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1. SII – LONDON INTEGRITY Simon Culhane Chief Executive INTEGRITY AT WORK 7th Nov 2007 www.sii.org.uk

2. 2007 World Financial City Rankings Source: Z/Yen, City of London, September 07

3. Financial Services provide major economic benefit • 9.4% direct GDP • 3.6% of GPD in professional services • Firms provides 25% of UK Corporation Tax • Financial employees contribute 12% of income tax • UK largest surplus in trade in financialservices + $49bn (£24.7bn) • 21% of London’s GDP is from Finance £ bn Source: IFSL, Jun 07

4. Key Competitive Factors Source: Z/Yen, City of London

5. Key Competitive Factors Source: Z/Yen, City of London

6. UK Financial Professional Bodies • Securities & Capital Markets • Retail Banking • Insurance • Accounting • Legal • Property

7. SII Mission Statement “ To set standards of professional excellence and integrity for the securities and investment industry, providing qualifications and promoting the highest level of competence to our members, individuals and firms “

8. SII Mission Statement “ To set standards of professional excellence and integrity for the securities and investment industry, providing qualifications and promoting the highest level of competence to our members, individuals and firms “

9. 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

10. 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 • Poor actions by some have a real cost to the individual and also the Industry

11. Lack of trust affects the market S&P 500 Forward Equity Risk Premium Long Term Average ERP = 3.8% Corporate Accounting 8.0 Scandals 7.0 6.0 9/11 5.0 Percent 4.0 3.0 2.0 1.0 Tech Bubble Portfolio Insurance 0.0 2002 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2004 Source: Robert Carlson, Charles Valdes and Mark Anson 2004

12. Growing the right culture • Exam questions • Integrity & Ethics Committee • Annual Lecture • E-learning • Monthly case study • “Integrity at Work”

13. Principles of Integrity and Ethics • Honesty • Openness • Transparency • Fairness • Professional Code • Core principles for each stakeholder • Firms endorsement • Failure to observe is incompatible with membership • Encourage right culture

14. Trust is in short supply • The BA/Virgin Price Fix BA Chief says “public deserve to know the truth” Guardian – Aug 07 Mr Walsh said the public "deserve to know the truth" about the airline's collusion with Virgin Atlantic over fuel surcharges, which resulted in BA being fined a total of £270m by the Office of Fair Trading and the US justice department this week. The airline admitted to fixing fuel surcharges in tandem with Virgin Atlantic Report says BA execs to be named in price fixing probe Sun Aug 5, 2007 1:07PM BST BA, Korean Air plead guilty to price-fixing Sky 4th August 2007 British Airways and Korean Air Lines Co each have agreed to plead guilty and pay separate $US300 million ($A353.29 million) dollar criminal fines for conspiring to fix the prices of passenger and cargo flights, the US Department of Justice said today.

15. BBC – ITV – GMTV • The BBC/ITV phone fix • Trust is the cornerstone – BBC run by a Trust BBC fined over Blue Peter phone-in scandal PA: July 2007 Media watchdog Ofcom has imposed an unprecedented £50,000 fine on the BBC over the Blue Peter phone-in scandal in which a young studio guest posed as a fake competition winner. Ofcom said the BBC was guilty of "deception" and of making a child "complicit" in that deception. BBC engulfed in fake footage scandal Media Life : July 07 Queen is shown huffing out of photo shoot Phone-in firm sorry over GMTV scandal The company behind GMTV's phone-in competitions has apologised "unreservedly" to viewers who paid to enter, but stood no chance of winning.

