Business Ethics:A New Style of Management

and Investment

Professor David M. Chen003924@mail.fju.edu.tw

Graduate Institute of FinanceFu Jen Catholic University

Spring 2009

Purposes

To appreciate the essential of Business Ethics through five main faucets1. Recognizing socially acceptable business

conduct from the global perspectives2. Embedding good business in treating people

nice and fair3. Reengineering corporate image4. Enhancing professional ethics5. Investing in sustainable and socially

responsible corporations

Various global initiatives in areas related to corporate social responsibility (CSR) and their respective implementation guidance form the core of course materials.

Case: Social, Environmental and Related Reporting of Inditex Group, 2006

The course will be held in EnglishStudents are expected to communicate and present

case studies or research reports in English (19 in total). English proficiency is emphasized as another main product

of the course.

Content1. Business Ethics as a Field of Study

Code of Ethics (Guardsmark-ethics06)Code of Conduct (PwC-conduct05)

2. Caux Round Table Principles for BusinessNissan’s Approach to CSR (Nissan’sApproachCSR)

3. Ethics Resource CenterNational Business Ethics Survey 2005 (NBES-05)Critical Elements of Organization Ethical Culture 2006

(ERC-OrgEthicalCuture06)4. Environmental Management Systems

ISO 14000RoHS

5. Working environment SA8000

The Switcher-Prem Group Experience in India (SwitcherPremIndia-02) SA8000: Tool to Improve Quality of Life (ToolImporveQualityLife-02)

6. Business Principles for Countering Bribery Transparency International (CorruptionPerceptionsIndex-06,

GlobalCorruptionBarometer-06, BribePayersIndex-06) (ICC-CombatBribery)

7. NYSE/NASD IPO Advisory Committee NYSE Hearing (StockRatingResearchConflict, GuaranteedRepurchase,

PriceInfluencing) Enron

SEC report (SEC-Enron-02) TIAA CREF testimony (TIAA-CREF-Enron-02)

8. Policy for Managing Conflicts of Interest in Relation to Investment Research

Morgan Stanley Investment research report disclosure requirements (GoldmanSach-

Huandian)

9. Dow Jones Sustainable Index (NewInvestmentStyle) World Resources Institute (ChangingDrivers, Oil&Gas)

10. Socially responsible investing (SRI) Ethical Banking Microcredit

11. Code of conduct for credit rating agency (IOSCOCRA)

Business Ethics as a FieldCase

A newly hired salesman on trainingHis trainer is used to making up the differences in

restaurant and golf bills for procurement agents (common courtesy?).

• Being asked to add the extra expenses to cost of other items since no line on the form for this (yet the numbers don’t add up)*.

• Learned the differences between working directly with the federal government procurement agents and the companies with which his firm subcontracted (relay information).

RegulationThe Procurement Integrity Section of the Office of Federal

Procurement Policy Act and the Federal Acquisition Regulation

• Section 27(a)(2) forbidding agents to “offer, give, or promise to offer or give, directly or indirectly, any money, gratuity, or other thing of value to any procurement officials of such agency; or (3) solicit or obtain, directly or indirectly, from any officer or employee of such agency, prior to the award of a contract any proprietary or source selection information regarding such procurement.”*

Certificate of Procurement Integrity signed by procurement agents

Recognize & deal with complex issuesPublic outrage about deception and fraud

Enron, WorldCom, Arthur Andersen, Tyco• A crisis of confidence and trust: accounting fraud, insider trading,

falsifying documents, deceptive advertising, defective products, bribery, & employee theft.

• Integrate business ethics and corporate responsibility into all business decisions.

Business ethicsDeals with questions about whether specific business

practices are acceptable.• Should a salesperson omit facts about a product’s poor safety

record?• Should an accountant report inaccuracy discovered in an audit?

By its nature, the field of business ethics is controversial and there is no universally accepted approach for resolving its issues.

• The goal is to help one understand and use one’s current values and convictions when making business decisions so that you think about the effects of those decisions on business and society.*

• Neither to moralize by telling you what is right or wrong on specific situation, nor to prescribe any one philosophy or process as best or most ethical.

• Focus on how organizational ethical decisions are made and on ways companies can improve their ethical conduct.

DefinitionEthics

Tayor• An inquiry into nature and grounds of morality where the term

morality is taken to mean moral judgments, standards and rules of conduct.*

The American Heritage Dictionary• The study of the general nature of morals and of specific moral

choices; moral philosophy; and the rules or standards governing the conduct of the members of a profession.

Distinction from ordinary decisions• Alderson: Lies in “the point where the accepted rules no longer

serve, and the decision maker is faced with the responsibility for weighing values and reaching a judgment in a situation which is not quite the same as before.”

• The amount of emphasis decision makers place on their own values relative to accepted practices within their company.

Business ethicsComprises the principles and standards that guide

behavior in the world of business.• Profit not realized through misconduct.• Balance the desires for profits against the needs and desires

of society.• Right or wrong, ethical or unethical, is often determined by

investors, employees, customers, interest groups, the legal system, and the community (they are not necessarily “right”, but their judgments influence society’s acceptance).

• Hence, it is important to understand business ethics and recognize ethical issues.

Reasons for studyingBusiness ethics is not merely an extension of an

individual’s own personal ethics.• An individual’s personal values and moral philosophies are

only one factor in the ethical decision-making process.• Normally a business does not establish rules or policies on

personal ethical issues such as sex and the use of alcohol outside the workplace (may even be illegal).

• Only when a person’s preferences or values influence job performance do an individual’s ethics play a major role.

• A high level of personal moral development may not prevent an individual from violating the law in a complicated organizational context.*

• E.g., there is considerable debate over what constitute antitrust, deceptive advertising, and violation of Foreign Corrupt Practices Act, even experienced lawyers debate the exact meaning.*

• Because organizations are culturally diverse and personal values must be respected, ensuring collective agreement on organizational ethics is as vital as any other effort.

• Many business ethics decisions are close calls.• Studying business ethics will help to identify ethical issues

when they arise and recognize the approaches available for resolving them.

• Learn more about the ethical decision-making process and about ways to promote ethical behavior within the organization.

• Begin to understand how to cope with conflicts between personal values and those of the organization.

Development Before 1960

The 1920s• The Progressive Movement attempted to provide citizens with a

“living wage,” defined as income sufficient for education, recreation, health, and retirement.*

• Businesses were asked to check unwarranted price increases and any other practices that would hurt a family’s “living wage.”

The 1930s• Came the New Deal which specifically blamed business for the

country’s economic woes.• Business was asked to work more closely with the government to

raise family income.• Check whether you can rent the movie “The Reds” from any store

or buy it.

The 1950s• The New Deal had evolved into the Fair Deal by Harry S.

Truman.• This program defined such matters as civil rights and

environmental responsibility as ethical issues that businesses had to address.

Overall • Ethical issues related to business were often discussed within the

domain of theology or philosophy.• Religious leaders raised questions about fair wages, labor

practices, and the morality of capitalism. • Catholic colleges and universities began to offer courses in social

ethics. • Each religion applied its moral concepts not only to business but

also to government, politics, the family, personal life, and all other aspects of life.

The 1960sAmerican society turned to causes.

• An antibusiness attitude developed as many critics attacked the so called military-industrial complex.

• The decay of inner cities and the growth of ecological problems such as pollution and the disposal of toxic and nuclear wastes.

• The rise of consumerism (Consumers’ Bill of Rights): John F. Kennedy delivered a “Special Message on Protecting the Consumer Interest,” which outlined four basic consumer rights: safety, informed, choose, and to be heard.

• Ralph Nader’s Unsafe at Any Speed, 1965, which criticized the auto industry as a whole, and GM in particular, for putting profit and style ahead of lives and safety.

• Consumer activist also helped secure the passage of several consumer protection laws, such as the Wholesome Meat Act of 1967, the Radiation Control for Health and Safety Act of 1968, the Clean Water Act of 1972,* and the Toxic Substance Act of 1976.

• Lyndon B. Johnson and the Great Society (national capitalism): the U.S. government’s responsibility was to provide the citizen with some degree of economic stability, equality, and social justice. Activities that could destabilize the economy or discriminate against any class of citizens began to be viewed as unethical and unlawful.

The 1970sBusiness ethics began to develop as a field of study.

• Business professors began to teach and write about corporate social responsibility: organization’s obligation to maximize its positive impact on stakeholders and to minimize its negative impact.

• Philosophers applied ethical theory and philosophical analysis to structure the discipline of business ethics.

• Companies became more concerned with their public images.• The Nixon administration’s Watergate scandal focused

public interest on the importance of ethics in government.

• The Foreign Corrupt Practices Act was passed during Jimmy Carter’s administration: illegal for U.S. businesses to bribe government officials of other countries.*

• A number of major ethical issues had emerged, such as bribery, deceptive advertising, price collusion, product safety, and the environment.

The 1980sBusiness ethics acknowledged as a field of study.

• Business ethics organizations grew to include thousands of members.

• Many of leading companies established ethics and social policy committees.

• The Defense Industry Initiative on Business Ethics and Conduct (DII)** was developed to guide corporate support for ethical conduct (18 defense contractors drafted principles in 1986).

Six principles1. DII supports codes of conduct and their widespread

distribution. Must be understandable and provide details on more substantive areas.

2. Member companies (50) are expected to provide ethics training for their employees as well as continuous support between training periods.

3. Defense contractors must create an open atmosphere in which employees feel comfortable reporting violations without fear of retribution.

4. Companies need to perform extensive internal audits and develop effective internal reporting and voluntary disclosure plans.

5. DII insists that member companies preserve the integrity of the defense industry.

6. Member companies must adopt a philosophy of public accountability.

Reagan/Bush eras• Self-regulation, rather than regulation by

government, was in the public’s interest.• Many tariffs and trade barriers were lifted, and

business merged and divested within an increasingly global atmosphere.

• Corporations that once were nationally based began operating internationally and found themselves mired in value structures where accepted rules of business behavior no longer applied.

The 1990sBill Clinton continued to support self-regulation

and free trade.• Unprecedented government action to deal with health-

related social issues such as teenage smoking (restricting cigarette advertising, banning vending machine sales, and ending the use of cigarette logos in connection with sports events).

• SEC Chairman Arthur Levitt unsuccessfully pushed for many reforms that could have prevented the accounting ethics scandals.

Federal Sentencing Guidelines for Organizations*• FSGO approved by Congress in Nov. 91.• Based on the six principles of the DII.

• Codifying into law incentives to reward organizations for taking action to prevent misconduct, such as developing effective internal legal and ethical compliance programs.

• Mitigate penalties for businesses that strive to root out misconduct and establish high ethical and legal standards.

• If a company lacks an effective ethical compliance program and its employees violate the law, it can incur severe penalties (carrot-and-stick).

• Focus on firms taking action to prevent and detect business misconduct in cooperation with government regulation.*

• A mechanical approach using legislative logic will not suffice to avert serious penalties. Must develop corporate value, enforces its code of ethics, and strive to prevent misconduct.

The twenty-first centuryFalsifying financial reports and reaping questionable

benefits had become part of the culture of many companies.

• Dennis Kozlowski, former CEO of Tyco, was indicted on 38 counts of misappropriating $170m of Tyco funds and netting $430m from improper sales of stock.

– Allegedly used the funds to purchase many personal luxuries, including a $15m vintage yacht and a $3.9m Renoir painting and to throw a $2m party for his wife’s birthday.

• Arthur Andersen was convicted of obstructing justice after shredding documents related to its role as Enron’s auditor.

– Also faced questions surrounding its audits of other companies that were charged with employing questionable accounting practices, including Halliburton, WorldCom, Global Crossing, Dynegy, Qwest, and Sunbeam.

Congress passed the Sarbanes-Oxley Act• in 2002, the most far-reaching change in organizational

control and accounting regulations since the Securities and Exchange Act of 1934.

• Made securities fraud a criminal offense and stiffened penalties for corporate fraud.

• Created an accounting oversight board that requires corporations to establish codes of ethics for financial reporting and to develop greater transparency in financial reports to investors and other interested parties.

• Requires top executives to sign off on financial reports (risk fines and long jail sentences if misrepresented).

• Requires executives to disclose stock sales immediately and prohibits companies from giving loans to top managers.

Current trend• From legally based ethical initiatives to cultural or

integrity-based initiatives that make ethics a part of core organizational values.*

• NYSE requires all member companies to have code of ethics.

• Many firms now have ethics officers, and some firms, including UPS, Raytheon, and Baxter International, take ethics seriously enough to have their ethic officers report directly to senior management or boards of directors.

• The growth of the Ethic Officer Association (EOA) to 850 members, representing 420 companies, highlights the increasing importance of this position (considering launching an ethics certification program).

Global development• Businesses are working more closely together to

establish standards of acceptable behavior.• Some companies will not do business with

organizations that do not support and abide by these standards.

• The Caux Round Table is a group of businesses, political leaders, and concerned interest groups that desire responsible behavior in the global community.

BenefitsBuilding an ethical reputation among employees,

customers, and the general public pays off.Increased efficiency in daily operation, greater

employee commitment, increased investor willingness to entrust funds, improved customer trust and satisfaction, and better financial performance.*

• Many believe a particular course of action is simply the right thing to do as a responsible member of society (feeling good is also a good business).

Employee commitment• Comes from employees who believe their future is tied to that

of the organization and their willingness to make personal sacrifices for it.

