1.1 Introduction

Since their creation, corporations have proven to be vehicles for incredible aggregate wealth creation. Indeed, this was part of the intended design: the resource-strapped state sought a catalyst for public investment and so constituted the legal entity of the company, attaching to this artificial construct the rights and privileges that would allow it to successfully corral private capital.Footnote ² From the creation of the Bank of England to the empire-building of the East India Company, the company form was harnessed as a tool for the expansion of public life.

It was, however, recognised at the outset that in creating a unique set of legal features that would make the company so attractive for private investment – in particular the later ability to own property, via the company, with limited liability – the state was not only creating its own co-investor in public wealth but there was also the possibility that the company would pose a threat to the state itself through its ability to channel and multiply the accumulation of private power.Footnote ³ The public’s salvation, therefore, came with an inherent threat of its undoing.

As such, since its inception, the corporation has been involved in a delicate dance with the state both to route its productive capacity towards socially desirable ends and to control the corporation’s power.Footnote ⁴ Today, as technological development and the mobilisation of international financial capital allow the power of the corporation to transcend that of the democratic state in both scale and scope, the tools of the past that were used with varying degrees of vigour to constrain the corporation are increasingly relevant. Corporate law and antitrust were once used to maintain the balance between the power of the corporation and the power of the state. Today, this vital role has been all but forgotten.

We have many regulatory tools that are used to proscribe the bounds of operation of the company, corporate law, and antitrust being two of them. Both disciplines are currently engaged in an active debate as to their core purpose in the modern context. Within antitrust, this has involved revisiting the ‘consumer welfare standard’ as the accepted litmus test of permitted competitive conduct; within corporate law, it manifests as a collective reflection on the shareholder primacy principle of corporate governance and the stakeholder capitalist model proposed as its alternative. Each debate would benefit from a more nuanced understanding of the origins of antitrust in corporate law (and vice versa) and the historical attempts to constrain the corporation as an entity with the built-in capability of challenging the state’s governmental power.

What we see from looking at the history of corporate law and antitrust is that each discipline historically played a complementary role in maintaining the balance of power between private, economic concentrations and the demos. The now-separate conversations about corporate responsibility in the corporate governance sphere and about corporate power within competition policy circles have always, in fact, been fundamentally connected and targeted at the same set of risks.

This chapter will start in Section 1.2 by exploring the concept of the balance of power, which will then form the framework for our historical exploration of corporate and antitrust law. We will then consider two manifestations of private power that the state must regulate: its own public grants of monopoly power, considered in Section 1.3, and what we will designate as ‘constructed monopolies’, discussed in Section 1.4. Constructed monopolies differ from publicly granted monopolies in that they are generated within the market, and it is in reaction to the development of such monopoly market positions that modern antitrust law comes into being. It is tempting to consider such monopolies to be ‘self-generating’ and as such the mirror-image of the public grant of monopoly. But as we shall see the state is continually involved in co-creating the market and the conditions for monopoly – or competition – and thus ‘constructed’ is a more accurate framing for the modern monopoly than ‘self-generating’.

Whereas modern antitrust forged its path in the regulation of constructed monopolies, corporate law marched into the territory of corporate responsibility, in particular, a responsibility towards investors. Corporate responsibility will be the focus of Section 1.5. Although at face value corporate responsibility seems to operate according to a different logic to the control of corporate and market power – focused instead on investor protections – we shall see that this is, or at least could have been, an aspect of the balance of power. Finally, this chapter will conclude in Section 1.6 by considering the relevance today of the concept of the balance of power to the operation of antitrust and corporate law.

1.2 Balance of Power

The challenge of maintaining the balance of power between the demos and industry stems from the phenomenon of economies of scale. As Ellis Hawley observes:

As Hawley describes, the industrial economy is prone to the agglomeration of production capacity, and with that concentration of economic resources comes a threat to individual freedom. Whether the industry is centralised within the state or centralised within private entities, the balance between the autonomy of society and the power of whoever commands the industry must be maintained. The allocation of property rights is thus central to society’s response to economies of scale. After identifying the ‘corporate system’ in the quote with which this chapter began, Berle and Means emphasise that the ‘Organization of property has played a constant part in the balance of powers which go to make up the life of any era’.Footnote ⁶ For Berle and Means, the ‘corporate system’ not only channels resources towards corporations but the impact of the overall system is so great that ‘it may even determine a large part ofthe behaviour of most men living under it’.Footnote ⁷ The corporation, as a tool for infrastructural and economic development, became the vessel into which increasing returns have been channelled, giving rise to an entity with equivalent powers to the state.

Although economies of scale may be part and parcel of technological development, it is important to note that the dominance of the corporation as an institution was not an inevitable consequence;Footnote ⁸ the corporation is a creature of the state.Footnote ⁹ Alternative modes of an economic organisation include partnerships, associations, municipal corporations, charities, and cooperatives. But it is the corporation that has really thrived, and it has done so with the explicit endorsement of the state. Historically, as we shall see in Section 1.3, the corporation was a positive creation of the state.Footnote ¹⁰ Today, the corporation exists at the pleasure of the state – anyone can start a corporation for any legal purpose and hardly any effort or bureaucracy is involved in the process. Yet still, the corporation relies on the passive acceptance of the state; the privilege of incorporation could be removed at any time.

The balance of power with which this chapter is concerned refers to the relationship between the power of the corporation and the power of the state. Given the mode of creation of corporate power, the balance of power is inherently reflexive. In a literal sense, the corporation’s power does not – cannot – exist independent of the state that creates it,Footnote ¹¹ and at the same time, the capacity of the state has become dependent on the economic contributions of corporations as the chosen vehicle for harnessing economies of scale. Being creatures of the state, corporations are tied up in conference with the state, continually negotiating their very existence. This allows the state to push the corporation in directions that benefit society but also gives rise to the opportunity, and leverage, for the corporation to push back.

The balance of power does not start with the desirability or otherwise of increasing returns to scale in economic terms. Concentrated centres of power can be corrosive to public life and are automatically suspect as such. As K. Sabeel Rahman reminds us:

We can relate this notion of balance of power to Polanyi’s concept of the ‘double movement’.Footnote ¹³ As Polanyi explores in his seminal book The Great Transformation, the market is propelled to continuous expansion as it attempts to pull away from society and render the demos subservient to its logic. But this movement is met by a countermovement of society as society seeks to protect itself from the market’s destructive capacity. This manifests as a concerted effort to protect society from the market.Footnote ¹⁴ Touching on the reflexive nature of the relationship between Berle and Means’ ‘corporate system’ and the state, Polanyi developed the concept of ‘embeddedness’ which proposes that the market is embedded within society and the state.Footnote ¹⁵ This embeddedness ensures that the market’s attempts to pull away from society will always be met by a corresponding countermovement, tethered as the market is to the society that generates it.

