 189 examples of, 186–8 leniency policy versus, 188 normative justification for, 189 Brandeis, Louis, 113 273 Brasser, Wayne, 175 British Airways, 191 British-American Tobacco, 100–1 British Sky Broadcasting Group (BSkyB), 118–19 British Sugar, 201 British Telecom, 102 Brussels I Recast, 75 Bryant, P.G., 137 Buccirossi, P., 151 Buch-Hansen, H., 94 Bulgaria, anti-corruption regulations in, 215 Burt, R.S., 94 Cadbury Report, 2, 169 Canada, corporate compliance programmes in, 208 Cartels agency relationships in alignment of interests, 162–3 delegation of authority, 160–1 examples, 160–2 outside boundaries of firm, 162 principal versus agent, 160–1 bounty programmes (See Bounty programmes) ‘cartel damages prevention’, 224–5 collusive behaviour (See Collusive behaviour) corporate compliance programmes (See Corporate compliance programmes) corporate governance, cartel enforcement and, 244–6 derivative actions (See Derivative actions) detection of, 137–40, 197 (See also Leniency policy) deterrence of (See Sanctions) imprisonment, 158, 171 individual behaviour, 238, 245 leniency policy (See Leniency policy) management-based regulation, 238–9, 244–6 recidivism, 153–6 sanctions (See Sanctions) self-regulation, 238–9, 244–6 CCIE, 98–9 Cheney, E.R., 161 Cherry, T.L., 170 Chief executive officers (CEOs), 145 Chloroprene rubber cartel, 85 Christie’s, 161, 231 Clayton Act (US) derivative actions under, 193 exemptions to persons under, 39–40 interlocking directorates under, 7, 12, 95–6, 112–14, 116 joint ventures under, 79 minority shareholdings under, 95–6 274 Index Clayton Act (US) (cont.) partial acquisitions under, 95–6 structural links between competitors under, 95–6, 108–10 Coase, R.H., 20, 22, 36, 38, 67 Coglianese, C., 196–7, 238 Cohen, M.A., 141 Collective dominance, 106–7 under Article 102 TFEU, 106–7 structural links and, 85 Collusive behaviour overview, 133 as agency problem overview, 136 agency costs, 136, 140–2 cartel detection and, 137–40 collusive behaviour as manifestation of, 137 collusive behaviour as source of problem, 142–3 corporate crime, characteristic of, 140–2 investigations, effect of, 140 long-term outlook, 137–40 reputational effects, 139–40 shareholders versus managers, 137–40 bounty programmes (See Bounty programmes) corporate compliance programmes and (See also Corporate compliance programmes) overview, 211–14 anti-corruption regulations versus, 215 economic benefits of, 214 ‘heart of business’, 213–14 senior executives, involvement of, 212–13 corporate governance and overview, 135–6, 144, 157 cartel participation by top management, 146–8 competition, impact on, 153–6 internal monitoring, 146–8 (See also Internal monitoring) remuneration, 150–2 (See also Remuneration) corruption compared, 211–14 derivative actions (See Derivative actions) deterrence of (See Sanctions) as individual behaviour, 238, 245 leniency policy (See Leniency policy) management-based regulation of, 238–9, 244–6 in Netherlands, 140, 167 sanctions (See Sanctions) self-regulation of, 238–9, 244–6 Combe, E., 137 Commercial agency agreements overview, 65–6 alternative approach to, 70–1 Article 101 TFEU under, 66–7, 69, 75 assessment of, 67–8 case law, 69–70 corporate law and, 74 Guidelines on Vertical Restraints and, 68–9, 70, 73 legal versus economic aspect, 65 liability attribution, 73–5 corporate compliance policies, effect of, 74 corporate governance and, 74 incentive versus ability, 74–5 strict liability, 74 substantive reach of law, 66–7 in US, 71–2 Common Ownership (See Structural Links) Company, defined, 4, 12 Competition law anti-corruption regulations versus, 209–11, 215, 237 under Article 101/102 TFEU, 33 ‘black box’, firm as, 240–1 corporate law versus, 126, 128–9 exemptions in, 40 as external dimension of firm, firm, concept of overview, 31–2, 33–4, 46, 130–1, 241 liability attribution and, 243–4 moving boundaries between firm and market and, 16, 242–3 property rights approach and, 242 substantive reach of law and, 16, 242–3 Green Paper on Merger Review, 116 interaction with corporate governance (See Interaction between competition law and corporate governance) national approaches, 117 need for paradigm shift in, 116–17 parent–subsidiary relationships and, 246–8 single entity doctrine and overview, 33–4, 43 in EU, 43 implications of, 43–6 structural links between competitors and, 249 targeted transparency in, 116–17 undertakings and, 33, 40–1, 240 White Paper: ‘Towards More Effective EU Merger Control’, 116–17 Complex corporate structures, 9, 212, 220–1, 226–7, 243 Compliance programs See Corporate