• Safe work environment, competitive salaries, and the fulfillment of all contractual obligations toward employees.

• Work-family programs and stock ownership plans to community service.*

• Productivity and teamwork: share a common vision of trust within and between departments; make individuals more willing to rely and act on the decisions and actions of their coworkers.

• Trusting relationships (honesty and respect) contribute to greater decision-making efficiencies.

Investor loyalty• Social responsible mutual funds and asset management

firms.• Investors recognize that an ethical climate provides a

foundation for efficiency, productivity, and profits. Negative publicity, lawsuits, and fines can lower stock prices, diminish customer loyalty, and threaten a company’s long-term viability.*

Customer satisfaction• Almost 60% of people focus on social responsibility ahead

of brand reputation or financial factors when forming impressions of companies (boycott the company).

• May avoid the products of companies that are perceived as treating their employees unfairly (sweatshop and abuses in subcontracting, SA 8000 industry code of conduct).

• When an organization has a strong ethical environment, it usually focuses on the core value of placing customers’ interest first.

• Companies convicted of misconduct (failure to act responsibly toward various stakeholders) 　experience a significantly lower return on assets and on sales.

Ethics Resource Center, ERC (reading)www.ethics.org

National Business Ethics Survey, NBES• "Ethics and compliance programs can and do make a difference.

However, their impact is related to the culture in which they are situated." 2005 NBES Summary

Misconduct: any behavior that violates the law or organizational ethics standards.

• 21% observed abusive or intimidating behavior towards employees.

• 19% observed lying to employees, customers, vendors, or the public.

• 18% observed a situation that places employee interests over organizational interests.

• 16% observed violations of safety regulations.

• 16% observed misreporting of actual time worked. • 12% observed discrimination on the basis of race, color,

gender, age or similar categories. • 11% observed stealing or theft. • 9% observed sexual harassment.

The six elements of a formal ethics and compliance program are based upon suggestion by the FSGO

1.Written standards of conduct 2.Training on ethics 3.Mechanisms to seek ethics advice or information 4.Means to report misconduct anonymously5.Discipline of employees who violate ethical standards 6.Evaluation of employees performance based on ethical

conduct 

The NBES defines risk factors as: 1. Employee's exposure to circumstances that invite

misconduct. 2. Employee's recognition of those situations as misconduct.3. Pressure to compromise the standards of the organization.4. Preparedness of employees to respond to these situations.

www.workingvalues.com www.complianceweek.com www.ama-assn.org www.aacsb.edu

Every Guardsmark crest (reading)is emblazoned with our company core values: Truth,

Courage, & Judgment.Our business success and ethical commitment are

indivisible.• Guardsmark was founded on the pillars of quality, excellence,

diversity, opportunity, and doing the right thing; from day one, we wanted to work with individuals who had intellect, work ethic, and honesty.

• Every single member of our organization—from the security officer to the corporate executive—is committed to demonstrating our values and principles at all times.

• Through our Code of Ethics, the people of Guardsmark pledge to work always “to strengthen our weaknesses and build on our strengths” and to “lead by example.”

The Guardsmark Code of Ethics• All Guardsmark employees subscribe to our comprehensive

Code of Ethics, which is a product of top-down commitment and bottom-up involvement. First developed in 1980, this living document is revised annually by the entire workforce.

• The Code sets impeccable standards of behavior for employee conduct across:

» Employee relations » Our commitment to excellence » Professionalism in the industry » Employee wellness » Vendor relations » Community and government relations » Industry commitment » Information technology

Ensuring understanding by employees, visitors and vendors

• Our code appears in our employment application, where it must be signed by every applicant. It is always available to our employees as a stand-alone document and promoted in:

» Our orientation handbook » Periodic educational publications » Employee manuals » Placards in all offices

• To make the principles of this important document accessible to each Guardsmark team member, Guardsmark maintains an ethics committee and a dedicated ethics officer who can be reached through a toll-free number. We take every ethics concern or issue seriously and provide assistance about applying principles to any given situation.

Understand our ethical foundation• A true understanding of Guardsmark's commitment can

only come from reviewing our Code of Ethics in its entirety.• Guardsmark exceeds the requirements of the Sarbanes-

Oxley Act of 2002 that mandates the disclosure by public companies of whether they have adopted written codes of ethics to deter wrongdoing and to promote honest and ethical conduct.

• Although a private company such as Guardsmark is not subject to the requirements of this bill, the organization publicly releases its Code of Ethics, which was established in 1980 and is rewritten annually with input from its employees and applies to all team members, without exception.

• www.guardsmark.com

PricewaterhouseCoopers (reading) is one of the world’s pre-eminent professional

services organisations. As professional advisers we help our clients solve

complex business problems and aim to enhance their ability to build value, manage risk and improve performance.

• As business advisors we play a significant role in the operation of the world’s capital markets.

• We take pride in the fact that our services add value by helping to improve transparency, trust and consistency of business processes.

• In order to succeed, we must grow and develop, both as individuals and as a business.

• Our core values of Excellence, Teamwork and Leadership help us to achieve this growth.

• As a result, we also have a Code of Conduct for all PwC people and firms.

• This Code is based on our values and it takes them to the next level - demonstrating our values in action.

• The Code also provides a frame of reference for PwC firms to establish more specific supplements to address territorial issues.

• www.pwc.com

Ethics Statements

One of BellSouth's greatest assets is our reputation.  One of the key factors that contribute to our

reputation and good name is our long-standing tradition of ethics -- a tradition which has built solid trust between us and our customers, our employees, our shareholders, and our communities.  As we work to maximize shareholder value, we

will not waver in maintaining our tradition of ethics.

• BellSouth's ethical culture is rooted in our values.  It is these values that guide our actions and relationships with each other, with our customers, and with our investors.

• While our values describe who we are and what we are about, it is our actions that make these values meaningful. Every action we take shapes the ethical character of BellSouth. That character is at the heart of our reputation and ultimately sets us apart in the marketplace.

• We understand each individual employee's actions contribute to the trust we have earned.  We offer our employees a variety of resources to help them make ethical decisions and maintain the highest level of integrity. 

• BellSouth's Office of Ethics & Compliance is available to answer questions concerning ethics, or take reports of possible ethical violations. 

• Employees and other concerned individuals can contact Ethics by completing this online form or by calling the Ethicsline at 1-800-664-4231.

• Both these methods are available 24 hours a day, 7 days a week  You may remain anonymous if you prefer, but this sometimes limits the investigation due to insufficient information.

• www.ethics.bellsouth.com

Texas Instruments Employees placed their personal imprint on the

ethics of the company, more than 60 years ago.They chose to conduct themselves to the highest

standards of personal integrity, and they demanded the same of others.

• Today, those principles and values still permeate all of TI's actions and decisions.

• As TI grew, management recognized a need to formalize and communicate company standards.

• In 1961, TI published its first written code of ethics, a booklet titled "Ethics in the Business of TI."

• Though it has been revised several times to reflect changes in the business environment, the basic message contained in that first booklet has never changed, nor has TI's emphasis on maintaining a track record of ethics and integrity.

• About 20 years ago, an increasing number of difficult issues, challenges and close calls in modern business were recognized, but clear choices of action did not always exist.

• Employees and their business associates needed to better understand TI's expectations and where they could go for help if they had a question or a concern.

• TI believes maintaining the highest ethical standards requires a partnership between employees and employers.

• The employer proactively supports employees by communicating values and giving individual guidance, while empowered employees participate actively in problem-solving.

• In 1987, TI decided to actively support employees by establishing a TI Ethics Office and appointing a TI Ethics Director.

• The TI Ethics Office has three primary functions: » Ensure that business policies and practices continue

to be aligned with ethical principles; » Clearly communicate ethical expectations; & » Provide multiple channels for feedback through

which people can ask questions, voice concerns and seek resolution to ethical issues.

• A reputation and track record for ethics and integrity is vital for establishing the trust that is the basis for all successful business relationships. All people associated with TI—employees, customers, suppliers, governments and communities—need to understand and appreciate the importance of these principles.

• TI has strong documented requirements for ethical business practices:

» TI Standard Policies and Procedures » The TI Commitment » "The Values and Ethics of TI" booklet

• The direction is clear, and the message is firmly and credibly supported by our highest levels of management and by our Board of Directors.

• www.ti.com

HCA announced the developmentof the Ethics, Compliance and Corporate

Responsibility Department in Oct. 1997.Alan Yuspeh was named Senior Vice President for Ethics,

Compliance and Corporate Responsibility.  • The department oversees the development and implementation

of a comprehensive corporate Ethics and Compliance Program.1.Articulating standards of compliance and ethical conduct

through a Code of Conduct and a series of company Policies and Procedures.

2.Creating awareness of these standards among everyone in the company through high quality ethics training, compliance training, and other ongoing communication efforts.

3. Providing a means to report exceptions (i.e., possible misconduct). We maintain an Ethics Line (1-800-455-1996) to receive reports from anyone who is aware of a violation of our Code of Conduct or Policies and Procedures.  This line is answered at all times.

4. Monitoring and auditing performance in areas of compliance risk to ensure that established policies and procedures are being followed and are effective.

5. Establishing organizational supports, including necessary committees, responsible executives and facility ethics and compliance officers, for this entire effort.

6. Overseeing implementation of and adherence to a Corporate Integrity Agreement.*

7. And undertaking other efforts, such as clinical ethics and pastoral care services.

hcahealthcare.com

Starbucks: It’s the way we do business Contributing positively to our communities and

environment is so importantthat it’s a guiding principle of our mission statement.

• We jointly fulfill this commitment with partners (employees), at all levels of the company, by getting involved together to help build stronger communities and conserve natural resources.

In our communities Starbucks has many community building programs

• that help us be good neighbors and contribute positively to the communities where our partners (employees) and customers live, work and play.

• We encourage and reward volunteerism and participation in organizations that are important to our partners, including local schools, literacy programs, walk-a-thons and Earth Day activities.

Environmental Affairs• Starbucks integrates policies and programs throughout all aspects

of operations to minimize our environmental impact. • From promoting conservation in coffee growing countries to

recycling, Starbucks is committed to contributing positively to the environment.

Supplier Diversity

• By working with qualified diverse suppliers, Starbucks has regularly met and exceeded its goals for purchases with women and minority-owned suppliers. Embracing diversity is our foundation for providing a world-class supplier program that supports our Mission Statement.

Mission StatementEstablish Starbucks as the premier purveyor of the finest

coffee in the world while maintaining our uncompromising principles while we grow. Six guiding principles:

1.Provide a great work environment and treat each other with respect and dignity.

2.Embrace diversity as an essential component in the way we do business.

3.Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee.

4.Develop enthusiastically satisfied customers all of the time.5.Contribute positively to our communities and our environment.6.Recognize that profitability is essential to our future success.

Committed to a role of environmental leadership in all facets of our business.

1.Understanding of environmental issues and sharing information with our partners.

2.Developing innovative and flexible solutions to bring about change.

3.Striving to buy, sell and use environmentally friendly products. 4.Recognizing that fiscal responsibility is essential to our

environmental future. 5.Instilling environmental responsibility as a corporate value. 6.Measuring and monitoring our progress for each project. 7.Encouraging all partners to share in our mission.

www.starbucks.com

The Caux Round Table Business Principles of Ethics

IntroductionCRT principles are rooted in two basic ethical

ideals: kyosei and human dignity.The Japanese concept of kyosei means

• living & working together for the common good enabling cooperation and mutual prosperity to coexist with healthy and fair competition.

• “Human dignity” refers to the sacredness or value of each person as an end, not simply as a mean to the fulfillment of others' purposes or even majority prescription.

• The document owes a substantial debt to The Minnesota Principles, a statement of business behavior developed by the Minnesota Center for Corporate Responsibility. The Center hosted and chaired the drafting committee, which included Japanese, European, and United States representatives.

• CRT principles offer a foundation for dialogue and action for business leaders worldwide and affirm the necessity for moral values in business decision-making. Without moral values, stable business relationships and a sustainable world community are impossible. 

CRT BusinessPrinciples of Ethics

Responsibilities

Economic & social impact

Business behavior

Respect for rules

Support formultilateral trade

Respect for theenvironment

Avoidance of illicit operations

Customers

Employees

Owner/investors

Suppliers

Competitors

Communities

Principle 1. The responsibilitiesBeyond shareholders toward stakeholders

• The value of a business to society is the wealth and employment it creates and the marketable products and services it provides to consumers at a reasonable price commensurate with quality.

• To create such value, a business must maintain its own economic health and viability, but survival is not a sufficient goal.

• Businesses have a role to play in improving the lives of all their customers, employees, and shareholders by sharing with them the wealth they have created.

• Suppliers and competitors as well should expect businesses to honor their obligations in a spirit of honesty and fairness.

• As responsible citizens of local, national, regional, and global communities in which they operate, businesses share a part in shaping the future of those communities.

Principle 2. The economic and social impactToward innovation, justice, and world community

• Businesses established in foreign countries to develop, produce, or sell should also contribute to the social advancement of those countries by creating productive employment and helping to raise the purchasing power of their citizen.

• Businesses also should contribute to human rights, education, welfare, and vitalization of the countries in which they operate.

• Businesses should contribute to economic and social development not only in the countries in which they operate, but also in the world community at large, through effective and prudent use of resources, free and fair competition, and emphasis upon innovation in technology, production methods, marketing, and communications.

