1st Issue (Apr 1995) - Inaugural Issue

BUSINESS ETHICS CAMPAIGN

However, recent years has seen a distinct increase in reports of corruption in the private sector, from 1,167 in 1992 to 1,827 in 1994.

In his October 1993 policy address, the Governor directed the ICAC to launch a campaign in co-operation with major business associations and professional bodies to defend and maintain business standards in Hong Kong amid concerns that the business sector was becoming more vulnerable to corruption.

The campaign began with Hong Kong's first ever Conference on Business Ethics, jointly organised by the six leading chambers of commerce and the ICAC and sponsored by over 100 trade and professional bodies. More than 300 business leaders attended the Conference and arrived at a consensus that a set of broad guidelines on business ethics, in the form of a corporate code of conduct, should be formulated and recommended to all listed companies and large private companies in Hong Kong. The Conference also supported the establishment of an Ethics Development Centre to promote business and related ethics on a long term basis to both the business sector and the wider community, including young people.

ETHICS DEVELOPMENT CENTRE

The Hong Kong Ethics Development Centre is formed under auspices of the Community Relations Department of the ICAC and its resource centre at 1/F, Tung Wah Mansion, 199-203 Hennessy Road, Wanchai, Hong Kong, begins operation in May 1995.

In addition to providing library and enquiries facilities on the promotion of business and related ethics, a team of 30 officers will launch a comprehensive "Corporate Ethics Programme" for business organisations and will conduct coordinate activities that promote work ethics among young people.

THE COMPETITIVE EDGE - CORPORATE ETHICS PROGRAMME

• reducing incidents of corruption, fraud and other malpractices;
• reducing conflict of interest situations
• enhancing the trust of customers, suppliers and contractors;
• enhancing the credibility of buyers and sales persons;
• promoting the goodwill and loyalty of employees and other stakeholders
• ultimately allowing individual companies as well as the Hong Kong business community as a whole to continue to enjoy a reputation for honesty and fair play.

THE ULTIMATE TOOL - CODE OF CONDUCT

One of the most important conclusions reached at the Conference on Business Ethics is that legislation and prosecution must act as a final deterrent against unethical business behaviour, including corruption, fraud and other malpractices. It was further agreed that the most effective front line defence is self-regulation. A specific Code of Conduct which sets out the ground rules for everyone involved in a particular trade or profession, and all members of an individual company, was seen as a basic tool for self-regulation.

An effective Code of Conduct should state very clearly to all staff or members the standards of behaviour expected of them.

It should set out the legal requirements regarding the offering and acceptance of advantages and emphasise the importance of keeping true company records and accounts. In Hong Kong, it is an offence under the Prevention of Bribery Ordinance for any employee or agent to solicit or accept an advantage in connection with his work without the permission of the employer or principal. The offerer also commits an offence.

An effective Code should also be able to advise staff or members precisely how they should handle conflict of interest situations, company properties and proprietary information; and should provide channels of complaints and compliance requirements.

THE EFFECTIVE GUARANTEE - SYSTEM CONTROL

Merely introducing a Code of Conduct is no guarantee of high ethical standards unless it is supplemented by a suitably effective system control. Systems must be tightened up and work procedures introduced to provide early warning signals and prevent corruption, fraud and other malpractices such as inflated purchases and contract costs, false overtime and payroll padding, customer poaching, illegal kickback, pilferage and misuse of company proprietary information.

Suitable mechanisms should be created or incorporated into existing organisational structures to ensure compliance with the Code of Conduct, with clearly defined channels of complaint, and reward and punishment measures.

THE FUNDAMENTAL SOLUTION - TRAINING

No system or device can ever prove 100% corruption or fraud proof. It will not even be useful if the people running it are themselves always seeking opportunities for unethical personal gain. The long-term solution is to build an honest organisation culture through deliberate and well planned training and education programmes.

Staff or members should be made aware of the values and principles embodied in the Code of Conduct. They should be advised on how to handle work situations involving corruption, fraud and conflicts of interest through formal training and repeated emphasis by senior management who must ensure consistency throughout all standards and application.

STEPS IN FORMULATING AND IMPLEMENTING CODES OF CONDUCT

• Initiative to formulate a Code of Conduct necessarily comes from top management who should define values and principles for the corporation to be embodied in the Code.
• Employees at all levels, particularly functional managers, should be consulted on the content of the code, with final endorsement from the board or policy making body of the company. Obviously the more people who are involved, the greater the sense of commitment.
• Once formulated, it is essential that the Code be effectively communicated to all parties concerned, both within and outside the company.
• For a Code to be effective, it must be enforced under an open and fair reward and punishment system, with effective channels of complaint.
• Functional or line managers should be made responsible for compliance with the Code by staff under their supervision, with a designated senior officer or committee assigned to coordinate and monitor the overall implementation, and regular review, of the Code.