compliance programmes Concerted practice, 104 Connor, J.M., 153 Consignment agreements See Commercial agency agreements Index Control lasting change in control, 27, 94, 97 liability attribution in parent–subsidiary relationships, control versus legal obligations, 61–2 under Merger Control Regulation, 96–9 residual rights of control agency theory and, 27 in joint ventures, 81 in property rights approach, 25–6 Coordination, 19–20 Copperweld, 41 Corporate compliance programmes overview, 17, 133–4, 237 advantages of, 196–8 in Australia, 208 ‘black box’ concept and overview, 211, 241 in EU, 200–2 in Canada, 208 certification and, 235–7 collusive behaviour and overview, 211–14 anti-corruption regulations versus, 209–11, 215, 237 economic benefits of, 214 ‘heart of business’, 213–14 senior executives, involvement of, 212–13 commercial agency agreements, effect on, 74 comparison of regulatory approaches, 199–200 competition authorities, role of, 198, 227, 237 defined, 196 in EU overview, 200–2 ‘black box’ concept and, 200–2 comparison of Member States, 204 verifiability of programmes, 232 in France, 207–8, 232 in Italy, 198, 206 key foundations of effective programmes overview, 228 business risk, 231–2 clear communication, 229 compliance ambassador, 229–30 cultural of compliance set from top, 228–9 economic risk, 231–2 risk mitigation, 230–1 in Korea, 208 in Netherlands, 206–7 parent–subsidiary relationships, effect on, 62 pragmatic and incentive-based approach overview, 220–1 business risk, 231–2 ‘cartel damages prevention’, 224–5 certification and, 235–7 275 clear communication, 229 competitive advantage, organisation as source of, 222–3 compliance ambassador, 229–30 corruption and, 225 cultural of compliance set from top, 228–9 customers and, 226 economic risk, 231–2 external dimension, 224–7 incentives for, 227–34, 237 interviews regarding, 220–1 investigations, receiving credit during, 234–5 investors and, 224 joint ventures and, 226 risk management and, 221–2 risk mitigation, 230–1 screenings, 223 ‘serious games’, 223 standards in, 235–7 strategic uses of, 221–7 suppliers and, 224 third parties and, 224–7, 234 verifiability of, 232–4 reluctance to provide incentives, 198 sanctions versus, 196–7, 238, 244–5 standards in, 235–7 theoretical basis of, 196–8 traditional enforcement instruments versus overview, 215–16 agents, sanctions targeting, 217–18 compliance programmes as one tool in enforcement toolbox, 219–20 corporate liability, 216–17 individual liability, 217–18 leniency policy, 218–19 principals, sanctions targeting, 216–17 in UK, 198, 204–6, 232 in US overview, 199–200, 202 in federal courts, 202–3 regulatory agencies and, 203–4 reluctance to provide incentives, 198 verifiability of programmes, 233 verifiability of, 232–4 voluntary implementation, promotion of, 239 Corporate governance agency theory and, 28 boards of directors executive directors, 145–6 internal monitoring by, 144–6 one-tier boards, 145–6 supervisory directors, 145–6 two-tier boards, 145–6 276 Index Corporate governance (cont.) cartel enforcement and, 244–6 collusive behaviour and overview, 135–6, 144, 157 cartel participation by top management, 146–8 competition, impact on, 153–6 internal monitoring, 146–8 (See also Internal monitoring) remuneration, 150–2 (See also Remuneration) competition, impact on overview, 152 collusive behaviour and, 153–6 in market-oriented systems, 152 in network-oriented systems, 153 corporate law versus, 1, 44, 79 defined, 1–2 in Germany, 122–4 interaction with competition law (See Interaction between competition law and corporate governance) interlocking directorates, effect on, 93 as internal dimension of firm, 1–3 internal monitoring overview, 144 collusive behaviour and, 146–8 by directors, 144–6 management-based regulation, 238–9, 244–6 mechanisms of, 144 national differences in, 128 obligations imposed by law, 144 remuneration overview, 148–50 bonuses, 149 collusive behaviour and, 150–2 linking pay and performance, 149 problems with, 149–50 share plans, 149 stock options, 149 self-regulation, 238–9, 244–6 shareholders, reaction of, 189–90 structural links between competitors and overview, 126, 249 fiduciary duties and, 126–8 limited reach of, 126–8 in UK, 119–20 use of term, 1, 44, 79 Corporate law commercial agency agreements and, 74 company defined, competition law versus, 126, 128–9 corporate governance versus, 1, 44, 79 in Germany, 122–4 horizontal relations, single entity doctrine in, 129 interlocking directorates and, 125 joint ventures and, 85 liability attribution and, 74 commercial