On August 21, China Everbright Group held the work conference on strengthening the internal management. Mr. Tang Shuangning, Chairman and Secretary of the CCP Committee stressed that: in the current and forthcoming period, the Group shall seize the previous development opportunities created by business transition, firmly adhere to the guidelines of strict management and prudent operation, and properly handle the relationship between security, economic benefits and development, in a bid to giving equal attention to development and management, innovation and standardization, improving the company image and boosting the advancement of reform. The meeting reported 10 typical cases and the punishments on 104 people (inclusive of phased punishment).

　　It is a meeting of self-warning. Currently, China Everbright Group, particularly China Everbright Bank and other financial enterprises, is exposed to serious situation of cases and risks: 1. numerous cases. In the past three years, 24 serious violation cases were detected across the Group, including 6 extremely serious cases; 2. large number of people involved. In 2007 only, 594 people of China Everbright Bank were involved in cases, involving 27 branch leaders; 3. a large number of vicious cases; and 4. large amount involved. The 10 typical cases reported at the meeting involved amount of RMB1,325 million, causing direct economic losses of RMB63.97 million and resulting in non-performing loans of RMB119 million.

　　These cases reflect the serious defects in internal management of China Everbright Group, i.e. the corporate management system and mechanism could barely meet the requirements of modern corporate system and have serious institutional defects which might give rise to cases. The cases may be resulted from various reasons: including incomplete corporate governance, defective internal control and risk management mechanism, unsound inspection and examination; or poor system implementation, weak management of key posts and procedures, noncompliance with regulations and systems; or imperfect incentive and restriction mechanism, deficient human resources mechanism, promotion and appointment of sick executives; or management default in local institutions, poor legal and compliance awareness of individual persons, and loss of professional ethics.

　　Analysis into the causes shows that: 1. Leaders have inadequate awareness. Leaders of some institutions place excess attention to business development and neglect the importance of management, they usually attach high attention to deposits rather than economic benefits, and use data of a time point to guide and assess the work. Internal management has defects such as excess authorization, balance and checking default, loose management and ambiguous definition of rights and responsibilities. 2. The system is not implemented rigorously. The “noncompliance with regulations and illegal operation” leads to the incapable exertion of functions by existing regulations and systems and gives rise to the frequent occurrence of serious cases. 3. The incomplete inspection and examination arising from “face” issue, worries in reporting and untimely handling of problems results in frequent occurrence of cases. 4. The relevant persons are not held accountable in an earnest manner, and their responsibilities are not pressingly investigated. 5. The quality of some personnel deteriorates: some persons deliberately violate the rules and commit crimes, and some practitioners fail to adhere to the rules due to poor sense of responsibility or poor knowledge of the system and business.

　　Mr. Tang stressed that, to respond to such a harsh situation, the Group must improve the sense of responsibility and urgency, pressingly reinforce the understanding of long-term and arduous rectification, and make continual effort to eliminate the roots of cases by comprehensive governance. In the current period, top priorities shall be given to the following tasks.

　　1. To highlight the major and serious cases. “Special attention” shall be attached to the institutions where major, serious and new cases frequently occur; and people shall be encouraged and rewarded for reporting major and serious cases.

　　2. To highlight the frequent-occurrence positions and procedures. Efforts shall be made to strengthen the supervision and management of leaders, especially the “first chairs”, and to supervise the key targets, key positions and key procedures.

　　3. To highlight follow-up and rectification. The detected cases and risk points must be earnestly rectified and eliminated according to the given period.

　　4. To highlight internal control. We shall set up sound internal control measures, including department control, post control, personnel control, and formulate rigorous regulations, procedures, disciplines and records. Meanwhile, efforts shall be made to improve the technical measures and enhance the IT system’s support to risk control.

　　5. To highlight accountability. The “first chairs” shall be responsible for the entire institutions and conclude a “military order” with the superior department. The liability investigation shall be earnestly conducted; and responsibility of institution leaders shall be fully fulfilled during their term of office.

　　We shall build a long-term mechanism of internal management and risk control and include “investigation, prevention, rectification, punishment and education” into our mechanism while sticking to the principles of “combinations”:

　　1. To combine punishment with education. We shall reinforce the education on employee’s values; and nourish a culture of material reward, responsibility and contribution under the rules of market economy; meanwhile, we shall develop the code of conduct of self-discipline and self-control by taking advantage of the “Cohesiveness Project”.

　　2. To combine case investigation with case prevention. Case risk investigation shall be taken as a routine work, and cases shall be investigated thoroughly to prevent the occurrence of any potential risks.

　　3. To combine system improvement with system implementation, and encourage to regulate conducts and manage personnel and matters according to the system.

　　4. To combine internal monitoring with external supervision, and give effect to the resultant force of internal monitoring and external supervision.

　　5. To combine internal control with cultural nourishment, and build the operating philosophy of “Violation=Risk”, “Safety=Benefit” and “Compliance=Reputation” among executives and employees by cultivating a compliance culture.