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Business knowledge essential for corporate counsel

Business knowledge essential for corporate counsel

Business knowledge

A professor from the University of Melbourne has urged in-house lawyers to become more aware of the economic principles affecting their organisations.

Professor Simon Loertscher, director of the Centre for Market Design at the University of Melbourne, told Lawyers Weekly it is vital for legal professionals to understand antitrust and competition law.

The university ran a week-long course in June to educate judges and antitrust regulators about anti-competitive behaviour, such as the recent price fixing scandal between Air New Zealand and Garuda Indonesia.

However, it’s not just judges and lawmakers who need to be aware of these economic concepts, Professor Loertscher said. Competition law is just as important for in-house lawyers, who are increasingly being relied on as business advisers.

The professor said that while the penalties for price fixing and other anti-competitive behaviours are often an effective deterrent to corporations, individuals within these organisations may try to take advantage of their lesser responsibility to manipulate consumers. 

“Often it’s the corporation that’s going to be held responsible if they have been found guilty of a price fixing arrangement,” Professor Loertscher said.

“And because there’s huge fines for the corporations, one could argue its hardly in their interests to engage in price fixing.

“However … at the level of the manager, the sales manager, etc, there may be strong incentives to do price fixing with so-called competitors because its going to boost their sales or their revenue, and theyre being paid a fraction of their revenue as their bonus.

“That creates strong incentives internally, and conflict between the people working for the corporation and the shareholders of the corporation. So its important for in-house lawyers to be aware of these issues of the law and of the incentives for individuals working for a corporation, and [to compare] these incentives with the incentives for the corporation.”

Professor Loertscher said compliance should be a core focus for in-house lawyers, although some organisations do better in this regard than others. 

“Current practice is that a large burden of the penalty goes to the corporation, but some people are arguing that this is not appropriate, at least if the corporation has good compliance practice.

“But then theres the question, ‘What do you mean by compliance? Does compliance just mean that you have internal seminars and do the HR duties of educating your employees in what the law says? Or does it also mean that you monitor what they do?

“If I just tell you what the law is or what the rules are, but there are strong incentives to violate these … that to me seems very different from an environment where I not only tell you what the rules are, but I also enforce them by monitoring what my agents do within the organisation.

“So I think its very important for [in-house] lawyers and corporations to be aware of these issues.”

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