agency agreements, 74 parent–subsidiary relationships, 56 parent–subsidiary relationships and, 56 single entity doctrine and, 48 structural links between competitors and, 117, 249 trusts and, 5–7 in UK, 119–20, 177 Corporate liability See Sanctions Corporate rights, 88 Corruption See Anti-corruption regulations Crawford, R.G., 24 Criminal sanctions See Sanctions Croatia, sanctions targeting agents in, 172 Cyprus, sanctions targeting agents in, 171 Czech Republic, sanctions targeting agents in, 171 Dahlman, C.J., 20 Daimler Chrysler, 68 Dairy Farmers of America (DFA), 109–10 Decisive influence liability attribution, 51–6 structural links between competitors, effect on, 97, 98 in UK, 117–18 Demsetz, H., 24 Denmark bounty programmes in, 187 Competition Act, 171 sanctions targeting agents in, 171 Derivative actions under Clayton Act, 193 defined, 191–2 in EU, 192 promotion of, 245 purpose of, 191–2 standing, 192 in UK, 193–4 in US, 192–3 Detection of cartels, 137–40, 197 See also Bounty programmes; Leniency policy Deterrence of cartels See Sanctions Deutsche Bahn, 224–5 Digital Equipment Corp., 102 Director and officer (D&O) insurance, 175–7, 194 Directors See Boards of directors Dittmar, L., 223 Index Eckard, E.W., 137 Economic integration, Eemland, 106 Efficiency, 4, 19 Electrical equipment cartel, 162 Elhauge, E., 106, 107 Empire building, 142 Enron, 147, 150 Enterprise liability in parent–subsidiary relationships, 56, 57–8, 246–7 Entity liability in parent–subsidiary relationships, 56–7, 246–7 Estonia Competition Act, 171 sanctions targeting agents in, 171 European Commission bounty programmes, 186–7 corporate compliance programmes and, 198, 200–2 Green Paper on Merger Review, 116 White Paper: ‘Towards More Effective EU Merger Control’, 116–17 European Council anti-corruption regulations and, 209 Regulation 1/2003, 63, 64, 77, 163, 247 European Union anti-corruption regulations in, 209, 215 corporate compliance programmes in overview, 200–2 ‘black box’ concept and, 200–2 comparison of Member States, 204 verifiability of programmes, 232 Damages Directive, 139, 181 derivative actions in, 192 economic integration in, Guidelines on Vertical Restraints, 68–9, 70, 73 Horizontal Cooperation Guidelines, 80 interlocking directorates in, 114 joint ventures, property rights framework, 84–5 jurisdiction of, 12 leniency policy in, 180–1, 184 Merger Control Regulation (See Merger Control Regulation (EU)) parent–subsidiary relationships in (See Parent–subsidiary relationships) Protocol 22 of European Economic Area, 34 TFEU (See Treaty on the Functioning of the European Union (TFEU)) Treaty on European Union (TEU), 34 Excessive pricing, 107 Executive compensation See Remuneration Executive directors, 145–6 External dimension of firm, competition law as, 277 Faulkner, R.R., 161 Fiduciary duties corporate governance and, 126–8 in France, 127 interlocking directorates and, 249 to minority shareholders, 126 Financial holdings, liability attribution in, 53–5, 63 Financialisation, 4, 32, 61, 79, 88 Financial links anticompetitive effects of, 88–90 impact on behaviour, 90–1 interlocking directorates versus, 92 theories of harm, 88–90 Financial rights, 88 Financial risk, 36–9 Fines, allocation of, Finland, sanctions targeting agents in, 172 Firms adverse selection and, 20 ‘black box’, firm as in competition law, 240–1 competition law concept of overview, 31–2, 33–4, 46, 130–1, 241 liability attribution and, 243–4 moving boundaries between firm and market and, 16, 242–3 property rights approach and, 242 substantive reach of law and, 16, 242–3 concepts of, 3–4 coordination and, 19–20 external dimension of, internal dimension of, 1–3 renewed interest in, 7–9 legal boundaries of, 16, 31, 46, 51, 85 moral hazard and, 20 motivation and, 19–20 ‘nexus of contract’ approach, 24–5 organisation, importance of, 18–21 price mechanism and, 19–20 production function of, 19 property rights approach, 25–6, 37–8 sociological groups in, 1–2 ‘theory of the firm’ overview, 13, 15–16, 18, 21 ‘nexus of contract’ approach, 24–5 property rights approach, 25–6, 37–8 relevance of, 26–7 transaction cost approach (See Transaction cost approach) transaction cost approach (See Transaction cost approach) Fisher, G.A., 161 Flav-O-Rich, 109 Formica Belgium, 67 278 Index France anti-corruption regulations in, 210 Asset Management Association, 127 Autorite´ de la Concurrence (Competition Authority), 226–7, 228, 232 cartel recidivism in, 153–6 Commercial Code, 125 corporate compliance programmes in, 207–8, 232 fiduciary duties in, 127 interlocking