Industry Concentration Qualitative Analysis

The class action cartel lawyers interviewed were supportive of Hypothesis 1. They all agreed that a greater industry concentration leads to an increase in illegal activity and that the moderating effect of increased scanning would decrease the amount of illegal activity. When asked about the direct effect of high industry concentration and illegal cartel activity, a seasoned attorney from New York with experience involving cases in the accounting industry remarked:

“I am finding…the higher the concentration, the more apt there is to be illegal activity.”

This point was echoed by a Toronto attorney:

“The fewer players there are, the easier it is to establish a cartel and the easier it is to monitor compliance with the cartel.”

Thus, all (10 out of 10) attorneys were in agreement that higher industry concentrations lead to higher levels of illegal activity although they suggested that a single concentration measure may not have enough granularity to properly answer this question. Therefore, there is support for Hypothesis 1 (without control variables) and the general opinion of the attorneys in the qualitative results.

I will now examine the qualitative data regarding the moderator variable, board scanning. 7.1.5 Industry Concentration - Qualitative Analysis regarding Board Scanning

The issue of the moderating impact of the board scanning variable was discussed by each of the interviewees. It is important to note that the scanning variable was more likely to be described by the interviewees as “board oversight”. Also, none of the attorneys was

aware of any instances where the board of an organization shut down an illegal cartel and they were quick to remark that this is not an action they (the interviewees) would usually be privy to. However, based upon their experience they still felt comfortable commenting on the dynamics between the board and the conduct of illegal activity. The comments and results of my discussions with the attorneys on scanning are, unless noted, equally applicable to all of the environmental hypotheses (1-5) and will be dealt with here in totality rather than repeating them in the reporting of subsequent hypotheses.

The general theme of the interviews on board scanning was articulated by an attorney in New York City (New York):

“The board plays an oversight and generally a tone setting role with the company. I mean if the board says they are and want all their people to be above board, this will act in some way as a deterrent to people acting illegally.”

A number of the attorneys interviewed also do consulting work with companies on how to avoid illegal cartel activity; this education starts at the board level as suggested by an attorney in the United States.3

A concept upon which almost all of the interviewees could agree was that aside from the general compliance regime, the board would usually have little knowledge as to the exact goings on within the corporation, especially with respect to illegal cartel activity. While there was general agreement that higher levels of independent board members increased the likelihood of catching illegal activity as it was occurring or being contemplated, they       

3 _{In some instances, I have not identified attorneys specifically by city in order to protect their identity.}

believed this relationship to be minor. Therefore, the moderating effect of scanning was not considered by them to be a strong influencer. In fact, they believed that the impetus outlined in the control section of the thesis would far outweigh the impact that a board position or threat would have on the actions of executives and managers. As noted by one former U.S. prosecutor, who is now defense counsel:

“The board meets a few times a year and talks about strategy and how to pay the CEO. Their knowledge of and impact on the day to day goings on of the company are minimal. I think the board make up you speak of [the components of the scanning variable] would have some marginal impact but things such as the other relationships you talk of [environmental forces] are much more relevant. That has been my experience anyways.”

A U.S. defense attorney specifically referenced the difference of attitude regarding compliance held by inside and outside directors:

“In my experience dealing with boards and compliance issues, outside directors seem to be more sensitive to this issue and push for stricter compliance throughout the company. In addition, because they do not know the day to day operations they are more comfortable with across the board compliance programs to protect themselves and the company, Insiders have more confidence in the compliance of day to day operations so do not feel additional compliance measures are needed.”

In general, 8 out of 10 of the attorneys felt that the scanning variable was seen to offer some, albeit weak, moderating effect on the environmental factors being analysed. As the opinions expressed by these attorneys applied to the moderating effect on all of the environmental hypotheses (Hypotheses 1-5), the reporting that follows of the insights from the qualitative comments only detail the impact of the direct effects of the environmental variables on illegal activity. It should be assumed as per the attorneys interviewed, that the moderating effect of board scanning would be minor and in the direction hypothesized.

7.2 Hypothesis 2

Hypothesis 2 explored the relationship between illegal activity and industry profitability. I predicted:

Hypothesis 2: The effect of relative industry profitability on illegal cartel