Johannesburg - “In some form, some of the directors on the Murray & Roberts (M&R) board must have known what their subsidiaries – and colleagues – were doing,” Millard Arnold, a former director, told a Global Competition Review conference yesterday.
Arnold, who was addressing the conference on the profound implications of the Competition Commission’s R1.3 billion fine and its cartel charge against the construction industry, said he had been on the M&R board from 2001 to 2011.
“Not once, at any of the board meetings in all of that time was there any discussion about cartel behaviour.”
He said no director asked about cartel activity because “there was no reason to”.
He said it came as a shock when the issue was first discussed after M&R appointed a new managing director to a subsidiary around 2006. “The new MD [managing director] said: ‘We may have a problem.’ He said there were certain arrangements in place [at the subsidiary] that he was expected to continue.”
Arnold said he spoke to the chief executive at the time (Brian Bruce) about the matter and Bruce said “there must be some plausible explanation”. An analysis of the situation was put in place. “We found there had been a massive cartel in operation for many years.”
He said that in many companies the executives were not that concerned about competition issues because their greatest concern was the pressure to produce quarterly returns.
He also contended that part of M&R’s problem was attributable to companies that it had acquired. “Because they were doing well, we paid a premium for them… and then we found out.”
Arnold said a due diligence exercise (undertaken before an acquisition) would not necessarily reveal anything about cartel activity “because no one [in the company that is being acquired] will tell you anything about it”.
Norman Manoim, the Competition Tribunal chairman and moderator of the GCR panel, queried whether there might not be legal justification for selling the premium-priced acquisitions back to the vendors given the subsequent commission challenges.
He also queried how it was possible that “a board sits there and doesn’t know what’s happening”. Manoim asked Arnold: “Is the board sending the right message? Are the directors perhaps not doing enough to send out the right message?”
Arnold said the right signals were sent out early on from the highest levels in the group. He said this was evident from a case (involving possible fraud and competition issues), which M&R referred to the commercial crime department at Bellville in 2003.
“Back in 2001, a colleague informed us about an ‘arrangement’ in the Western Cape. The individual involved said: ‘If I go, a whole load of people will come with me.’ We told him ‘that is irrelevant, you’re going’. We took all the information to the commercial crime department in Bellville… nothing has come of the case.”
Arnold warned the conference that on the issue of indemnity if companies and their executives were exposed to civil or criminal action as a result of a Competition Commission investigation ,there would be considerably less inclination to co-operate with the authorities’ investigation.
“Many people in our organisation were concerned that they were going to be dismissed, they wanted indemnity [before they provided any information], they also wanted indemnity from efforts to reclaim their bonuses,” Arnold said.
He added that if employees could not be given indemnity they would not have provided information to the commission.
Other lawyers and competition experts who attended the conference stressed that the recent move towards civil and criminal action taken as a consequence of successful action by the competition authorities would have a chilling effect on the Competition Commission’s corporate leniency programme. - Business Report