directorates in, 86–7, 91–2, 114–15, 125 ‘Macron Law’, 125 as network-oriented system, 153 sanctions targeting agents in, 171, 173 socie´te´s anonymes, 56 Fraud, 140–1 Free cash flow, 136, 142 Furubotn, E.G., 20 Galloway, J., 178 General Electric, 162 Geradin, D., 211 Germany Act against Restraints of Competition (GWB), 120–1 bounty programmes in, 187 Bundeskartellamt (Competition Authority), 120–2, 173–4 cartel recidivism in, 153–6 corporate governance in, 122–4 corporate law in, 122–4 Gesellschaft mit beschraănkter Haftung (GmbH), 123 interlocking directorates in, 867, 912, 11415 leniency policy in, 182 minority shareholdings in, 56, 120–4, 249 as network-oriented system, 153 Public Auditors’ Institute, 236 sanctions targeting agents in, 172, 173–4 Gillette, 106 Gonza´lez, T.A., 93–4, 148, 191 Google, 114 Goătz, G., 228, 229 Governance See Corporate governance Graphites electrode cartel, 191 ‘Great merger movement’, 5–6 Greece, sanctions targeting agents in, 171–2, 173 GTE, 98–9 Hammond, S.D., 185 Hart, H.L.A., 16, 31, 46, 51, 85, 241 Hart, O.D., 25 Hayek, F., 19 Herfindahl-Hirschman Index, 112 Herold, D., 150, 228, 229 Hoffmann-La Roche, 188–9 Horizontal relations, single entity doctrine in overview, 16, 32, 78–9, 129 corporate law and, 129 financial links anticompetitive effects of, 88–90 impact on behaviour, 90–1 interlocking directorates versus, 92 theories of harm, 88–90 interlocking directorates (See Interlocking directorates) joint ventures (See Joint ventures) structural links between competitors (See Structural links between competitors) Hungary anti-corruption regulations in, 215 bounty programmes in, 187 sanctions targeting agents in, 172 ICC See International Chamber of Commerce (ICC) Indemnification, 141, 175–7 Individual sanctions See Sanctions Innovation competition, 89 Interaction between competition law and corporate governance overview, 1, 5, 250 interlocking directorates and, 127–9 minority shareholdings and, 126 moving boundaries between firm and market and, 10–11, 242–3 in structural links between competitors, 128–9 Interlocking directorates anticompetitive effects of, 86–7, 91–3 under Article 101/102 TFEU, 94–5 under Clayton Act, 7, 12, 95–6, 112–14, 116 corporate governance, effect of, 93 corporate law and, 125 efficiencies and, 93 empirical studies, 93–4 in EU, 114 fiduciary duties and, 249 financial links versus, 92 in France, 86–7, 91–2, 114–15, 125 in Germany, 86–7, 91–2, 114–15 interaction between competition law and corporate governance and, 127–9 in Italy, 86–7, 114–15, 125–6, 248–9 national features of, 114–15 in Netherlands, 125 regulatory approaches, 125–6 under Sherman Act, 114 Index theories of harm, 91–3 in UK, 114–15 unilateral incentives to compete, effect on, 92–3 in US, 86–7, 112–13, 114–15, 116, 248–9 Internal dimension of firm corporate governance as, 1–3 renewed interest in, 7–9 Internal monitoring overview, 144 collusive behaviour and, 146–8 by directors, 144–6 International Chamber of Commerce (ICC), 222, 225, 226, 228 International Standards Organisation (ISO), 235–6 Intracorporate conspiracy doctrine under Sherman Act, 6–7, 41 single entity doctrine versus, 41–3 Investment companies, liability attribution in, 55, 63 Ireland, sanctions targeting agents in, 171, 173 Italy Amministrazione Autonoma des Monopoli di Stato (AAMS), 36 anti-corruption regulations in, 210, 215 corporate compliance programmes in, 198, 206 interlocking directorates in, 86–7, 114–15, 125–6, 248–9 Italian Association of Auditors (Assirevi), 206 sanctions targeting agents in, 172 ITV, 118–19 Japan, lifetime employment in, 138 Jensen, M.C., 24, 28, 136, 142 Joint ventures overview, 79–80 under Article 101 TFEU, 79–80, 84–5 under Clayton Act, 79 corporate law and, 85 less than complete ownership, 80–1 under Merger Control Regulation (See Merger Control Regulation (EU)) property rights framework overview, 80–2 in EU, 84–5 in US, 82–3 under Sherman Act, 79, 80, 83 unity of interests, 81 Klein, B., 24 Koehler, Robert, 191 Korea bounty programmes in, 187 Cartel Informant Reward Programme, 187 corporate compliance programmes in, 208 279 Langus, G., 140 LaPorta, R., 155 Lasting change in control, 27, 94, 97 Latvia, sanctions targeting agents in, 171 Lawrence, P.R., 148, 151, 162–3 Lazer, D., 196–7, 238 Legal, R., 137 Legal personality, 56–7 Leniency policy See also specific country overview, 17, 133, 158–60, 180, 195 agents and, 185–6 agency relationships, destabilisation of, 185 prosecution of firm and, 185 tension between firm and individuals and, 185 bounty programmes versus, 188 corporate