Principle 3. Business behaviorBeyond the letter of law toward a spirit of trust

• Accepting the legitimacy of trade secrets, businesses should recognize that sincerity, candor, truthfulness, the keeping of promises, and transparency contribute not only to their own credibility and stability but also to the smoothness and efficiency of business transactions, particularly on the international level.

Principle 4. Respect for rulesTo avoid trade friction

• and to promote free trade, equal conditions for competition, and fair and equitable treatment for all participants, business should respect international and domestic rules.

• In addition, they should recognize that some behavior, although legal, may still have adverse consequences.

Principle 5. Support for multilateral tradeShould support the multilateral trade systems

• of the GATT/World Trade Organization and similar international agreements.

• They should cooperate in efforts to promote the progressive and judicious liberalization of trade, and to relax those domestic measures that unreasonably hinder global commerce, while giving due respect to national policy objectives.

Principle 6. Respect for the environmentShould protect and, where possible,

• improve the environment, promote sustainable development, and prevent the wasteful use of natural resources.

Principle 7. Avoidance of illicit operationsShould not participate in or condone bribery,

• money laundering, or other corrupt practices; indeed, should seek cooperation with others to eliminate them.

• Should not trade in arms or other materials used for terrorist activities, drug traffic, or other organized crime.

Principle 8. CustomersWe believe in treating all customers with dignity

• irrespective of whether they purchase our products and services directly from us or otherwise acquire them in the market.

We therefore have a responsibility to• provide our customers with the highest quality products and

services consistent with their requirements;• treat our customers fairly in all aspects of our business transactions,

including a high level of service and remedies for their dissatisfaction;

• make every effort to ensure that the health and safety of our customers, as well as the quality of their environment, will be sustained or enhanced by our products and services;

• assure respect for human dignity in products offered, marketing, and advertising; and

• respect the dignity of the culture of our customers.Principle 9. Employees

We believe in the dignity of every employee• and in taking employee interest seriously.

We therefore have a responsibility to• provide jobs and compensation that improve workers’ living

conditions;• provide working conditions that respect each employee’s health and

dignity;• be honest in communications with employees and open in sharing

information, limited only by legal and competitive restrains;• listen to and, where possible, act on employee suggestions, ideas,

requests, and complains;• engage in good faith negotiations when conflict arises;• avoid discriminatory practices and guarantee equal treatment and

opportunity in areas such as gender, age, race, and religion;• promote in the business itself the employment of differently abled

people in places of work where they can be genuinely useful;

• protect employees from avoidable injury and illness in the workplace;

• encourage and assist employees in developing relevant and transferable skills and knowledge; and

• be sensitive to serious unemployment problems frequently associated with business decisions, and work with governments, employee groups, other agencies and each other in addressing these dislocations.

Principle 10. Owners/investorsWe believe in honoring the trust

• our investors place in us.We therefore have a responsibility to

• apply professional and diligent management in order to secure a fair and competitive return on our owners’ investment;

• conserve, protect, and increase the owners/investors’ assets;

• disclose relevant information to owners/investors subject only to legal requirements and competitive constrains; and

• respect owners/investors’ requests, suggestions, complains, and formal resolutions.

Principle 11. SuppliersOur relationship with suppliers

• and subcontractors must be based on mutual respect.We therefore have a responsibility to

• seek fairness and truthfulness in all of our activities, including pricing, licensing, and rights to sell;

• ensure that our business activities are free from coercion and unnecessary litigation;

• foster long-term stability in the supplier relationship in return for value, quality, competitiveness, and reliability;

• share information with suppliers and integrate them into our planning processes;

• pay suppliers on time and in accordance with agreed terms of trade; and

• seek, encourage, and prefer suppliers and subcontractors whose employment practices respect human dignity.

Principle 12. CompetitorsWe believe that fair economic competition

• is one of the basic requirement for increasing the wealth of nations and, ultimately, for making possible the just distribution of goods and services.

We therefore have a responsibility to• foster open markets for trade and investments;• promote competitive behavior and demonstrates mutual respect

among competitors;

• refrain from either seeking or participating in questionable payments of favors to secure competitive advantages;

• respect both tangible and intellectual property rights; and• refuse to acquire commercial information by dishonest or

unethical means, such as industrial espionage.Principle 13. Communities

We believe that as global corporate citizens, • we can contribute to such forces of reform and human

rights as are at work in the communities in which we operate.

We therefore have a responsibility to• respect human rights and democratic institutions, and

promote them wherever practicable;

• recognize government’s legitimate obligation to the society at large and support public policies and practices that promote human development through harmonious relations between business and other segments of society;

• collaborate with those forces in the community dedicated to raising standards of health, education, workplace safety, and economic well-being;

• promote and stimulate sustainable development and play a leading role in preserving and enhancing the physical environment and conserving the earth’s resources;

• support peace, security, diversity, and social integration;• respect the integrity of local culture; and• be a good corporate citizen through charitable donations,

educational and cultural contributions, and employee participation in community and civic affairs.

ISO 14000What is it?

International Organization for Standardization (ISO)ISO 9000 series

• International standards dealing with quality management systems.

ISO 14000 series• Environmental management systems.• Finalized in September 1996.• The key to a successful ISO 14001 EMS is having

documented procedures that are implemented, maintained, monitored, reviewed, and corrected.

• Specifies requirements for establishing an environmental policy, determining environmental aspects & impacts of products/activities/services, planning environmental objectives & measurable targets, implementation & operation of programs to meet objectives & targets, checking & corrective action, and management review.

Why is the concern?May become a contractual requirement of customers in

both the U.S. and the EC.• It is a continuation of the ISO-9000, may eventually become a

requirement for obtaining ISO-9001 recertification.• It is a logical next step because it is very similar to ISO-9001

and the principles of TQM.• The U.S. EPA may provide incentives under its Common

Sense Initiative (CSI) programs to benefit companies certified.

What is the benefit?Help remain competitive

• Competitors, customers and suppliers are seeking registration.

• Identify areas for reduction in energy and other resource consumption, reduce environmental liability & risk, help to maintain consistent compliance with legislative & regulatory requirements, benefit from regulatory incentives, prevent pollution & reduce waste, response to pressure from customers & shareholders, improve community goodwill, profit in the market for green products, response to insurance company pressure, and demonstrate commitment to high quality.

EPA GuidanceIn Enforcement Settlements

EMS as injunctive reliefto return violators to compliance

• and minimize or eliminate the potential for repeat violations by addressing the root causes of noncompliance.

• Where EPA determines that the root cause of a defendant’s or respondent’s violations is the absence of a systematic approach to identifying, understanding, and managing the regulated entity’s compliance with applicable environmental requirements.

• Where specific elements or requirements common to EMSs are independently required by law or regulation, such elements/ requirements should be sought as injunctive relief whether or not a compliance-focused EMS, per se, is sought.

Regulatory requirements• Clean Water Act, Clean Air Act, Resource Conservation and

Recovery Act.• 12 Elements of Compliance-Focused Environmental

Management System (CFEMS):1. An environmental policy with an express statement of

management’s intent to provide adequate EMS personnel and resources.

2. Processes and monitoring to ensure sustained compliance.3. Written targets, objectives, and action plans, for each

organizational subunit, to achieve and maintain compliance with all environmental requirements.

4. A mandatory pollution prevention program.5. A program for ongoing community education and involvement in

the environmental aspects of the defendants’ operations.6. Procedures for investigating and promptly correcting violations

and their root causes.7. Ongoing evaluation of facility compliance, including periodic

compliance audits by independent 3rd party auditors. EMSs as Supplemental Environmental Projects (SEPs)

for small businesses and state and local governments• EMSs that meet the SEP Policy criteria are eligible for penalty

mitigation credit as “Other Types of Projects” without advance approval.

• The SEP Policy, and federal law, require SEPs to be “supplemental” projects that the violators are “not otherwise legally required to perform.”

• The SEP Policy’s “environmentally beneficial projects” and “public benefits” SEP criteria can generally be satisfied when the terms of settlement require the violators to implement their EMSs for at least one full EMS cycle, identify and report performance results on two or more EMS targets and objectives promoting beyond-compliance results with public benefits, ensure that issues and priorities of concern to the communities in which the facilities are located are identified and considered, and submit to EPA SEP Completion Reports describing what the violators have done to develop, implement, and act on their EMSs.

• SEP credit should be extended only to EMS expenditures that produce significant benefits accruing primarily to the public.

• EPA personnel have the discretion to calculate a settlement penalty that reflects relevant actions by violators. With respect to EMSs, the range of possible scenarios where a violator’s actions may be considered in adjusting a penalty downward from the preliminary penalty amount include where a company discovers a violation through an existing EMS and corrects the violation prior to EPA’s discovery or the company lacks a preexisting EMS but puts one into place before concluding settlement negotiations.

• It may also be appropriate to consider whether and to what extent a violator has implemented an EMS in assessing the degree of willfulness and/or negligence.

RoHSEuropean Directive

The Restrictions of the use of certain Hazardous Substances in electrical and electronic equipmentban the putting on the EU market

• of new Electrical and Electronic Equipment (EEE) containing more than the permitted levels (maximum concentration values) of lead, cadmium, mercury, hexavalent chromium and both polybrominated biphenyl (PBB, 多溴化聯苯 ) and polybrominated diphenyl ether (PBDE, 多溴聯苯醚 ) flame retardants from 1 July 2006.

• There are a number of exempted applications for these substances (and an exemption for spare parts for the repair of equipment put on the market before 1 July 2006; the regulations do not apply to the re-use (capacity expansion or update) of equipment that was put on the market before the same date).

• Producers must be able to demonstrate compliance by submitting technical documentation or other information to the enforcement authority on request and retain such documentation for a period of four years after the EEE is placed on the market.

• Responsibility for the enforcement will lay with the Secretary of State for Trade & Industry, who has appointed the National Weights and Measures Laboratory (NWML), an executive agency of the Department of Trade and Industry, to act on his behalf.

DefinitionMaximum concentration value

• A maximum concentration value of up to 0.1% by weight in homogeneous materials for lead, mercury, hexavalent chromium, PBB and PBDE and of up to 0.01% by weight in homogenous materials for cadmium will be permitted in the manufacture of new EEE. These values were established through the adoption of a Commission Decision on 18 August 2005.

Homogeneous material• A material that cannot be mechanically disjointed into

different materials.

ScopeCategories of EEE covered

1. Large household appliances2. Small household appliances3. IT and telecommunication equipment4. Consumer equipment5. Lighting equipment6. Electric and electronic tools7. Toys, leisure and sports equipment8. Automatic dispensers ( 自動 ??)• Reflect eight of the ten categories in Annex 1 of the Waste

Electrical and Electronic Equipment (WEEE) Directive.• Apply both to electric light bulbs and to household luminaries.

• The two categories of the WEEE Directive not included are Medical Devices and Monitoring & Control Instruments. Article 6 of the RoHS Directive places an obligation on the European Commission to present proposals for including EEE falling within those two categories within the scope of the RoHS Directive, once scientific and technical evidence has demonstrated that such proposals are feasible.

• The criteria for assessing “grey area” products (those whose inclusion is in doubt) have been discussed in the Technical Adaptation Committee (TAC) of Member States and is reflected in the Commission’s non-legally binding Frequently Asked Questions document on the WEEE and RoHS Directives

Outside the scope• Intended for a specific national security and/or military

purpose. This exemption would not apply to any equipment that is not designed exclusively for these purposes.

• Products where electricity is not the main power source: Many products contain electrical and electronic components, either for additional functionality or as peripheral parts, e.g., a combustion engine with an electronic ignition.

• Products where the electrical or electronic components are not needed to fulfil the primary function: particularly toys and novelty items contain an electrical or electronic element that gives added value to the product. Often there are similar products on the market fulfilling the same function, but without these components.

• Electrical and electronic equipment that is part of another type of equipment: Examples of such equipment would be lighting or entertainment equipment for use in vehicles, trains or aircraft. The elements of a system that are not discernible EEE products in their own right or that do not have a direct function away from the installation are excluded from the scope of the Regulations.

• Batteries: includes batteries that are permanently fixed into the product, as well as disposable batteries. The text of the draft Directive on Batteries and Accumulators & Waste Batteries and Accumulators is currently being finalised, with an expectation that it will be adopted shortly and come into effect in 2008.

Exemptions• Large scale stationary industrial tools1.Mercury in compact fluorescent lamps not exceeding 5 mg per

lamp.

2. Mercury in straight fluorescent lamps for general purposes not exceeding:– 10 mg in halophosphate lamps– 5 mg in triphosphate lamps with a normal lifetime– 8 mg in triphosphate lamps with a long lifetime.

3. Mercury in straight fluorescent lamps for special purposes.4. Mercury in other lamps (high intensity discharge HID) not

specifically mentioned here.5. Lead in glass of cathode ray tubes, electronic components

and fluorescent tubes (viable alternatives for these applications have not yet been identified).

6. Lead as an alloying element in steel containing up to 0.35% lead by weight, aluminum containing up to 0.4% lead and as a copper alloy containing up to 4% lead.

7. Lead in high melting temperature type solders (i.e. lead based alloys containing 85% by weight or more lead). Viable lead-free alternatives have not yet been identified.– ‘Solder’ is defined as “alloys used to create metallurgical

bonds between two or more metal surfaces to achieve an electrical and/or physical connection”. In this context, the term ‘solder’ also includes all materials that become part of the final solder joint, including solder finishes on components or printed circuit boards.

