Philips penalized in Austria for making illegal price-arrangements. Could we call Philips a backslider for cartel-formation?! To quote Obama: “yes, we can!”

Only a few days ago, I wrote an article, in which I complained about the excessive bonuses that the executive management of Philips handed to themselves.

Philips is currently standing trial at a Polish Court of Justice, due to the involvement of Philips Medical Instruments in a fraud and bribery case with Polish hospital officials. Besides that, Philips received a mega-penalty of €313 million from the European Union for taking the leading role in a cartel for television spare parts.

In my humble opinion, a bonus is not justifiable for the leaders of a company that has been involved in multiple cases of illegal business in a short period of time. At least you would think that Philips will have learned its lesson by now, right?! Wrong!

Today, the Dutch newspapers printed the news that Philips in Austria had been involved in illegal price-arrangements with a large retail-organization, presumably Mediamarkt / Saturn. Here are the pertinent snips from the article on this subject in Het Financieele Dagblad (www.fd.nl):

Philips penalized for illegal price-arrangements in Austria

Philips will receive a penalty of €2.9 million from the Austrian supervisor for competition for making illegal price-arrangements with retailers.

The Dutch electronics company will get the penalty for making illegal price-arrangements, concerning televisions sets and other consumer electronics. According to the supervisor, the price agreements were applicable from 2009 until mid-2102.

Philips states that it takes the case very seriously and cooperates with the Austrian authorities. “We regret any association of Philips with this kind of behavior”, concerning a spokesman of the company.

The Austrian competition authority BWB (Bundeswettbewerbsbehörde) does not state with which chain of consumer electronics shops Philips made the price-agreements. However, according to the Austrian newspaper Der Standard, it would be Mediamarkt / Saturn.

As a matter of fact, the message from the BWB didn’t disclose either that the electronics company involved had been Philips. However, from the fact that Philips took the bait, you can safely presume that Philips has indeed been the company involved in this case. Also the fact that the BWB used Philipsian words, like “Consumer-Lifestyle” points in this direction.

Normally, I would (reluctantly) believe a company when it states that it was a ‘one-off’ offence and that it won’t happen again.

As a matter of fact, in case of Philips, it is the third, disclosed(!) illegal action in only a few years.  When do we stop talking about a ‘one-off’ and when do we see such a company as a backslider for illegal actions?! I think that Philips is now officially past this point.

The problem is that the penalty of €2.9 million for this fraud case can be considered petty cash for companies of this size. Even the mega-penalty of €313 million from the European Commisioner for Competition will not cost the Philips executives much sleepless nights, with company revenues being north of €22 billion per year.

In my humble opinion, the only solutions for these kinds of illegal activities are:

• Openly naming and shaming of companies involved in such fraud (1st step);
  
• Calculating the profits that involved companies could have earned, due to the fraud. Doubling or even tripling this amount, to set the penalty that the company should pay (2nd step);
  
• Criminal punishment for the executive management of companies, involved in such economic crimes (3rd and final step); 

Crime should really not pay in such situations. Now, too often these kinds of illegal actions are simply too profitable for companies, especially as you consider that the risk of being caught is probably quite small.

In this Austrian fraud case, I’m afraid that the Philips executives will chuckle and go on with business-as-usual.