08 Jun 2012

(by Bruce Lyons) The OFT is on its proposed new investigation procedures in competition cases. Much of what is proposed is very good – but the reforms do not ensure independent decision making and compromise the potential role for independent experts of the kind successfully used in Phase II merger cases.

The proposals set out important procedural reforms, including: case-specific timetables at the outset of investigations; a beefed up role for a procedural adjudicator; improved access to decision makers at more interactive oral hearings; greater transparency of internal challenges to the case team; providing parties with draft penalty notices; more state-of-play meetings; a movement to collective judgement; and the separation of the decision-makers from the investigation team.. These will undoubtedly improve antitrust decision making.

However, the move towards collective judgements that are detached from the investigative process, do not go far enough in ensuring independence in antitrust decision making. This possibility was anticipated in my on the creation of the new Competition and Markets Authority (CMA). There are two major problems:

1. Even as short-term reform for the OFT, the proposed role of the Decisions Committee (DC) undermines the strict independence of the Case Decision Group (CDG).

The OFT proposal is to form a Decisions Committee of senior staff including the executive members of the OFT Board, the chief economist, general counsel, and head of policy. Non-executives on the OFT board appear to be excluded from the decisions committee. The decisions committee will appoint a three-member Case Decision Group whose identities would be made known to the parties to the case. This group will include at least one of the Decisions Committee and at least one member would be a lawyer. It would exclude the senior case officer (known as senior responsible officer, SRO) and the chief economist and general counsel (due to their roles in earlier checks and balances).

Worryingly there is no mention of who else might be a member of the case decision group. As there is no mention of non-execs or expert panellists, it seems probable that the OFT has internal staff in mind. The CDG would also have to consult with the DC “providing an opportunity for the General Counsel, Chief Economist, head of policy and other senior officials to be consulted and provide their views… The Case Decision Group’s decision would be formally adopted by the Decisions Committee.” In other words, people involved earlier in the case are brought back in through the DC to contaminate the CDG’s independence; members of the CDG may depend on others in the DC for their careers; and members of the CDG may also mentor or be dependent on the SRO or others in the case team. While a considerable improvement on the current decision making model, it is not the best option even for an independent OFT.

2. As a long-term model for the new CMA, it may herald the exclusion of independent expert panels from antitrust decision making, and lock in a very different process to the one used successfully for second phase merger and market investigations.

Once the CMA is operational it will have a panel of independent experts for second phase merger and market cases. These experts have exactly the skills and independence that would be most suitable for second stage antitrust decisions. It would be perverse not to involve them in antitrust decisions (possibly excluding obviously hard-core cartels). The proposed collective decision model within the OFT might pre-empt the adoption of a truly independent panel model (“we’ve only just changed it, so you have got to give this format a chance and a few years to settle down”). This would leave the CMA with arbitrary twin cultures for decision making. It is unlikely to create a smoothly integrated organization, let alone good decision making in antitrust. To be fair, the consultation claims the proposals are intended to provide a firm foundation in the transition to the CMA. However, history has a powerful hold on institutions, particularly those with fine international reputations. The status quo is more aggressively defended than attacked, especially when combining collegial institutions that have no wish to undermine each other.

Overall, the changes will enhance decision making in the OFT – but further changes to the composition of the DC and CDG would both better prepare for an integrated CMA and result in a substantial further improvement in robust antitrust decision making.

This blog draws extensively on my short article published in CPI Antitrust Chronicle (May #1, 2012).