This indeed is just what happened in relation to the corporation. As Naomi Lamoureaux and William Novak describe, as the’ persistent growth in the scale and scope of the largest business corporations frequently challenged extant regulatory rubrics – most famously with the development of interstate trusts and holding companies’ society has proven to be ‘surprisingly creative and versatile in generating new legal, administrative, and regulatory tools to bring even the most powerful corporations under a modicum of democratic control’.Footnote ¹⁶

Corporate law and antitrust have both played a role in this democratic countermovement. Corporate law constrains the scope of action of the entity that is the corporation. It thus can act as a check on the power of the corporation on the market and in society, not dissimilar to the remit of antitrust law. Meanwhile, antitrust looks to the external business arrangements of corporations, as well as other business organisations, and determines which configurations of capital are to be permitted the licence to wield collective power and which are to be forced to compete.Footnote ¹⁷ Antitrust was also once used to govern the corporation at an existential level, as a type of corporate law. Understanding the reactive, contingent, and ever-evolving nature of developments in each of these legal disciplines sheds light on the present-day efforts to respond to corporate domination.

1.3 Grant of Monopoly

The original model of the corporate ‘licence to operate’ was the corporate charter. In order to come into existence, a corporation required an affirmative act of the state – a decree of the sovereign or, later, an act of Parliament (in the United Kingdom), state legislatures, or Congress (in the United States).Footnote ¹⁸ Some of the first corporate charters were granted in England by a state eager to take advantage of private investment for the completion of public projects. By granting these artificial legal entities protection from liability and by guaranteeing a financial return, the corporate form was utilised as an engine for economic growth.Footnote ¹⁹

Corporate charters were a rare privilege. Very few were granted before the turn of the nineteenth century.Footnote ²⁰ Before the rise of manufacturing, charters were generally granted to provide transportation infrastructure, water utilities, to create banks and insurance companies.Footnote ²¹ Many of these early corporations, including the East India Company in EnglandFootnote ²² and the Bank of New York in the United States,Footnote ²³ were, as Eric Hilt describes, ‘the largest business enterprises that had ever been created …, and were endowed with valuable legal priveleges that were not accessible to other firms’.Footnote ²⁴

A corporation was a way for private citizens to pool together their resources, and although public benefit was initially a feature of charter grants, private gain was also part of the bargain. The presence of economies of scale and the public interest in seeing the relevant project completed were the justifications of a monopoly grant: it was felt that the underlying enterprise – the construction of a bridge or canal or road – would be unremunerative without some exclusive licence providing a barrier to entry.Footnote ²⁵ Not all charters related to industries with substantial economies of scale, but the balance of power was most imperilled in relation to enterprises either with a tendency to grow in size or influence or where the monopoly related to some critical infrastructure or bottleneck in the economy.

Today, we think of monopoly in a narrow sense as the market position that allows a firm to raise price above cost and restrict output. Under the model of corporate chartering though, the grant of a monopoly licence – understood to be an exclusive right to engage in a particular enterprise – was one of several kinds of inducements that could be negotiated as part of a charter grant, all giving some kind of monopolistic privilege. For example, the Society for Establishing Useful Manufactures, which was a textile company chartered in New Jersey in 1791, secured permission to raise funds through a public lottery as well as obtaining exemptions for the company’s employees from taxes and military service.Footnote ²⁶ There was an inevitable reciprocity that simultaneously reinforced and delimited the role of the state as grantor of the privileges and the corporation as grantee: charters were granted at the behest of the state but a business would not seek a charter for an enterprise that did not require public support – for this, there was no need to incorporate.

With the grant of monopoly came corresponding power. Such power was not granted without protections. The countermovement to constrain the power of corporations to keep them embedded within society took several forms, which will be explored in this section: (a) restrictions on the ability to grant special privileges; (b) restrictions on the scope of the grant; (c) reservations of the power to revoke the charter; and (d) the introduction of general incorporation.

1.4 Constructed Monopoly

With general incorporation and the loosening of incorporation laws, the ability of the state to control the corporation through existential challenge was much diminished. The state was no longer the grantor of monopoly privilege, and yet monopolistic companies were arising anyway, taking advantage of technological advances, the growing national market, and the benefits of the corporate form itself – all of which, in different ways, gave rise to economies of scale.Footnote ⁶⁸ The immediate need was therefore to identify other tools to constrain the increasingly problematic concentrations of power or, in other words, to address the tilting balance of power in favour of monopolies. This is where the joint origins of antitrust and corporate law rupture, spawning a fragmented approach to corporate regulation.Footnote ⁶⁹ Within antitrust, there were two overlapping streams: (a) the use of common law to challenge coercive practices and (b) the passage of the Sherman Act in 1890. We shall consider the separate path of corporate law in Section 1.5.

1.5 Corporate Responsibility

While the aspects of corporate regulation that we today recognise as antitrust forked away from corporate chartering in the direction of restraint of trade and monopoly, corporate law was forged in the model of the reciprocal obligations and commitments embodied by the original charters. Under this model, the balance of power would be maintained not primarily by the state but by empowering corporate stakeholders. This section will explore these mechanisms, in particular: a) shareholder protections and b) shareholder democracy.

1.6 The Balance of Power Today

Where does the balance of power stand today? The forking paths of antitrust and corporate law away from the charter model and towards restraint of trade and shareholder primacy do not leave the state well-equipped to implement any countermovement against concentrations of economic power. Meanwhile, such concentrations are ascendant yet again, as the contributions to this book show: the evidence, again, of rising industrial concentration almost 100 years after Berle and Means’ investigation; the inequality of share ownership, skewed towards the wealthy; the web of corporate ownership, enabled by the holding company structure, concentrating power among a few entities; the incidence of common ownership, particularly through asset managers. The dual concentrating impacts of financialisation and digitalisation, explored in more detail in the contribution from Ioannis Lianos and Andrew P. McLean, Financialisation of the digital value chains and competition law, in Chapter 16, leave us with a sense that the technologically and financially constructed monopoly will not bend to the balancing force of competition alone, nor to any imposition of corporate responsibility. Again, economies of scale, to the extent that they are an economic and technological reality, need not be a corporate inevitability – the power that comes with scale must be actively managed. When the economy, and society, is shaped by ‘platform power’ – the power to control the infrastructure of digital capitalism, the power to self-preference, the power to predict and influence consumer behaviour, the power to instrumentalise the generation and harvesting of personal data – the balance of power is gravely threatened. It may be argued that this is not the remit of antitrust or corporate law. But without antitrust to constrain the exercise of corporate power on the market and corporate law to constrain the power of the corporate entity as a corporation, other efforts by the state to regulate corporate conduct face unenviable hurdles to success.Footnote ¹⁰⁵ The political, economic, and constitutional power of the corporation must be addressed at a foundational level, and it is the role of antitrust law and corporate law to do so.Footnote ¹⁰⁶