compliance programmes versus, 218–19 defined, 180–1 effectiveness of, 182–3 in EU, 180–1, 184 ‘leniency religion’, 186 principals and, 183–4 recidivism, 186 sanctions, interaction with, 182 Leslie, C., 161 Levenstein, M.C., 137 Levinson, Arthur, 114 Liability attribution overview, 43–4 ‘black box’ concept and, 241 in commercial agency agreements, 73–5 corporate compliance policies, effect of, 74 corporate governance and, 74 incentive versus ability, 74–5 strict liability, 74 competition law concept of firm and, 243–4 corporate law and, 74 commercial agency agreements, 74 parent–subsidiary relationships, 56 deterrence in parent–subsidiary relationships and overview, 56 case-by-case analysis, 63 case law, 60–3 control versus legal obligations, 61–2 corporate compliance policies, effect of, 62 in decisional practice, 60–3 financial holdings, 63 financial supervision, effect of, 61 framework for, 59–65 incentive versus ability, 59–63 investment companies, 63 investments, effect of, 61 negligence-based defence, 64–5 rebuttal of presumption, 60–3 280 Liability attribution (cont.) theoretical foundation, 59–60 parent–subsidiary relationships (See Parent–subsidiary relationships) Limited liability, 56–7 ‘Loose’ combinations, Lopez-de-Silanez, F., 155 Lufthansa, 151–2, 219, 229, 230 Lysine cartel, 161–2, 185–6, 190–1 Mainova AG, 121–2 Malta leniency policy in, 180 sanctions targeting agents in, 172 Market-oriented systems, 152 Mars, 207 McCahery, J., 90 MCI, 102 Means, C.C., 27 Meckling, W.H., 24, 28, 136, 142 Mercedes-Benz, 68 Merger Control Regulation (EU) control, concept of, 96–9 joint ventures under, 79–80 minority shareholdings under, 86, 99–100, 248 structural links between competitors under control, focus on, 96–9 in decisional practice, 97–8 decisive influence, effect of, 97, 98 minority shareholdings, 98–9 pre-existing non-controlling participations, 99–100 Methodology of study, 13–14 Michelin, 223 Minority shareholdings overview, 87–8 under Article 101/102 TFEU overview, 94–5 Article 101, 102–3 Article 102, 94–5, 106–7 in Austria, 124–5 under Clayton Act, 95–6 conflicts of interest, 87 corporate governance and, 189–90 EU law versus US law, 115–16 fiduciary duties to, 126 in Germany, 56, 120–4, 249 interaction between competition law and corporate governance and, 126 under Merger Control Regulation, 86, 99–100, 248 in UK, 117–19 Monitoring See Internal monitoring Monnier, C., 137 Index Moral hazard in agency theory, 136, 138–9 firms and, 20 undertakings and, 37 Morgan Stanley, 209, 213 Motivation, 19–20 Motta, M., 140 Mullin, W.P., 141 Multinational firms, 247–8 Murphy, J.E., 222, 228 National Basketball Association (NBA), 82 National Football League Properties (NFLP), 83 Negligence-based defence in parent–subsidiary relationships, 64–5 Nestle´, 207 Netherlands anti-corruption regulations in, 210 collusive behaviour in, 140, 167 Competition Authority (ACM/NMa), 206–7 corporate compliance programmes in, 206–7 interlocking directorates in, 125 leniency policy in, 182 sanctions targeting agents in, 172 Network-oriented systems, 153 New institutional economics, 21 New Zealand, corporate compliance programmes in, 235–6 ‘Nexus of contract’ approach, 24–5 Nikpay, A., 135 O’Brien, D.P., 124 Olivetti SpA, 102 One-tier boards, 145–6 Organisation for Economic Co-operation and Development (OECD), 1–2, 169, 210, 222 Originality of study, 14–15 Orts, E.W., 16, 31, 46, 51, 85, 241 Paha, J., 150, 228, 229 Pakistan bounty programmes in, 187 Competition Commission, 187 Parent–subsidiary relationships overview, 65 competition law and, 246–8 corporate law and, 56 deterrence in under Article 101/102 TFEU, 59, 64 case-by-case analysis, 63 case law, 60–3 control versus legal obligations, 61–2 corporate compliance policies, effect of, 62 in decisional practice, 60–3 Index financial holdings, 63 financial supervision, effect of, 61 framework for, 59–65 incentive versus ability, 59–63 investment companies, 63 investments, effect of, 61 liability attribution and, 56 negligence-based defence, 64–5 as policy objective, 59 rebuttal of presumption, 60–3 theoretical foundation, 59–60 enterprise liability, 56, 57–8, 246–7 entity liability, 56–7, 246–7 incentive versus ability, 247 liability attribution overview, 50–1 corporate governance and, 56 decisive influence, 51–6 financial holdings, 53–5, 63 investment companies, 55, 63 procedural fairness and, 56 rebuttal of presumption, 51–6 strict liability, 53 undertakings and, 51–2 wholly-owned subsidiaries, 51–6 multinational firms and, 247–8 property rights approach and, 246 