1. Thank you for inviting me to this special tenth anniversary of the Singapore Institute of Directors’ flagship annual conference. Congratulations on this milestone. Given the audience today, I thought I would talk about governance.
From Shareholders to Stakeholders
2. All of us must have experienced this: We attend an AGM of a listed company, and a shareholder would put up his hand to ask a question. But instead of asking about business prospects or dividend policy, he would complain about his experience as a customer of the company, and ask for better service. Many fellow shareholders, and most likely members of management and the board, would be puzzled, because wouldn’t that increase cost and undermine shareholders’ interest – and the questioner’s interest? These are questions of customers, not shareholders.
3. But if you think about it, it would be even more puzzling if such questions did not arise during an AGM. Because the people who ask such questions do not see themselves as just a shareholder. They are more likely to be a customer first, before a shareholder of the company. It would be wrong to over-simplify their interest to be merely concerned about the quantum of dividend pay-outs.
4. A few weeks ago, about 200 American CEOs, including those from JP Morgan, GM, and IBM, caused some excitement when they pledged to serve not just shareholders, but a broader slate of stakeholders – customers, staff, suppliers, communities and even Mother Nature. People asked: Is this a major shift in capitalism as we know it? Is enhancing or maximising shareholder value finally dying? Is there a fundamental change?
5. What these bosses declared was actually not new. Post-Great Depression, the dominant view in corporate America was to serve all stakeholders, and the idea of prioritising shareholders’ value was popularised only in the 1970’s. Even then, there was a time around the 1990’s when the ‘balanced scorecard’ was fashionable in management science. This balanced scorecard measured the accomplishments of a company holistically – covering not just financial performance, but also developing people, delighting customers, engaging communities, and discharging corporate social responsibility.
6. Businesses in other countries have institutionalised a middle path. Japanese firms, for example, operate in a socially-conscious environment and structure, and even out their profits over the years to make sure their contribution to taxation is sustainable. In German companies of a certain size, it is common to have two levels of boards: a Board of Directors and a Supervisory Board, which is more inclusive.
The Pendulum of History
7. The view on corporate governance, whether a sharp focus on financial performance and shareholder value maximisation, or a more inclusive approach addressing the interests of all stakeholders, will likely continue to oscillate. As leaders of organisations and stewards of good governance, it will serve us well to understand the pendulum of history. Humans’ herd instinct means that we will always overshoot in one direction or another and then have to adjust. I don’t think that will ever change, it is an instinct.
8. If companies are seen as too focused on profits at society’s expense – aggravating income inequality or degrading the environment excessively – public indignation will set in, there will be public protest and it will lead to a correction. The industrial revolution, which set the context for the rise of Marxism, the establishment of unions and Communism, is a key historical example.
9. Post Global Financial Crisis of 2008, in the US and UK today, there have been calls for higher taxes on the rich, stricter regulations, nationalisation, of key utilities for example, and greater redistribution, including a suggestion that part of company shares should be redistributed to all employees – all these suggestions do resonate with certain segments of society. Some say these prompted the recent declaration by the American CEOs. Even for a global city that embraces capitalism, if it is besieged by prolonged social challenges such as of the lack of public housing or good jobs, the people will sooner or later rise up in protest. All they need is a trigger.
Signposts of Good Governance
10. My conclusion is that good governance is about achieving a wise balance. It applies to companies, and also to countries. It is not about Left versus Right, Capitalism versus Socialism, shareholders vs stakeholders, and so on. Instead, we must recognise both sides – this is not a fight of good and evil or right and wrong – but both sides have their strengths and virtues. We need a combination of both, a good balance, to help us run good companies and live together as healthy and cohesive societies.
11. Thinking that inclusive growth means lower growth, doing good for society means doing badly for the company, or being profit-oriented means no social consciousness, are all false dilemmas. Only profitable companies can grow, create jobs and deliver good products and services to the public. And a profitable company also then has a responsibility to give back to society and improve the lives of all its stakeholders. We must achieve a balance.
12. What then is the right balance? I don’t have the answer, but I know some of the signposts that tell us we are on the right track. Let me cite four such examples: the definition of success, dynamism, far-sightedness, and stakeholder engagement.
13. First, the definition of success. It cannot be a single measure. A well-run company would not have a single metric or definition of success, be it ROE or EVA. A company has to evaluate its success in ways that are relevant to different stakeholders. Life is not so simple that it can be boiled down to one number, and all we need to do is chase that number relentlessly and hope that some invisible hand takes care of everything else. It doesn’t work that way. It is like telling students that the only thing that matters in their childhood is their examination results and nothing else. The poor child will have no childhood!
14. Second, we know there is good governance when there is more dynamism and innovation in the company. There is a fear that without a dedicated focus on growth and profitability, a company will lose its nimbleness and competitiveness. I don’t think that is true. The most dynamic and innovative companies are the ones that can bring suppliers, workers, customers all on board to realise its vision and change processes. As a Director of MAS, I am constantly reminded that the most innovative financial institutions are the ones that invest heavily in their workers to upgrade their skills so that they can adapt to new business models, adapt to new technology, and stay relevant.
