Jonathan Scott: Keynote speech to the Law Society, 2021CMA Chair Jonathan Scott's speech to the Law Society Competition Section International Antitrust Conference 2021.

News Desk: CMA Chair Jonathan Scott's speech to the Law Society Competition Section International Antitrust Conference 2021.

Personal reflections on current context

Thank you for the opportunity to come and talk to you today. Most speakers save their personal reflections for the end of their remarks, but I wanted to start by sharing my thoughts on the context in which we are currently operating and how things have changed since I started working in private practice in this field in the early 1980s, long before I served at the CMA, first as a Non-Executive member of the Board and more recently as the Chair.

Some of you in this audience will be legal advisers of large corporates. My reflection is that all your jobs are more difficult than they were early in my career. Why? One reason is that it seems to me that many big corporates might no longer be as concerned to protect their reputations as they were in the past.

On the face of it, that might look like a strange proposition. Companies seem more likely than ever before to commit themselves to statements of corporate purpose and to acknowledge publicly their obligations to stakeholders. They are also subject to greater external scrutiny than ever before, including through social media, if they fail to meet their legal or moral obligations. Surely this should lead companies to be more concerned with their reputations and more likely to behave ethically than in the past? But if that was the case, we enforcers might expect to see fewer breaches of competition and consumer law, and yet we are busier than ever. And the coronavirus pandemic has seen over 100,000 consumers contact us with concerns about companies behaving unfairly.

So we are left with this paradox, but I think it is a genuine phenomenon. When I started practicing, I think the large majority of corporates shared a desire for risk management, by which I mean they cared about their reputations enough to do something proactively to protect them. Spin forward to the first decade of this century, and we have what the authors of a 2007 Harvard Business Review article termed a mode of “crisis management – a reactive approach whose purpose is to limit the damage”. But at least in a crisis management mode, as the authors noted, “executives know the importance of their companies’ reputations.” The problem, they diagnosed, was that “most companies, however, d[id] an inadequate job of managing [them]”. Firms, they said, “tend[ed] to focus their energies on handling the threats to their reputations that ha[d] already surfaced.” It is my belief that we have moved further still along this spectrum to a point where I think that corporate reputation is now insufficiently cared about in too many Boardrooms such that even the adverse reaction to a reputationally damaging event may be lacking. The sheer volume of social media content, on such a wide range of subjects over such a short space of time, might reduce the salience of an individual claim. The storm may pass quite quickly, and there is no crisis to manage. Furthermore, if a company has taken a strong ethical stand on one issue, it might give it – as the academic literature suggests – ‘moral licence’ to behave less ethically elsewhere. And incentives to avoid the repeat of unlawful activity in the future might be wholly absent, particularly if liability for financial penalties is insufficient to deter and is seen merely as a cost of doing business. And this latter point is for me a real concern. This amounts to the loss of the first line of defence for competition and consumer protection enforcement authorities: deterrence at the level of the undertaking. Deterrence at the individual level is perhaps a different matter, and I will return to the important theme of personal responsibility.

This shift towards greater corporate reputational risk tolerance is perhaps also symptomatic of a wider shift in incentives and attitudes. Firms may be less concerned about competition law liability if the wider operating environment questions the orthodoxy of free, open, competitive markets being the best way to promote consumer welfare.

One can no longer take for granted that politicians and the public think that competition is simply a good thing. There is less trust in markets – less trust that competition will deliver better outcomes for consumers and productivity benefits for the wider economy. Relatedly, over time, as infringement decisions and judgments become longer and longer, and regime complexity is piled upon complexity, the system we operate in becomes more and more removed from the comprehension and concern of ordinary people. This is a real issue – it means that the wider political environment in which we are operating is less stable than it has been in the past.

In this way, you will see that the CMA is facing a difficult examination question, and in an increasingly challenging set of examination conditions.

To add to this wider context, the backdrop for the CMA is one of seismic change. We have taken on significant new roles in the Office for the Internal Market and the shadow Digital Markets Unit. The Government has consulted on the design of the UK Subsidy control regime, and it is not yet clear what role there might be for the CMA. Following the UK’s Exit from the EU, we are responsible for a larger and more international caseload. COVID-19 has presented its own enormous operational and policy challenges, and the after-shocks are still being strongly felt across the economy, affecting all our functions. I have been very proud of how the CMA has responded to these manifold challenges, and in many respects, I feel it’s a crucible in which we have learned a lot in a short space of time.

What we have achieved in the last 12 months

This brings me on to talk a bit about what we have achieved in the last 12 months – my highlights.

