Competition cases, such as the two Telkom recently agreed to settle with South Africa’s Competition Commission, are outside the purview of the law, exploit public distrust of private-sector companies, enrich competition authorities and extract shareholder funds from companies by encouraging executives to settle cases to avoid criminal proceedings.
These are some of the arguments put forward by Robert Vivian, professor of finance and insurance at Wits University. Vivian made the comments on Wednesday at an event hosted by the Free Market Foundation in Johannesburg.
Vivian says the “universal condemnation and outrage against private sector companies”, as witnessed in the ongoing antitrust case against a number of South African construction companies, has resulted in executives “pleading guilty to, or admitting to ‘things’ of which they clearly are not and cannot be guilty, having been ‘condemned’ or ‘convicted’ not by a court of law but by a ‘quango’ or other government institution”.
A quango is ostensibly a nongovernmental organisation often financed by government, although acting independently of it.
Using the Libor scandal as an example — an antitrust case involving UK banks — Vivian says banks paid over billions in shareholder funds, even though they were not prosecuted by British authorities.
“Read the press, you get one view, but if you think about the facts behind the headlines, you get another,” he says.
According to Vivian, excessively complex government regulation of markets is, as argued by Niall Ferguson in his book The Great Degeneration, “the disease of which it purports to be the cure”.
Because bodies like South Africa’s Competition Tribunal have been imbued with the right to impose fines and other punitive measures on companies, which, although open to appeal incur enormous legal fees, a precedent of “pay now, argue later” has been set, according to Vivian.
The problem with this approach, he says, is that although there is — officially, at least — recourse to the courts, the prohibitive costs of litigation mean it is a route seldom taken. Instead executives simply “hand over shareholder funds”.
He says this is the proposed formula used in the proposed Expropriation Bill, which, if passed, will allow “any number” of government officials to expropriate private property with citizens having to take any objections to the courts after the fact.
‘Quangos fill their coffers’
Vivian says the private sector has developed a culture of admitting guilt, avoiding personal criminal liability in the process. “As a result, it becomes possible to hand over massive quantities of shareholders’ funds, rather than the accused’s own funds, and the accused can then move on.”
This he describes as a “win-win”, because “executives escape prosecution” and “quangos fill their coffers”.
By way of example, Vivian says the Financial Services Board has grown from a handful of staff to nearly 500 employees and now has an annual income of R500m.
Furthermore, looking at the price-fixing case against bread companies, Vivian says “not a single word in the pronouncement suggests price collusion resulted in an increase in the price of bread let alone any indication in the slightest as to what this increase was”. In other words, competition authorities may impose penalties that are not aligned to the scale of the transgression and may incur greater losses to companies than their alleged infringements generated profits.
Vivian says this “quango system” exists because criminal prosecutions can be staved off, but if criminal prosecutions can succeed, the system “loses its rationale for existence”.
“I suspect the quangos know this and there will be little actual appetite for criminal prosecutions,” he adds. “As we all know, perception trumps reality, so propaganda will do.” — (c) 2013 NewsCentral Media