The big issue

Written by James Thomas on Wednesday December 11, 2013

At this time of the year, there are only two questions that really matter:

(i) what's the largest Christmas tree I can fit into my house without it constituting a health and safety issue? and

(ii) what's the biggest turkey five adults and three children can safely consume in one sitting?

This is fairly concrete evidence of a widely-observed, but often-disputed, principle: size - like it or not - matters.

And it matters in a big way for the functioning (and regulation) of key sectors of our economy. We've all probably heard enough about banks that are "too big to fail" (or simply "too big"), but one current story that provides an interesting parallel to what we've seen in the financial sector concerns the development of the new "Groceries Code Adjudicator" (GCA), which was created earlier this year to oversee relationships between the big food retailers and their suppliers.

The similarities are eye-catching. First, a market dominated by a small number of very large play-ers, which have not only secured a captive consumer audience but also exhibit the potential for cartel-like behaviour (for "LIBOR " read "milk prices"). Second, the prevalence of a profits-driven culture (sound familiar?), in which it is alleged that supermarket buyers have abused their power in order to intimidate suppliers into contracts on unfair terms, rather than "doing the right thing" for the benefit of customers and the broader supply chain.

Into this mix comes the new GCA, Christine Tacon, whose role will be to assure that the terms of the Groceries Code (which essentially ensures that contractual arrangements between supermar-kets and their suppliers are fair and reasonable) are upheld, by receiving and investigating com-plaints from suppliers.

Ms Tacon assured listeners to BBC Radio 4's "You and Yours"  earlier this week that she would get tough on the supermarkets if necessary: she has suggested that her fining powers should extend to 1% of turnover, which in the case of the largest players would be in the region of £500m. At the same time, she also recently told an audience of farmers that she intends, initially, to take a "softly, softly" approach with the supermarkets. She reports that her involvement with the supermarkets will be focused first on developing a dialogue with compliance personnel. Finally, she observed that, as yet, suppliers have not been swift to come forward and formally air their grievances, for fear of later retribution by the supermarkets (although anonymity has been assured to those who do raise complaints). She has therefore advised suppliers to “use” the GCA, or “lose it” .

What does the early experience of the GCA tell us?

First is the obvious point that establishing and maintaining a system of oversight and enforcement within any sector is challenging, not least when those covered are massive (and massively power-ful) organisations which serve as cornerstones of the economy. Size matters. A second point is that developing trust and confidence in such a system - even from those who stand to gain from it - may not be straightforward. Third, and most importantly for us, is that the role of compliance practi-tioners as the point of contact between regulator and regulated community should be key to the development and establishment of an effective regime of regulation.

It is perhaps too early to draw more definitive conclusions from the early teething troubles of the GCA, as to whether it will achieve what it was designed to. But it will be interesting to watch the situation develop. On one thing, however, I can be more confident: I'll almost definitely buy a turkey that's much too large.