substantive reach of law under Article 101/102 TFEU, 49–50 in EU, 49–50 under Sherman Act, 48–9 in US, 48–9 Parker Pen, 43 Patel, M.S., 91 Pennings, J.M., 94 Persons overview, 10–11, 31 Clayton Act, exemptions under, 39–40 legal personality, 56–7 scope of competition law and, 33 under Sherman Act, 33, 34, 39–40 Philip Morris, 100–1 Philip Morris doctrine, 100–2 ‘Piercing of corporate veil’ enterprise liability and, 57–8 entity liability and, 57 use of term, 57 Pittsburgh Corning Europe, 67 Poland bounty programmes in, 187 sanctions targeting agents in, 172 Portugal Competition Act, 172 sanctions targeting agents in, 172 281 Price mechanism, 19–20 Principals overview, 27, 136 in cartels, 160 corporate compliance programmes versus sanctions targeting, 216–17 leniency policy and, 183–4 sanctions targeting (See Sanctions) Private enforcement, single entity doctrine and, 75–6 Procedural fairness, liability attribution and, 56 Production function of firm, 19 Property rights approach competition law concept of firm and, 242 joint ventures and overview, 80–2 in EU, 84–5 in US, 82–3 parent–subsidiary relationships and, 246 ‘theory of the firm’ and, 25–6, 37–8 Regal Tube Corp., 41 Remuneration overview, 148–50 bonuses, 149 collusive behaviour and, 150–2 linking pay and performance, 149 problems with, 149–50 share plans, 149 stock options, 149 Residual income rights, 71 Residual rights of control agency theory and, 27 in joint ventures, 81 in property rights approach, 25–6 Reuter-Holding GmbH, 103 Richter, R., 20 Risk aversion, 27 Risk management, corporate compliance programmes and, 221–2 R.J Reynolds, 100–1 Romania bounty programmes in, 187 sanctions targeting agents in, 171, 173 Rothmans International, 100–1 Rule of reason, 115 Ryanair, 96–7, 118, 120 Safeway, 193–4 Safran, 210 Salop, S.C., 124 Sanctions See also specific country overview, 17, 133, 158–60, 163–4, 195 agents, targeting (See also specific country) 282 Sanctions (cont.) overview, 170 corporate compliance programmes versus, 217–18 criminal sanctions, 158, 171–4 director and officer (D&O) insurance and, 175–7 effectiveness of, 175–7 examples, 171–4 imprisonment, 158, 171 indemnification and, 175–7 internal factors, 175 organisational factors, 175–7 promotion of, 245 theoretical basis of, 174–5 ‘black box’ concept and, 241 corporate compliance programmes versus, 196–7, 238, 244–5 leniency policy, interaction with, 182 principals, targeting overview, 164 ability to internalise, 168–9 corporate compliance programmes versus, 216–17 effectiveness of, 168–70 identification approach, 165–6 incentive versus ability, 168–70 insufficiency of, 166 necessity of, 164–6 normative justification for, 164–6 ‘perverse’ effects of, 169–70 reputational effects, 167–8 in UK, 165–6 under-deterrence, 166–8 vicarious liability, 166 under Sherman Act, 12 targeting both principals and agents, 179–80 on undertakings, 164 Sautner, Z., 90 Schmid, M., 93–4, 148 Schmidt, Eric, 114 Scope of study, 12 SGL, 191 Shareholders collusive behaviour, shareholders versus managers, 137–40 corporate governance, reaction to, 189–90 Share plans, 149 Sherman Act (US) external dimension of firm and, imprisonment under, 158, 171 interlocking directorates under, 114 intracorporate conspiracy doctrine under, 6–7, 41 Index joint ventures under, 79, 80, 83 ‘loose’ combinations and, parent–subsidiary relationships, 48–9 persons under, 33, 34, 39–40 sanctions under, 12 single entity doctrine under, 46 structural links between competitors under, 108 trusts and, 5–6 undertakings under, 31 Shleifer, A., 155 Siemens, 212–13 Simon, H., 22, 67 Singapore, bounty programmes in, 187 Single entity doctrine overview, 10–11, 31, 41, 46 under Article 101 TFEU, 43, 46 in commercial agency agreements (See Commercial agency agreements) competition law concept of firm and overview, 32, 33–4 in EU, 43 implications of, 43–6 corporate law and, 48 in financial links anticompetitive effects of, 88–90 impact on behaviour, 90–1 interlocking directorates versus, 92 theories of harm, 88–90 in horizontal relations (See Horizontal relations, single entity doctrine in) in interlocking directorates (See Interlocking directorates) intracorporate conspiracy doctrine versus, 41–3 in joint ventures (See Joint ventures) liability attribution, 43–4 (See also Liability attribution) in parent–subsidiary relationships (See Parent–subsidiary relationships) private enforcement and, 75–7 under Sherman Act, 46 in structural links between competitors (See Structural links between competitors) substantive reach of law, 43–4 (See also Substantive