8. Lead in solders for servers, storage and storage array systems, network infrastructure equipment for switching, signaling, transmission as well as network management for telecommunication.

– For professional, high reliability applications.

9. Lead in electronic ceramic parts (e.g. piezoelectronic devices)

10. Cadmium and its compounds in electrical contacts and cadmium plating except for applications banned under Directive 91/338/EEC relating to restrictions on the marketing and use of certain dangerous substances and preparations (products manufactured in the household goods and central heating and air conditioning plant sectors).

– ‘Cadmium plating’ means any deposit or coating of metallic cadmium on a metallic surface.”

11.Hexavalent chromium as an anti-corrosion of the carbon steel cooling system in absorption refrigerators.– Absorption fridges are often used in recreational

vehicles (e.g. motor homes and caravans) or remote places where electricity is not available. Another typical application is for minibars in hotel rooms as these fridges are virtually noiseless.

– The applied heat and use of a water-ammonia mixture results in a corrosive environment that warrants the use of hexavalent chromium. This exemption has been introduced, since viable alternatives for this specific application have so far not been identified.

12.Deca BDE in polymeric applications.

13.Lead in lead-bronze bearing shells and bushes.– Used, amongst others, in compressors for stationary

refrigeration and air conditioning equipment.– Need excellent self-lubrication properties to meet the high

durability and reliability requirements.– So far no suitable alternative has been identified, although

other materials have been extensively tested.14.Lead used in compliant pin connector systems.

– Used to attach connectors or components to a double-sided printed circuit board.

– Avoids the need for soldering during manufacturing, thereby avoiding the overheating of components and damaging the integrity of the connectors and board material and allows separation for repair.

– Suitable alternatives to the tin-lead alloy have not yet been identified.

15.Lead as a coating material for the thermal conduction module c-ring.– Such modules are the key components of a mainframe

central processing unit and typically contain multiple chips. The c-ring functions as a hermetical seal, continuously dissipating heat and preventing oxidation of solder joints.

– No feasible alternative has so far been identified.16.Lead and cadmium in optical and filter glass.

– To obtain specific properties and meet quality standards, for a wide variety of applications including in the photo industry (e.g. camera lenses), in projectors, scanners, printers and copiers.

– Suitable alternatives for many of these applications have not yet been identified.

17.Lead in solders consisting of more than two elements for the connection between the pins and the package of microprocessors with a lead content of more than 80% and less than 85% by weight.– Microprocessors are mounted onto boards or substrates by

way of a socket. Such sockets require that a large number of pins (up to 950) are mounted onto the microprocessor for completing the necessary electrical connections.

– This exemption has been introduced to allow for the development of alternative designs without generating excessive amounts of waste.

18.Lead in solders to complete a viable electrical connection between semiconductor die and carrier within integrated circuit Flip Chip packages.

– The external solder connections between packages and PCB known as level 2 are excluded from this exemption as viable alternatives have been developed.

19.Lead in linear incandescent lamps (using a glowing filament) with silicate coated tubes.

20.Lead halide as radiant agent in High Intensity Discharge lamps for professional reprography applications.– HID lamps produce light by striking an electrical arc

across tungsten electrodes housed inside a specially designed inner fused quartz or fused alumina tube. This tube is filled with both gas and metals. The gas aids in the starting of the lamps and the metals produce the light once they are heated to a point of evaporation. Certain HID lamp types contain lead-iodide (PbI2) as a component in the filling.

– These lamps are used in professional U.V. applications: the curing, reprography and label printing industries. The lead is used for creating the correct lamp emission spectrum and lamp effectiveness.

21.Lead as activator in the fluorescent powder (1% lead by weight or less) of discharge lamps when used as sun tanning lamps containing phosphors such as BSP (BaSi2O5:Pb) as well as when used as specialty lamps for diazo-printing reprography, lithography, insect traps, photochemical and curing processes containing phosphors such as SMS ((Sr,Ba)2MgSi2O7:Pb).

22.Lead with PbBiSn-Hg and PbInSn-Hg in specific compositions as main amalgam and with PbSn-Hg as auxiliary amalgam in very compact Energy Saving Lamps.

23.Lead oxide in glass used for bonding front and rear substrates of flat fluorescent lamps used for Liquid Crystal Displays.

– Lead is currently used in the glass panel of Liquid Crystal Display (LCD) screens. Two glass substrates are bonded with high precision by inserting glass spacers in between, to keep the same gap. Lead is used there to prevent overheating of the glass, which would result in image distortion and malfunction.

– It is found in the form of a solder with a concentration of 70% lead by weight, used to create a safe electrical contact on the plane glass surface. Lead containing glass solder is also used to assemble the flat-panel glass envelope.

Social Accountability InternationalFounded in 1997

Mission: promote human rights for workers around the world.About SAI, www.sa-intl.org

• A non-governmental, international, multi-stakeholder organization.

• Convenes key stakeholders to develop consensus-based voluntary standards, conductscost-benefit research, accredits auditors, provides training and technical assistance, andassists corporations in improving social compliance in their supply chains.

Social Accountability 8000• A comprehensive and flexible system for managing ethical

workplace conditions throughout global supply chains.• Provide both practical and visionary solutions for ethical supply

chain management. • Based on the principles of thirteen international human rights

conventions.• The first auditable social standard and creates a process that is

truly independent.• The benefits of adopting SA8000 are significant and may include

improved staff morale, more reliable business partnerships, enhanced competitiveness, less staff turnover and better worker-manager communication.

SA8000® Certification• Available only through SAI-accredited, independent

organizations, known as a Certification Body.

Bases International Labor Organization

1. ILO Conventions 29 and 105 (Forced & Bonded Labour)

2. ILO Convention 87 (Freedom of Association)3. ILO Convention 98 (Right to Collective Bargaining)4. ILO Conventions 100 and 111 (Equal remuneration for

male and female workers for work of equal value; Discrimination)

5. ILO Convention 135 (Workers’ Representatives Convention)

6. ILO Convention 138 & Recommendation 146 (Minimum Age and Recommendation)

7. ILO Convention 155 & Recommendation 164 (Occupational Safety & Health)

8. ILO Convention 159 (Vocational Rehabilitation & Employment/Disabled Persons)

9. ILO Convention 177 (Home Work)10.ILO Convention 182 (Worst Forms of Child Labour)

United Nations11.Universal Declaration of Human Rights12.The United Nations Convention on the Rights of the

Child13.The United Nations Convention to Eliminate All

Forms of Discrimination Against Women

SA 8000 Purpose and scope

This standard specifies requirements for social accountability to enable a company to:a) develop, maintain, and enforce policies and

procedures in order to manage those issues which it can control or influence;

b) demonstrate to interested parties that policies, procedures and practices are in conformity with the requirements of this standard.

DefinitionChild

Any person less than 15 years of age, • unless local minimum age law stipulates a higher age for work or

mandatory schooling, in which case the higher age would apply. • If, however, local minimum age law is set at 14 years of age in

accordance with developing-country exceptions* under ILO Convention 138, the lower age will apply.

Young workerAny worker over the age of a child and under the age of 18.

(old workers?)Child labor

Any work by a child younger than the age(s) specified except as provided for by ILO Recommendation 146.**

Remediation of childrenAll necessary support and actions to ensure the

safety, health, education, and development of children

• who have been subjected to child labour, as defined above, and are dismissed.

Forced laborAll work or service that is extracted from any

person under the menace of any penalty for which said person has not offered him/herself voluntarily

• or for which such work or service is demanded as a means of repayment of debt.

Social accountability requirements

Child labor

Forced labor

Health & safety

Freedom of association

Discrimination

Disciplinarypractices

Workinghours

Remuneration

Social accountability requirementsChild labor

Shall not engage in or support the use of child labour.Shall establish, document, maintain, and effectively

communicate to personnel and other interested parties policies & procedures

• for remediation of children found to be working and shall provide adequate support to enable such children to attend and remain in school until no longer a child as defined above.

• for promotion of education for children covered under ILO Recommendation 146 and young workers who are subject to local compulsory education laws or are attending school,

– including means to ensure that no such child or young worker is employed during school hours and that combined hours of daily transportation (to and from work and school), school, and work time do not exceed 10 hours a day.

Shall not expose children or young workers to situations in or outside of the workplace that are hazardous, unsafe, or unhealthy.

Forced labor

Shall not engage in or support the use of forced labour,• nor shall personnel be required to lodge ‘deposits’ or

identity papers upon commencing employment with the company.

Health and safetyBearing in mind the prevailing knowledge of the

industry and of any specific hazards, • shall provide a safe and healthy working environment and

shall take adequate steps to prevent accidents and injury to health arising out of, associated with or occurring in the course of work, by minimizing, so far as is reasonably practicable, the causes of hazards inherent in the working environment.

• Shall appoint a senior management representative responsible for the health and safety of all personnel, and accountable for the implementation of the Health and Safety elements of this standard.

• Shall ensure that all personnel receive regular and recorded health and safety training, and that such training is repeated for new and reassigned personnel.

• Shall establish systems to detect, avoid or respond to potential threats to the health and safety of all personnel.

• Shall provide, for use by all personnel, clean bathrooms, access to potable water, and, if appropriate, sanitary facilities for food storage.

• Shall ensure that, if provided for personnel, dormitory facilities are clean, safe, and meet the basic needs of the personnel.

Freedom of association& right to collective bargaining

• Shall respect the right of all personnel to form and join trade unions of their choice and to bargain collectively.

• Shall, in those situations in which the right to freedom of association and collective bargaining are restricted under law, facilitate parallel means of independent and free association and bargaining for all such personnel.

• Shall ensure that representatives of such personnel are not the subject of discrimination and that such representatives have access to their members in the workplace.

Discrimination Shall not engage in or support discrimination

• in hiring, remuneration, access to training, promotion, termination or retirement based on race, caste, national origin, religion, disability, gender, sexual orientation, union membership, political affiliation, or age.

• Shall not interfere with the exercise of the rights of personnel to observe tenets or practices, or to meet needs relating to race, caste, national origin, religion, disability, gender, sexual orientation, union membership, or political affiliation.

• Shall not allow behaviour, including gestures, language and physical contact, that is sexually coercive, threatening, abusive or exploitative.

Disciplinary practicesShall not engage in or support the use of

• corporal punishment, mental or physical coercion, and verbal abuse.Working hours

Shall comply with applicable laws and industry standards on working hours.

• The normal workweek shall be as defined by law but shall not on a regular basis exceed 48 hours.

• Personnel shall be provided with at least one day off in every seven-day period.

• All overtime work shall be reimbursed at a premium rate and under no circumstances shall exceed 12 hours per employee per week.

Where the company is party to a collective bargaining agreement freely negotiated with worker organizations (see ILO) representing a significant portion of its workforce,

• it may require overtime work in accordance with such agreement to meet short-term business demand. Any such agreement must comply with the above requirements

Other than as permitted above, • overtime work shall be voluntary.

RemunerationShall ensure that wages paid for a standard working week

shall always meet at least legal or industry minimum standards

• and shall be sufficient to meet basic needs of personnel and to provide some discretionary income.

• Shall ensure that deductions from wages are not made for disciplinary purposes,* and shall ensure that wage and benefits composition are detailed clearly and regularly for workers.

• Shall also ensure that wages and benefits are rendered in full compliance with all applicable laws and that remuneration is rendered either in cash or check form, in a manner convenient to workers.**

• Shall ensure that labour-only contracting arrangements and false apprenticeship schemes are not undertaken in an effort to avoid fulfilling its obligations to personnel under applicable laws pertaining to labour and social security legislation and regulations.

Managementsystems

Policy

Managementreview

Companyrepresentatives

Planning & implementation

Control of suppliers/

subcontractors & sub-suppliers

Addressing concerns &

taking corrective

action

Outsidecommunication

Access forverification Records

Management systemsPolicy

Top management shall define the company’s policy for social accountability and labour conditions to ensure that it:

a)includes a commitment to conform to all requirements of this standard;

b)includes a commitment to comply with national and other applicable law, other requirements to which the company subscribes and to respect the international instruments and their interpretation;

c)includes a commitment to continual improvement;

d) is effectively documented, implemented, maintained, communicated and is accessible in a comprehensible form to all personnel, including directors, executives, management, supervisors, and staff, whether directly employed, contracted or otherwise representing the company;

e) is publicly available. Management review

Top management shall periodically review• the adequacy, suitability, and continuing effectiveness of

the company’s policy, procedures and performance results vis-a-vis the requirements of this standard and other requirements to which the company subscribes.

• System amendments and improvements shall be implemented where appropriate.

Company representativesShall appoint a senior management representative who,

• irrespective of other responsibilities, shall ensure that the requirements of this standard are met.

• Shall provide for non-management personnel to choose a representative from their own group to facilitate communication with senior management on matters related to this standard.

Planning and implementationShall ensure that the requirements of this standard are

understood and implemented at all levels of the organisation; methods shall include, but are not limited to:

a) clear definition of roles, responsibilities, and authority;

b) training of new and/or temporary employees upon hiring;

c) periodic training and awareness programs for existing employees;

d) continuous monitoring of activities and results to demonstrate the effectiveness of systems implemented to meet the company’s policy and the requirements of this standard.