16. Officialdom is stirring • UK Companies Act 2006 – role of Director • “Enlightened shareholder value” • Not to accept benefits from 3rd parties • Duty to avoid conflicts of interest • Duty to promote the success of the company – long term value

17. Regulators are stirring • UK FSA CP 07/04 “appropriate ethical behaviour” 2.22 Appropriate ethical behaviours are also important – these are closely linked to the corporate culture of the firm and a key responsibility of senior management

18. SII Contribution • A practical guide to real dilemmas • In association with Institute of Business Ethics & Worshipful company of International Bankers • Featured in Sunday Times business section • Copy sent to all full and student members • 10,000 copies to ACCA senior members • Translated into Chinese and Arabic • Copy to every new student

19. The Tennis Dilemma • You are the team leader in a successful financial firm of about 250 people • A more junior member of your team is offered two tickets by an important customer to attend an early round at Wimbledon Tennis tournament • The event will take place at on a Tuesday afternoon • Your employee will pay his own travel costs • Your employee asks if he can go.

20. The Tennis Dilemma: Junior • Will you let him go to the game? Option 1: Yes (and I will let my boss know) Option 2: Yes, but the half day will be counted as part of his holiday allowance Option 3: No, but I or someone from the firm will go instead Option 4: No

21. The Tennis Dilemma: Part 2 • Your Junior employee is now offered better tickets, by the same customer • The tickets are for the men’s semi-final, held on the last Friday and include a VIP lunch • At the lunch will be people from similar firms and possibly some competitors • The customer will arrange a car parking space

22. The Tennis Dilemma: Junior 2 • Will you let him go to the game? Option 1: Yes (and I will let my boss know) Option 2: Yes, but the day counts as part of his holiday allowance Option 3: No, but I or someone from the firm will go instead Option 4: No

23. The Tennis Dilemma: Part 3 • This time, it is the head of your firm – the CEO – who is offered the same tickets for the last Friday by the same customer • The tickets are for the men’s semi-final including lunch hospitality • Other senior people, including competitors and potential clients will be there • The customer will provide a car parking space

24. The Tennis Dilemma: CEO • Is it right for him to go? (assuming that he openly informs his Chairman/Compliance dept)? Option 1: Yes Option 2: Yes, but the day will be regarded as part of his holiday entitlement Option 3: No, but he should ask the Chairman to attend Option 4: No

25. The Tennis Dilemma - Thoughts • Questions: • Did you choose different answers in the three scenarios? If so, why? • Is this what would be expected for someone in that role or position? • Is the hospitality offered out of line with the “normal” lifestyle of the recipient, • Is this going to make the recipient beholden to the donor? • How would this be perceived by key stakeholders ? • Are there differences between working in the public, charitable and private sectors?

26. Countries with anti-bribery codes Source: Control Risks and Simmons & Simmons. International business attitudes to corruption. 2006

27. The Pitch Book Dilemma • You are the Managing Director of a major global investment bank. • Two days ago, one of your teams has made it to the shortlist for a pitch to a multi national client to help it work on an acquisition. • Your team presents last and whilst sitting in the waiting area, they discover the presentation pack of their key competitor. • They keep the pack and take it back to the office and amend their own presentation • They are due to present again tomorrow • You find out what has happened by chance

28. The Pitch Book Dilemma • What are you going to do – if anything? Option 1: Congratulate team for being so observant in this competitive environment Option 2: Go deaf – you didn’t hear that, keep walking Option 3: Something – inform our client that we have “in error” obtained a competitors book and revert to original pitch Option 4: Everything – apologise to client and withdraw from bid, take disciplinary action against team members

29. The Pitch Book Dilemma • Were the team’s actions: • Open • Transparent • Honest • Fair • How do their actions fit with the code of conduct? • What would be their client’s reaction? • What would be the reaction of potential clients?

