We all gripe about the cost of airline travel – even though few consumers recognize the razor-thin profit margins that most carriers have to contend with.
But there’s nothing like a price fixing scandal to really fuel the fires of consumer outrage.
And that brings us to this week’s ethics scandal – the dark and dirty relationship between British Airways (BA) and Virgin. These two giants are the target of an investigation into price fixing and collusion by the British Office of Fair Trade (OFT) and the U.S. Department of Justice (DOJ).
The allegations claim that BA and Virgin (along with some additional carriers) colluded to fix fuel surcharge prices for passenger and air cargo fares on long-haul flights to and from the U.K. British Air increased this surcharge seven times in two years, and the money it collected from fuel surcharges surpassed after-tax profit the past year. (See Timesonline.com article: British Airways investigated over price fixing cartel & Foxnews.com article: Airlines Face Probes Over Price-Fixing).
Just yesterday, the OFT announced that it had obtained an admission of collusion from BA. The outcome? Some very hefty fines. BA will pay £121.5 million, or $246.5 million US - the largest penalty ever imposed by the British competition regulator. BA was also was fined $300 million by the U.S. DOJ after parallel trans-Atlantic investigations. Needless to say, BA has been hit very hard in terms of financial punishment.
So what about Virgin? After all, it does take two to collude. The airline reportedly discussed price-fixing schemes with BA on at least 6 different occasions between June 2004 and January 2006.
But here’s what may surprise you: while the criminal investigation is reportedly still underway, Virgin will not face fines.
Why? Virgin employees blew the whistle and reported the colluding activities first to their internal legal department, and then externally to the OFT. Under the OFT’s leniency policy (which is designed to encourage reporting – a critical part of regulatory compliance), Virgin is protected from monetary penalties.
That’s a big payoff.
Ethics Training Can Make the Difference
So in the event that a few rogue employees in your organization fall prey to unethical and illegal behavior (which is the case in the BA/Virgin scandal), how can you increase the odds of their co-workers and colleagues reporting the situation?
Through periodic ethics and compliance training.
Even if you have a robust and utterly thorough Code of Conduct – your Code is not enough. (Enron had a fantastic Code.) The Code needs to be brought to life for your workforce – actually followed and enforced. Interactive and compelling educational programs are critical to making that happen.
Relevant to the issues in the BA/Virgin case, most employees don’t even have a basic understanding of price-fixing and anti-competition laws. While few people need truly in-depth training on the subject, all your employees will benefit from an awareness-level introduction to this increasingly important area of law. Basic coverage of the topic and clear guidance on how to spot and report policy violations can make a big difference.
Proper ethics and compliance training also needs to focus on the importance of reporting, as well as the rule against retaliation. Whistleblowers need to know: (1) how to report, and (2) that they will be protected against discrimination and mistreatment for having come forward.
Ethics Training Has Real ROI
The British Office of Fair Trade is not alone in providing a financial incentive for proactive compliance efforts and self reporting. In the U.S., preventative action and responsible corporate governance can make all the difference when you’re under investigation. Under the U.S. Federal Sentencing Guidelines (FSGs), if an organization has taken proactive steps to prevent unethical and illegal conduct through an effective ethics and compliance program (which includes periodic, formalized training), the employer may be able to mitigate potential fines and punishment for criminal violations by up to 95%. (For more details, see ELT’s summary of the FSGs.)
Review Your Ethics Training Programs
For those of you not providing periodic ethics training, this latest newspaper headline is yet another reminder of why you need to start. Just scroll up, and check out those penalties again.
For those of you who have embraced periodic, mandatory ethics training, consider whether you need to address the basics of price fixing and other forms of anti-competitive behavior. While for some organizations, this is simply not a risk area, for many it is. With ELT’s Ethics & Code of Conduct online training program, I see the majority of our clients select antitrust content as part of their “core” course.
I have a Virgin flight coming up in a just few weeks. (They just announced service from SFO.) I’ll be looking closely at the ticket cost, and wondering if a whistleblower is handing me my blanket and pillow …