Measuring What Matters: Performance Standards for Competition Agencies

1. Measuring What Matters: Performance Standards for Competition Agencies William E. Kovacic George Washington University Law School GCLC, Brussels December 1, 2011

2. The Questions for This Evening • Academia as Natural Habitat • Common question from students at start of term • “What is the basis for the grade in this course?” • Pose Same Question for Competition Agencies • How Do We Assess Performance? • How should we assess performance? • Absolutely fundamental question that receives too little attention

3. Roadmap • Conventional Techniques • An Alternative Framework • Examples from Modern Experience • Motivation: • Start of tenure as FTC General Counsel 2001 • Michael Lewis: Moneyball • Measure what matters

4. How Do We Measure Performance Today? Not Very Well • GCR Ratings“: Elite Five Star Category” • Agency is performing “at the top of its game” • 2011: USFTC, USDOJ, UK CC • 2010: US FTC, US DOJ, UK CC • 2009: US FTC, US DOJ, UK CC • 2008: US FTC, DG Comp, UK CC • 2007: US FTC, DG Comp, UK CC

5. The GCR Methodology • Heavy Emphasis on Levels of Activity as Proxy for Effectiveness • Extra Credit for High Profile Matters • The Larry Ellis Caveat: “Activity is not the same thing as accomplishment” • Typical Agency Speech: “We’ve been very busy!” • Have you been very effective?

6. What’s Wrong With Emphasis on Activity as Proxy for Effectiveness? • Indifference to Results • Real Question: How did you affect economic performance? • Cartel fines always upward? CF. Homicides • International Race to the Pole • OECD peer reviews and country studies • Google? End of US and EU duopoly • Capabilities and Commitments Mismatch

7. FTC Abuse of Dominance Cases 1970 to 1980: 13 Cases • WEK Case Handler • Shared monopoly cases: breakfast cereal and petroleum • 3 predatory pricing cases seeking structural relief • Case against major citrus fruit agricultural cooperative • Patent thicket case involving Xerox • Novel cases involving duty to deal and entry deterrence • Compulsory licensing case against pharmaceutical firm • High stakes: economic, doctrinal, political • Not to mention: AMA, soft drink bottlers, RPM

8. From “Great Job” to “What Were They Thinking”? • Some Successes (Xerox, Sunkist, Eli Lilly) • Many Failures (e.g., Exxon, Kellogg, DuPont) • Blind Side: Change in Economic, Legal Learning • Little Attention to Resource Implications • Powerful Political Backlash • Walter Mondale in Battle Creek Michigan: November 1980

9. An Alternative Report Card • Coherence: Especially Well-Specified, Clearly-Communicated Goals? • Careful Attention to Setting Strategy? • Problem Solving Orientation? • Internal Quality Control? • Capital Investments in Agency Capacity? • Evaluation, Periodic Assessment, Adaptation?

10. Clear Definition of Aims • Why State Aims Clearly? • Internal discipline: do staff understand priorities? • External accountability • Restatement Amid Changing Conditions • Clear Connections: Aims, Programs, Results • Who’s Good : OFT , New Zealand, Romania • Who’s Ailing: USA and Germany

11. Conscious Plan to Set Strategy • Path Dependent Temptations • What Yields Best Returns to Society? • Balanced Portfolio: Risks and Returns • Match Commitments to Capabilities • OFT: What cost, how long, who will do it?

12. From Case-Centrism to a Problem Solving Orientation • Traditional Focus: Cases and Big Cases • Activity is equated with accomplishment • Internalizing costs/benefits: Take-offs vs. landings • Underinvestment in long-term capability • Emerging View: How Best to Solve Problems? • Right tools: Flexible portfolio of policy instruments • A good report can be as valuable as a good case • Portugal: petroleum products studies

13. Internal Quality Control • Aims: • Ensure sound doctrine, evidence, theory • See the facts as others will see them • Means: Review by Other Operating Units, Devil’s Advocates, Scrutiny Panels, Audits • Routine Element of Operations and Not Merely a Response to Crisis

14. Capital Investments in Building and Retaining Knowledge • Why Have an “R&D” Budget? • Compression of decision making cycles • Dealing with dynamism and crisis • Data collection and research: how to invest? • External Consultations: Hearings, Workshops • Early identification of trends • Connection with major external constituencies • Partnerships with Academic Research Centers

15. Human Capital • “Who’s Playing?” • Recruiting/Retaining Capable Staff/Managers • Do skills match commitments? E.g., Patent Law • Increasing Effectiveness • FTC 1980 (1800 employees) vs. 2010 (1200) • Major improvements in productivity • Key factor of production: Technology outlays • Vulnerability: succession/institutional memory

16. Networks With Other Public Bodies at Home and Abroad • Regulatory Archipelago: Costs and Benefits • Collusion Avoidance and Interoperability • Is Existing Distribution of Authority Sensible? • Synergies and Productivity Enhancements • Absorb knowhow and benchmark • Address common needs: e.g., training • Joint work on program development

17. Assessing Performance • The Relevant (and Difficult) Question: Did Our Programs Improve Economic Performance? • The Question That We Prefer to Answer: What Was the Agency’s Level of Activity? • When an Agency Leader Says “We’ve Been Very Busy,” We Should Ask “Have You Been Very Effective?”

18. Evaluation: Programs and Processes • What Worked and What Did Not • Increasing Importance of Assessing • Program outputs • Operations: e.g., measuring speed of activity • How can costs to agency and affected firms be reduced without diminishing effectiveness? • Means: Internal Assessment, Consultation with External Experts, Peer Review

19. Three Critical Structural Focal Points • Multiple Function or Single Purpose • >60: UK, Sweden, Romania, Bulgaria, CZ, Poland • Rationale for combination: in theory, practice? • Board or Unitary Executive • Integration of Functions • Multiple Decision Makers • Integration by contract or ownership

20. Key Element of Assessment: Disclosure and Engagement • Reveal Enforcement Intentions, Reasons for Intervention and Non-Intervention • Maintain and Disclose Data Sets on • Program activities: e.g., cases • Operational effectiveness • Invite Public Discussion about Substantive Program and Agency Process

21. Continuous Assessment: The Virtuous Cycle • Cumulative Nature of Policy Development • Advantage of Superior Regulatory Design • Need for upgrades in statutes, organization? • Respond to New Learning, Industry Trends • Who’s Doing Well: European Commission, France

22. Concluding Thought: Centrality of Leadership • Long-Term Perspective: Consume or Invest? • Good signs: growing awareness • View Self as Part of Long Term Relay • How Do You Depict Predecessors? • Foster Norms for Leaders: Fordham • Hilmer’s Precept • Positive externalities for future agency leaders • There’s a Big Prize for Getting This Right