SERVICES PROVIDED BY THE HONG KONG ETHICS DEVELOPMENT CENTRE

TRAINING

In addition to producing training packages that include videos and handouts to facilitate discussions on corruption and fraud prevention and how to confront ethical dilemmas, the Centre is planning to organise two workshops this year for companies which are interested in developing Corporate Ethics Programme. The first of these will take place in September 1995 and interested parties should contact the Centre on (852) 2587 9812 for further details and enrolment procedures.

It is essential that in the overall strategy of promoting higher ethical standards, young people in their formative years and in the early stages of their work lives are imbued with work ethics, with particular regard to honesty and fair play. During the early part of next year, the Centre will explore the possibility of conducting a substantial territory-wide programme to promote work ethics among young people.

CONSULTANCY

Experienced officers of the Centre are in communication with individual companies and trade and professional bodies in order to assist them to develop ethics programmes catering to individual requirements. They help business organisations introduce tailor-made codes of conduct, advise on systems control and conduct training for staff and members. All services are free, entirely voluntary and kept confidential where necessary.

More than 1,000 business organisations, including trade and professional associations, listed companies and major private companies, have utilised these services in the past year.

PUBLICATIONS

The Centre is producing a series of publications that includes a guidebook on codes of conduct, a handbook on system control and training packages for ethical behaviour. To enhance awareness of the problems of corruption and related fraud, and to impart knowledge on how to recognise early warning signals, a 'Corruption and Fraud - ICAC File' has been produced for distribution to business organisations.

A wide-ranging selection of reference material can be found at the Centre, covering the promotion of business and related ethics, including sample codes of conduct of a variety of trades and professions. Interested parties may visit the Centre to study, and Fax-on-Demand on (852) 2587 9817 is available for catalogues and contents of relevant materials and packages. In order to maintain close links between the Centre and the business community and other interested bodies both locally and overseas, this newsletter will be published on a quarterly basis and will report on the latest developments regarding the promotion of business and related ethics, and will include practical information on how to tackle corruption, fraud and other unethical behaviour.

EARLY WARNING SIGNALS

• The refusal of a posting, even with promotion or the taking of extended leave; regularly staying late in the office when few other people are around.
• Frequent and repeated purchases of small amounts of materials, particularly from the same supplier or group of suppliers; paying with cash.
• Frequent reports of loss of merchandise; use of false credit cards, excessive purchases at discounted or staff prices.
• Exceptionally fast or slow payments or collection schedule; excessive credit facilities; frequent writing off of bad debts and stocks due to damage.

MAJOR FINDINGS OF A SURVEY ON BUSINESS ETHICS, CORRUPTION AND FRAUD

• The top four problem areas of unethical behaviour (comprising more than 80%) among top management are conflict of interest, illegal kickbacks, misuse of company proprietary information and inequitable treatment of suppliers and contractors.
  (Source : Survey on Business Ethics commissioned by the ICAC, March 1994)

• 34% companies that responded experienced fraud during the previous 12 months and in over 30% of the fraud cases the loss was more than $1 million. 70% believed it will become worse.
  (Source : KPMG Peat Marwick Survey on Fraud, August 1994)

• 72.6% of respondents perceived corruption would become worse in the run up to 1997.
  (Source : Public Opinion Survey commissioned by the ICAC, September 1994)

• The levels of ethical standards perceived to be moderate or low by senior management in
  • their own trade or profession : 53.8%
  • the business community in general : 74.4%
  • youth at work : 77.4%
  (source : Survey conducted by Ethics Development Centre, November 1994)

• There is still much confusion over who has the responsibility for manning a system of internal control in individual business, and for preventing and detecting fraud. Just 29% and 22% respectively responded with the correct answer : the whole board.
  (Source : Price Waterhouse Survey on Corporate Governance, January 1995)

Congratulations

Commitment to business ethics is a must if Hong Kong is to maintain its good reputation as an international financial and business centre. Business ethics is both an economic and social issue, and concerted efforts and support from the community are essential.

Herbert LIANG, M.B.E.
President
The Chinese Manufacturers' Association of Hong Kong

The promotion of social morality and the enhancement of ethical standards in Hong Kong lay the foundations for long-term prosperity and stability of the territory. There also provide the prerequisites for Hong Kong's future development. Entrusted with such a momentous mission, the Hong Kong Ethics Development Centre will make concerted efforts to promote higher ethical standards, with the ultimate objective of creating a clean, fair, pleasant and efficient environment for the community of Hong Kong.

