The EU General Court has today ruled that Goldman Sachs, which had a financial investment in the group of companies containing one of the parties found guilty in the power cable makers cartel, was correctly held liable, jointly and severally, for a fine of €37.3 million imposed on the cartelist Prysmian. There was no evidence that Goldman Sachs (or its investee vehicle) had instigated the cartel or been involved in it: but that is not something, the General Court said, the EU Commission is required to demonstrate in order to hold a parent company jointly and severally liable with the relevant subsidiary for payment of the fine. Once one member of the "undertaking" is found guilty, that gives rise to the collective responsibility of all the principals in the group structure for the breach of the competition rules.
Goldman Sachs was found to have exercised decisive influence over the market conduct of two Prysmian corporate entities, during the period of its financial investment, by virtue of its shareholding in Prysmian. The EU Commission found that Goldman Sachs had (amongst other things) the power to appoint the members of the various boards of directors of Prysmian, it played an important role on the committees established by Prysmian, and received regular updates and monthly reports. This meant that Goldman Sachs and the various Prysmian corporate entities could be treated as one economic entity (or "undertaking", to use the language of the EU Commission), thus entitling the EU Commission to address its decision imposing a fine to Goldman Sachs.
Goldman Sachs argued that despite its powers over the various Prysmian directors, those powers did not enable Goldman Sachs to exercise actual control over the board or more importantly control over Prysmian's commercial policy. Goldman Sachs claimed that it had not given any instructions in relation to matters of a commercial nature relating to the Prysmian group. The General Court said that in accordance with settled case-law, it is not necessary to restrict the assessment of the exercise of decisive influence by the parent company to matters relating solely to the subsidiary’s commercial policy on the market: what simply needs to be demonstrated is that the parent exercised decisive influence over the subsidiary's business decisions as a whole. The EU Commission had, in any event, found evidence that a number of the directors were appointed as 'Managing Directors' of Prysmian and had delegated powers relating to the ordinary management of Prysmian, including the signature of day to day management acts.
According to case-law, even a minority interest may enable a parent company to exercise a decisive influence on its subsidiary’s market conduct, if it is allied to rights which are greater than those normally granted to minority shareholders in order to protect their financial interests. This will very much depend on the specific rights granted and how those rights were exercised.
This case demonstrates the risks for professional investors of having rights over their investee business but, nonetheless, failing to take steps to reduce the likelihood of the investee business engaging in anti-competitive behaviour. Extensive due diligence before the investment is approved is all well and good. What this case demonstrates is needed, are some ongoing controls aimed at minimising unnecessary competition law risks, if scenarios such as the one Goldman Sachs finds itself in are potentially to be avoided.