Hello and welcome back to this fortnightly look at the business law developments shaping your company's future. I'm Matthew Magee and my job here is to bring you the best analysis of the most current business law news, and this week we’ll assess what a year of elections across the world means for companies seeking to get clarity on business policy. And we’ll get the latest on South Africa’s law change to tackle corruption, coming just weeks after a senior government figure was charged with corruption offences. But first, some news from around the world from the reporters on our Out-Law team: EU claims China treats EU medical devices unfairly UK finance firms get anti-greenwashing guidance and Hong Kong competition authorities conduct construction dawn raids
A dispute between the EU and China over fair competition has intensified after the European Commission opened an investigation into measures and practices in the Chinese procurement market for medical devices that it claims “discriminate unfairly against European companies and products”. The probe into China's procurement market for medical devices is the first time the Commission has initiated an IPI investigation. The Commission said there is evidence that the market “has gradually become more closed for European and foreign firms, as well as for products made in the EU”. China has accused the EU of protectionism. UK financial firms need to make sure they have solid policies to counter greenwashing under new guidance published by regulator the Financial Conduct Authority. A new anti-greenwashing rule comes into effect on 31 May requiring businesses to ensure sustainability claims are backed up by robust, relevant, and credible evidence. Sustainable finance expert Hayden Morgan said: “Firms should integrate greenwashing risk within existing governance frameworks and align this to the sustainability characteristics of the firm’s products and services.” Recent dawn raids by the Competition Commission in Hong Kong show how important it is for construction consultants and contractors to thoroughly review their tendering operations to ensure that they are compliant with the law, an expert has said. The Competition Commission (CC) and Independent Commission Against Corruption (ICAC) conducted their first joint operation in April prompted by a corruption complaint made by members of the public to the ICAC about building maintenance. The companies investigated were alleged to have been involved in corruption and anti-competitive activities. Construction and competition law expert Mohammed Talib said: “The joint operation shows that the infrastructure sector continues to be a high priority target for the Commission given the impact it has on the public. Businesses in the sector need to urgently review their procurement operations and bidding practices to ensure they are fully compliant with the law.”
It's election-ageddon! Four of the world's five biggest countries will vote in national elections this year. Four billion people - nearly half of the world's population, live in countries that could have a new government by the end of this year. It is a very unusual, and entirely accidental, situation, but it comes at a moment of jeopardy - wars in Ukraine and the middle east threaten to draw in regional and global responses; protectionism and even authoritarianism are on the rise in many countries, and the climate crisis poses some of the biggest challenges for governments that any of us have ever seen. Businesses have long used lobbying or public policy work to ensure that policy makers understand the business implications of decisions they make and, sometimes crudely, to gain business advantage. Often the activity is just about getting the best information about what policy changes the future might hold. Edinburgh-based public policy expert Andrew Henderson said that in a year of momentous political change there are some areas where companies' attention is particularly focused.
Andrew Henderson: This is an absolute massive year across the world for elections. There's USA, India, Indonesia, Pakistan, European parliamentary elections or the new European Commission appointed, we have got votes across EU states, we've got Finland, Austria, Belgium, Croatia and more. We've got elections, including national elections in South Africa. We've got local or state elections in Germany, Ireland, Spain, Australia and we've got UK general election and local and mayoral election, so really is huge. The governments that the world is going to be elected and countries the world are going to be electing over the course of this year are going to be wrestling with common challenges. For example, these global mega trends refer to the four D's of digitization, decarbonization, demographic change, and and deglobalization. These governments are gonna be elected this year, these are the ones that are going to have to steer us through the climate crisis in one of its most acute phases. These are the government's going to have to manage the regulation of the AI explosion and the opportunities and challenges posed by automation. So yes, the local and regional national elections, but those who are elected are going to have a lot in common with the issues are going to have to wrestle with. The policy, which that's going to generate in terms of the policy pipeline of change that probably won't come into full throttle until next year in 2025, I think 2024 will be more the year of the shifting of politicians and then culminating in what happens in America in November and thereafter, because a lot of things are hanging on that it will be 2025 is a year when a lot of the policy chickens come home to roost.
Matthew Magee: So what do companies generally actually want? Of course, it differs from company to company, country to country, but there are a couple of things that most businesses are asking for.