We will need to go further than the early, crude attempts at creating and simultaneously constraining the corporation if we are to meet this challenge. In this vein, Elizabeth Warren’s Accountable Capitalism ActFootnote ¹⁰⁷ revives the notion of federal chartering. States continue to have the power to revoke charters – the quo warranto procedure was codified into statute in most US states – although the power is little used. The procedure was actually abolished under English law in 1938,Footnote ¹⁰⁸ but an equivalent power exists under section 124A of the Insolvency Act 1986 which allows the Secretary of State for Business to petition the courts for the winding up of a company ‘in the public interest’. Ewan McGaughey has argued for the application of this provision against oil and gas companies in an attempt to combat climate changeFootnote ¹⁰⁹ – perhaps the ultimate example of the consequences of a persistent imbalance of power between the demos and corporations.

Again and again, however, the courts emphasise that winding up a company is a serious step,Footnote ¹¹⁰ as compared to the ease with which a company can be formed under a general incorporation framework. Without some longstop beyond which the corporation’s existence will no longer be tolerated, the threat to corporate power posed by the state cannot be fully credible. Modern antitrust, hamstrung by the concepts of ‘efficiency’ and ‘consumer welfare’, can be no match for corporate domination and does not, as it stands, provide a sufficient counterweight. So too with corporate law that empowers insider groups of shareholders. The balance of power will continue to swing in favour of the corporation unless there is a mechanism for counterbalance. The roles of antitrust law and corporate law in embedding the corporation in society must be re-established.

2.1 Introduction

The last decade has witnessed a radical shift in both the corporate governance and competition law debate: while profit maximisation was core and centre, its interaction with other objectives has come into focus.

Starting from the end of the 1970s,Footnote ¹ and until just after the ENRON scandal, corporate governance was heavily focused on agency costs.Footnote ² Nowadays, the leitmotiv inspiring the academic debate and catalysing the attention of the policy-makers is ‘environmental, social and corporate governance’ (ESG).Footnote ³ Obviously, this does not mean that the ESG debate was previously absent in the corporate law and governance debate.Footnote ⁴ The debate was simply not mainstream and had developed at the margin, as fuelled especially by management literature.Footnote ⁵ Beyond academia, the legal practice had already started adopting corporate social responsibility (CSR) codes in the early 1990s.Footnote ⁶ ‘By the beginning of the twenty-first century, most large companies in the U.S. and Western Europe [had] formed their own policies CSR’.Footnote ⁷ As a matter of fact, the main tenets of CSR may be as ancient as civilisation.Footnote ⁸ And this is due to the fact that any human action is likely to produce externalities both on other human beings and on the environment. Nonetheless, the novelty that the recent preponderance of the ESG debate may bring is the degree to which logics not based on profit maximisation need to coordinate from a practical perspective and in day-to-day corporate strategy with the profit maximisation rationale, which has become mainstream in corporate finance.

In competition law, a similar shift in focus can be observed. The last decade(s) were marked by a focus on economics and competition law.Footnote ⁹ While the debate about ESG and competition law started in the EU back in the 2000s,Footnote ¹⁰ it seems that in the last yearsFootnote ¹¹ the debate is becoming more mainstream. Overall, it might still be said that the discussion has been a very European discussion. Yet, more recently, the debate takes place more globallyFootnote ¹² with discussions and work at international fora such as the OECD and the International Competition Network.Footnote ¹³ In terms of agencies, the European focus is characterised by the Dutch and the Greek authorities taking the leadFootnote ¹⁴ and the European Commission aiming to update its horizontal guidelines.Footnote ¹⁵ With ESG becoming more mainstream both in corporate and competition law, the sustainability debate is also colouring other previously ‘orthodox’ areas of research, at the intersection of competition and corporate law. For instance, this is the case with regard to questions on how to deal with mergers negatively affecting sustainability;Footnote ¹⁶ or the anticompetitive effects of common ownership, a theory that was originally developed exclusively based on finance,Footnote ¹⁷ and which is now heavily affected by the ESG debate.Footnote ¹⁸

Although much has been written about ESG until now, little (if anything at all) has been said about the interaction between competition and corporate governance policies in the area of ESG. In this chapter, we explore the intersection between competition policy and corporate policies in the area of ESG. We focus on ESG, sustainability, and innovation and highlight core research areas that require thorough academic enquiry in the sustainability/growth conundrum. We suggest that well-suited ESG policies for companies must take into consideration the possibility to operate through a multiplicity of policy tools, in particular corporate law, corporate governance, and competition policy tools. This chapter first provides a basic overview of the ESG debate and corporate behaviour. It then focuses on the interaction between ESG and corporate law and governance, as well as ESG and competition law. The final section explores the interaction of competition law and corporate law in the area of ESG policies. We highlight the necessity of coordinated policies, especially in the field of research and development (R&D) and innovation – that is dynamic efficiency.

2.2 The ESG Debate and Corporate Strategy

The post-WW2 demographic explosion and the unparalleled economic and industrial development are leading our world towards an uncertain future. The ecosystem is highly endangered, which in turn also puts the survival of the human species in question. Big corporations, regardless of who their owners are, put under strain planet Earth and the life that populates it, not only by extracting raw materials up to the level of exhaustion but also by rendering the condition of air, soil, and water less and less suitable for life.

If richer countries have benefited from such overexploitation of the world resources by their economic empires and corporations – raising their living standards at unprecedented levels – poorer countries seem to be paying the price of such reckless entrepreneurial conduct.

The NGOs and international institutions such as the UN have been at the forefront at asking for more sustainable and responsible behaviours by the State, companies, and more generally by every single individual in the face of the present crisis.Footnote ¹⁹ This is particularly true for those who consume the biggest slices of the world’s cake.Footnote ²⁰ While States have been stepping up their game, progress has been slow and the focus has also shifted towards private actors, corporations in particular. However, competition lawyers and economists often seem to express a preference for regulation to achieve sustainability.Footnote ²¹

For competition lawyers and competition economists, regulation has obvious advantages. Most of the time, regulation is seen as being able to address sustainability more directly with a more uniform (or competitively neutral) effect on market participants than private action. This competition-policy centric view may not be agreed upon by other governmental agencies. The desirability, effectiveness, and efficiency of regulation in specific situations seem to be questionable. For example, regulation, in particular traditional command and control regulation, is often considered inefficient.Footnote ²² And, even where regulation might be efficient, other questions around its feasibility and effectiveness might be encountered. These can result, for example, from the political compromises that need to be found at the national or international level, with the effect of favouring the lowest common denominator. Similarly, the most efficient regulation on paper may, in many cases, fall victim to insufficient implementation, jurisdictional/geographical limitations, or other administrative burdens.Footnote ²³

In the absence of regulation, private-sector voluntary initiatives have gained importance and are also frequently encouraged by States. Another reason for this shift to private sector initiatives might purely be the scale that such initiatives may achieve. Corporate actions and strategic market choices can have larger effects than State interventions. For example, the environmental improvement derived by Amazon going CO₂-neutral would be slightly bigger than if the whole of Sweden went CO₂-neutral.Footnote ²⁴ Thus, it is not surprising that the UN’s sustainable development goals directly address private business and their activities.