Control of suppliers/subcontractors and sub-suppliers Shall establish and maintain appropriate procedures

• to evaluate and select suppliers/subcontractors (and, where appropriate, sub-suppliers) based on their ability to meet the requirements of this standard.

Shall maintain appropriate records of suppliers/subcontractors’ (and, where appropriate, sub-suppliers’) commitments to social accountability, including, but not limited to, the written commitment of those organizations to:

a) conform to all requirements of this standard (including this clause*);

b) participate in the company’s monitoring activities as requested;

c) promptly implement remedial and corrective action to address any nonconformance identified against the requirements of this standard;

d) promptly and completely inform the company of any and all relevant business relationship(s) with other suppliers/subcontractors and sub-suppliers.

• Shall maintain reasonable evidence that the requirements of this standard are being met by suppliers and subcontractors.

• Where the company receives, handles or promotes goods and/or services from suppliers/subcontractors or sub-suppliers who are classified as homeworkers, the company shall take special steps to ensure that such homeworkers are afforded a similar level of protection as would be afforded to directly employed personnel under the requirements of this standard. Such special steps shall include but not be limited to:

a) establishing legally binding, written purchasing contracts requiring conformance to minimum criteria (in accordance with the requirements of this standard);

b) ensuring that the requirements of the written purchasing contract are understood and implemented by homeworkers and all other parties involved in the purchasing contract;

c) maintaining, on the company premises, comprehensive records detailing the identities of homeworkers; the quantities of goods produced/services provided and/or hours worked by each homeworker;

d) frequent announced and unannounced monitoring activities to verify compliance with the terms of the written purchasing contract.

Addressing concerns and taking corrective action Shall investigate, address, and respond

• to the concerns of employees and other interested parties with regard to conformance/ nonconformance with the company’s policy and/or the requirements of this standard;

• The company shall refrain from disciplining, dismissing or otherwise discriminating against any employee for providing information concerning observance of the standard.

• Shall implement remedial and corrective action and allocate adequate resources appropriate to the nature and severity of any nonconformance identified against the company’s policy and/or the requirements of the standard.

Outside communicationShall establish and maintain procedures to

communicate regularly • to all interested parties data and other information regarding

performance against the requirements of this document, including, but not limited to, the results of management reviews and monitoring activities.

Access for verificationWhere required by contract, shall provide reasonable

information and access• to interested parties seeking to verify conformance to the

requirements of this standard; where further required by contract, similar information and access shall also be afforded by the company's suppliers and subcontractors through the incorporation of such a requirement in the company's purchasing contracts.

RecordsShall maintain appropriate records

• to demonstrate conformance to the requirements of this standard.

Business Principles forCountering Bribery

An initiative of Transparency International and Social Accountability International

December 2002

ForewordDevelopment

In a partnership project undertaken with a Steering Committee drawn from companies, academia, trade unions and other non-governmental bodies.

• Growing corporate awareness of the risks posed by bribery, particularly in the light of recent scandals, and the public is expecting greater accountability and probity from the corporate sector. (Bribery: An offer or receipt of any gift, loan, fee, reward or other advantage to or from any person as an inducement to do something which is dishonest, illegal or a breach of trust, in the conduct of the enterprise’s business.)*

• A practical tool to which companies can look for a comprehensive reference to good practice (as opposed to best) to counter bribery.

Give practical effect to recent initiatives• The OECD Convention on Combating Bribery of Foreign Public

Officials in International Business Transactions• The ICC Rules of Conduct to Combat Extortion and Bribery• The anti-bribery provisions of the revised OECD Guidelines for

Multinationals.Purpose

• Provide practical guidance for countering bribery, creating a level playing field and providing a long-term business advantage.

• Apply to bribery of public officials and to private-to-private transactions.

Countering Bribery

Businessprinciples

Aims

Programdevelopment

Scope

Implementationrequirements:1.Organization & responsibilities2. Business relationships3. Human resources4. Training5. Raising concerns& seeking guidance6. Communication7. Internal controls & audit8. Monitoring & review

Countering BriberyBusiness principles

Shall prohibit bribery in any form whether direct or indirect.

Shall commit to implementation of a Programme to counter bribery

• based on a commitment to fundamental values of integrity, transparency and accountability.

• Shall aim to create and maintain a trust-based and inclusive internal culture in which bribery is not tolerated.

• The Programme is the entirety of an enterprise’s anti-bribery efforts including values, policies, processes, training and guidance.

Aims Provide a framework for good business

practices and risk management strategies for countering bribery.

Assist enterprises toa) eliminate bribery

b) demonstrate their commitment to countering bribery

c) make a positive contribution to improving business standards of integrity, transparency and accountability wherever they operate.

Program developmentReflecting the size, business sector, potential risks and

locations of operation,• which should, clearly and in reasonable detail, articulate values,

policies and procedures to be used to prevent bribery from occurring in all activities under effective control.

Should be consistent with all laws relevant to countering bribery in all the jurisdictions

• in which the enterprise operates, particularly laws that are directly relevant to specific business practices.

In consultation with employees, trade unions or other employee representative bodies.

• Ensure that the enterprise is informed of all matters material to the effective development of the Programme by communicating with relevant interested parties.

Scope Should analyse which specific areas pose the

greatest risks from bribery. Should address the most prevalent forms of

bribery relevant to the enterprise but at a minimum should cover the following areas

1. Bribes• Should prohibit the offer, gift, or acceptance of a

bribe in any form, including kickbacks, on any portion of a contract payment, or the use of other routes or channels to provide improper benefits to customers, agents, contractors, suppliers or employees of any such party or government officials.

• Should prohibit an employee from arranging or accepting a bribe or kickback from customers, agents, contractors, suppliers, or employees of any such party or from government officials, for the employee’s benefit or that of the employee’s family, friends, associates or acquaintances.

2. Political contributions• The enterprise, its employees or agents should not make

direct or indirect contributions to political parties, organisations or individuals engaged in politics, as a way of obtaining advantage in business transactions.

• Should publicly disclose all its political contributions.3. Charitable contributions and sponsorships

• Should ensure that charitable contributions and sponsorships are not being used as a subterfuge for bribery.

• Should publicly disclose all its charitable contributions or sponsorships.

4. Facilitation payments• Also called “facilitating”, “speed” or “grease” payments,

these are small payments made to secure or expedite the performance of a routine or necessary action to which the payer of the facilitation payment has legal or other entitlement.

• Recognising that facilitation payments are a form of bribery, should identify, minimise and preferably eliminate them.

5. Gifts, hospitality and expenses• Should prohibit the offer or receipt of gifts, hospitality or

expenses whenever such arrangements could affect the outcome of business transactions and are not reasonable and bona fide expenditures.

Implementation requirements Should meet, at a minimum1. Organization and responsibilities

• The Board of Directors or equivalent body should base their policy on the Business Principles and provide leadership, resources and active support for management’s implementation of the Programme.

• The Chief Executive Officer is responsible for ensuring that the Programme is carried out consistently with clear lines of authority.

• The Board of Directors, Chief Executive Officer and senior management should demonstrate visible and active commitment to the implementation of the Business Principles.

2. Business relationships• Should apply its Programme in its dealings with

subsidiaries, joint venture partners, agents, contractors and other third parties with whom it has business relationships.

• Subsidiaries and joint ventures– Should conduct due diligence before entering into a

joint venture.– Should ensure that subsidiaries and joint ventures over

which it maintains effective control adopt its Programme.

– Where an enterprise does not have effective control it should make known its Programme and use its best efforts to monitor that the conduct of such subsidiaries and joint ventures is consistent with the Business Principles.

• Agents– Should not channel improper payments through an agent.*– Should undertake due diligence before appointing an agent.– Compensation paid to agents should be appropriate and

justifiable remuneration for legitimate services rendered.– The relationship should be documented.– The agent should contractually agree to comply with the

enterprise’s Programme.– Should monitor the conduct of its agents and should have a

right of termination in the event that they pay bribes.• Contractors and suppliers

– Should conduct its procurement practices in a fair and transparent manner.

– Should undertake due diligence in evaluating major prospective contractors and suppliers to ensure that they have effective anti-bribery policies.

– Should make known its anti-bribery policies to contractors and suppliers. It should monitor the conduct of major contractors and suppliers and should have a right of termination in the event that they pay bribes.*

– Should avoid dealing with prospective contractors and suppliers known to be paying bribes.

3. Human resources• Recruitment, promotion, training, performance evaluation and

recognition should reflect the enterprise’s commitment to the Programme.

• The human resources policies and practices relevant to the Programme should be developed and undertaken in consultation with employees, trade unions or other employee representative bodies as appropriate.

• Should make it clear that no employee will suffer demotion, penalty, or other adverse consequences for refusing to pay bribes even if it may result in the enterprise losing business.

• Should apply appropriate sanctions for violations of its Programme.4. Training

• Managers, employees and agents should receive specific training on the Programme.

• Where appropriate, contractors and suppliers should receive training on the Programme.

5. Raising concerns and seeking guidance• To be effective, the Programme should rely on employees

and others to raise concerns and violations as early as possible. To this end, should provide secure and accessible channels through which employees and others should feel able to raise concerns and report violations (“whistle blowing”) in confidence and without risk of reprisal.

• These channels should also be available for employees and others to seek advice or suggest improvements to the Programme. To support this process, should provide guidance to employees and others with respect to the interpretation of the Programme in individual cases.

6. Communications• Should establish effective internal and external

communication of the Programme.

• Should, on request, publicly disclose the management systems it employs in countering bribery.

• Should be open to receiving communications from relevant interested parties with respect to the Programme.

7. Internal controls and audit• Should maintain accurate books and records, available for

inspection, which properly and fairly document all financial transactions. Should not maintain off-the-books accounts.

• Should establish feedback mechanisms and other internal processes supporting the continuous improvement of the Programme.

• Should subject the internal control systems, in particular the accounting and record keeping practices, to regular audits to provide assurance that they are effective in countering bribery.

8. Monitoring and review• Senior management should monitor the Programme

and periodically review the Programme’s suitability, adequacy and effectiveness and implement improvements as appropriate.

• Should periodically report to the Audit Committee or the Board the results of the Programme review.

• The Audit Committee or the Board should make an independent assessment of the adequacy of the Programme and disclose its findings in the Annual Report to shareholders.

Transparency InternationalFounded in 1993.

The leading international organisation devoted to curbing bribery.With the mission to build coalitions of civil society,

governments and the private sector to join in the fight against corruption.

• TI’s work is based on the belief that corruption is a major threat to human rights, development and international trade, and that containing corruption to manageable levels calls for the creation of a broad coalition. Engagement with the private sector is key to its mission.

References (reading)TI, Corruption Perceptions Index, Nov. 6, 2006

A strong correlation between corruption and poverty, with a concentration of impoverished states at the bottom of the ranking.

Chair Huguette Labelle. “Despite a decade of progress in establishing anti-corruption laws and regulations, today’s results indicate that much remains to be done before we see meaningful improvements in the lives of the world’s poorest citizens.”

Scores countries on a scale from zero to ten, with zero indicating high levels of perceived corruption. Almost three-quarters of the countries in the CPI score below five (including all low-income countries and all but two African states).

The facilitators of corruption continue to assist political elites to launder, store and otherwise profit from unjustly acquired wealth, which often includes looted state assets.

TI advocates strong measures to curb bribery’s supply side, including the criminalisation of overseas bribery under the OECD Anti-Bribery Convention, as well as its demand side, including disclosure of assets for public officials and adoption of codes of conduct.

But the transaction is often enabled by professionals from many fields. Corrupt intermediaries link givers and takers, creating an atmosphere of mutual trust and reciprocity; they attempt to provide a legal appearance to corrupt transactions, producing legally enforceable contracts; and they help to ensure that scapegoats are blamed in case of detection.

TI, Global Corruption Barometer,* Dec.7, 2006The police are the sector most affected by bribery, with 17

percent of those who have had contact paying a bribe. Police are most commonly bribed in Africa and Latin America.

Bribery for access to services is most common in Africa. The most commonly bribed sectors in Africa are the police, tax revenue and utilities.

People around the world tend to be very negative about their government’s attempt to fight corruption. Only one in five surveyed worldwide think that their government is effective to some degree in fighting corruption; nearly two in five say the government is ‘not effective’ in its anti-corruption work.

One in six surveyed globally thinks that their government actually encourages corruption rather than fighting it.

Despite relatively good scores on the Corruption Perceptions Index 2006, nearly one in five respondents in the United States and the United Kingdom thinks that their government encourages corruption rather than fighting it.

The public views political parties as the most corrupt institution, followed by parliament/legislature.

Police are considered to be the sector most affected by corruption in both Africa and the Newly Independent States.

The Taiwanese public reports an increase in levels of corruption in most of the institutions and sectors covered by the Barometer 2006 during the last two years. The public in Hong Kong and Croatia also view corruption as worse in a number of sectors, while, in contrast, in India there have been some perceived improvements.

Political life is viewed as being most affected by corruption, followed closely by the business environment.*

Corruption is reported as affecting family life very little in EU+ countries and the Newly Independent States, but a great deal in Africa and South East Europe.

Perceived corruption in political life in the United States has increased in the last two years; perceived corruption in Iceland’s business environment and family life has increased; perceived corruption has increased in Spain and Japan’s political life and business environment.

Socially Responsible Investing (SRI) An investment strategy which

combines the intentions to maximizeboth financial return and social good.*

• In general, socially responsible investors favor corporate practices which are environmentally responsible, support workplace diversity, and increase product safety and quality.

