Is the watchdog protecting small business?

A SmartCompany/Roy Morgan poll of business owners heard a resounding vote of no confidence in the ACCC’s efforts to stop big business bullying. By MIKE PRESTON.

Business owners, like most Australians, will put up with a lot – hard work, stress, time away from friends and family – as long as they feel they have been given a fair go. For SMEs, that means one thing above all: the opportunity to compete on a level playing field with big business.

The evidence, however, suggests that SME owners are not being given that chance. A recent SmartCompany/Roy Morgan poll of 824 business owners found nearly half of small and medium businesses say they have been bullied by big business.

And, it seems, they blame competition watchdog the Australian Competition & Consumer Commission for the problem, with a massive 81% saying the ACCC is not doing enough to fix big business bullying.

These stark figures help explain why Australia’s competition framework has been at the forefront of political debate in the lead-up to this year’s federal election.

Not only are inquiries currently being held into retail leasing and petrol prices, but the Government recently made room in the hectic last weeks of parliamentary sitting time to pass laws designed to better protect SMEs from predatory pricing, possibly the most egregious form of big business bullying.

The initiator and key backer of those laws, maverick National Party Senator Barnaby Joyce, is unequivocal in his assessment of the challenges facing SMEs. “Small business does not face a level playing field for at the moment, there is no doubt about that,” he says. “Not only that, there is immense lobbying and political pressure on both sides of politics to make sure nothing changes. There is a form of commercial mercenary out there who works on behalf of big business and they know the first group to exploit is small business and the next person is the consumer.”

But who is responsible? And if it is the ACCC, what is the root of the problem – laws that make it impossible to take on the big business bullies, a lack of resources, or a deeper problem within the organisation itself?

Joyce argues that a legal framework that made it too difficult for the ACCC to successfully prosecute big business for anti-competitive conduct has been the key problem.

Predatory pricing laws are a case in point. The High Court’s infamous Boral decision in 2003 made it harder to win predatory pricing cases against big business and put a stop to ACCC prosecutions under the laws.

And although ACCC chairman Graeme Samuel says the passage two weeks ago of amendments to strengthen predatory pricing laws may mean things will change, Joyce says there are many other laws that need beefing up if they are to work effectively.

“The change to predatory pricing laws is a huge first step, but that’s all it is, a first step,” Joyce says. “We still need stronger laws against things such as creeping acquisitions, divestitures and unconscionable conduct.”

But not everyone agrees with Joyce’s view that law reform is the key to creating a more level playing field for SMEs.

Many people, some with direct experience of bullying by big businesses or franchisors, believe there are problems within the ACCC itself.

One, Heather Shearer, was the co-owner of a franchise with troubled franchised car service Midas in the Sunshine Coast town of Caloundra until she and her husband closed their doors in May, walking away with substantial losses.

Shearer says that after several of her fellow franchisees expressed concerns about their treatment by their franchisor Midas Australia, she co-ordinated a submission on behalf of the group to the ACCC asking it to investigate their claims.

After submitting a long letter with supporting documents to the ACCC, Shearer says she heard nothing of substance until, six months later, she received a “dear john” letter simply informing her that the matter had previously been investigated and no further action would be taken.

Worse, Shearer says, was that she was given no explanation of what, if anything, had been done to test the veracity of her claims against those of the franchisor. “I don’t feel they really responded to our submission – they just said they had previously looked at the issue, the company themselves had told them everything was fine and I got the impression they just accepted that,” Shearer says.

Concern with a lack of transparency in the ACCC’s investigation and decision-making processes is also the key complaint of Ken Henrick, the chief executive of the National Association of Retail Grocers of Australia (NARGA).

NARGA has led the battle by independent grocers against what they perceive as the growing market power of Coles and Woolworths and the contentious shopper docket petrol discount schemes.

“There are areas where the ACCC seems to us to have the legal power to do something, but for reasons that are never transparent, it chooses not to do it. It is up to them to make these decisions but there is never an audit trail or much of an explanation of their thinking so we find it hard to know how they have come to a view and why,” Henrick says.

Henrick says a recent ACCC decision to permit the acquisition by Woolworths of an independent grocer in the Snowy River town of Jindabyne – the only significant shop of that kind in the town – highlights the problem.

Although the ACCC published a 10 page explanation of its decision to allow the purchase, Henrick says it lacks in-depth explanation of the crucial issue in the decision, the possible opening of Coles supermarket in a town 62 kilometres away.

“There is no explanation as to the thinking, except that there is a plan that a Coles will open sometime next year – but who knows if that will actually happen a year from know in the context of a company going through a takeover? But there is no discussion of that in the decision,” Henrick says.

On the issue of timeliness, ACCC chairman Graeme Samuel accepts there have been occasions when investigations weren’t resolved quickly enough, but says this has now changed. “There will always be instances where perhaps too much time being taken, but the number of those now coming before the enforcement committee is few and far between, the processes have been far more efficiently organised, and when you look at the statistics it is clear the timelines are now a lot quicker,” Samuel says.

And, Samuel says, the transparency of the ACCC’s decision-making processes has also taken a “quantum leap forward” over the past few years.

“If we decide not to proceed in a particular matter that is only done after very careful consideration by all staff involved, including the most senior staff in the organisation,” Samuel says. “Sometimes complainants will want to know why and we can’t tell them, often because it is confidential information put to us; but I can assure you that information is always fully tested, we won’t just accept information without looking at it properly.”

Certainly, it appears unlikely that a lack of resources have limited the ACCC’s ability to provide more information on its actions and decisions. The ACCC was allocated $107 million from Government coffers in the last financial year and is set to receive $113 million in 2007-08. This is well up from the $89.8 million it received in 2005-06 – a year which it ended with a $7 million surplus.

As large as this sum sounds, however, it would still require careful marshalling if it is to fund prolonged legal battles against large, wealthy corporations.

Associate Professor Frank Zumbo, a competition law expert at the University of NSW and the man who drafted Barnaby Joyce’s predatory pricing law changes, says budgetary and political pressures mean the ACCC has to tread carefully in deciding when to launch expensive legal action.

“There is a balance that needs to be struck in terms of being risk-averse and wasting taxpayers’ money, but I think there is a view that the ACCC tends towards the risk-averse side,” Zumbo says.

The personality of ACCC chairman Graeme Samuel could also play a role in determining how the organisation conducts itself, Zumbo says. “Certainly you can see a difference between Graeme Samuel and [former chairman] Allan Fels. Clearly there is less litigation under Samuel. That in itself isn’t necessarily a bad thing, but you have to question why: is it a question of legal hurdles or has the ACCC decided it will run cases only when it has a high chance of winning?”

For Samuel’s part, he says unrealistic perceptions about what is possible are often behind calls for the ACCC to take a more aggressively litigious approach.

“One the most difficult tasks I’ve had to deal with is to close that expectation gap between perception and reality, a gap that has exacerbated by public comments by various people in the media, talkback radio and some small business groups about what the law is meant to do what we can achieve,” Samuel says.

“It would be easy for us to say we can do this or that, but in the end it would be misleading to do that, so the commissioners and myself suffer a bit from being too honest.”

We may not have to wait too long to get some further answers on these questions. The position of ACCC chairman comes up for re-appointment next year, an opportunity the SME community seems likely to take to seek answers from Graeme Samuel (who refuses to comment on his plans) and the Government.

“His absence in recent policy debates has been noted, and although he excuses himself on the basis that it is a policy issue, people want to know a lot more about his thinking and what the ACCC is doing,” Frank Zumbo says. “I think a lot of people will be looking at Graeme Samuel very closely next year.”