Www.sii.org.uk SII CPD Event Simon Culhane, Chief Executive Securities & Investment Institute...

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SII CPD Event

Simon Culhane, Chief ExecutiveSecurities & Investment Institute

Integrity at Work 2

18 May 2009

Key Competitive Factors

Rank Factor Score

1 Availability of skilled personnel 5.37

2 Regulatory Environment 5.16

3 Access to Financial Markets 5.08

4 Availability of Business Infrastructure 5.01

5 Access to Customers 4.90

6 Fair & Just Business Environment 4.67

7 Government Responsiveness 4.61

8 Corporate Tax Regime 4.47Source: Z/Yen, City of London

Three main activities

ATTAIN: Examination of competence, testing knowledge, awarding qualifications

MAINTAIN: Provision of means for Continuing Professional Development

PROMOTION OF TRUST: Promote high standards of Trust & Integrity

The Importance of Integrity

“How shall we live?”

Trust is critical

Reputation of counterparty is paramount

Trust leads to confidence and reputation

Real cost to balance sheet of poor reputation

Once lost, it is hard to recover

Lack of inter-bank trust

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Three Month BBA LIBOR less Base Rate (basis points)

Data to 17 Aug 07 Source: BBA

Lack of trust is here now!

Lack of inter-bank trust

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Three Month BBA LIBOR less Base Rate (basis points)

Data to 05 May 09 Source: BBA

BBCThe BBC has been fined £95,000 by media watchdog Ofcom for broadcasting 13 quizzes which listeners could not win. BBC News, Thursday 18 December 2008

Ofcom also said it was "wholly unacceptable" that the BBC had known about these breaches but had decided they were not serious enough to be declared

The competitions ran on eight editions of Dermot O'Leary's Radio 2 show in 2006 and five Tony Blackburn programmes on BBC London 94.9 in 2005 and 2006.

All were pre-recorded, however, so there was no way to take part in them.

These were "serious" breaches and on-air apologies were needed, Ofcom ruled. The BBC "accepted" the findings, saying procedures had since been tightened.

Radio 2 fined £70,000 for eight breaches

Dermot O'Leary (left) and Tony Blackburn (right) hosted the shows

BBC London 94.9, the BBC's local radio station for London, was given a fine of £25,000

Yesterday an executive of Asia Television (ATV)admitted that his channel had falsified viewer votingfigures in a beauty contest. The Miss Asia pageantwas won by a 23-year-old Hong Kong student namedEunis Yao after votes were counted from mobiletelephone text messages and the internet - but it hasSince emerged that she was not, in fact, the truechoice of the people. The incident mirrors similarscandals in the UK involving GMTV, Blue Peter andAnt & Dec's Saturday Takeaway, among others. “This is an unacceptable issue of trust,” Linus Cheung, executive chairman of ATV, told the South China Morning Post after an “evaluation” meeting. “The number of votes shown on TV was wrong.”

Television phone-in poll rigged to get the 'right' Miss Asia electedThe Times, 17 December 2008

Ricky Wong resigned from his position as chief executive officer of the TV station yesterday after just 12 days in the job, after a public falling out with Mr Cheung that was said to be unrelated to the Miss Asia pageant.

Asia Television (ATV)

An investigation has been launched into the British activities of alleged Wall Street fraudster Bernard Madoff.

Officials will focus on investors who lost huge sums when Madoff's multi-billion pound financial business collapsed, the Serious Fraud Office (SFO) said.

Prosecutors in the United States said a bogus business run by the former Nasdaq stock market chairman lost at least £33 billion.

Investigators are approaching former employees and have appealed for investors or other financiers involved with Madoff's operations in the City and elsewhere to come forward.ITN News 9 January 2009

“How Bernie Madoff with $50bn”

Satyam Computer head quits, admits doctoring books

Associated Press, Mumbai, January 2009

The head of India's embattled Satyam Computer Services resigned on Wednesday and said the firm's profits had been inflated, sending the stock down more than 80 percent and roiling investor confidence.

India's biggest corporate scandal in memory threatens future foreign investment flows into Asia's third-largest economy and casts a cloud over growth in its once-booming outsourcing sector.

Reuters, January 2009

Satyam Computers

This July 21, 2006 file photo shows the chairman of India's Satyam Computer Services Ltd. B. Ramalinga Raju addressing the media in Hyderabad, India. Raju quit Wednesday after admitting the company's profits had been inflated for several years, sending shares of the software services provider plunging by more than 70 percent. The plunge in Satyam shares dragged Bombay's Sensex index down nearly 6 percent to 9,728.74.