30. The Pitch Book Dilemma • What the MD did Option 1: Congratulate the team for being so observant in this competitive environment Option 2: Go deaf – you didn’t hear that, keep walking Option 3: Something – inform our client that we have “in error” obtained a competitors book and revert to original pitch Option 4: Everything – apologise to client and withdraw from bid, take disciplinary action against team members

31. The Pitch Book Dilemma • What the MD did Option 1: Congratulate the team for being so observant in this competitive environment Option 2: Go deaf – you didn’t hear that, keep walking Option 3: Something – inform our client that we have “in error” obtained a competitors book and revert to original pitch Option 4: Everything – apologise to client and withdraw from bid, take disciplinary action against team members

32. The Poaching Dilemma • You are the CEO of a medium sized securities firm. • Trawler is a specialist corporate finance team with whom your firm has a loose MoU. • The arrangements has worked well for both parties since it was agreed, 3 years ago • Two months ago, your head of the small Corporate Finance team left and the MD has personally been actively searching • The MD announces at a board meeting that he has found a key replacement • As you come to sign off the contract, you realise the name, Gildenstein, as one of the key people at Trawler.

33. The Poaching Dilemma • What should the CEO do? Option 1: Sign the contract. This fills a critical vacancy and will allow his firm greater self-reliance Option 2: Contact Trawler and inform them that this is not a hostile act, then sign the contract. Option 3: Ask Gildenstein for permission to speak and discuss with Trawler. Option 4: Don’t sign. This is underhand, “biting the hand of friendship”.

34. The Poaching Dilemma • Short term v Long term • How will Gildenstein’s move be received by Trawler? • Is this a friendly or hostile act? • How did the MD know about Gildenstein? Was it through working with him? • Is the desire to fill the position with Gildenstein more important than the longer term tie up with Trawler • Is this hiring the right thing to do – is it open, honest and fair?

35. The Poaching Dilemma • What should the CEO do? Option 1: Sign the contract. This fills a critical vacancy and will allow his firm greater self-reliance Option 2: Contact Trawler and inform them that this is not a hostile act, then sign the contract. Option 3: Ask Gildenstein for permission to speak and discuss with Trawler. Option 4: Don’t sign. This is underhand, “biting the hand of friendship”.

36. The CV Dilemma • You are the Chairman of a firm of fund managers who employs Brian Poole, one of number successful fund manager in your firm who you wish to invite to join the board. • Amongst your papers for Board meeting tomorrow is the proposal that Brian should be invited to join the board. His CV is attached which states he graduated in 1984. • A non-executive director has alerted you to his suspicion that Brian never graduated. • The firm is in the middle of launching a new fund using Brian Poole as one of the key fund managers and noting his academic record as having achieved a B.Sc. • Today you asked Brian, and he has now admitted that he did not graduate.

37. The Inflated CV • What should the Chairman do? Option 1: Minor matter, not material. Continue with launch, Remove reference to his degree in advertising. Invite to join Board. Option 2: Ask Brian to pay a “fine” to charity as penance for his “mistake”, Withdraw invitation to board. Remove reference to his degree in advertising. Option 3: Refuse Brian’s request to join the Board and ask him to resign. Amend launch material to remove him. Option 4: Sack Brian for being deceitful. Amend launch material to remove him

38. The Inflated CV • Is this a big error? • Doesn’t everyone inflate their CV? • Honest? Open? • Falsification of CV represents a serious breach of trust • To hold out that an individual has obtained a qualification represents a fraud on all those who genuinely hold such an award and the awarding body who issued it • To fine Brian merely condones the problem • Dismissal with all its consequences is probably too draconian

39. The Inflated CV • What should the Chairman do? Option 1: Minor matter, not material. Continue with launch. Remove references to degree in advertising and invite to join Board. Option 2: Ask Brian to pay a “fine” to charity as penance for his “mistake”, Withdraw invitation to Board. Remove reference to his degree in advertising. Option 3: Refuse Brian’s request to join the Board and ask him to resign. Amend launch material to remove him. Option 4: Sack Brian for being deceitful. Amend launch material to remove him

40. Conclusions • Integrity and trust are important and necessary components for global centres • 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: • Honesty • Openness • Transparency • Fairness • “The only thing between me and oblivion is my personal integrity” Michael Kirkwood,,Citi Country Office UK