Dealing with Cartels

In most free-market economies, restrictions exist to curb the activity of cartels — groups of otherwise independent businesses that collaborate to lessen or prevent competition. Between 1990 and 2008, the total known affected sales of cartel activity topped US$16 trillion. Although government bodies have committed substantial resources to battling illegal corporate activity, it still happens and many corporations reoffend after being sanctioned for crimes. The authors have conducted research using a database of all known international cartels between 1970 and 2008. They suggest four courses of action to curb cartel activity: 1) Remunerative practices should be designed with a better understanding of the environmental drivers of illegal activity. Compensation should focus on solid strategic behaviours rather than rewarding short-term performance. 2) More independent boards are associated, somewhat counter-intuitively, with more illegal activity. Thus, the call for more independent boards needs to take into account the tendency of independent boards to structure CEO compensation to be more output-based, which often leads CEOs to focus only on short-term financial metrics. 3) Regulators should introduce harsher financial penalties in order to incent “means-based” organizational behaviour and punish “ends-based” activity. 4) Organizations should be made to have a legal requirement to protect society.