For private business, the ESG debate is nothing new. In fact, the corporate debateFootnote ²⁵ – especially as enriched by managerial sciences –Footnote ²⁶ has focused for a long time on corporate social responsibility (CSR), that is, a way to embed in management strategy and soft law ESG objectives at large (which at the time were not as precisely detailed as in the modern debate). The older CSR debate was revived several times, decade after decade,Footnote ²⁷ until the recent explosion of the ESG-connected literature.Footnote ²⁸ But if non-corporate literature may have seen CSR as a promising ally towards a greener and more just future, corporate literature often denounced its limited reach in pursuing such objectives – especially in a transnational context.Footnote ²⁹ As a reaction to the often generic and blurred content of CSR codes, corporate governance recently witnessed the emersion of a goal-oriented movement, organised around sustainable development goals (SDG)Footnote ³⁰ – once again strongly inspired by management literature.Footnote ³¹ As goals are characterised by benchmarking, CSR objectives can finally be given proper tracks and verifiable milestones to reach.Footnote ³²

The shifting focus of the ESG policy discourse to companies and to their strategic interaction on the market entails that both competition and corporate law are relevant to the ESG debate. These two areas of law are crucially shaping the behaviour of companies by setting the inner and outer limits of their action; by being teleologically connected, their paths are inevitably destined to be intertwined.

2.3 ESG Policies, Corporate Law and Governance

The ESG debate has touched upon topics that are not new in the corporate law and in corporate governance fields of research. Examples of such popular topics are as follows: short versus long-termism (together with their connection to the corporate ownership structure and to the nature and incentives of corporate owners)Footnote ³³ and the shareholder versus stakeholder theories of the corporate purpose.Footnote ³⁴ Ultimately, such topics have been approached in the light of the environmental and social challenges of the twenty-first century. But not only old themes have been revisited and re-coloured. New themes, such as specific ESG-oriented shareholder and bondholder stewardship, now represent a significant share in the corporate governance literature.Footnote ³⁵

Research questioning the desirability of long-termism dates back to the second decade of the twenty-first century; it has represented a prominent voice in the United StatesFootnote ³⁶ and in the UK corporate governance debate.Footnote ³⁷ Such debate has crossed the Anglo-American cultural border, reaching the European Union policy-makersFootnote ³⁸ and also EU Member States’ policy-makers – for instance, the French one, which introduced the Florange Law.Footnote ³⁹ Nobel prize Joseph Stiglitz has identified short-termism as one of the adversaries of sustainable policies and widely advocated for the pursuance of long-term oriented policies.Footnote ⁴⁰ Stiglitz notices that

Soon a cascade of corporate governance studies analysing short- versus long-termism from an ESG perspective followed. The relationship between short- versus long-termism and corporate governance can be tackled from different angles. Short-termism has been traditionally seen as a consequence of the pressure exercised on corporate directors by shareholders (especially investment funds) which are supposed to pursue a short-term maximisation of their investments – although such an assumption is clearly questionable as there is no homogeneity among institutional investors from this point of view.Footnote ⁴²

Correctives to such short-termism orientation have been proposed. For instance, Bolton and Samama have proposed the introduction of the ‘loyalty share’, to reward shareholder that engage in long-term commitment to the company.Footnote ⁴³ It has also been argued that directors who are more insulated from shareholders are more likely to adopt long-term strategies.Footnote ⁴⁴ Or, that more long-termism would set a remedy to the disempowerment of stakeholders.Footnote ⁴⁵ By contrast, other research has shown that empowering stakeholders in some cases can worsen the effects of short-term strategies.Footnote ⁴⁶ And, evidence has emerged that shareholders’ short-termism could actually be seen as a correction to the dark sides of managerial long-termism, that is, over-optimism regarding the success of long-term plans.Footnote ⁴⁷

The general contrast to short-termism as a potential remedy to unsustainable policies has been embraced in research commissioned by the EU Commission: the Ernst & Young’s ‘Study on Directors’ duties sustainable corporate governance’.Footnote ⁴⁸ But what corporate governance literature has questioned is the very relationship between long-termism and the pursuance of ESG policies. A prominent dissenting opinion against the original identification of short-termism with unsustainable policies has been Mark Roe’s one. Based on Roe’s previous studies, Roe, Spamann, Fried and Wang have also heavily criticised the Ernst and Young’s proposal, not only showing the inappropriate conflation of short-termism with sustainability but also the absence of empirical evidence of such relationship.Footnote ⁴⁹ Roe and Shapira have also explained that the purported connection between short-termism, pro-shareholder policies and unsustainable strategies has found its way into the general discourse on ESG, thanks to the strong narrative inherent to the terminology adopted in the debate. Good, reliable, long-term commitment versus bad, unreliable, short-term strategiesFootnote ⁵⁰ prompts policy-makers to adopt the first triad.

Mark Roe has challenged not only the conventional view on the detrimental effects of short-termism for sustainability. He has also demystified another common belief, that is, that short-termism has determined a fall in research and development and consequently in innovation.Footnote ⁵¹ Roe’s position is clearly based largely on the fact that the US hosts the largest number of high-tech companies in the world, which clearly invest large sums in research and development and are leading innovators. Jesse Fried has added another important piece to the short-termism puzzle: he has shown that long-term shareholders may well demand even worse value destruction than short-term ones.Footnote ⁵² This again makes us doubt of the suitability of the promotion of long-term equity holdings for sorting out positive effects on structural investment and innovation.