• Some (not all) also avoid businesses involved in alcohol, tobacco, gambling, weapons and other military industries, and/or abortion.

History• Many believe social investing began with the Religious

Society of Friends (Quakers).

• In 1758, the Quaker Philadelphia Yearly Meeting prohibited members from participating in the business of buying or selling humans.

• One of the most articulate early adopters of SRI was John Wesley (1703-1791), one of the founders of the Methodist Church. A sermon entitled “The Use of Money,” outlined his basic tenets of social investing: not to harm your neighbor through your business practices and to avoid industries like tanning and chemical production that pollute rivers and streams.

• Modern SRI movement began during the Vietnam War. Many people living during the era remember a picture in June of 1972* of a naked nine year-old girl, Phan Thị Kim Phúc, running towards a photographer screaming, her back burning from the napalm dropped on her village.

• In the late 1970s, SRI activism turned its attention to nuclear power and automobile emissions control.

• During the 1950s and 1960s, labor unions deployed multiemployer pension funds for targeted investments. E.g., The United Mine Workers fund invested in medical facilities, and the ILGWU and IBEW financed union-built housing projects. They also sought to leverage pension stocks for shareholder activism on proxy fights and shareholder resolutions.*

• Presidential candidates Jimmy Carter, Ronald Reagan and Jerry Brown advocated some type of social orientation for pension investments in ’80.

• After the Sharpeville Massacre in 1960, international opposition to apartheid strengthened. In 1976 the United Nations imposed a mandatory arms embargo against South Africa. In 1971, Reverend Leon Sullivan (at the time a board member for General Motors) drafted a code of conduct for practicing business in South Africa which became known as the “Sullivan Principles.”

• Reports documenting the application of the Sullivan Principles discovered that US companies were not attempting to lessen discrimination within South Africa. Cities, states, colleges, faith-based groups and pension funds throughout the US began divesting (or removing their investments) from companies operating in South Africa.

• The negative flow of investment eventually forced a group of businesses, representing 75% of South African employers, to draft a charter calling for an end to apartheid. While the SRI efforts alone didn't bring an end to apartheid, it did focus persuasive international pressure on the South African business community.

Modern applications • SRI is a booming market in both the US and Europe. SRI in the

US remained robust during 2001 and 2002, even as the rest of the investment world was stagnant.

• Assets in socially screened portfolios climbed to $2.15 tn in 2003, an increase over the $2.01 tn counted in 2001 (7% growth). Community investing and shareholder advocacy contribute additional assets, resulting in a total of $2.18 tn in professionally managed assets for all SRI.*

• The broader universe of all professionally managed portfolios fell 4% during the same period, according to the Social Investment Forum’s 2003 Report on Socially Responsible Investing Trends in the US.

• Research estimates by financial consultancy Celent predict that the SRI market in the US will reach $3 tn by 2011. The European SRI market grew from €1 tn in 2005 to €1.6 tn in 2007.

Government-controlled (pension) funds • Are being pressured by the citizenry and by activist groups to

adopt investment policies which encourage ethical corporate behaviour.

• I.e., respect the rights of workers, take environmental concerns into account, and generally avoid violations of human rights.

• One outstanding endorsement is the Norwegian Government Pension Fund, which is mandated to avoid "investments which constitute an unacceptable risk that the Fund may contribute to unethical acts or omissions, such as violations of fundamental humanitarian principles, serious violations of human rights, gross corruption or severe environmental damages."

Mutual funds • Socially responsible mutual funds counted by the 2003 Trends

Report increased in number to 200 in 2003, up from 181 in 2001, 168 in 1999, and 139 in 1997. Assets grew by 19%, to $162 bn, up from $136 bn in 2001, 51% of this growth is attributed to both newly identified and newly created funds, and 49% represents growth in existing assets.

• In terms of attracting investor assets, socially screened mutual funds grew on a net basis in 2002 ($1.5 bn according to Lipper) while U.S. diversified equity funds contracted ($10.5 bn).

Separately managed accounts • Of the $2.15 tn in socially screened portfolios, $1.99 tn are

found in separate accounts (portfolios privately managed for individuals and institutions) with the remaining $162 bn residing in mutual funds. Assets in socially screened separate accounts grew by 7% since the “2001 Report” ($1.87 tn in 2001, $1.34 tn in 1999, and just $433 bn in 1997).

Shareholder advocacy • Between 2001 and 2003, shareholder advocacy activity

increased by 15%, growing from 269 social and crossover resolutions (combined aspects of both “social” and traditional corporate governance issues) filed in 2001 to 310 in 2003.

• The average percentage of votes received on these resolutions increased from 8.7% in 2001 to 11.4% in 2003. Of the total $2.15 tn in all socially screened portfolios, $441 bn are in portfolios controlled by investors who are also involved in shareholder advocacy.

• Shareholder resolutions are filed by a wide variety of institutional investors, including public pension funds, faith-based investors, socially responsible mutual funds, and labor unions. In 2004, faith-based organizations filed 129 resolutions, while socially responsible funds filed 56 resolutions.

• Regulations governing shareholder resolutions in the US are determined by the SEC, which also requires mutual funds to disclose how they voted on behalf of their investors.

• U.S. shareholders have organized various groups to facilitate jointly filing resolutions. These include the Council of Institutional Investors, the Interfaith Center on Corporate Responsibility, and the Social Investment Forum.

Community investing • Climbed 84% between 2001 and 2003. Assets held and

invested locally by community development financial institutions (CDFIs) based in the US totaled $14 bn in 2003, up from $7.6 bn in 2001.

Investing strategies 1.Screening: excludes certain securities from investment

consideration based on social and/or environmental criteria. 2.Divesting: removes stocks from a portfolio based on mainly

ethical, non-financial objections to certain business activities of a corporation.

• Recently, CalSTRS (California State Teachers' Retirement System) announced the removal of more than $237 mn in tobacco holdings from its investment portfolio after 6 months of financial analysis and deliberations.

3.Shareholder activism: efforts attempt to positively influence corporate behavior, include initiating conversations with corporate management on issues of concern, and submitting and voting proxy resolutions.

• These activities are undertaken with the belief that social investors, working cooperatively, can steer management on a course that will improve financial performance over time and enhance the well being of the stockholders, customers, employees, vendors, and communities.*

• Recent movements have also been reported of "investor relations activism", in which investor relations firms assist shareholder activists in an organized push for change within a corporation.

• This is done typically by leveraging their enhanced knowledge of the corporation, its management (often via direct relationships), and the securities laws as a whole.

4.Positive investing: involves making investments in activities and companies believed to have a high and positive social impact, tends to target underserved communities. These efforts may support activities designed to provide mortgage and small business credit to minority and low-income communities.

Satire and pro-market response • At least one mutual fund, the Vice Fund (VICEX), was

created specifically to contrast with the trend in SRI. VICEX specializes in investing in the defense, alcohol, tobacco, and gambling industries, and has greatly outperformed both the S&P 500 and most socially responsible mutual funds.

• The Free Enterprise Action Fund files shareholder resolutions which oppose the general trend of SRI, e.g., by asking GE to "justify lobbying for global warming regulation.“*

Ethical BankingEthical bank

A.k.a social, alternative, civic or sustainable bankA bank concerned about the social use of its

investments and loans. • Shares a common set of principles, the most prominent

being the transparency and the social or environmental aim of the projects they finance. Some are specialized in microcredits.

• Usually work with narrower profit margins than traditional ones, and tend to have few offices and operate mostly by phone, Internet or mail.

• An extreme case of this is Smile (a branch of Co-operative Bank of UK): it was the first ethical bank that operates exclusively by Internet, followed by eBay Microplace.

• Green banking is ethical banking specialized in green energy, to address global warming.

MicrocreditThe extension of very small loans

to the unemployed, poor entrepreneurs and others living in povertywho are not considered bankable.

• These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit.

• Microcredit is a part of microfinance, which is the provision of a wider range of financial services to the very poor.

• A financial innovation originated in Bangladesh to enable extremely impoverished people to engage in self-employment projects.

• Many in the traditional banking industry have begun to realize that these microcredit borrowers should more correctly be categorized as pre-bankable, and are contemplating microcredit projects as a source of future growth.

• It was begun in its modern incarnation as pilot projects with ACCION and Muhammad Yunus in the mid-1970s. The United Nations declared 2005 the International Year of Microcredit.*

History• The concept can be traced back to portions of the Marshall

Plan at the end of World War II or even back to the mid-1800s and the writings of abolitionist/legal theorist Lysander Spooner who wrote concerning the benefits of numerous small loans for entrepreneurial activities to the poor as a way to alleviate poverty.

• Dr. Akhtar Hameed Khan, a social scientist, is credited for pioneering and microfinance through Comilla Co-operatives in 1960.#

Principles • Tool for socio-economic development with emphasis on Building

Capacity of Micro Entrepreneur, Employment Generation, Trust Building and Help to Micro Entrepreneur on initiation and during difficult times.*

Focus on Women • The reasoning behind this is the observation that loans to women

tend to more often benefit the whole family than loans to men do, and raises their socio-economic status.**

Opportunity International • In 1971, Al Whittaker resigned as president of Bristol Myers and

established Opportunity International’s first US office in Washington DC.

• The first loan was made to Carlos Moreno in Colombia to expand his one-man spice and tea business. About the same time Australian philanthropist, David Bussau, began making microloans in Indonesia.

• The two men met and formed Opportunity International, which provides opportunities for people in chronic poverty to transform their lives by creating jobs, stimulating small businesses, and strengthening communities.

• Small loans ranging from $25 to $500 helped poor families lift themselves out of poverty.

• Other Opportunity International offices are in Australia, Great Britain and Canada, each targeting countries within their region.

ACCION International • In 1973 Accion International, a Peace Corps-like group, started

to switch focus toward providing economic opportunity to poor people.

• Instead of working on construction/infrastructure projects in order to create lasting improvements in the lives of those they were helping.

• Their plan first appeared in Recife, Brazil in 1973 when ACCION staff began to offer microloans to poor people eager to start small businesses (avoid the exploitive lending practices of loan sharks).

• Within four years, the experiment had shown its success in having provided 885 loans with a repayment rate of over 90%. The loans also helped to create or stabilize 1,386 new jobs.

• Since this beginning, ACCION has expanded its microlending operation to countries throughout South and Central America, US, Africa and India.*

Self Help Group, Indian expereince• In India, micro credit is extended by Self Help Groups and

Cooperatives linkages.

• The National Bank for Agriculture and Rural Development (NABARD), and apex developmental bank cum government agency focussing on rural and agricultural development has been a great force through these linkages.

Grameen Bank • Around the same time as ACCION's experiment, and apparently

independently, Muhammad Yunus, a professor of economics at Chitagong University started a similar experiment.

• Around 1974, during a famine in his native Bangladesh, Yunus discovered that very small loans could make a difference in a poor person's ability to survive, but that traditional banks were not interested in making such tiny loans.

• His first loan consisted of $27 from his own pocket which he lent to 42 people including a woman who made bamboo furniture, which she sold to support herself and her family.

• In 1976, Yunus founded the Grameen Bank to make loans to poor Bangladeshis. Since then, it has issued more than $5 bn in loans to several million borrowers.* At the close of 2005 the number of outstanding loans is more than 4 mn.

• To ensure repayment, the bank uses a system of solidarity lending through "solidarity groups": small informal groups, nearly all of them exclusively female, that meet weekly in their villages to conduct business with representatives of the bank and that support each other's efforts at economic self-advancement.

• Has also developed other systems of alternate credit which serve the poor, such as housing loans, financing for fisheries, irrigation projects, venture capital, textiles, etc.

• The success of the Grameen model has inspired similar efforts throughout the developing world and even in industrialized nations.

• Originally, the program started with men and women but later focused on women when data showed a dramatically lower credit risk.

• In 2006, Yunus and the Grameen bank were honored with the Nobel Peace Prize.*

Development Gateway, USA• A portal assisting many socio-economic activities, having a

community forum, Micro Finance community that serves knowledge center for global activities (share experience in any particular country without any cost).

Women's World Banking (WWB) • Founded in New York in 1976 by Ela Bhatt (India), Esther

Ocloo (Ghana) and Michaela Walsh, an American investment banker.

• Bhatt had earlier founded the Mahila SEWA Cooperative Bank in 1974, and she served as WWB's chair from 1980 until 1998.

• The WWB president was reported in 2002 as claiming that of half the microcredit loans made worldwide to 25 million people, three-quarters of them were made to women, and had been made by WWB.

• Friends of Women's World Banking, an affiliate to WWB, was established in the year 1982 by Ela Bhatt as a non-profit organization to promote direct participation of poor women in the economy through access to financial services. It was created to extend and expand informal credit supports and networks within India to link them to a global movement.

• As of now it is working in 14 states of India, with 104 partner organizations with a total client outreach of 5 million. Some of the biggest MFIs in India like Share Microfin, Spandana, Bandhan, SKS received their initial support from FWWB and still continue their association with FWWB.

• According to Consultative Group to Assist the Poor (CGAP), FWWB's niche lies in its proven capability in identifying and hand holding fledgling startup MFIs and grow them to a stage where they become self sustainable.