(AP Photo/Mahesh Kumar A, File)

"We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world."

Securities & Exchange Commission

The Securities and Exchange Commission charged Robert Allen Stanford and three of his companies for orchestrating a fraudulent, multi-billion dollar investment scheme centering on an $8 billion CD program.

The SEC also charged SIB chief financial officer James Davis as well as Laura Pendergest-Holt, chief investment officer of Stanford Financial Group (SFG), in the enforcement action.

Pursuant to the SEC's request for emergency relief for the benefit of defrauded investors, US District Judge Reed O'Connor entered a temporary restraining order, froze the defendants' assets, and appointed a receiver to marshal those assets.

"As we allege in our complaint, Stanford and the close circle of family and friends with whom he runs his businesses perpetrated a massive fraud based on false promises and fabricated historical return data to prey on investors," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "We are moving quickly and decisively in this enforcement action to stop this fraudulent conduct and preserve assets for investors."

SEC, 19 February 2009

Sir Allen Stanford

Law enforcement agencies in the US had been suspicious of financier and cricket mogul Sir Allen Stanford's activities for 15 years, an expert on international fraud called Jeffrey Robinson has claimed.

Intel EU slaps a record fine on Intel

Computer chipmaker Intel has been fined a record 1.06bn euros ($1.45bn; £948m) by the European Commission for anti-competitive practices.

It dwarfs the 497m euro fine levied on Microsoft in 2004 for abusing its dominant market position. The Commission found that between 2002 and 2007, Intel had paid manufacturers and a retailer to favour its chips over those of Advanced Micro Devices (AMD). Intel has announced that it will appeal against the verdict. Intel's senior vice president Bruce Sewell told BBC Five Live that Intel contested the findings and was seeking a chance to "clear our name and exonerate the company." He denied "categorically" that it had paid manufacturers to favour its products over those of rivals. He added that there had been no harm to customers and that prices in the microprocessor market had fallen sharply in recent years. The fine was welcomed by AMD, which had lodged complaints in 2000, 2003 and 2006.

BBC News 14 May 2009

“Such a serious and sustained violation of the EU’s anti-trust

rules cannot be tolerated”

Neelie Kroes, Competition Commissioner

£948m

MPs Expenses

£2.50, bought from the minibar of the Sherlock Holmes Hotel in London by one of Labour’s best-known female MPs.

One particularly heavyweight Labour MP bought two in the space of a year for his constituency home

Two packets of Pampers at £5.65 each, charged by a junior Labour minister after he became a father.

Animal vacuum cleaner, £299.99, claimed by a meticulous LibDem MP in 2005

Gordon Brown apologises to public on behalf of House of Commons

MPs Expenses

Julie Kirkbride

Andrew MacKay

Hazel Blears

Alistair Darling

Peter Mandelson

John Prescott

Jack Straw

Gordon Brown

Committees are stirring

Woolf Committee report May 2008Set up following public outcry over commissions for Saudi contract23 recommendations including:-

Integrity: now a Boardroom agenda itemSenior Executive compensation to be specifically linked to Integrity

Integrity is now seen asessential

“We believe that a consistent and visibly enforced code of ethics is essential for improving consumer outcomes and changing consumer perceptions. Statutory powers would be desirable to enable effective enforcement.”

25 November 2008

Principles of Integrity and Ethics Openness

Honesty

Transparency

Fairness

Professional Code

Annual Lecture

Ethical Dilemmas & Book

Firms’ endorsement

Regional Seminar using case studies

The Redundancy Dilemma You are a Senior Supervisor in the Operations

Department of a major financial services firm, based in the South of England, which is in the process of restructuring

This morning Eddie, one of your team, who is an old friend, tells you that his daughter has just passed the entrance exam for a prestigious independent school. Although the fees will be tough, Eddie says that he and his wife will do whatever is necessary to find the money. He extends, and you accept, an invitation to dinner that evening

Later, your Divisional Manager rings to tell you, in confidence, that results are bad and he needs to look for a 25% reduction in headcount

He sends you a list of names to be discussed at a meeting that afternoon and emphasises the importance of confidentiality

Reviewing the list, you notice Eddie’s name as a potential candidate, based on his disappointing performance appraisal

1. Select your ALPHABETIC option etc.

2. Then PRESS SEND KEY, double arrow button on top left

IMPORTANT - IF YOU DO NOT PRESS YOUR VOTE WILL NOT REGISTER!