Fried and Wang have also calculated that the effective distribution of companies’ net income to investors (often held responsible for fund depletion and consequent incapability to invest in innovation) is not as significant as it is often claimed.Footnote ⁵³ Similar results have been found with reference to EU companies, once taking into account new equity issuances.Footnote ⁵⁴ Short-horizon investors have also been considered as a stimulus to competitiveness, especially with reference to innovation parameters.Footnote ⁵⁵

Roe’s and Freed & Wang’s observations are extremely useful when it comes to assess the innovation deriving from R&D. But it is worth remembering that disruptive innovation does not necessarily require significant investments in research and development. And corporate law mechanisms underlying disruptive innovation may require taking into consideration corporate law rules different than the ones mentioned by the mainstream literature that focuses on research and development.Footnote ⁵⁶ Being innovation based upon recombinational dynamics of blocks of knowledge, rules such as the corporate opportunity doctrine, the directors’ duty not to compete and other contractual arrangements such as no-compete clauses may become prominent.Footnote ⁵⁷ And we have already highlighted that such rules may escape the EU’s competition radar.Footnote ⁵⁸

Instead of relying on the long-termism argument, part of the ESG debate has invested directly in the shareholder versus stakeholder conundrum – especially tackling the relationship between company and a vast range of stakeholders, among which consumers – hence impinging deliberately on an area (consumers) that has traditionally been competence of competition policies.Footnote ⁵⁹

During the age of privatisation, European private companies have taken up the role previously carried out by the state in granting the provision of public goods and services,Footnote ⁶⁰ often achieving questionable results in terms of pricing and efficiency.Footnote ⁶¹ In the context of privatisation, the Milton Friedman’s ‘maximising shareholder value’ rationale may not provide a correct representation of the corporate positioning vis-à-vis consumers.Footnote ⁶² Colin Mayer has advocated for the acknowledgement that ‘a corporation is an employer, investor, consumer, producer and supplier all rolled into one’Footnote ⁶³ and that ‘[t]he repositioning of corporations, capital and control’ is ‘fundamental implications for business, economics and public policy as the Copernican revolution had for astronomy’.Footnote ⁶⁴ Colin Mayer asserts that companies actually work for solving people’s problems, hence viewing consumers as the recipient of a service more than the target of lucrative business activity.Footnote ⁶⁵ It goes without saying that among collective problems, we can easily mention the necessity to build up a sustainable future.

As we have shown, the ESG debate in the field of corporate law and governance is very animated, full of controversies, and overall in its nascent phase – even to the extent to which scholars are still debating about the efficiency of corporate law and governance tools for addressing ESG concerns.

As highlighted in the previous section, public intervention in the ESG arena seems to rely heavily upon private initiative. But given the fact that private initiative is still surrounded by a high degree of uncertainty, it is inevitable that private and public powers will keep on passing each other the torch. While competition law is often placed among the private law area, it often uses traditional command and control mechanisms known traditionally in the area of public intervention. In contrast, corporate law is more clearly in the realm of private law – although some of its rules – especially those pertaining to securities – can be described as public too. With both fields affecting corporate behaviour substantially, these two fields need increasing dialogue. In certain cases, such a dialogue will end with exacting from each other a degree of intervention that the other area is not able to offer. In other cases, the same dialogue may well end up requiring a common and coordinated intervention in the same field. These two potential kinds of interaction are, respectively, the subject of the two following sections. We will start by highlighting the progress of competition law with reference to the pursuance of ESG objectives, and we will finally highlight the necessity of joint competition and corporate law intervention in the area of technological innovation.

2.4 ESG Policies and Competition Policy

In the competition field, ESG is not frequently discussed. But a similar debate develops under the heading of competition and sustainability or the more concrete UN implementation of SDGs. Yet, while the exact boundaries between ESG and SDG are sometimes difficult to draw, a certain overlap between SDGs and ESG cannot be denied. One may see SDGs and ESG as overlapping but different in the way they are pursued. And while we have seen some attempts to allow reporting of companies on SDG,Footnote ⁶⁶ the ESG debate has a different origin. To simplify, one may say that SDGs set out goals, while ESG is more about methods and processes within companies and their reporting on a range of environmental and social matters. Given that this area of research is rather new, we also acknowledge that the semantic fields of such new terms may be rather blurred at times, as such terms are given more and more detailed meaning by their contextual application.

The above-mentioned difference in meaning also explains the different focus of the debates in corporate and competition law. The corporate debate and its focus on long-term versus short-termism can be understood if one takes into account the process orientation of ESG. As such, this debate has much less prominence in competition law. In competition law, the debate is more focused on sustainability broadly and only lightly touches upon the SDGs as points of orientation to gain a better understanding of what sustainability actually is.

However, certain elements about the long- versus short-term focus can also be observed in the context of the sustainability debate in competition law. For example, the time horizon for the expected benefit is sometimes a matter of discussion, especially with regard to what time horizon should be employed when measuring sustainability benefits such as a reduction in CO₂ emissions. While the time frame, for example, in merger cases is usually short to medium (up to five years), the full benefits of CO₂ reductions now may only be experienced in 50 years. Here, the debate is normative as well as technical. On the normative side, one might question whether the importance of, for example, CO₂ reduction and the delayed nature of benefits derived from action today justify a different approach.Footnote ⁶⁷ From a more technical point of view, the question of the time horizon presents itself as a question of proof rather than policy.Footnote ⁶⁸ Crucial is here the discount rate applied to such future benefit,Footnote ⁶⁹ an argument can be made about ‘discounted away’ sustainability benefits because future costs might be grossly underappreciated as the example of climate change shows.Footnote ⁷⁰ Recently, the Dutch Competition Authority’s draft guidelines address this matter and suggest the use of the standard social-cost-benefit tools of Dutch government agencies. The draft guidelines also suggest that avoided environmental damage should be monetised by means of environmental or ‘shadow’ prices.Footnote ⁷¹

While this area shows the tension between an approach that takes a long-term perspective from short-term ones, the debate in competition law is more outcome-focused. The questions are to what extent the enforcement of competition law can support or hinder the achievement of sustainability.Footnote ⁷² In other words, to what extent competition law can be a sword in the fight for more sustainability or to what extent sustainability outcomes might serve as a shield against prohibitions against certain actions by competition law.Footnote ⁷³ The possibly closest link to the debates in corporate governance is stakeholders, that is, constituencies whose interests are affected by corporate action can also be heavily affected by the above-mentioned sword and shield perspective on competition law. The calculation of gains and losses born by different stakeholders can form a bridge between the debates in competition law and corporate law, where the sustainability impact on such stakeholders may come under scrutiny. In fact, an analysis of the stakeholder interests can provide grounding for the theoretical debates and help quantifying the overall welfare effects of the combination of competition and corporate law policy on each stakeholder.

The interaction between competition and sustainability as the first point of reference might be provided by economics. Sustainability and competition economics both highlight resource efficiency, innovation, and the role of the private sector. Moreover, economics is the most important tool to understand the market forces at play and this is crucial to determine the dynamics harming or supporting sustainability.

