The following is a guest post from Parker Miller and Jens Murach Olrik, partners, and Robert Poole, senior associate, of law firm Alston & Bird’s antitrust practice.
CFOs are no strangers to drafting and approving public-facing communications about a company’s strategy and performance. Historically, those communications have carried well-known risks, particularly under the securities laws.
However, a new risk is emerging: Competition and antitrust enforcers are paying closer attention to what CFOs say on earnings calls.
Antitrust authorities and private litigants have always paid some attention to companies’ public statements for evidence of collusion. Under this theory, statements ostensibly addressed to investors, customers or suppliers may be intended for competitors as an invitation to collude on market behavior.
The highest-risk communications include those commenting on a company’s future behavior and predicting how rivals or the market should or would behave — particularly if those statements refer to sensitive commercial factors such as prices, output or capacity.
Common examples include statements such as: “We are preparing price increases to pass on rising energy costs that hit the entire industry,” or “Capacity discipline will help the industry to avoid a price war.”
Litigants argue that such statements are signals to the market intended to influence the behavior of others, potentially leading to collusive outcomes. Corresponding announcements from rivals may then be cited as evidence of anticompetitive concerted practices or even an agreement underlying a conspiracy.
What is new, however, is the systematic scrutiny of public communications by powerful competition and antitrust enforcers. The trend is most apparent in the European Union. There, the European Commission’s Directorate-General for Competition recently used an automated language-processing tool to screen more than 350,000 earnings-call transcripts from nearly 15,000 companies between 2004 and 2022 for traces of anticompetitive collusion.
The EC fed the tool search terms to identify potentially collusive statements, such as the examples above. It then triangulated statements from a defined set of competitors to identify patterns that could suggest collusive behavior. The results can form the basis for further investigation, including unannounced inspections of company premises.
The EC’s efforts are not merely academic. Acting on the results from its new screening tool, DG COMP raided the world’s largest tire manufacturers in 2024. Reports suggest that the investigation and raid prompted at least one tire manufacturer to cooperate with the EC.
While the outcome of that investigation remains uncertain, the EU’s General Court has confirmed that the manufacturers’ statements in earnings calls can provide a sufficient legal basis for dawn raids.
The result is clear: The EC’s attention to earnings calls and other public corporate communications is here to stay and will likely intensify through machine-learning tools.
This is troubling and runs counter to the prevailing wisdom that greater transparency by companies leads to more-efficient markets and better investor outcomes. To date, the context of a company’s statement, such as whether it was made solely in response to an analyst’s question, doesn’t appear to be relevant to the EC.
The EC is not alone. In the United States, litigants have long relied on earnings-call statements and other public-facing messages to support antitrust allegations. Courts, however, have not traditionally found such statements sufficient to suggest anticompetitive activity.
U.S. litigants are hoping that will soon change. Pointing to the fact that statements in earnings calls form the basis of investigations in the EU, U.S. enforcers and plaintiffs will likely argue that courts should give more weight to public statements.
Indeed, within weeks of the EC’s announcement of dawn raids against tire producers, multiple class actions were filed in U.S. courts and eventually consolidated in a multidistrict litigation. The plaintiffs’ complaints put heavy emphasis on the defendants’ earnings calls and the EC’s active investigation spawned by those calls.
Strong defenses remain available in the United States — even in the face of the EC’s recent scrutiny into earnings calls. The definition of an antitrust violation is very broad under EU law, and there is no need to agree on specific market behavior. It is sufficient under EU law that competitors knowingly reduce the risks associated with competition by practically cooperating with competitors, and the exchange of commercially sensitive information, in and of itself, may constitute an antitrust violation.
EU courts even apply a presumption that the exchange of commercially sensitive information influences a company’s conduct in the market, which in practice is very difficult to rebut. Therefore, allegations hinging on earnings-call statements will go further in the EU than in the United States.
Even so, no CFO wants to incur the reputational or legal costs of antitrust litigation. CFOs should therefore take heed of the headwinds coming out of the EU.
Earnings calls are now scrutinized for hints of collusive behavior, putting CFOs in a very difficult position. If companies disclose too little, they risk liability under securities laws and regulations. If they disclose too much, they risk antitrust liability.
Companies should reassess their communication practices accordingly, including training for executives and other employees involved in public corporate communications. Particular care should be taken with statements on pricing, market conditions, capacity and how rivals should or may act.
In today’s regulatory environment, CFOs should assume that antitrust enforcers are listening.