FINCA International• In the 1980s FINCA International continued the successful

trend of microcredit in Bolivia. • John Hatch, founder, had worked on other international credit

programs and started doing microcredit on his own, stressing local autonomy and putting the poor in charge of the programs.* He called it village banking.

• After Hatch had assembled a team, within four weeks, they had created 280 village banks serving 14,000 families with loans worth $630,000. While the original program was shut down, it was not because of a lack of success, but because its backers felt uncollateralized lending was too risky.

• Despite this setback, Hatch continued to pursue his work and incorporated FINCA in 1985, this time working in El Salvador, focused on women.

• The mission is to provide financial services to the world's lowest-income entrepreneurs so they can create jobs, build assets, and improve their standard of living.

• In 2005, FINCA reached more than 400,000 clients, providing in excess of $100 mn in small loans averaging $360. FINCA currently operates programs in 21 countries in Africa, Latin America and the Caribbean, Eastern Europe and Central Asia. Women comprise 80% and the organization has a loan repayment rate of 97%.

Thengamara Mohila Sabuj Sangha*• TMSS is a women-oriented NGO from Bangladesh,

established in Bogra District, 1964.

• In 1980, a botany professor Dr. Hosne-Ara Begum came forward to redirect the NGOs social activty. She engaged herself as the Founder Executive Director of TMSS.

• With the main patronizer [Palli Karma Shahayak Foundation] (PKSF),TMSS is engaged in uplifting the living condition of the most distressed poor people particularly women and children of both urban and rural areas.

• TMSS believes in self-help sustainable development of the targeted beneficiaries through their own efforts and resources.

• TMSS has emerged as one of the most efficient and dynamic NGOs in the country. It has extensive network and a large contingent of well-trained and skilled manpower, including 9000 regular staffs, 7,000 voluntary and part-time staffs. The number of target beneficiaries increased from 126 in 1980 to more than 1.8 million in 2005.

• The microcredit loan disbursement increased from $8,000 to $125 mn during the same period with a recovery rate of 99%.

SKS India• SKS Microfinance was founded in 1998 by Vikram Akula to

provide loans to women living in poor regions of India. According to its website, SKS has provided over $205 mn in loans to nearly 632,000 clients.

• Borrowers take loans in order to develop a variety of income-generating farming and home-based manufacturing activities.

• Interest-free loans for emergencies and life insurance are also offered to borrowers.

• SKS runs an affiliated program to improve education for poor children.

• In May 2006, Vikram Akula was named to TIME Magazine’s Top 100 List of Most Influential People for the year 2006.

• In 2006, SKS Microfinance attracted the attention and investment of Venture Capitalists such as Vinod Khosla, Small Industries Development Bank of India, Unitus Equity Fund, and Sequoia Capital.

Some recent developments in India• The Government of India is mulling some regulation for the

Microfinance industry.*Today

• The World Bank estimates that there are now more than 7,000 microfinance institutions, serving some 16 million poor people in developing countries.

• CGAP experts estimate that 500 million households benefit from these small loans, Cambodia and Kenya as examples.

• Asia and the Pacific region represent 83% of the opened accounts in developing countries, which is equivalent to 17 accounts for 100 persons.

• In Nov.1997, more than 2000 delegates from 100 countries gathered at a Microcredit Summit in Washington, DC, with the goal of reaching 100 million of the world's poorest families, with credit for self-employment and other financial and business services by the year 2005.

The Economic and Social Council• of the United Nations proclaimed the year 2005 as the International

Year of Microcredit to call for building inclusive financial sectors and strengthening the powerful, but often untapped, entrepreneurial spirit existing in communities around the world. There are five goals:

1.Assess and promote the contribution of microfinance and microcredit to the MDGs.

2.Increase public awareness and understanding of as vital parts of the development equation.

3.Promote inclusive financial sectors.4.Support sustainable access to financial services.

5. Encourage innovation and new partnerships by promoting and supporting strategic partnerships to build and expand the outreach and success of microcredit and microfinance for all.

Web 2.0 and Microfinance Merger • Kiva.org, was the first person-to-person micro-lending

Website that enabled an individual to lend money to a micro-entrepreneur in the developing world. This came to be known as "the merger between Microfinance and Web 2.0" due to its ability to create a transparent, connective and affordable option for anyone on the Internet to lend directly to the working poor.

• Kiva is non-profit as it's very difficult to become a SEC-registered broker/dealer.

• MicroPlace.com, a wholly-owned subsidiary of eBay, was launched on October 2007. The big difference between MicroPlace and Kiva is that loans will be securitized.

• I.e., lenders invest in microloans by purchasing securities (potentially tradable) and will earn interest. Funds generated by these sales are then invested in microcredit institutions around the world. MFIs, in turn, solicit clients, make loans and collect payments.

• Once client payments are in, the institutional investors receive their loan (plus interest) who can then pay back their investors.

Fundamental PrinciplesSavings|investment as preferable aid

• Independent borrowers earn the dignity and lasting self-confidence associated with responsible loan repayment. Institutional managers are more careful to ensure borrower success and generally perform better when there are risks involved.

Entrepreneurial talent and energy are scarce invaluable resources for economic growth

• Our economies cannot afford not to find and develop independently responsible entrepreneurs and public bankers who are financial critical thinkers. These individuals can be attracted to the microcredit industry, but they are individuals with options, they will not risk their future on short-term or unpredictable bureaucratic support.

Traditional private banks should not be expected to offer microcredit

• Existing banks with a traditional operating philosophy typically have significant investments in facilities and costly operating structures. Because of the significant overhead of such banking operations, these bank operations naturally gravitate to large, profitable transactions with affluent borrowers.

A new generation of banking institutions and professionals to run them is arising

• Banking institutions motivated by a less myopic vision of profitably serving the common good can be capitalized for the primary purpose of entry-level economic development. By lowering the transaction costs through institutional specialization and innovation in delivery systems, they will be able to operate profitably in markets characterized by very small transaction sizes and less affluent clients.

Poor entrepreneurs possess the same survival skills as the toughest, most affluent business operators

• Poor entrepreneurs are not only prebankable, they represent the population of those individuals who will be aggressively pursued as successful, very affluent captains of enterprise in 10, 25 or 50 years from now.

A radically efficient, large-scale, new banking operating infrastructure required

• Simply modifying old methods will not successfully expand poor people's participation in their country's economy. Investment in self- sustaining institutions that finance poor residents is a comparatively cost-effective use of scarce subsidies for economic development.

• The costs of doing research in the microcredit and microenterprise areas are extremely low compared to other strategies to stimulate economic development such as tax abatement or continued support for welfare programs.

Beyond enterprise lending and savings• Microfinance is expanding beyond its roots in savings and

business lending and now offers other forms of financial services, including most notably insurance and housing microfinance.

• Microfinance offers the promise that it could eventually evolve into a specialized form of banking catering to economically active poor people who currently happen to be unbanked.

• Some new microfinance focused-organizations, for instance the Development Innovations Group (DIG), have embraced this more expanded vision of microfinance and speak of financial services for the poor or of development finance, rather than of microfinance.

Strengths• In the past few years, savings-led microfinance has gained

recognition as an effective way to bring very poor families low-cost financial services. E.g., in India NABARD finances more than 500 banks that on-lend funds to self-help groups (SHGs) which comprise twenty or fewer members, of whom the majority are women from the poorest castes and tribes.

• Members save small amounts of money, as little as a few rupees a month in a group fund. Members may borrow from the group fund for a variety of purposes ranging from household emergencies to school fees.

• As SHGs prove capable of managing their funds well, they may borrow from a local bank to invest in small business or farm activities.

• Banks typically lend up to four rupees for every rupee in the group fund. Groups pay a reasonable 11-12% annual rate of interest.

• Nearly 1.4 million SHGs comprising approximately 20 million women now borrow from banks, which makes the Indian SHG-Bank Linkage model the largest microfinance program.

• Similar programs are evolving in Africa and Southeast Asia with the assistance of Opportunity International, Catholic Relief Services, CARE, APMAS, Oxfam, etc.

• Microfinancing also helps in the development of an economy by giving everyday people the chance to establish a sustainable means of income. Eventual increases in disposable income will lead to economic development and growth.

Criticism • Gina Neff of the Left Business Observer has described the

microcredit movement as a privatization of public safety-net programs.*

• Neff maintains that the success of the microcredit model has been judged disproportionately from a lender's perspective (repayment rates, financial viability) and not from that of the borrowers.

• E.g., the Grameen Bank's high repayment rate does not reflect the number of women who are repeat borrowers and have become dependent on loans for household expenditures rather than capital investments.

• Studies of microcredit programs have found that women often act merely as collection agents for their husbands and sons, such that the men spend the money themselves while women are saddled with the credit risk (and are kept out of waged work and pushed into the informal economy).

• Bangladesh's Finance and Planning Minister M. Saifur Rahman charges that some microfinance institutions use excessive interest rates.

• Many studies have shown that risks like sickness, natural disaster and overindebtedness are a critical dimension of poverty, and that very poor people rely heavily on informal savings to manage these risks.*

• It might be expected that MFIs would provide safe, flexible savings services to this population, but they have been very slow to do so (with exceptions like Grameen II). Some argue that they are overly dependent on external capital.

• E.g., a study in Bolivia in 2003 found that MFIs were very slow to deliver quality microsavings services because of easy access to cheaper forms of external capital. Global data tables from The Microbanking Bulletin show that savings represent a small source of funds for microcredit institutions in most developing nations.

Role of Developing Country, a recent Forbes ranking• Forbes named seven India MFIs in the first ever list of

world's top 50, highest for a country.* • Bangalore-based Bandhan was at the second position.

Bandhan, as well as two other Indian MFIs, Microcredit Foundation of India (13th) and Saadhana Microfin Society (15th), have been placed even above Bangladesh-based Grameen Bank (17th, topped by another Bangladesh-based institution ASA).**

• India, along with Bangladesh, are jointly home to the maximum number of MFIs to be featured in the list. Among others, there are five from Bosnia and Herzegovina, four each from Morocco and Peru, three from Colombia and two each from Equador, Ethiopia and Serbia.

• One each from 15 other countries, including Russia, Pakistan, Mexico and Brazil have also been named in the list.

• The magazine said that the list was made after going through data available with the Microfinance Information Exchange and the analysis from rating firms Micro-Credit Ratings International Limited and MicroRate.

• "Each microfinance institution earned scores in four equally weighted categories -- scale, efficiency, portfolio risk and profitability. Rankings were then based on the combined average score of those four categories".

• The ranking was based on six key variables: gross loan portfolio, operating expense, operating expenses divided by the average number of active borrowers as a percentage of gross national income per capita, the outstanding balance of loans overdue by more than 30 days as a per cent of gross loan portfolio, return on assets, and return on equity.

Credit Rating Agencies (CRAs)Code of Conduct Fundamentals

IOSCO’s Technical Committee publisheda Statement of Principles Regarding the Activities of

Credit Rating Agencies in September 2003.*• Designed to be a useful tool for securities regulators, rating

agencies and others wishing to articulate the terms and conditions under which CRAs operate and the manner in which opinions of CRAs should be used by market participants.

• Laid out high-level objectives to improve investor protection and the fairness, efficiency and transparency of securities markets and reduce systemic risk.

• To take into account the different market, legal and regulatory circumstances in which CRAs operate, and the varying size and business models of CRAs, the manner in which the Principles were to be implemented was left open.

• A variety of mechanisms could be used, including both market mechanisms & regulation.

• Along with the Principles, the Committee also published a Report on the Activities of Credit Rating Agencies that outlined the activities of CRAs, the types of regulatory issues that arise relating to these activities, and how the Principles address these issues.*

• Highlighted the growing and sometimes controversial importance placed on CRA assessments and opinions, and found that, in some cases, CRAs activities are not always well understood by investors and issuers alike.

• CRAs typically are subject to little formal regulation or oversight in most jurisdictions, concerns have been raised regarding the manner in which CRAs protect the integrity of the rating process, ensure that investors and issuers are treated fairly, and safeguard confidential material information provided them by issuers.

• The Code Fundamentals offer a set of robust, practical measures that serve as a guide to and a framework for implementing the Principles’ objectives.*

• The fundamentals should be included in individual CRA codes of conduct, and the elements contained in the Code Fundamentals should receive the full support of CRA management and be backed by thorough compliance and enforcement mechanisms.

• CRAs and regulators should consider whether or not additional measures may be necessary in a specific jurisdiction.

• Not designed to be rigid or formulistic, but to offer a degree of flexibility in how these measures are incorporated into the individual codes of conduct.

• CRAs should disclose how each provision of the Code Fundamentals is addressed in the CRA’s own code of conduct, explain if and how their own codes of conduct deviate from the Code Fundamentals and how such deviations nonetheless achieve the objectives laid out. Should keep in mind that the laws and regulations of the jurisdictions in which they operate vary and take precedence.*

• Permit market participants and regulators to draw their own conclusions about whether the CRA has implemented the Code Fundamentals to their satisfaction, and to react accordingly.

• Do not address the equally important obligations issuers have of cooperating with and providing accurate and complete information to the marketplace and the CRAs.

Terms• Apply to any CRA and any person employed by a CRA in

either a full-time or part-time capacity.• A “credit rating” is an opinion regarding the creditworthiness

of an entity, a credit commitment, a debt or debt-like security or an issuer of such obligations expressed using an established and defined ranking system.

