Perspectives From Thought Leaders – Some Thoughts On Corporate Governance in Singapore

By Professsor Tommy Koh, Ambassodor At Large

Editor’s Note: Corporate Governance remains an amorphous concept, incapable of precise definition; and even if defined, is incapable of precise implementation as it involves managing the impossible, ie the human trait of culture. Time and again, rules and regulations have been prescribed to provide guidance to corporations on how best to manage their affairs so that they are reflected as a good corporate citizen; as one who has ensured that in the process of profit maximisation, integrity, transparency and responsibility have not been abdicated, and that all shareholders are treated fairly. Yet, questions have once again resurfaced as to whether the rules and regulations have to be tweaked, reviewed or be provided with greater detail. These questions are not new. Rather than attempt an answer in the abstract, the Insitute felt it was a good idea to have thought leaders share their perspectives. For this first article, given the current global economic meltdown, the Institute approached Professor Tommy Koh, himself a global citizen, for his thoughts on the situation. We set out here Professor Koh’s views.

Question 1

Do you think the meltdown of Wall Street was caused by the culture that greed is good?

I think the meltdown of Wall Street was caused by several factors: inadequate regulation, lack of transparency, an unwarranted faith that the market will always get it right, and the culture of greed. The pressure to make quick money and to produce exceptional returns had led some brainy people on Wall Street to invent more and more complex instruments and investment products which even a genius like Warren Buffet could not understand. The whole saga of the subâ??prime crisis is truly outrageous. It was a con game. I still cannot understand why the boards and managements of so many leading financial institutions in the US and Europe allowed themselves to be deceived. I guess they were all intoxicated with greed and had failed miserably to discharge their responsibilities. The regulators were equally blame-worthy. They were asleep on their watch. I fear, however, the lessons will soon be forgotten and greed, which is part of the human condition, will haunt us again.

Question 2

You have served on two boards. What positive lessons have you learned from your 5 years on the SingTel Board?

I have learned several valuable lessons. First, in choosing directors, the three most important qualities to look for are: competence, integrity and diligence. Second, the SingTel Board has a nice balance between Singaporeans and non-Singaporeans. Third, the board has a good mix of directors with different backgrounds, experiences and skills. Fourth, the annual strategic workshop was an excellent opportunity for board and management to bond and to think strategically about opportunities and challenges. Fifth, the relationship between board and management was optimal: it was neither adversarial nor too cosy. Sixth, the SingTel board took corporate governance very seriously and the committees of the board were empowered to fulfil their respective mandates. I believe that many of these lessons may be applicable to other boards. At the end of the day, what we want in Singapore is for companies to have effective boards. An effective board is one composed of men and women of competence and integrity, endowed with a diversity of skills and experiences, knowledgeable about the company’s business and able to give management strategic directions and hold it accountable.

Question 3

What are your observations on the role of independent directors in Singapore?

Executive directors, independent directors and non independent directors all play valuable roles on a board. Having served twice as an independent director, my sense is that there is a growing appreciation in Singapore for the role of the independent director. Obviously, whether or not an independent director acts “independently” depends on the individual and on the culture of the board. Some boards are dominated by their powerful chairmen. Other boards are dominated by their powerful chief executive officers. In those situations, it is harder for independent directors to resist the temptation to align themselves with the chairman or CEO. However, they would be failing in their duty if they failed to resist the temptation. I am optimistic that, over time, our independent directors will feel empowered to act independently.

In Malaysia, newly appointed directors are required to attend certain courses. I think we should do the same in Singapore so that all directors are aware of their rights, responsibilities and liabilities. Each company should also have orientation courses for their new directors. On the vexatious question of whether there should be a limit on the number of directorships a person should accept, I do not know what the correct answer is. My personal rule is to serve on only one board at a time.

Question 4

Do you approve or disapprove of the growing disparity in the incomes earned by our senior management and the rest of the company?

I basically disapprove of this growing trend in Singapore. I do not know whether it is due to globalisation or to the pernicious influence of the Wall Street model of capitalism. I remember once asking a director of human resources what were the median income and the gini coefficient/index of his company. He looked puzzled and said he did not know and had never heard of the term “gini coefficient or index”. The coefficient or index measures income inequality. It will surprise many Singaporeans to learn that Singapore has become a more unequal society than the United States. I feel that a wage system is intrinsically unjust if it pays someone at the top of the pyramid $6 million a year and another employee at the bottom $600 a month. We should never forget that the good results of a company are seldom, if ever, due to the brilliance of one person. It is usually the result of the contributions of a team. Our present reward system does not reflect this reality.

Question 5

Are you satisfied with the present state of corporate social responsibility (‘CSR’) in Singapore?

I am not satisfied. Most companies in Singapore pay lip service to CSR. We need to convince our companies that, as C K Prahalad has said, CSR is not charity. It is good for the business. Professor Prahalad, a hardheaded professor at the Michigan Business School, has demonstrated that there is a business case for all companies to practise CSR. Why is CSR good for a company’s business? Because a company which practises CSR is better able to attract talented people. Because many customers prefer to patronise such companies increasingly, shareholders demand for their companies to be friendly to the environment, empower women, and create social capital.

Question 6

What about corporate philanthropy?

I concede that, unlike CSR, there is no business case for corporate philanthropy. I would, however, argue that all great companies should contribute to philanthropy. Why? Because profitable companies, like high net-worth individuals, should give back to the community which nourishes them. I would, therefore, urge all our major companies to consider setting up their own foundations and to follow the recommended international practice of contributing 1 to 2 per cent of their annual profits to their foundations. Temasek Holdings has shown the way. It is time for the Temasek-linked companies to emulate its good example. We also need more of our private companies and wealthy families to set up their foundations. If we all do our part, together, we can build a better Singapore.

Professor Tommy Koh
Director of DBS Bank (1994 to 2003)
Director of SingTel (2003 to 2008)
Chairman, Institute of Policy Studies