reach of law, single entity doctrine and) undertakings, critical to distinguishing of, 240 in vertical relations (See Vertical relations, single entity doctrine in) Slovak Republic bounty programmes in, 187 sanctions targeting agents in, 171 Slovenia, sanctions targeting agents in, 171 Smith, A., 19 Snyder, Brent, 203 Index Snyder, C.M., 141 Social insurance, 36–7 Sonnenfeld, J., 148, 151, 162–3 Sotheby’s, 161, 231 Sources for study, 13 Southern Belle, 109–10 Spagnolo, G., 151 Spain, sanctions targeting agents in, 172 Standard Oil, Starks, L., 90 Static efficiency, 4, 19 Stephan, A., 135, 139, 173 Stilke, 121 Stock options, 149 Strict liability commercial agency agreements, 74 wholly-owned subsidiaries, 53 Structural links between competitors overview, 85–8, 115–16 under Article 101 TFEU overview, 94–5, 100, 107–8 condition of existence of agreement or undertaking, 103 existence of agreement, 104–6 existence of undertaking, 103–4 minority shareholdings and, 102–3 Philip Morris doctrine, 100–2 under Article 102 TFEU, 106–7 overview, 94–5, 107–8 collective dominance and, 106–7 excessive pricing and, 107 minority shareholdings and, 106 under Clayton Act, 95–6, 108–10 collective dominance and, 85, 106–7 competition law and, 249 corporate governance and overview, 126, 249 fiduciary duties and, 126–8 limited reach of, 126–8 corporate law and, 117, 249 enforcement gap, 87 EU law versus US law, 115–16 financial links anticompetitive effects of, 88–90 impact on behaviour, 90–1 interlocking directorates versus, 92 theories of harm, 88–90 interaction between competition law and corporate governance in, 128–9 interlocking directorates (See Interlocking directorates) under Merger Control Regulation control, focus on, 96–9 in decisional practice, 97–8 283 decisive influence, effect of, 97, 98 minority shareholdings, 98–9 pre-existing non-controlling participations, 99–100 minority shareholdings (See Minority shareholdings) partial acquisitions overview, 108–11 filing exemption, 111–12 ‘solely for investment purposes’, 111 substantive exemption, 111 under Sherman Act, 108 substantive reach of law, 94–6 undertakings and condition of existence of agreement or undertaking, 103 existence of undertaking, 103–4 Subsidiaries See Parent–subsidiary relationships Substantive reach of law, single entity doctrine and overview, 43–4 in commercial agency agreements, 66–7 competition law concept of firm and, 242–3 in parent–subsidiary relationships under Article 101/102 TFEU, 49–50 in EU, 49–50 under Sherman Act, 48–9 in US, 48–9 in structural links between competitors (See Structural links between competitors) Supervisory directors, 145–6 Suslow, V.Y., 137 Susquehanna Alliance, 82 Sweden, sanctions targeting agents in, 172 Targeted transparency, 116–17 Temple Lang, J., 62 TEU (Treaty on European Union), 34 TFEU See Treaty on the Functioning of the European Union (TFEU) ‘Theory of the firm’ overview, 13, 15–16, 18, 21 ‘nexus of contract’ approach, 24–5 property rights approach, 25–6, 37–8 relevance of, 26–7 transaction cost approach (See Transaction cost approach) The´pot, F., 150–1 The´pot, J., 150–1 ThyssenKrupp AG, 190, 236 Transaction cost approach overview, 20–1 marginal costs, 21 nature of relation, firm characterised by, 22 undertakings and, 36 284 Index Transaction cost approach (cont.) unit of analysis, transaction as, 23–4 Treaty on European Union (TEU), 34 Treaty on the Functioning of the European Union (TFEU) Article 101 commercial agency agreements under, 66–7, 69, 75 deterrence under, 59 Guidelines on Vertical Restraints and, 68–9 joint ventures under, 79–80, 84–5 jurisdiction under, 12 minority shareholdings under, 102–3 parent–subsidiary relationships and, 49–50 single entity doctrine under, 43, 46 Article 102 minority shareholdings under, 94–5, 106–7 undertakings under, 31 collective dominance under, 106–7 commercial agency agreements under, 66–7, 69, 75 competition law and, 33 deterrence under, 59, 64 external dimension of firm and, interlocking directorates under, 94–5 joint ventures under, 79–80, 84–5 minority shareholdings under overview, 94–5 Article 101, 102–3 Article 102, 94–5, 106–7 parent–subsidiary relationships and, 49–50 single entity doctrine under, 43, 46 structural links between competitors, substantive reach of law (See Structural links between competitors) substantive reach of law in commercial agency agreements, 66–7 in parent–subsidiary relationships, 49–50 undertakings under Article 102, 31 defined, 34 Trusts, 5–6 Two-tier boards, 145–6 Ukraine, anti-corruption regulations in, 215 