It is often said that companies succeed by looking after the needs of their customers, but chair of the ACCC, Rod Sims, said he had been surprised over “very many years” at how many businesses often do precisely the opposite.
Mr Sims said it was not just customers who are subjected to bad behaviour from big companies.
“More recently, the ACCC has been taking action over unfair contract terms imposed on small businesses.”
In delivering the Giblin Lecture in Tasmania recently, he said that, too often, companies appear to put immediate profit ahead of their customers.
“Either by engaging in misleading or unfair conduct, or even unconscionable conduct towards their customers, or they engage in cartel or other anti-competitive activity that raises prices for their customers.
“On the competition side, we have seen a range of cartel behaviours, where competitors agree to raise prices directly or restrict supply to achieve the same result, all of which hurts their own customers.”
Mr Sims said being the best at meeting the needs of consumers is not the only, or even the dominant, way firms succeed.
“Staying ahead of rivals through continual improvement is a difficult task for most companies. Eventually, someone works out how to do things better and cheaper.
“In some cases, company executives push the boundaries to achieve short-term growth targets. Some appear to ignore the risk of reputational damage over the longer term to achieve short-term gains.”
He said the strongest constraint on firm behaviour is the risk of losing sales.
“The larger the number of customers that ‘vote with their feet’ in response to poor behaviour by firms, the more firms will do to avoid engaging in such behaviours.”
“Poor behaviour can interfere with the competitive process and cause a ‘race to the bottom’. We have observed firms winning customers through misrepresenting their offers and employing high-pressure selling tactics. In addition to hurting consumers, this type of behaviour hurts rival firms.
“It often appears as if company executives behave differently when they are at work, than the way they would privately, as if they feel their obligations to their company compels them to pursue profit to the maximum, even if their behaviour pushes too close to the boundaries of the law.”
Mr Sims said the market economy is based on incentives.
“When the incentives for misconduct are strong, and the penalties for misconduct are comparatively weak, it is easy to understand that company boards and senior management do not act strongly enough to ensure such behaviour does not occur.”
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