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World’s biggest shipbuilders make ethical management pledge

February 2014

Korea’s big three shipbuilders - Hyundai Heavy Industries, Daewoo Shipbuilding and Marine Engineering, and Samsung Heavy Industries - say they are committed to making a fresh start with ethics in 2014 after a number of bribery scandals last year. The three companies are the world’s largest shipbuilders with a combined order value of US$37.4 bn last year.

Bribery emerged as a major problem when the shipbuilding industry suffered a sharp drop in orders in the wake of the global economic slowdown.

Hyundai Heavy Industries (HHI), the nation’s largest ship manufacturer, held an “ethics management resolution” event. HHI chairman’s and more than 150 high-ranking executives, including ceos from affiliates, signed a pledge to pursue ethical management.

“We need to be reborn through major reform,” said the company which has pledged to tighten discipline and strengthen punishments for illegal activities.

Prosecutors recently detained 12 former employees of HHI for taking bribes from suppliers, and arrested three employees from HHI suppliers. Prosecutors said the HHI employees received about KRW 3.6bn in bribes from suppliers since 2007.

The shipbuilder said that since the scandal last year, it has added emphasis on law-abiding management, appointing a president-level executive to oversee ethics, and creating an ethics “compliance unit.”

The compliance unit will pursue programmes to prevent illegal activity and institute systems to monitor business procedures.

Daewoo Shipbuilding and Marine Engineering has already restructured its management ethics. Last November it separated audit and ethics management teams and doubled the number of auditors. The shipbuilder also accepted the resignation of 10 executives. Last year, prosecutors indicted more than 50 people including employees from both Daewoo Shipbuilding and its subcontractors for bribery.

According to the prosecution, a group of executives and employees at Daewoo Shipbuilding collectively took about KRW 3.5bn in bribes from the company’s subcontractors.

Prosecutors have mounted major investigations into Samsung Heavy Industries for bribery and accounting fraud in recent years.

However, only one employee was taken into custody for bribery last year. In his New Year’s message, the president emphasized that establishing a clean corporate culture will be a priority.

Meanwhile, analysts say that despite these scandals, the big three shipbuilders are aiming high this year.

According to a report from Woori Investment and Securities, the three major shipbuilders are likely to set their 2014 targets 10% higher than last year.

Woori speculated that the three would aim for a total of $45bn in revenue.

Asia | Business ethics

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