Andrew: But generally speaking, what businesses crave, no matter where they're operating, is certainty and stability. So thereafter, when and if that's achieved, there's a desire often to have policy harmony between countries. But for a business with interests in many countries around the world, they'll be looking first and foremost can the new incoming or remaining government afford them and provide them the certainty and stability that they require and thereafter are the ways in which they could make their trading and their operations any smoother through the course of their time in office. What we find is organisations are in many ways ahead of the curve of governments when it comes to what they're doing in the race to net 0. So, we'll find organisations out pushing for more, not less many times in environmental laws and regulatory regime to actually catch up with where they where they've got to with their own innovation. So yeah, but absolutely and energy security is critical and not least in a time when there have been huge upsets and shocks in recent years.
Matthew: On a more tactical level, lots of companies will be looking at the current opposition and thinking that political party may very well be the next government. How do they go about gaining influence in news circles?
Andrew: There could be a tendency sometimes to rush out and try and meet incoming governments and as extensive as possible and while that's not necessarily wrong, because engagement is a really important part of this, there's a wee bit of homework needs to be done first. So, you need to understand where the parties the candidates are coming from, what does their policy set look like, what's influencing that and then you need to assess really, how does that impact on an organisation on our client's own interests. And there's a need then to see how does the organisation, how does it fit into the incoming governments world view and its own priority list. So, when you have an organisation which wants to make an ask of a government, either government is incumbent or incoming, they need to be able to articulate that ask in a way which makes sense to the politicians and the officials. And what's very important, especially in a time where we've had global economic turmoil, many countries low or no growth, what organisations are pitching and asking for is really important and ideally for those to be either cost neutral to government or at least have the fully costed out asks, but really, and above all, I think it's really important for organisations, for clients to understand the political currency that they're dealing with and speaking the language figuratively of those that they're engaging with. Being listened to in order to do that, organisations need to be able to get to the right people and critically, they need to explain the peril and opportunity that different policy choices present, not just to their own business but to the politicians themselves, and if they do that in a way which is understandable and crucially is actionable by the the politician, then they will be listened to because it's talking in a language which they understand.
Matthew: Much public policy worker lobbying happens through trade associations who are experienced in the process, but companies do seek to influence political processes directly and always have done. But this is an area which is being regulated more tightly every year, and companies need to make sure they know what the rules are.
Andrew: Countries such as Canada have had a sophisticated regime in for around 40 years. We look at the UK, a more limited regime has been in for about 10 years and each of these regimes plays quite different obligations. The common theme tends to be around the information which has to be declared on the law in relation to lobbying which is undertaken. These registers, these regimes place an obligation to put publicly viewable information out about that meeting or that engagement. Some regimes talk and require to put in details of financial or finances and amount spent on lobbying so that's the sort of the compliance side of the Ledger. There's also a perhaps more a perception side to the Ledger. So, whether or not there's a lobbying regime in place, there's a sort of what will it, what does it look like to be out there influencing and lobbying. The media, quite rightly and understandably, will scrutinise lobbying quite heavily. So we would say especially in an election year, clients will be very careful. They don't want to be mistaken for being politically partial. So they have to tread, I think, with a bit more care than they would normally during the election year, where there’s more potential to be under the microscope and potentially in the crosshairs of a political spat that they don't be anywhere near.
Matthew: If this all feels like a delicate dance, a lot of effort for uncertain outcomes, then it is. But we know just from reading the political news, that it's something that companies put enormous time and effort into. So how much realistically can companies expect to achieve through lobbying and public policy work?
Andrew: So, you need to understand what's coming our way and also need to have the ability, at least a seat at the table, to influence it. And I think the old saying goes if you're if you're not at the table, then you're probably on the menu. In terms of what lobbying can achieve, I would say it's hard to identify really any government policy anywhere, which is not the product of some type of lobbying, be that lobbying by businesses, charities, non government organisations, unions or other campaigns organisations. So lobbying really, it is at the core and the root of the way the vast majority of governments in the world operate, and as such it's lobbying or alternatively known as public affairs, isn't viewed really as a nice to have by businesses anymore, it's a central pillar of business strategy.
Matthew: For the first time, companies in South Africa now have a duty to prevent corruption. If corruption happens, they can no longer avoid punishment by saying they didn't know about it. They have to show that they took steps to prevent it before it happened.
That happened earlier this month. The former Speaker of the South African Parliament stepped down and was charged with 12 counts of corruption and one of money laundering and this is all taking place in the politically charged run up to a general election in two months time. So corruption will be on the minds of national and international companies alike. Johannesburg based investigations expert Edward James outlined what the new law says.
