The author is a partner in the corporate and capital market department at the Mitar lawyers office
Many are the stakeholders in the company and the role of the company’s management is to navigate between them all. The relevant laws and regulations help the company’s management to navigate between the interest groups. However, there are cases where conflicting regulatory provisions are the ones that put the company’s management in conflict, so that responding to the demand of one regulator, acting for the protection of a public of certain stakeholders, can be considered a violation of the law by a second regulator, entrusted with the interests of another public.
From the management to the interrogation rooms
This is what happened recently when the Securities Authority issued a staff position on the required disclosure regarding “the effects of inflation and interest rate increases on disclosure and financial reporting”. This is a routine event in which the Securities Authority staff gives the reporting corporations guidelines regarding the disclosure required of them on the impact of economic transactions. As part of the staff’s position, the Securities Authority instructed the reporting corporations to examine the need for disclosure about the effects of the increase in inflation on the company and whether the company is able to “roll” the increase in input prices to its customers by increasing its sales prices, taking into account competition, regulation and other factors. On the face of it, this is a reasonable and standard disclosure requirement, but it turns out that complying with this disclosure directive of the Securities Authority may bring the company’s management to the investigation rooms of the Competition Authority.
A few months ago news was published that the Competition Authority conducted searches in the offices of various companies and interrogated their managers on the suspicion that they allegedly tried to coordinate price increases, through a disclosure given in the quarterly reports, in which they stated that in view of the increase in inputs, they may be required to increase the prices of their products.
Now it turns out that what those companies wrote in their reports is nothing more than the proper disclosure required according to the position of the Securities Authority, about the effects of rising inflation and how they deal with this trend. The same discovery which the Competition Authority considers a suspicion of the offense of price coordination through alleged signaling between competitors regarding a possible increase in sales prices, and which is enough to march the managements of those companies to the investigation rooms. To the delight of those questioned, the Securities Authority’s position on the matter provides them with the “alibi” required to turn the report suspected of alleged price coordination into a standard disclosure that every company is required to include in its reports.
who to prefer
If we return to the issue of stakeholders, according to the conflicting approaches of the two authorities, the company must decide whether to prefer the public of customers, protected under the mandate of the Competition Authority, or the public of shareholders, whose protection is the area of responsibility of the Securities Authority. What, in the eyes of the Securities Authority, is considered to be due disclosure required of the investing public, is considered by the Competition Authority to be prohibited signaling that harms competition and the customer public.
It is important that the reporting corporations, when they publish the reports of the last quarter, be aware of the dilemma and the tension that exists between the conflicting requirements, and it is important that they know how to navigate their way safely between them, but it is equally important that the authorities also avoid posing such dilemmas, because if we broaden the point of view a little We will understand that although these are two separate authorities, the public is the same public.