Corporate Communications and Antitrust
By helping your people understand that the enforcement agencies take what they say seriously you help your company avoid all kinds of bad outcomes.
June 24, 2010 at 08:00 PM
6 minute read
The original version of this story was published on Law.com
Our antitrust compliance programs usually focus on the kinds of things that salespeople and midlevel executives might say or write that can cause problems down the line. You've already probably heard more than you care to about e-mails suggesting “cutting off the air supply” of a competitor and slides claiming that you “dominate” an industry. Lots of you have helped to create responsible, compliance-driven corporate cultures in which your clients, even the self-starters among them, think first–and better yet, consult you–before they commit any bold new idea to paper or your shared drive.
And though it's hard to prove, that culture saves your clients a lot of heartache. With machine-readable electronic document productions the order of the day, poor choices of words are not likely to escape attention the next time your company has a big merger in front of the Department of Justice (DOJ) or Federal Trade Commission (FTC). By helping your people understand that the enforcement agencies take what they say seriously–maybe even more than your people do themselves–you help your company avoid all kinds of bad outcomes.
But a new case from the FTC reminds us that this culture has to start at the very top and that if it doesn't, the enforcement agencies may not even need to send you a subpoena to develop a case against you. In fact, the transcript of a February 2008 investors' call ended up being Exhibit A to the FTC's invitation-to-collude complaint against U-Haul International Inc. and AMERCO, its corporate parent. The investors' call started off well enough: The CEO gave a concise summary of the previous quarter's performance. A statement that U-Haul “show[s] rate leadership where we can do so without adversely affecting market share” might be a little provocative, but it's really a truism: Even in a competitive market, you'd ordinarily want to raise your prices as high as you can without losing market share. If only he'd left it at that.
But then an analyst asked for “an update on pricing in the industry,” and the trouble began. About 1,200 words later, he'd given the FTC plenty to work with: After complaining that in some markets U-Haul was “priced well below the cost of providing the service,” he noted that he'd been “trying to force prices,” and that he “remain[ed] very hopeful.” The problem was, “competitors have a hard time seeing what [U-Haul] do[es] just because the pricing matrix is so vast,” so their pricing people have a hard time telling whether “U-Haul is holding the line, we don't need to just cut, cut, cut.” But he was hanging in there: “For the last 90 days I've encouraged everybody who has rate setting authority in the Company to give i[t] more time and see if you can't get it to stabilize. In other words, hold the line at a little higher.”
That was all in response to just one question. But later the CEO really turned up the antitrust heat, explaining that U-Haul had only two “major competitors, … you get some price leadership and it manages itself okay,” except when “somebody decides they have to gain share from somebody that you get this kind of turbulence that results in no economic gain for the group, in fact probably an economic loss.” That's what antitrust people call an oligopoly, and it's a big area of concern these days for the agencies, who worry that in an oligopoly, firms don't even need to actually agree in order to hurt competition.
So, the CEO added, “every time we get what we consider to be an opportunity [to 'exercise price leadership'], it's another indicator to [Budget] as to, hey, don't throw the money away. Price at cost at least. If you feel a need to discount then price to cost, not below your cost. . . . And if they perceive that we'll let them come up a little bit, I remain optimistic they'll come up, and it has a profound effect on us.”
Now, as it turned out, the FTC turned up plenty of other evidence of internal communications in which the CEO had directed U-Haul employees to reach out to Budget and inform them of price moves in order to induce Budget to raise its prices. (FTC didn't contend that Budget had taken up U-Haul on its invitation–thus a case under only FTC Act Section 5, not under Sherman Act Section 1.) But the analyst call alone could well have bought U-Haul an investigation. It gave FTC plenty of reasons to suspect what the antitrust enforcers call oligopolistic conduct–a few large firms tacitly taking their cues from each other instead of competing.
I know, your CEO's different. And you don't have the underlying issues that the FTC uncovered at U-Haul. But your CEO probably didn't get to the top by being an introvert or an antitrust lawyer. And it doesn't take too much extemping on an analysts' call to buy your company the same kind of aggravation that you spend all that time warning junior executives and salespeople about. Whether on analysts' calls, at industry meetings or in day-to-day communications, discipline at the top on competition issues both sets a tone for everyone else at your firm and helps prevent needless antitrust risk and expense.
At a very minimum, you'll want to make sure your CEO knows to steer well clear of talking about: (a) how your competitors ought to act, whether it's about raising prices, eliminating excess capacity, or some other way in which they compete; (b) what your company would do based on what your competitors might do (“We'd raise our prices tomorrow if only the other guys did.”); or (c) suggest that your company has any way of “forcing” your customers or your competitors to do anything. Just like with reporters, it's the analysts' job to ask, but that doesn't mean that your CEO has to answer. And if he or she does answer questions like the ones U-Haul's CEO got, you can bet that there will be more coming from the FTC.
Christopher Kelly is an antitrust litigator and partner in the Washington, D.C., office of Mayer Brown.
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