Uncertainty reduction, 93 Undertakings overview, 7, 10–11, 31 under Article 102 TFEU, 31 asymmetry of information and, 38 competition law and, 33, 40–1, 240 defined, 34 economic activity, based on overview, 35–6 activity offering goods or services to market, 36 asymmetry of information and, 38 financial risk and, 36–9 in functional definition, 34–5 moral hazard and, 37 non-economic activity versus, 38 property rights approach and, 37–8 functional definition of, 34–5 moral hazard and, 37 parent–subsidiary relationships, liability attribution, 51–2 property rights approach and, 37–8 sanctions on, 164 single entity doctrine critical to distinguishing of, 240 structural links between competitors and condition of existence of agreement or undertaking, 103 existence of undertaking, 103–4 under TEU, 34 transaction cost approach and, 36 Union Oil Co., 72 United Kingdom anti-corruption regulations in, 209–10 bounty programmes in, 187 Bribery Act 2010, 209–10 ‘cartel offence’, 172–4, 178, 214, 219 cartel recidivism in, 153–6 Companies Act 2006, 119, 176 Company Directors Disqualification Act 1986 (CDDA), 177 Competition Act 1998, 193–4 Competition and Markets Authority (CMA), 8–9, 118, 158, 182, 187, 204, 205, 222, 228, 232 Competition Commission (CC), 118–19, 120 corporate compliance programmes in, 198, 204–6, 232 corporate governance in, 119–20 corporate law in, 119–20, 177 derivative actions in, 193–4 Enterprise Act 2002, 117, 177 interlocking directorates in, 114–15 leniency policy in, 182 limited companies, 56 as market-oriented system, 152, 153 material influence in, 117–18 mergers in, 117–18 minority shareholdings in, 117–19 Office of Fair Trading (OFT), 119, 178, 193, 204–6 sanctions in agents, targeting, 171, 172–3 Index Competition Disqualification Orders (CDOs), 177–8 principals, targeting, 165–6 single entity doctrine, private enforcement and, 75–6 United States anti-corruption regulations in, 209 Antitrust Division, 203–4, 212 Antitrust Guidelines for Collaborations Among Competitors (DOJ/FTC), 79, 108–9 Antitrust Modernization Commission, 40 bounty programmes in, 187–8 cartel recidivism in, 153–6 Clayton Act (See Clayton Act (US)) commercial agency agreements in, 71–2 corporate compliance programmes in overview, 199–200, 202 in federal courts, 202–3 regulatory agencies and, 203–4 reluctance to provide incentives, 198 verifiability of programmes, 233 criminal sanctions in, 171 Delaware, derivative actions in, 192–3 derivative actions in, 192–3 Federal Bureau of Investigation (FBI), 159, 161–2, 185–6 Federal Trade Commission (FTC), 79, 86, 108–9, 111–12, 114, 203 Federal Trade Commission Act, 114 Foreign Corrupt Practices Act (FCPA), 213 Foreign Trade Antitrust Improvements Act, 248 Hart-Scott-Rodino Act, 108 Horizontal Merger Guidelines (DOJ/FTC), 108–9, 119 interlocking directorates in, 86–7, 112–13, 114–15, 116, 248–9 intracorporate conspiracy doctrine in, 6–7 joint ventures, property rights framework, 82–3 285 Justice Department (DOJ), 79, 108–10, 111, 114, 198, 202, 203–4, 212, 235 leniency policy in, 180–1, 182 as market-oriented system, 152, 153 parent–subsidiary relationships, 48–9 sanctions targeting agents in, 171 Sarbanes-Oxley Act, 223 Sentencing Guidelines, 202–3, 204, 209, 213 Sherman Act (See Sherman Act (US)) structural links between competitors, substantive reach of law (See Structural links between competitors) trusts in, 5–6 Vertical relations, single entity doctrine in overview, 16, 32, 47–8, 77 commercial agency agreements (See Commercial agency agreements) Guidelines on Vertical Restraints and, 68–9, 70, 73 parent–subsidiary relationships (See Parent–subsidiary relationships) private enforcement and, 75–7 Vertical restraints, Vestager, M., 8, 86 Vicarious liability, 166 Viho Europe BV, 43 Vishny, R.W., 155 Voting rights, 88 Wagner, S., 223 Whistleblower programmes See Bounty programmes Whitacre, Mark, 159, 161–2, 185–6, 189 Williamson, O., 23–4, 36 Wils, W.P.J., 167, 196, 211 Wilson, Woodrow, 113 ... the interaction between competition law and corporate governance Florence The? ?pot provides the first systematic account of the interaction between competition law and corporate governance. .. of the interaction between competition law and corporate governance Chapter introduces the theoretical foundations of this book It establishes the theoretical distinction between the market and. .. the first to establish the meaningful and significant interaction between competition law and corporate governance, regarding issues of contemporary relevance The interaction of competition law