Foundational on the interaction between sustainability and competition is Elinor Ostrom’s work on the sustainable management of common pool resources.Footnote ⁷⁴ Her Nobel prize-winning work explored the tragedy of the commons. It showed that rational profit maximisers in unfettered competition lead to disastrous outcomes for that commons. It moreover showed that in reality co-operation rather than competition can be expected.Footnote ⁷⁵ Ostrom’s foundational work focuses on real-world cases where cooperation takes place. Yet micro-economists do not frequently study sustainability initiatives by private parties. There are theoretical micro-economic studies by even fewer authorsFootnote ⁷⁶ which apply the standard assumptions and models used in competition economics, including the rational profit maximiser assumption for firms. These suggest that, in general, competition will lead to greater sustainability gains where consumers value sustainability. These papers highlight that there are only a few situations where cooperation has positive outcomes on sustainability. Instead, they suggest that government regulation is a more efficient solution. This literature attributes such findings mainly to the fact that profit-maximising firms have limited incentives to invest in sustainability. It is here where the first points of interaction with the corporate law and governance become apparent. Where corporate law and governance prescribe profit maximisation, the theories about the relationship between competition and sustainability have the most explanatory force. However, the further corporate law and governance move away from the profit maximisation maxim, the harder it becomes to apply these theories.

A second important avenue in the sustainability competition debate is the question of sustainable innovation as both sustainability and competition law and policy recognise the importance of companies in driving innovation. Where sustainability is explored as a dynamic parameter of competition – that is, one that consumers value as a non-price quality variable –Footnote ⁷⁷ a dynamic innovation-focused assessment seems adequate. In this context, one may ask whether more competition or more cooperation will foster sustainability innovation. General models from the study of the interaction between competition and innovation suggest that a more nuanced assessment is required: one that takes into account practices and specific situations. In other words, the answer to the Schumpeter-Arrow debate over innovation in a competitive or monopolistic setting is best answered on a case-by-case basis, by examining the concrete situation.Footnote ⁷⁸ Similarly, innovation in sustainability needs to be assessed in a concrete situation.

Equipped with these insights, it becomes clear that competition law needs to take a flexible approach. On the one hand, competition leading to innovation in terms of sustainability needs to be protected; and on the other hand, cooperation needs to be possible where it fosters innovation that leads to sustainability. We will explore the two different scenarios that can, as highlighted before,Footnote ⁷⁹ also be compared to competition law as a sword to protect sustainable innovation and sustainable innovation as a shield.

2.5 ESG Policies, Competition Law, and Corporate Law: Another Missing Connection?

As already stressed, some of the EU research on corporate policy strategies and ESG objectives have been highly criticised for the absence of their consistency and lack of empirical analysis.Footnote ⁸⁰ More thorough research in the field is needed. Given that such research, as well as the research on sustainability and competition law, are in fieri, it might not be surprising that there has been no research on the interaction between corporate and competition law. In fact, both policy areas are still heavily occupied with themselves. Nonetheless, we firmly believe that sustainability and ESG objectives are crucial in the long run and that corporate and competition policies will inevitably interact in the ESG area. Hence, it is necessary to anticipate and facilitate such encounters, by foreseeing potential conflicts and by softening sharp edges.

At the most basic level, the competition law and sustainability debate is a debate about outcomes with a focus on the extent to which competition law is a useful and viable tool. The ESG and SDG debate in corporate law and governance seems more process-focused, aimed at identifying means that allow for measurement and reporting, but academics are also studying contractual tools for forcing the pursuance of such objectives.Footnote ⁸¹

Chapter 14 already deals with the potential ESG clash in competition and corporate law policies in the fields of common ownership. Nonetheless, we do not believe that this will necessarily represent the ESG’s main stumbling block. We have highlighted and believed in the importance of the special role of dynamic innovation for more sustainable growth. What is essential is that EU policy-makers avoid treating corporate law and governance and competition law in isolation in the pursuance of such a goal. Instead, it needs to be ensured that both legal regimes are streamlined and that potential stumbling blocks presented by their interaction are addressed.

The 2020 COVID-19 crisis illustrates the importance of swift innovation as the necessity of finding a vaccine in a very short time. In such catastrophic events, even a small acceleration towards new inventions can be hugely important and can have beneficial effects on a global scale. Dynamic efficiency is crucial for the future of our planet, for the environment and for increasing productive efficiency – hence producing less waste.Footnote ⁸²

The attention to innovation also brings into focus other questions on border between corporate and competition law. For example, as we have explained in Chapter 8, corporate opportunity rules and the directors’ duty not to compete with the company may have a direct effects on innovation. A large incumbent company, often with a corporate venture capital division, is able to purchase a vast array of innovative start-ups and develop or shutdown at its discretion a whole range of different innovations.Footnote ⁸³ In these situations, the competition among such different innovative solutions is withdrawn from market mechanisms and market forces. Instead, innovation becomes subject to a balance of interests within the incumbent corporation where the best innovations might not be developed for instance because it does not fit with the incumbent industrial strategy.

The debates around the tech companies and their corporate venture capital divisions have highlighted the problem: and both corporate law and competition law may find themselves unable to sufficiently address any such obstacle to innovation. And as we have highlighted elsewhereFootnote ⁸⁴ corporate opportunity rules may facilitate the exercise of such power by the incumbent company and competition law authorities and courts may find that such arrangements are not subject to competition law as they occur within the corporation. Similar concerns are raised by an alternative version of the same corporate strategy adopted by incumbent corporations. In the case of killer mergers, the incumbent has the intention of shutting down the potential competitor. While in these cases competition law may apply, the tools are not well adjusted to such problems.Footnote ⁸⁵ The potential restriction of competition is carried out through corporate means and seems to be hard to control through the traditional competition law analysis, which may be ill suited for tackling dynamic competition issues at large.

While these specific examples highlight some of the interactions between corporate law and competition law in the in context of innovation for sustainability, we can also take a broader perspective. And if we widen our perspective, we may well see that the interaction between corporate strategy – as affected by corporate law and governance – and competition law is only destined to increase in quality and in dimension. If the core objective of corporate strategy is increasingly found in the reconciliation between profit-maximising strategies and ESG objectives, corporate strategy may more and more depart from the dualistic idea of either competing or colluding on prices. The overall paradigm shifts in the business world that is highlighted by corporations adopting ESG or SDG polices – cannot be without effects on fundamental paradigms of competition law. This is so in particular because competition law risk losing touch with the business reality that is affected by corporate law and governance changes. This risk of a disconnect might occur where competition theory still conceives the corporation as pure profit maximiser – and does not ponder the ESG variables and the way they might modify the conception of the corporate interest in the future.