The Redundancy Dilemma As Eddie’s Manager, how are you

going to deal with the situation?

Option 1: You will argue for Eddie’s retention. You decide that you will let Eddie know, in confidence, over dinner

Option 2: You will argue for Eddie’s retention. You decide not not to mention anything to Eddie over dinner

Option 3: You agree that Eddie is a logical candidate. You will, however, let Eddie know, in confidence, over dinner

Option 4: You agree that Eddie is a logical candidate. You decide not to mention anything over dinner

The Redundancy Dilemma Is it fair to argue for his retention based on

friendship, rather than merit?

Is it fair to just tell Eddie and not the other staff affected?

What happens when he tells someone else?

Your boss told you “in confidence”. Would you betray that confidence?

Do you have the authority to reveal this sensitive information?

What will Eddie think of you if you don’t tell him?

How can you balance your responsibility to Eddie and your company?

Management involves taking difficult decisions – balance those of a friend with your employer and all staff

The Redundancy Dilemma As Eddie’s Manager, how are you






The Redundancy Dilemma As Eddie’s manager, how are you






Inks You are a Relationship Manager at Knights, a boutique

Corporate Finance house and are leading a bid for an important mandate from Inks plc., which manufactures printing ink and cartridges

Knights has a reputation for high ethical standards and encourages charitable activities by its staff, including using its corporate e-mail “footer” to support nominated charities

The current charity, which is chosen by a staff Committee, has an environmental focus aimed at combating global warming and their e-mail message includes the words: “Do not print this e-mail unless absolutely necessary”

You receive an irate phone call from the Managing Director of Inks plc., who has taken offence at the wording on your e-mail footer and threatens that if the wording is not removed by the end of the day, he will ensure that Knights does not win the mandate

Failure to win the mandate may result in one or two redundancies in your firm

Inks

Option 1: Call a meeting of the staff Committee and recommend that the footer should be removed because, on balance, jobs are important

Option 2: Alter the footer as requested, without further discussion, because it is essential that Knights is awarded the mandate

Option 3: Call a meeting of the staff Committee and recommend that they should stand up for their principles

Option 4: You tell Inks that it is an internal matter for Knights and it is quite inappropriate that a client should try to influence internal company policy

How might you respond to this threat?

Inks Is this actually a serious issue? Why not just remove the footer and be done with it? Staff may claim that it is a “matter of principle” Care of staff is also a “matter of principle” What happens when two principles conflict? A number of colleagues may be losing their jobs, so

they need to be involved Is the “customer always right”? At some point an evaluation of the merits of the two

principles has to take place If you accommodate Inks on this, what happens if

they become more demanding? Are you comfortable in making people redundant over

this? Would you be willing to lose your job over this issue?

Inks

Option 1: Call a meeting of the staff Committee and recommend that the footer should be removed because, on balance, jobs are important

Option 2: Alter the footer as requested, without further discussion, because it is essential that Knights is awarded the mandate

Option 3: Call a meeting of the staff Committee and recommend that they should stand up for their principles

Option 4: You tell Inks that it is an internal matter for Knights and it is quite inappropriate that a client should try to influence internal company policy

How might you respond to this threat?

Autocrat You are the Risk Director in a well known firm of Wealth Managers,

whose Chairman pulled off a coup by poaching a high-profile Chief Executive (CE) from a competitor last year. The new CE has made radical changes to the firm’s business methods and culture

Sales have risen strongly, but so have complaints, whilst the firm’s reputation has fallen

You report this concern to the Risk Committee, which is chaired by the CE, but he makes it clear that your comments are unwelcome and increased complaints are an acceptable price to pay for success

Further problems arise involving a third party investment product, which received heavy public criticism for poor performance, resulting in its withdrawal. Your firm has been a major promoter of this product, which has generated significant income for the firm

You report again to the Risk Committee, where the CE is, once again, hostile to you and reminds you that “everyone, including you, is on course for significant bonuses on the basis of this year’s figures, so don’t rock the boat”

The Risk Committee minutes, which are copied to the Board, make no mention of your concerns. You raise this with the CE who tells you that he has no intention of bothering the Board with scare stories and “you had your say at the Risk Committee, where you were in a minority of one”

Autocrat You are convinced that inaction is

storing up serious problems. What should be your next step?