HUANG Diyan
Chairman
The Hong Kong Chinese Enterprises Association

High ethical standards are essential for the fair conduct of business throughout the world. The conventions of negotiating and trading that have developed over time are meaningless if a minority break the rules. A level playing field is the only environment in which good business can flourish in such a way that whole communities, rather than small minorities, can benefit from business-led economic growth, making it socially sustainable.

Dr the Hon Raymond K.F. CH'IEN, J.P.
Chairman
Federation of Hong Kong Industries
(Keynote Speaker for Conference on Business Ethics)

The American Chamber of Commerce in Hong Kong strongly supports the establishment of the Hong Kong Ethics Development Centre. This is an important milestone for the business community in Hong Kong and everyone concerned with good ethical behaviour. AmCham endorses the philosophy that good ethics and good business are synonymous. We are very pleased to be associated with the founding of the Ethics Development Centre and remain committed to promoting the highest standards for ethical business practices.

Thomas D. GORMAN
Chairman
The American Chamber of Commerce in Hong Kong

The institution of the Hong Kong Ethics Development Centre becomes an essential instrument in addressing the issue of ethical conduct for the promotion of a full enterprises economy. Ethical conduct is a necessary asset for all organisations to have. Without it, corporations may face a poor reputation which directly impacts market value and long term revenue. Unfortunately, there is a serious threat of illegal and unethical conduct in every business, in every country. The Hong Kong Ethics Development Centre's work will help to minimize this threat through strong leadership and effective communication that support proper conduct throughout the global marketplace.

Gary EDWARDS
President
Ethics Resource Center, Inc., USA
(Keynote Speaker for Conference on Business Ethics)

Ethics lays the foundation for business development.

ZHANG Xuwu
Executive Vice-chairman
All-China Federation of Industry & Commerce, PRC
(Keynote Speaker for Conference on Business Ethics)

On behalf of the Chinese General Chamber of Commerce, I would like to express our warmest congratulations to the Hong Kong Ethics Development Centre for its official opening today.

Nowadays, the promotion of fair play and good conduct has become the social trend. It is essential for Hong Kong to uphold a high standard of ethical conduct if she is to maintain her status as a major international business and financial centre. The city will definitely suffer if she evinces enthusiasm in business but is hesitant or self-satisfied in promoting business ethics. The establishment of the Hong Kong Ethics Development Centre is a pledge to the world that Hong Kong is determined to uphold high ethical standards and to maintain a clean and fair business environment so as to boost the confidence of overseas investors in Hong Kong.

The Chinese General Chamber of Commerce has always been committed to the raising of ethical standards in Hong Kong. We will continue to give our fullest support to the work of the Hong Kong Ethics Development Centre in the days to come.

I believe, with the support of various sectors of the community, the Hong Kong Ethics Development Centre will make the city a pleasurable and successful place.

Dr TSANG Hin-chi
Chairman
The Chinese General Chamber of Commerce

In a rapidly changing environment as Hong Kong moves forward towards the 21st century, we have a duty to ensure the foundation of Hong Kong's successful business community is not undermined by prepared to cut comers for quick returns on their investment. The establishment of the Hong Kong Ethics Development Centre is, therefore, a timely venture.

As a founder member of the Advisory Committee of the Centre, the Hong Kong General Chamber of Commerce anticipates that the Centre will address the need to promote higher business ethical standards within the community and extend this to Hong Kong's major trading partners.

One of the means for the Centre to impart practical knowledge is the publication of a newsletter. In this respect, on behalf of the Chamber, I congratulate the Centre on the inaugural issue of Ethics in Practice.

The Chamber is confident that the Centre will provide sound advice on codes of conduct and will educate the territory's budding businessmen on the importance of high business ethical standard.

William FUNG, O.B.E., J.P.
Chairman
The Hong Kong General Chamber of Commerce

In his 1994 Policy Address, the Governor announced that the ICAC would work together with leading chambers of commerce to set up a Hong Kong Ethics Development Centre to promote a high standard of business ethics. We in the ICAC see the promotion of business ethics as a natural continuation of our progress in the past 20 years in fighting corruption. This joint initiative is based on the philosophy that integrity is one of the corner-stones of prosperity in the business world. We believe that this philosophy has been a major factor in Hong Kong's emergence as one of the world's leading financial and business centres.

The opening of the Hong Kong Ethics Development Centre is a milestone on the road to promoting high ethical standards. The six major chambers of commerce are giving the centre their full support and will be steering its work through the Hong Kong Ethics Development Advisory Committee. The centre will be launching ethics development programmes and establishing links with similar institutes, local and overseas, with the aim of spreading the message.

With the support of the business community, the centre will play a vital role in maintaining and strengthening Hong Kong as a place where business is straight and fair.

B.E.D. de SPEVILLE
Commissioner
Independent Commission Against Corruption