2.6 Conclusions

The theoretical challenge represented by the encounter of corporate and competition policies in the ESG area seems considerable – as well as very exciting – given the vast number of issues that must be solved. In this chapter, we have only attempted to sketch out some interesting aspects of a future discussion likely to occupy vast areas of the corporate and competition literature in the coming years. Anecdotally, it is often said that both doctrine and jurisprudence strive to bring within their competence areas of the law that traditionally belong to other fields. But this is not the case for ESG, especially when it comes to find practical real-world solutions. The challenge is so that the hope rests upon corporate action. Yet, corporate and competition lawyers seem critical of corporate action and easily denounce them as insufficient and ineffective when it comes to pursuing ESG objectives.Footnote ⁸⁶ Such an attitude, demanding that someone else provides viable and effective solutions, seems a common psychological reaction: when challenges are tough, we may perceive them as insurmountable and are tempted to stand by and look for an external rescuer. But it is equally true that such external rescue is unlikely to come. Therefore, action is needed.

In this paper, we propose that enquiring about the interaction between competition and corporate ESG policies is a good starting point, and that we may need to focus especially on dynamic innovation. This may represent the first step for tackling the wider debate. While it may look like a small step, it is crucial in fact. If the environmental and social challenges are so hard, the best human talents have to be employed. And only well-suited and well-coordinated competition and corporate policies can grant that financial resources and incentives for innovative projects along their path of a more sustainable future.

3.1 Introduction

A not-for-profit organisation is one that is barred from distributing net earnings to individuals who exercise control over the organisation, such as members, officers, directors, or trustees.Footnote ¹ The organisation may be funded by donors (philanthropists), government, service users, or a combination of all three and may benefit from charitable status, special tax advantages, or a special institutional status (e.g. be public body).Footnote ² It is common for professional associations, healthcare service providers, and educational establishments to operate on a not-for-profit basis.Footnote ³ There are often claims that competition law does not or should not apply to entities that operate on a not-for-profit basis.Footnote ⁴ This chapter considers how competition law assesses the actions of entities operating on a not-for-profit basis. Implicit in this presentation is an assumption that similar concerns arise in all competition law jurisdictions. While the points made are thus of general application, they are illustrated with examples from the United States, EU, and United Kingdom. Section 3.2 explains why operating on a not-for-profit basis is not accepted as a reason to exclude an entities activities from the scope of competition law. Section 3.3 considers situations in which competition law is applied to non-profit providers and in which it is generally accepted that no modification is required. Section 3.4 considers situations in which competition law is applied to not-for-profit providers, but it is not applied in the same way as it is applied to for-profit providers – competition law is modified. The modification manifests itself as a heightened threshold for intervention; a reluctance to apply standard presumptions of harm and enhanced need for evidence to establish an infringement; an increased willingness to accept and a broader menu of acceptable justifications; and finally, a reluctance to impose sanctions on not-for-profit providers. Section 3.5 concludes by considering when and why competition law ought to be modified on account of the entity engaged in contested conduct operating on a not-for-profit basis.

3.2 The Relevance of Competition Law in Markets Served by Non-Profits

Markets are relied on to produce sufficient quantities of desirable goods and services. The market is at is best when it is responsive to voice, voice involving patrons communicating their concerns to the provider of goods or services.Footnote ⁵ Providers of goods and services are most responsive to voice when it is possible for those exercising voice to exit, i.e. obtain goods or services from an alternative provider. Exit is important for two reasons. First, the possibility of exit reduces the cost of exercising voice. Voice is costly if patrons have no option but to continue receiving goods or services from the supplier after exercising voice, even if the patrons concerns are not addressed.Footnote ⁶ Secondly, the possibility of exit motivates suppliers to take the voice of patrons seriously.Footnote ⁷ When the possibility of exit exists, firms have incentives to continually improve the quality of their goods and services; provide new types of goods and services; and to minimise the resources consumed in the production of their goods and services.Footnote ⁸ In the absence of a possibility of exit, firms need not be responsive to voice and instead can be said to possess market power. Those with market power face a reduction in the incentives to improve, or to provide new offerings, or to minimise the resources being consumed.Footnote ⁹

Competition law plays a central role in ensuring the effectiveness of voice in relation to entities operating on a for-profit basis. To what extent is competition law’s role in ensuring that voice is effective, relevant to non-profit entities? Theories of the not-for-profit form suggest that such entities exist because the for-profit market will fail to provide the relevant goods and servicesFootnote ¹⁰; because they can be trusted to provide higher quality goods and services in situations of high information asymmetry between buyers and sellersFootnote ¹¹; or because they are trusted where contracts are difficult to monitor and enforce.Footnote ¹² What is important is that not-for-profit entities are argued to exist for reasons that differ from the reasons for profit entities exist. This then gives rise to claims for different treatments under competition law on three distinct grounds. Firstly, on the idea that an inability to distribute profits removes the incentive (though crucially, not the ability) to restrict competition.Footnote ¹³ Second, there is an idea that not-for-profit organisations ought to be trusted not to act in a manner determinantal to their patrons.Footnote ¹⁴ A third basis for the claim of special treatment is that the specific regulatory oversight to which the not-for-profit entity is subject will either satisfy the concerns that competition law is designed to address or trump any obligation competition law would seek to impose.Footnote ¹⁵

Philipson and Posner formalise a model in which not-for-profit providers are not responsive to voice, i.e. they not only exercise market power, but also do so in a manner that is harmful to patrons.Footnote ¹⁶ The empirical literature also supports the view of there being nothing inherent in the not-for-profit organisational form that would render the concerns of competition law otiose.Footnote ¹⁷ Since not-for-profit entities do exercise market power and the exercise of market power by not-for-profit entities does have at least the potential to be harmful, legislatures, competition authorities, and courts have concluded that operating on a not-for-profit basis is insufficient to warrant exclusion from competition law scrutiny.Footnote ¹⁸ Rather than the nature of the organisations operating in the market, focus is instead placed on the nature of the activities being performed – competition law being applied to all activities that can be described as economic or commercial in character.Footnote ¹⁹ After all, like all organisations, the not-for-profit organisation must decide whether to compete or cooperate with other organisations in the pursuit of its aims.Footnote ²⁰

3.3 Competition Law Unmodified

What has been the experience of applying competition rules to entities operating on a not-for-profit basis? The most obvious examples arise in relation to self-regulatory bodies of the liberal professions.Footnote ²¹ Professional associations operating on a non-profit basis have been condemned for creating barriers that prevent non-members of the association from offering services competing with those offered by their members;Footnote ²² attempting to fix the price or other terms on which their members might do business;Footnote ²³ and for limiting the ability of members to promote their services as against other members.Footnote ²⁴ Trade association’s not representing professions, but operating on a not-for-profit basis, are also condemned if they play a role in fixing terms and conditions (including price and profit margins) on which their members will supply goods or services – matters which should be settled by competitive forces.Footnote ²⁵

Many examples can be found of competition law being applied to cooperatives and mutual organisations providing, for example, insurance and pensions.Footnote ²⁶ Other prominent examples of not-for-profit entities being scrutinised under competition law involve state-owned enterprises operating on a not-for-profit basis being condemned for excluding others from the market or reserving the market to themselves.Footnote ²⁷ Equally important is the role merger control has played in ensuring that the option for exit (and the role exit plays in strengthening voice) is preserved even when all in the market operate on a not-for-profit basis. So, for example, the Bundeskartellamt has prevented mergers between public hospitals operating on a not-for-profit basis.Footnote ²⁸ In the UK, the competition authority reviewed a merger between two charities, which, though operating on a not-for-profit basis and primarily as a grant making body raising funds and distributing them to independent scientists, obtain intellectual property rights that result from the research it funds. The risk that the licensing of IPRs might not occur in a way beneficial to society was the focus of the competition authority’s concern.