Option 2: You will discuss your concerns with the senior independent Director and follow up with a formal letter or email

Option 4: You will contact the Chairman when he is next in the office and discuss your concerns with him

Option 3: You feel that the only appropriate course of action is to blow the whistle to the Regulator

Option 1: You will write a formal letter to the CEO asking him to place on record your comments and concerns

Autocrat You have already raised your concerns with the Chief

Executive via the Risk Committee, so what is new that may cause him to change his mind?

You believe that your message is being ignored because it is unwelcome and the CE is possibly being driven by personal financial considerations

If you go above the CE you are going against him, therefore you will have only one opportunity to get your message across

Failure to have your concerns accepted will leave you with resignation as your only option and possibly jeopardise your bonus

Is this essentially a commercial matter, or are there valid public interest disclosure issues?

If you “blow the whistle” you will need to ensure that you have followed all of your firm’s procedures, in order to get notice taken of your complaint

Notwithstanding any whistleblower protection under the law, you are unlikely to be warmly received within your firm, even if you are right and resignation may ultimately be inevitable

Autocrat You are convinced that inaction is

storing up serious problems. What should be your next step?

Option 2: You will discuss your concerns with the senior independent Director and follow up with a formal letter or email

Option 4: You will contact the Chairman when he is next in the office and discuss your concerns with him

Option 3: You feel that the only appropriate course of action is to blow the whistle to the Regulator

Option 1: You will write a formal letter to the CEO asking him to place on record your comments and concerns

A question of degree

You are a Line Manager in a firm with a fast track graduate development programme. HR offers Tom, who is on the programme, an attachment to your team

Your son had been at school with Tom and tells you that Tom left university early, following the death of his mother

Tom was employed originally in your firm as a temp and his Manager, believing that he was a graduate and because of his excellent work, recommended him for the fast track graduate development programme

Tom’s CV says that he had been to university but does not specifically mention that he was awarded a degree

During interviews for the fast track graduate programme, although the subject of university came up, Tom had been careful not to claim that he had a degree

Because he was already employed, the firm had not actually checked whether Tom had graduated


Option 1: It is the firm’s fault that they did not check his degree, so Tom should be allowed to continue on the fast track graduate programme

Option 2: Because Tom has performed well and the firm is not blameless, he should be allowed to remain, but outside the graduate programme

Option 3: Tom should be allowed to continue on the graduate programme, subject to completing his degree within a specified time

Option 4: Although not overtly dishonest, Tom was not as open and honest as you require. So, despite his good performance, he should be asked to leave the firm

How would you recommend Tom should be treated?

Simply to allow Tom’s employment to continue without check does send the wrong message about standards of honesty

How might this decision look to those who have achieved the required qualification and not been offered a job?

Although Tom has performed well, any decision must also consider standards of honesty, not just competence

You judge Tom solely on his standard of honesty and in this context he has been found wanting. He had the opportunity to clarify his position on a number of occasions but failed to do so

However, his failure was “passive” rather than “active” and there is some culpability from the firm in making a key erroneous assumption

Therefore, to allow Tom to continue with the firm is an attractive and sensible option but not on the graduate programme. A reasonable position would be to give him the option of continuing on the permanent staff

An alternative is to allow Tom to continue, subject to completing his degree within a specified time, but this might be practically difficult. His salary should be frozen until then



Option 1: It is the firm’s fault that they did not check his degree, so Tom should be allowed to continue on the fast track graduate programme

Option 2: Because Tom has performed well and the firm is not blameless, he should be allowed to remain, but outside the graduate programme

Option 3: Tom should be allowed to continue on the graduate programme, subject to completing his degree within a specified time

Option 4: Although not overtly dishonest, Tom was not as open and honest as you require. So, despite his good performance, he should be asked to leave the firm

How would you recommend Tom should be treated?

IntegrityMatters:e-Learning

Case study based

Delivered to desktop

Each case develops according to how the previous question was answered

The subsequent question builds on the previous answer

Each scenario has between two and seven questions

Six scenarios in total

Score between 0 & 4 points per scenario

Graded results, need to gain A or B to pass

Conclusions The lack of integrity has a real cost to all in

the industry Integrity needs to be part of a firm’s culture Apply the principles of:

HonestyOpennessTransparencyFairness

When faced with two colliding principles, you need a sense of perspective

Whistleblowing requires courage, but it needs to be for the right reason

“Dictum meum pactum” – my word is my bond

Www.sii.org.uk SII CPD Event Simon Culhane, Chief Executive Securities & Investment Institute...

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