Enacting an effective antitrust compliance program can make a tremendous difference for poultry companies facing increasing scrutiny of their practices.
In recent years, companies in the poultry industry – specifically the broiler and egg industries – found themselves involved in legal proceedings accusing them of anti-competitive practices designed to drive up the price of their products. Legal advisors from FTI Consulting Inc., a Washington-based global business advisory firm, and Michael Best & Friedrich LLP, a Milwaukee-based corporate law firm, shared their advice on how to protect an integrated poultry business from antitrust claims.
Richard Kottmeyer, FTI’s managing director for corporate finance and restructuring, and its co-leader in food, agriculture and beverage, and David Crass, the managing partner of Michael Best & Friedrich’s Washington office who leads the firm’s practice in agribusiness, food and beverage, said integrators facing litigation need to understand three fundamentals:
- What is under review and why.
- Where are the risks and which ones apply to their specific business.
- Building and maintaining a compliance program as well as reviewing any existing complaints programs.
Understanding the situation
James Fieweger, a partner with Michael Best & Friedrich’s white-collar defense group, said one lawsuit often leads to many more because potential plaintiffs see an opportunity to make money and agencies with overlapping oversight of the industry act. Poultry processors must know that recent antitrust lawsuits and federal actions are part of a larger trend in protein processing.
Regulatory agencies are responding to market consolidation, increased contract purchasing power with fewer negotiated cash sales and price spikes tied to COVID-19 by searching for violations of the Packers and Stockyard Act and the Sherman Antitrust Act. Multiple agencies are involved in these investigations. The U.S. Department of Agriculture opened investigations into processors and the U.S. Department of Justice (DOJ) and Federal Trade Commission are also being asked to investigate.
The entire poultry industry, not just the largest integrators, should expect greater scrutiny going forward. Legal action currently affecting the top of the industry will quickly make its way to the mid-level companies too. Moreover, companies should be vigilant for private class action litigation involving their key customers in retail and consumer packaged goods. These types of investigations are projected to increase with new leadership in Washington.
Poultry companies may need external help to draft a compliance strategy or assess an existing compliance strategy. (Rido | Dreamstime.com)
Know the risks
The risks involved with litigation or an investigation of anti-competitive practices are enormous.
Liability is potentially both criminal and civil. It can involve corporate and individual liability as well as fines, treble damages and potential awards of attorney’s fees. Moreover, reputations can be damaged and there could be a major regulatory shift if the industry is not seen as effectively self-policing. All these consequences carry potential costs to the companies themselves. Mid-level companies may face greater disruptions than larger companies.
The goal is to create and foster an atmosphere of compliance. A plaintiff’s attorney will have a harder time winning a judgment if the compliance program is simple, data-driven and proven to work. (tomertu I iStockPhoto.com)
Build a compliance program
Daniel Vaccaro, a partner at Michael Best & Friedrich who handles white-collar criminal defense, said companies can avoid regulatory problems by implementing robust compliance programs. Companies can rely on written guidance issued by the DOJ’s Antitrust Division to tailor compliance programs.
“A good compliance program can not eliminate the prospect of violations it will increase the odds of benefitting from the (DOJ’s) Antitrust (Division’s) Leniency Program should they occur,” Vaccaro said.
When considering charges, prosecutors must examine if an organization had an effective compliance program both at the time of the alleged offense and at the time of the decision under legal scrutiny, Vaccaro said. Therefore, compliance must be maintained and closely monitored.
The DOJ will ask three pointed questions:
- Does the company have a good compliance program?
- Was the compliance program effective, did it work, and did it lead to prompt reporting?
- Was senior management involved in the alleged offense, or suspected in the case of a broader investigation tied to industry behavior?
It will then dig into the compliance program with three additional questions:
- Is the program well designed?
- Is it applied earnestly and in good faith?
- Does it work?
“Failure of a program does not mean the program was or will be deemed to be inadequate,” Fieweger said. “The main concern is that the organization made a concerted effort to install and implement a compliance program reasonably designed to avoid and detect misconduct and that if misconduct is detected, the company reacts responsibly.”
The goal is to create and foster an atmosphere of compliance. The benefit of an effective program is not restricted to criminal cases. A plaintiff’s attorney will have a harder time getting a judgment if the compliance program is simple, data-driven and shown to work.
Proactively plan and prepare
Agricultural companies will likely need external help to either draft a compliance strategy or assess an existing compliance strategy. Antitrust compliance is not at the core of the poultry business and compliance guidance changes periodically.
Strong compliance programs are a good defense and can be built and maintained with minimal interruption to business operations. But it takes a commitment. The experts at FTI and Michael Best say there is no better time to evaluate and prepare than now when the poultry industry is under scrutiny.