As with the for-profit sector, price-fixing, market sharing, and market foreclosure have been the main issues addressed. Harmful conduct has been found, notwithstanding the fact that the entities involved operate on a not-for-profit basis. And the need to ensure an environment in which the incentive to improve are maintained has remained paramount. Competition concerns are therefore to be addressed in the normal way, notwithstanding the fact that some entities to be scrutinised operate on a not-for-profit basis. What is also true is that not-for-profit entities have continued to operate, notwithstanding the need to comply with competition law and that competition law has been sufficiently flexible to take account of the not-for-profit form within the existing framework of the law.

3.4 Competition Law Modified

Although it is the case that the standard competition law framework is applicable and applied to not-for-profit entities, it is not the case that operating on a not-for-profit basis does not matter. Competition law can be seen to be modified in four ways when courts and competition authorities are called on to assess the compatibility of a not-for-profit providers’ conduct with the law. First, the court or authority may operate a heightened threshold for intervention. Second, the authority may modify the mode of assessment that it applies when it scrutinises not-for-profit entities. Third, the authority may admit or be amenable to a greater range of justifications than is otherwise the case. Finally, the authority may be influenced by the not-for-profit nature of the organisation when it comes to imposing sanctions.

3.5 Why Modify?

Although not-for-profit entities may enter the market with a sense of or commitment to public service, there is nothing inherent in the organisational form to ensure this outcome. Do effective alternatives to voice, reinforced by the possibility of exit exist in relation to not-for-profit providers? Is competition law the best mechanism to ensure the effectiveness of voice and exit in the non-profit context and are competition authorities best placed to ensure compliance by not-for-profit entities? In a market occupied exclusively by not-for-profit entities, it may be that a regulatory regime exits in which the concerns of competition law are already accounted for or in which the concerns can be decentralised by granting concurrent powers. An important consideration, however, is that not-for-profit entities operate in markets that are also served by for-profit entities – the so-called, mixed markets. Some of the claims of non-profit exceptionalism apply only when a market is served exclusively by not-for-profit entities.Footnote ⁵⁹ Exit and voice therefore remain important mechanisms through which patrons maximise the benefit they obtain from service provision by non-profit entities. It is for this reason that the actions of not-for-profit entities remain within the scope of competition law. Though competition law applies and has been applied to the activities of not-for-profit providers, a reluctance to apply competition law full bloodied can be observed. What explains the reluctance to apply and tendency to modify the law?

A first point is that the extent to which activities of not-for-profit organisations, as distinct from the organisations themselves, fall within the scope of competition law can at times be difficult to determine. A case in point is the raising of funds to finance activities that each organisation will separately provide free at point of use. Can it be argued that fundraisers are selling something tangible to donors (separate from the services offered free at point of use) such that fundraising itself warrants competition law scrutiny?Footnote ⁶⁰ There is undoubtedly competition for donations, since there are more organisations and causes seeking funds than there are funds.Footnote ⁶¹ The economic literature shows that competition for donations increases the cost of raising funds (and by a greater amount than the increase in total funds raised).Footnote ⁶² Suppressing competition can therefore reduce the cost of fundraising and leave more resources available to promote the organisations mission.Footnote ⁶³ Is it objectionable for competition to be suppressed?Footnote ⁶⁴

In Dedication & Everlasting Love to Animal v. Humane Society of the United States, in which it was alleged that the Humane Society of the United States monopolised the market for donations to support of animal welfare, fundraising by not-for-profit organisations was not considered to be an antitrust issue.Footnote ⁶⁵ At the same time, it has been recognised that collective fundraising or a fundraising monopoly may make it more difficult for those not part of the collective effort to raise funds and it may be difficult for them to gain an allocation of the funds raised – the ability of new organisations to raise funds for new causes may be impacted.Footnote ⁶⁶ Can it be right that no antitrust scrutiny is possible when the impact on competition is not necessarily beneficial or benign?

A second point is that the modifying tendencies are not always triggered. This then makes it clear that something other than non-for-profit status is at work. Operating on a not-for-profit basis could function as a proxy for trustworthiness or selflessness and so it remains the case that ‘those who stand to profit financially from restraints of trade cannot be trusted to determine which restraints are in the public interest and which are not’.Footnote ⁶⁷ If the non-distribution constraint does not exclude the possibility of an entity acting in the interests of the organisation or its members rather than the consumer, it would seem that competition law is applied unmodified. This would account for the sustained scrutiny applied to self-regulatory bodies and cooperatives, notwithstanding that they operate on a not-for-profit basis.

A third point is that there remains a lingering sense that competition law does not provide an appropriate frame of reference with which to view the activities of not-for-profit entities.Footnote ⁶⁸ The sense that competition law is somehow trespassing motivates the imposition of high evidential burdens, not only to establish violations but also to even launch an investigation. Recognising that being subject to a competition law investigation is not costless, even in relation to compliant behaviour, justifies the increased thresholds, particularly when bearing such cost necessarily results in reduced resources being available for activities in the general interest.Footnote ⁶⁹ The same may be true of the modified approach to sanctions. The modifying tendencies are to be understood as simple recognition that it is not in the public interest to enforce competition laws against all conduct falling within the literal scope of the prohibition.

3.6 Conclusion

While there will always be claims that competition law does not or should not apply, there is nothing inherent in the not-for-profit form to justify this claim. Particularly, there is nothing to indicate that applying competition law has been harmful to the causes served by non-profit providers; there are clear indications that competition law has been applied in a way that addresses real harm to patrons; and modifications are made, when appropriate, to ensure that the mission served by not-for-profit entities is not harmed by the application of competition law. All this should leave us confident that competition law can pierce the veil of the not-for-profit form and examine (in its own small way) whether the public interest is genuinely being served.