Temasek Holdings: transparency and accountability

Temasek's transparency won the organisation a perfect score on the Linaburg-Maduell Transparency Index and this is good news.

Transparency, however, is only one aspect of accountability. Corporate accountability calls for an independent board of directors which asks management tough questions about investment strategy and performance.

In Temasek's case, the board of directors comprises nine members, seven of whom have some nature of linkage with the Government. This is not necessarily a flaw per se.

Yet, others may argue that it inhibits their independence as directors. Consequently, the board's contribution to improving Temasek's corporate governance is reduced.

Certainly, one is conscious of the Government's desire to retain control over a strategic organisation such as Temasek. Nonetheless, there are approaches that may satisfy both board independence and government control.

The Ministry of Finance, Temasek's sole shareholder, should consider the structure of the California Public Employees' Retirement System (Calpers) board of directors.

Calpers, a body established by the state of California, has a 13-member board. Seven are appointed by the California government and six are elected independently. Thus, a board majority is retained by the Government.

Perhaps the Temasek board can be expanded in a similar manner. Seven directors appointed by the Government and six nominated by appropriate private sector bodies such as the Securities Investors Association (Singapore), Singapore Investment Banking Association and Association of Banks in Singapore.

It is useful to remember that all board members require the President's concurrence so any unacceptable nominees can be screened out.

Inducting significantly more independent private sector expertise into Temasek's board may not only improve its performance, but also sends a strong signal to Singaporeans that the Government and the people are in Temasek's investment journey together.

The above is the text of my letter published in the Straits Times on November 11, 2009 under the title, "Kudos to Temasek for transparency award - let's take it to next level."

Temasek's response - board members are independent

Temasek Holdings published a response in the Straits Times on November 14, 2009 under the title, "Temasek board members are independent."

The full text of the letter is reproduced below. No name was attached to the letter.

I THANK Mr Imran Ahmed for his letter on Wednesday, 'Kudos to Temasek for transparency award - let's take it to next level'.

Temasek Holdings is a commercial investor. Although the Singapore Government is our sole shareholder, it does not direct or influence our investment or divestment decisions.

Eighteen years ago, the Government initiated and put in place constitutional safeguards to protect the integrity of important Singapore institutions like Temasek. Thus, the appointment, removal and renewal of Temasek board members are subject to the concurrence of the President of Singapore.

Mr Imran's concerns that 'seven' out of nine Temasek board members 'have some nature of linkage with the Government' are also misplaced.

Our board members, comprising reputable Singaporeans and non-Singaporeans, are appointed on the basis of their relevant experience, integrity and the independence of mind they bring to our board deliberations.

A considered examination of their backgrounds would show that they are well qualified in their own right with a majority having independent non-government business or corporate leadership track records.

While the Government may have tapped them for government committees or boards of public institutions, such pro-bono 'linkages' do not make them any less independent or suitable as Temasek board members.

Ultimately, our board has the responsibility to discharge its fiduciary duty with care, integrity and wisdom, and to act in the best interest of Temasek and its stakeholders to deliver sustainable long-term returns.

Singapore's Temasek and the Asian Wall Street Journal

The Wall Street journal chose its words carefully on August 20, 2009. There does not seem to be any reason to sue the newspaper this time around!

In an editorial entitled, 'Temasek and Transparency - III' the paper called for greater transparency. The opinion piece quoted extensively from Finance Minister Tharman Shanmugaratnam's recent statement on the controversy surrounding the appointment of Temasek's new CEO.

During Singapore's move from Third World to First World it has amassed huge foreign exchange reserves

It is true that Singaporean's desire greater disclosure from the organization. No can argue with the following words written by the paper, "Temasek has taken baby steps toward more transparency under Ms. Ho. The questions raised in parliament Tuesday show the Singaporean people support those efforts, and want more."

In fact, it will be nice if other Sovereign Wealth Funds (SWFs) such as from the wealthy Gulf countries and China also reveal more information.

Singapore is not the only culprit in the dock on this matter.

Disclosures by SWF's are a complex matter. It is not only about providing more information to the public. Other factors must be considered.

The information may affect portfolio positioning and strategy. Stale or out of date portfolio information is perhaps less risky to divulge but questions arise about how to define 'out of date' for investors which have a 10 year or longer investment time horizon.

Performance data is different. Making performance data known in a prescribed format is not a portfolio risk. Without adequate performance data reasonable oversight can be problematic.

Singaporean women seeking good fortune by touching a statue of the Laughing Buddha

The real question then is what is the basis of oversight undertaken by the Board? What powers does the Board exercise during this oversight exercise and have they fulfilled their fiduciary obligations by ensuring management is kept on its toes. It may have been due to the new CEO's proposed Board changes that his appointment was rescinded.

In due course, I am sure the details will filter out. In the interim, at least the foreign media is learning how not to ruffle feathers in Singapore!