• Not recommendations to purchase, sell, or hold any security.• CRAs should endeavor to issue opinions that help reduce the

asymmetry of information that exists between borrowers (and debt and debt-like securities issuers) and lenders (and the purchasers of debt and debt-like securities).

• Stale ratings that fail to reflect changes to an issuer’s financial condition or prospects may mislead market participants. Likewise, conflicts of interest or other undue factors – internal and external – that might, or even appear to, impinge upon the independence of a rating decision can seriously undermine a CRA’s credibility.

1. Quality and Integrity of the Rating ProcessA. Quality of the Rating Process

1.1 The CRA should adopt, implement and enforce written procedures to ensure that the opinions it disseminates are based on a thorough analysis of all information known to the CRA that is relevant to its analysis according to the CRA’s published rating methodology.

1.2 Should use rating methodologies that are rigorous, systematic and, where possible, result in ratings that can be subjected to some form of objective validation based on historical experience.

1.3 In assessing an issuer’s creditworthiness, analysts involved in the preparation or review of any rating action should use methodologies established by the CRA. Analysts should apply a given methodology in a consistent manner, as determined by the CRA.

1.4 Credit ratings should be assigned by the CRA and not by any individual analyst employed by the CRA; ratings should reflect all information known, and believed to be relevant, to the CRA, consistent with its published methodology; and the CRA should use people who, individually or collectively have appropriate knowledge and experience in developing a rating opinion for the type of credit being applied.

1.5 Should maintain internal records to support its credit opinions for a reasonable period of time or in accordance with applicable law.

1.6 The CRA and its analysts should take steps to avoid issuing any credit analyses or reports that contain misrepresentations or are otherwise misleading as to the general creditworthiness of an issuer or obligation.

1.7 Should ensure that it has and devotes sufficient resources to carry out high-quality credit assessments of all obligations and issuers it rates. When deciding whether to rate or continue rating an obligation or issuer, it should assess whether it is able to devote sufficient personnel with sufficient skill sets to make a proper rating assessment, and whether its personnel likely will have access to sufficient information needed in order make such an assessment.

1.8 Should structure its rating teams to promote continuity and avoid bias in the rating process.

B. Monitoring and Updating1.9 Except for ratings that clearly indicate they do not entail

ongoing surveillance, once a rating is published the CRA should monitor on an ongoing basis and update the rating by: a. regularly reviewing the issuer’s creditworthiness; b. initiating a review of the status of the rating upon becoming aware of any information that might reasonably be expected to result in a rating action (including termination of a rating), consistent with the applicable rating methodology; and, c. updating on a timely basis the rating, as appropriate, based on the results of review.

1.10 Where a CRA makes its ratings available to the public, the CRA should publicly announce if it discontinues rating an issuer or obligation. Where a CRA’s ratings are provided only to its subscribers, the CRA should announce to its subscribers if it discontinues rating an issuer or obligation. In both cases, continuing publications by the CRA of the discontinued rating should indicate the date the rating was last updated and the fact that the rating is no longer being updated.

C. Integrity of the Rating Process1.11 The CRA and its employees should comply with all

applicable laws and regulations governing its activities in each jurisdiction in which it operates.

1.12 The CRA and its employees should deal fairly and honestly with issuers, investors, other market participants, and the public.

1.13 The CRA’s analysts should be held to high standards of integrity, and the CRA should not employ individuals with demonstrably compromised integrity.

1.14 The CRA and its employees should not, either implicitly or explicitly, give any assurance or guarantee of a particular rating prior to a rating assessment. This does not preclude a CRA from developing prospective assessments used in structured finance and similar transactions.

1.15 Should institute policies and procedures that clearly specify a person responsible for the CRA’s and the CRA’s employees’ compliance with the provisions of the CRA’s code of conduct and with applicable laws and regulations. This person’s reporting lines and compensation should be independent of the CRA’s rating operations.

1.16 Upon becoming aware that another employee or entity under common control with the CRA is or has engaged in conduct that is illegal, unethical or contrary to the CRA’s code of conduct, a CRA employee should report such information immediately to the individual in charge of compliance or an officer of the CRA, as appropriate, so proper action may be taken. A CRA’s employees are not necessarily expected to be experts in the law. Nonetheless, its employees are expected to report the activities that a reasonable person would question. Any CRA officer who receives such a report from a CRA employee is obligated to take appropriate action, as determined by the laws and regulations of the jurisdiction and the rules and guidelines set forth by the CRA.CRA management should prohibit retaliation by other CRA staff or by the CRA itself against any employees who, in good faith, make such reports.

2. CRA Independence and Avoidance of Conflicts of InterestA. General

2.1 Should not forbear or refrain from taking a rating action based on the potential effect (economic, political, or otherwise) of the action on the CRA, an issuer, an investor, or other market participant.

2.2 The CRA and its analysts should use care and professional judgment to maintain both the substance and appearance of independence and objectivity.

2.3 The determination of a credit rating should be influenced only by factors relevant to the credit assessment.

2.4 The credit rating a CRA assigns to an issuer or security should not be affected by the existence of or potential for a business relationship between the CRA (or its affiliates) and the issuer (or its affiliates) or any other party, or the non-existence of such a relationship.

2.5 Should separate, operationally and legally, its credit rating business and CRA analysts from any other businesses of the CRA, including consulting businesses, that may present a conflict of interest. The CRA should ensure that ancillary business operations which do not necessarily present conflicts of interest with the CRA’s rating business have in place procedures and mechanisms designed to minimize the likelihood that conflicts of interest will arise.

B. CRA Procedures and Policies2.6 Should adopt written internal procedures and mechanisms

to (1) identify, and (2) eliminate, or manage and disclose, as appropriate, any actual or potential conflicts of interest that may influence the opinions and analyses the CRA makes or the judgment and analyses of the individuals the CRA employs who have an influence on ratings decisions. The CRA’s code of conduct should also state that the CRA will disclose such conflict avoidance and management measures.

2.7 The CRA’s disclosures of actual and potential conflicts of interest should be complete, timely, clear, concise, specific and prominent.

2.8 Should disclose the general nature of its compensation arrangements with rated entities.

Where a CRA receives from a rated entity compensation unrelated to its ratings service, such as compensation for consulting services, the CRA should disclose the proportion such non-rating fees constitute against the fees the CRA receives from the entity for ratings services.

2.9 The CRA and its employees should not engage in any securities or derivatives trading presenting conflicts of interest with the CRA’s rating activities.

2.10 In instances where rated entities (e.g., governments) have, or are simultaneously pursuing, oversight functions related to the CRA, the CRA should use different employees to conduct its rating actions than those employees involved in its oversight issues.

C.CRA Analyst and Employee Independence2.11 Reporting lines for CRA employees and their

compensation arrangements should be structured to eliminate or effectively manage actual and potential conflicts of interest. The CRA’s code of conduct should also state that a CRA analyst will not be compensated or evaluated on the basis of the amount of revenue that the CRA derives from issuers that the analyst rates or with which the analyst regularly interacts.

2.12 Should not have employees who are directly involved in the rating process initiate, or participate in, discussions regarding fees or payments with any entity they rate.

2.13 No CRA employee should participate in or otherwise influence the determination of the CRA’s rating of any particular entity or obligation if the employee:

a. Owns securities or derivatives of the rated entity, other than holdings in diversified collective investment schemes;

b. Owns securities or derivatives of any entity related to a rated entity, the ownership of which may cause or may be perceived as causing a conflict of interest, other than holdings in diversified collective investment schemes;

c. Has had a recent employment or other significant business relationship with the rated entity that may cause or may be perceived as causing a conflict of interest;

d. Has an immediate relation (i.e., a spouse, partner, parent, child, or sibling) who currently works for the rated entity; or

e. Has, or had, any other relationship with the rated entity or any related entity thereof that may cause or may be perceived as causing a conflict of interest.

2.14 The CRA’s analysts and anyone involved in the rating process (or their spouse, partner or minor children) should not buy or sell or engage in any transaction in any security or derivative based on a security issued, guaranteed, or otherwise supported by any entity within such analyst’s area of primary analytical responsibility, other than holdings in diversified collective investment schemes.

2.15 CRA employees should be prohibited from soliciting money, gifts or favors from anyone with whom the CRA does business and should be prohibited from accepting gifts offered in the form of cash or any gifts exceeding a minimal monetary value.

2.16 Any CRA analyst who becomes involved in any personal relationship that creates the potential for any real or apparent conflict of interest

(including, for example, any personal relationship with an employee of a rated entity or agent of such entity within his or her area of analytic responsibility), should be required to disclose such relationship to the appropriate manager or officer of the CRA, as determined by the CRA’s compliance policies.

3. CRA Responsibilities to the Investing Public and IssuersA.Transparency and Timeliness of Ratings Disclosure

3.1 Should distribute in a timely manner its ratings decisions regarding the entities and securities it rates.

3.2 Should publicly disclose its policies for distributing ratings, reports and updates.

3.3 Should indicate with each of its ratings when the rating was last updated.

3.4 Except for “private ratings” provided only to the issuer, the CRA should disclose to the public, on a non-selective basis and free of charge, any rating regarding publicly issued securities, or public issuers themselves, as well as any subsequent decisions to discontinue such a rating, if the rating action is based in whole or in part on material non-public information.

3.5 Should publish sufficient information about its procedures, methodologies and assumptions (including financial statement adjustments that deviate materially from those contained in the issuer’s published financial statements) so that outside parties can understand how a rating was arrived at by the CRA. This information will include (but not be limited to) the meaning of each rating category and the definition of default or recovery, and the time horizon the CRA used when making a rating decision.

3.6 When issuing or revising a rating, the CRA should explain in its press releases and reports the key elements underlying the rating opinion.

3.7 Where feasible and appropriate, prior to issuing or revising a rating, the CRA should inform the issuer of the critical information and principal considerations upon which a rating will be based and afford the issuer an opportunity to clarify any likely factual misperceptions or other matters that the CRA would wish to be made aware of in order to produce an accurate rating. The CRA will duly evaluate the response. Where in particular circumstances the CRA has not informed the issuer prior to issuing or revising a rating, the CRA should inform the issuer as soon as practical thereafter and, generally, should explain the reason for the delay.

3.8 In order to promote transparency and to enable the market to best judge the performance of the ratings, the CRA, where possible, should publish sufficient information about the historical default rates of CRA rating categories and whether the default rates of these categories have changed over time, so that interested parties can understand the historical performance of each category and if and how rating categories have changed, and be able to draw quality comparisons among ratings given by different CRAs. If the nature of the rating or other circumstances make a historical default rate inappropriate, statistically invalid, or otherwise likely to mislead the users of the rating, the CRA should explain this.

3.9 For each rating, the CRA should disclose whether the issuer participated in the rating process. Each rating not initiated at the request of the issuer should be identified as such. The CRA should also disclose its policies and procedures regarding unsolicited ratings.

3.10 Because users of credit ratings rely on an existing awareness of CRA methodologies, practices, procedures and processes, the CRA should fully and publicly disclose any material modification to its methodologies and significant practices, procedures, and processes. Where feasible and appropriate, disclosure of such material modifications should be made prior to their going into effect. The CRA should carefully consider the various uses of credit ratings before modifying its methodologies, practices, procedures and processes.

B.The Treatment of Confidential Information3.11 Should adopt procedures and mechanisms to protect the

confidential nature of information shared with them by issuers under the terms of a confidentiality agreement or otherwise under a mutual understanding that the information is shared confidentially.

Unless otherwise permitted by the confidentiality agreement and consistent with applicable laws or regulations, the CRA and its employees should not disclose confidential information in press releases, through research conferences, to future employers, or in conversations with investors, other issuers, other persons, or otherwise.

3.12 Should use confidential information only for purposes related to its rating activities or otherwise in accordance with any confidentiality agreements with the issuer.

3.13 CRA employees should take all reasonable measures to protect all property and records belonging to or in possession of the CRA from fraud, theft or misuse.

3.14 CRA employees should be prohibited from engaging in transactions in securities when they possess confidential information concerning the issuer of such security.

3.15 In preservation of confidential information, CRA employees should familiarize themselves with the internal securities trading policies maintained by their employer, and periodically certify their compliance as required by such policies.

3.16 CRA employees should not selectively disclose any non-public information about rating opinions or possible future rating actions of the CRA, except to the issuer or its designated agents.

3.17 CRA employees should not share confidential information entrusted to the CRA with employees of any affiliated entities that are not CRAs. CRA employees should not share confidential information within the CRA except on an “as needed” basis.

3.18 CRA employees should not use or share confidential information for the purpose of trading securities, or for any other purpose except the conduct of the CRA’s business.

4.Disclosure of the Code of Conduct and Communication with Market Participants

4.1 Should disclose to the public its code of conduct and describe how the provisions of its code of conduct fully implement the provisions of the IOSCO Principles Regarding the Activities of Credit Rating Agencies and the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies. If a CRA’s code of conduct deviates from the IOSCO provisions, the CRA should explain where and why these deviations exist, and how any deviations nonetheless achieve the objectives contained in the IOSCO provisions. Should also describe generally how it intends to enforce its code of conduct and should disclose on a timely basis any changes to its code of conduct or how it is implemented and enforced.

4.2 Should establish a function within its organization charged with communicating with market participants and the public about any questions, concerns or complaints that the CRA may receive. The objective of this function should be to help ensure that the CRA’s officers and management are informed of those issues that the CRA’s officers and management would want to be made aware of when setting the organization’s policies.