Edward James: What the law really says is that if you're a company and somebody associated with you as a company goes out and they bribe, you as a company can be held liable for that regardless of whether you knew about it or told them to do it. So this is what we call strict liability in the South African law. It only can apply in some circumstances, and there's also a defence that a company can raise to escape liability. So the circumstances where this will apply are where that person bribes to win or retain some business or advantage for you as a company and that a fence that you can raise the companies to say, well, you adopted adequate procedures to make sure that people that work for you don't go out and bribe. So it's quite a big development in our law, particularly because it takes away the need to prove that a company knew about or told somebody to do something.
Matthew: Corruption in South Africa has been big political as well as business news. The Zondo Commission investigated ‘state capture’ under former President Jacob Zuma - corruption so endemic that it effectively took control of parts of government, and one of its recommendations was the creation of this failure to prevent bribery offence. Many other of Raymond Zondo’s recommendations have not been implemented, though, and not everyone was optimistic about a change in attitude following his four year investigation and the resulting report. This is the context for the new law influencing the degree to which it will be seen as an immediate, credible threat to corrupt activities.
Edward: Currently it's not a credible threat and the reason for that is that the state in South Africa has just not been able to get across the line and get significant convictions for corruption. This law will make it easier for the state to do that, but it's not going to apply retrospectively, it's only going to apply to future crimes of corruption. So, in order for this to really become credible, we're going to have to see a change in the effectiveness of the state and unfortunately one of the side effects of state capture was that the particular agencies that are meant to enforce the law and take action against people who are corrupt were hollowed out. And in fairness, it's going to take those same organisations a better time to stand up on their feet. Now that makes the timing of this new law really good, because as the state takes steps to effectively help fix some of the agencies, we also have this change in law, which will make it easier to prosecute companies. So in summary, it's not currently a credible threat, but I certainly wouldn't want to be on the wrong side of the law when the state gets back up on its feet and decides to make an example of a company.
Matthew: So who will the new law affect the most? Edward thinks that South Africa-headquartered companies will have the furthest to travel to comply with the law.
Edward: So I wouldn't think that big multinational companies that are used to complying with US and UK laws will be particularly impacted by this law. One would hope that those companies are already doing the right things and that they already have broadly what we'd consider adequate procedures in place. In my mind, I think that the companies that are most likely going to be hit by the new law would be South African-headquartered or regionally centred companies that haven't traditionally operated in the US or the UK. Tthose types of companies are going to have to catch up and they're going to have to comply with these laws because it's no longer foreign laws. Those foreign laws haven't in fact become local laws in South Africa.
Matthew: OK, and what kind of action do they need to take? How do they need to change their behaviour now?
Edward: So I'm a firm believer that you really shouldn't look a gift horse in the mouth, and the new law is a gift. Under the current law, there's no defence for you as a company that you can raise to say, well, you implemented a compliance programme and you try to stop people from bribing. Under the new law you can raise an absolute defence to being held liable under the new law. So I think what companies should do differently is that they should most definitely implement adequate procedures. Now the question that comes up is, well, what is adequate procedures, what will that entail? Now we don't have any guidance on that and we may not get care guidance anytime soon. So my recommendation to companies who face these new legal rules for the first time is that they should look at the UK system because after all, the UK has had about a 14 year head start. There's also particularly helpful guidance notes issued in the UK that outlined 6 things you should do as a company if you want to be able to prove that you did enough to stop people from bribing and those six things are doing risk assessments, adopting policies and procedures that deal with corruption, management setting the tone from the top, doing due diligence on people you do business with, training people and of course anti corruption measures are not static, so you should from time to time review what you've done and make sure it's enough.
Matthew: The UK's Bribery Act, whose Section 7 covers a failure to prevent bribery, was passed in 2010 and has been incredibly influential well beyond that country's borders, said Edward.
Edward: If you look at these laws as much as they create the mechanism to punish companies for not doing the right thing, the real objective is to prevent corruption and if I look at Section 7 of the UK Bribery Act, it's really had an indelible mark on compliance around the world. If you were to go around now and ask any lawyer that's advised on an agreement in the last couple of years, they will probably tell you that they've seen it come up where the agreement requires companies to comply with section 7 and many companies and people take this seriously, and they've changed what they do in terms of anti corruption steps as a result. So from that perspective, I think these laws have already worked.
Matthew: Thanks for listening and I really hope you're finding this useful. If you are, why not pass it on to friends, family, colleagues and contacts? Finding the right audience is hard for new podcasts, so if you're enjoying it, we'd really appreciate your help. Don't forget you can get the news as it happens from our outlaw reporting team at pinsentmasons.com and you can sign up for a weekly tailored digest of the news and analysis at pinsentmasons.com/newsletter. Until next time, goodbye. The Pinsent Mason's podcast was produced by Matthew Magee for International professional services firm Pinsent Masons.
