L’Oreal’s bumper price-fixing fine–“because you’re worth it.”

L'Oréal_HQDrop by the offices of the world’s  largest cosmetic company in Clichy, Hauts-de-Seinet Listen3France and listen hard.

You may just catch the sound of the rending of clothes and cries of despair. French regulators have slapped a hefty fine on the cosmetic giant for price fixing.

Yet this company prides itself on its ethical stance and mainly has a good track record of ethical leadership. This includes an impressive full-time deputy chairman who walks the talk when it comes to ethics, and a clear ethical stance

“…to be an exemplary company worldwide and integrates ethics into the very heart of its business practices. Our values and ethical principles guide us in our every-day actions.” [1]

EthisphereIn 2012 for the third time in a row, L’Oreal was recognized by the Ethisphere Institute as one of the “World’s Most Ethical Companies”.

It must surely have come as a nasty shock therefore to be fined along with other large consumer product firms such as  Unilever, Reckitt Benckiser, Procter & Gamble and Gillette? [2]

L’Oreal faces the biggest share of the fines at €189.5m from the French regulator for price fixing.L'Oreal2 However the company denies anti-competitive activities and has vowed to appeal.

According to the regulator, some 13 companies, which include Colgate-Palmolive, Henkel, L’Oréal, Beiersdorf and Johnson & Johnson’s Laboratoires Vendôme, had colluded on price increases between 2003 and 2006.

The sanctions imposed by the competition authority were because

“Price-fixing had kept prices “artificially high” affecting consumers and “caused harm to the economy”.

The regulator painted a picture of the various commercial directors and other sales officials from the companies meeting secretly, to regularly co-ordinate price hikes . Their illegal assignations were at restaurants or via correspondence to private homes, as well as through telephone calls. The group even had a collective name of “Team” or “Friends”.

L’Oreal says it is “surprised by this decision and the amount of the fine which is “totally out of proportion”.

Yet this response raises more questions than it answers. It is unclear why the amount imposed is so unfair.  What exactly did L’Oreal expect? What would be proportionate and why? The group’s collective cry of pain echoes the earlier one from the French bank BNP Parabus when last year it also collected a massive fine which it too moaned was unfair.

If it really was so unfair, why did the bank agree to pay nearly $9 billion and plead guilty to crimes for violating U.S. sanctions? This unprecedented settlement included a year-long ban on the French bank’s ability to conduct certain U.S. dollar transactions.[3]

Companies like L’Oreal tread a perilous path talking to rivals. In areas of mutual interest such as sustainability, working with them may be perfectly legitimate, . But one thing can lead to another as happened with Unilever and P&G.

According to EU Competition Commissioner Joaquin Almunia [4]

Joaquin Almunia

After the Body Shop was snapped up by L’Oreal a few years back, there was much speculation about whether it’s high-flown principles on animal testing and ethics generally would survive.

At the time, founder Anita  Roddick promised her brand would not “sell out”. She even suggested The Body Shop would influence its new parent, helping it become more ethical and sustainable.bodyshop

Six years down the line, Mark Davis, who heads up The Body Shop’s 26-year-old Community Fair Trade programme, insists that is exactly what has happened, with the retailer successfully encouraging L’Oreal to source its products from more sustainable suppliers. [5]

Unfortunately this latest incident of price fixing has nothing to do with sustainability or other legitimate aspects of competitors collaborating.

rip offThis appears to be straight dishonest practices by sales staff who, if the regulators are to be believed, set out to rip off their customers.

For all its positive ethical positioning, L’Oreal has not always been on the side of the angels. In 2013 for example the cosmetic giant was fined by the Stockholm City Court for continuing to run adverts on some of its face creams that had already been banned in Sweden. [6]

L’Oréal’s most outspoken critic is UK animal welfare campaigner Naturewatch, which since 2006 has called for a boycott of all L’Oréal products including those sold by The Body Shop. Naturewatch claims the company still uses animal testing extensively, despite assertions that it has not tested any of its finished products on animals since 1989. [7] However from 2013 the EU has banned testing products on animals which presumably L’Oreal now respects?

The big issue for L’Oreal is whether the latest fine for fixing prices reveals the firm’s ethical positioning as phony and not supported by the evidence. Is this fine an ethical blip or a serious fracturing of the company’s vaunted ethical leadership and practices?

To sum up: of L’Oreal’s fine really is “disproportionate”, the company had better have a cast iron alibi or suffer a serious tainting of its much-prized reputation for ethical conduct.
See also:
Would the leader of an ethical global company please stand up, Nov 25 2014
Big business risks losing its social licence Part 1 of 2.

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