I was delighted that, in May, the CMA was awarded the title of ‘Government Agency of the Year’ by the Global Competition Review. This award is a testament not just to the efforts and commitment of the CMA’s workforce in the face of all the difficulties and uncertainty thrown up by the pandemic over the past year, but also to the impactful and cutting-edge work that we are undertaking.

COVID-19

I am particularly proud of how the CMA responded to the COVID-19 pandemic and how we have put the post-Covid response at the heart of our work. The COVID-19 taskforce, with its strong, visible, public-facing approach, and its cross-function, cross-tool perspective is, to my mind, an exemplar of the best form of public service response to a crisis such as this. The response covered all conceivable pillars. First, we took a policy response – providing advice to businesses, consumers and the Government. Second, we took a behavioural influencing response - to get the message out there that we are watching, and that bad business behaviour would not be tolerated - what is sometimes referred to as soft power. Third, we took a genuinely robust enforcement response, securing hundreds of millions of pounds in refunds for consumers from events and holidays cancelled due to the pandemic.

The recession and economic adjustment to the pandemic create a number of risks to competition and consumers. That’s why we have made “protecting consumers and driving recovery during and after the pandemic” an organisational priority for the year ahead. This is reflected in our casework especially around consumer cancellation and refund rights, and also in our advocacy, which is focused on supporting and advising the Government as it makes policy to support the recovery. And it is reflected in a stepping-up of our engagement with business, consumer and third sector organisations, to deepen our understanding of how markets and consumers’ experiences are changing.

Digital

In respect of digital markets, the CMA has come very far, very quickly. Setting up our Data, Technology and Analytics (DaTA) unit was ahead of its time and is continuing to help us to stay ahead by understanding how firms are using data, what their machine learning and AI algorithms are doing and what consequences they are having. We were quick out of the blocks with our 2019/20 Online Platforms and Digital Advertising market study giving us the best possible start. Then in December 2020, our proposals for the new digital competition regime were set out in the advice of our Digital Markets Taskforce, advising the Government on the design and implementation of a new pro-competition and pro-innovation regime for the most powerful digital firms.

When implemented, the new regime will govern the most powerful tech firms – those with ‘strategic market status’ (SMS) – meaning those with substantial, entrenched market power and where the effects of that market power are particularly widespread or significant.

The Digital Markets Unit (DMU), now in shadow form in the CMA pending the legislation to equip it with formal powers, will ensure the ‘rules of the game’ are clear up-front. It will work with stakeholders to understand the issues and with powerful tech firms to ensure they comply.

And elsewhere in the CMA, we are already using our existing levers, to better understand digital markets and to pursue a busy portfolio of digital enforcement. Examples include the antitrust cases regarding the Google privacy sandbox and the Apple app store, and consumer enforcement regarding fake and misleading online reviews. Our Chief Executive, Andrea Coscelli, has spoken about this two-pronged approach, at the Fordham conference in late 2020, and in his Bannerman lecture this February. We are staying ahead of the curve by using the powers we already have to address issues wherever we can, while simultaneously building capability and knowledge so that we can hit the ground running from day one of our new regulatory regime.

And I think there is a clear opportunity for the UK to lead the way and to support competition and innovation in digital markets. We see this already, with US Congress proceedings paying close attention to the CMA’s work on digital markets, and with the tailored regulatory approach mapped out in our Taskforce advice garnering broad praise at home and abroad.

We recognise that the new pro-competition regime for digital markets will not exist in isolation but as part of a wider evolving regulatory landscape which also includes the new online harms regime, to be overseen by Ofcom, and data protection and e-privacy regulation, overseen by the ICO.

The Digital Regulation Cooperation Forum (DRCF), which is an initiative the CMA has driven, brings together the CMA, ICO, Ofcom and the FCA, building on existing relationships, to ensure a greater level of cooperation and coherence in digital markets and across digital regulatory approaches given the unique challenges posed by regulation of online platforms. Again, we are ahead of the game – leading the way with others following us.

We must also consider how we coordinate with international partners. The most powerful digital firms operate across multiple jurisdictions globally, and regulators in many jurisdictions are investigating and addressing very similar challenges using different approaches. There are likely to be significant efficiencies from regulators working together, both to understand the issues and in devising solutions. We will continue to strive to look for ways to work with other agencies in this regard.

All of this reflects how we are helping to influence and shape digital regulation, at home and abroad, helping to lead thought in this area. We will be ready for action on day one of the DMU proper, when the Government has equipped it with the regulatory tools needed for the job.