15. Third, good governance happens when a company is far-sighted, and applauded for having a long term vision and plan. A company not well governed will just be mired in addressing urgent day to day pressures. Focusing on what is urgent, but not what is important for the long run. A well-run company will always be focused on important long term challenges and opportunities, will be clear about its trajectory over the next 20-30 years, and has a plan to realise it. Only such a company is able to do something new, break into new markets and seize new opportunities.
16. Finally, having developed a long term plan, a company must be able to engage its stakeholders and bring them on board. A well-run company is one that is able to engage stakeholders. In this process, stakeholders may have to trade-off and consider how to balance short term benefits and long term goals. Such discussions are only possible when the relationship amongst stakeholders is governed by trust, and a strong spirit of working together for the common good.
Governing a Country
17. These are four signatures of a well-governed company and I don’t think they are exhaustive. What about the governance of a country? I think the dilemmas and challenges faced by the Chairman and board members of a company, are not very different from that of a Prime Minister and his or her Ministers, except that at the national level, their challenges are probably more complex, and have far more serious consequences on the entire population.
18. A government cannot have a single dimensional definition of success – whether it is GDP growth, Gini coefficient or air pollution index. Even a single metric like GDP has multiple aspects – you can have jobless growth or “job-ful” growth that is inclusive and benefits the masses in terms of better prospects and better lives. Inclusivity is always a core principle of all our economic strategies over the decades. This is a fundamental principle that will continue under a 4G leadership.
19. Beyond GDP, governments need to take care of other areas: security, the environment, healthcare, public housing, education and quality of life. Well-being is so multi-faceted that we simply have to dive into every issue very deeply – no single indicator, whether GDP or a composite happiness index, can do the job.
20. A well-governed country will also be dynamic and innovative, just like a well-run company. Given that free trade and globalisation have become thorny political issues, it has become politically tempting for governments to opt for stasis and protectionism. But the right thing to do is to invest in the education and training of people, upgrade enterprises, invest in research and development, and raise productivity and competitiveness, so that companies and workers have the confidence to embrace change, engage the world and seize the opportunities out there.
21. For a small country like Singapore this imperative is particularly strong. That is why we are investing heavily in education, SkillsFuture, and the Research, Innovation and Enterprise programme. These programmes keep us dynamic and innovative, and able to earn a good living in a very competitive world.
22. Small countries like Singapore must also set ourselves long term goals. The main criticism of democracy today is that it is driven by short-term considerations. But democracy means “the will of the people” and whether you are short term or long term depends on what people care about. If people have hopes for the future, if people want a government that thinks for their children and the future generation, it will be a democracy that instils the discipline of governmental far-sightedness.
23. Fortunately, this is what Singapore has, and it is one of our greatest advantages. People of Singapore expect the Government to understand the long term trends, challenges and opportunities of the future, and take necessary actions now. This is how we embarked on our public housing programme and built up the Singapore Armed Forces (SAF) in the past. Likewise, it is why we are now reforming the education system, restructuring the economy and starting to tackle climate change and rising sea levels. This is a long term, 20 to 30-year problem, but we have to tackle it now. People expect the Government to do so.
24. Finally, good governance of a country means leveraging the democratic process to bring all stakeholders on board.
25. In Singapore, we have institutionalised the concept of stakeholder engagement in our fairly unique model of Tripartism, where unions, employers and the Government work together to enlarge our economic pie, and then share it fairly. If you are focused on just dividing the pie all the time, before you know it, the pie disappears. When times are bad, and due to external forces the pie is shrinking, the leaders of companies take the lead to tighten their belts, and then we save jobs by cutting costs, rather than cutting jobs to save costs. Recently, we embarked on the Singapore Together Movement, to engage Singaporeans from all walks of lives. Engagement has become an integral part of governance in Singapore.
26. Good governance is not the inevitable outcome of democracy; just as good governance of companies is not an inevitable outcome of capitalism. Democracy merely provides the context for governments and people to work together. A government needs to ensure consistency in good practices over a long period of time, for good governance to take root.
27. What does this mean? This means that what a government has promised, it has to deliver. This is the only way it can win the trust and support of the people, and take the country forward as one cohesive society. There are no short cuts to good governance, only a ceaseless – I would say, extraordinary – journey, to bring all stakeholders together, earn their trust, and work with them to build a brighter future, for company or for country.
Conclusion
28. Ladies and gentlemen, I have explained my views on what constitutes good governance, for a country and also for a company. Given the audience here today, it is really not a speech in the defence of sustainable reporting. That is a topic for another day. But suffice to say that this also requires a balance, and the spirit is much more important than the form.
29. The theme for this year’s conference is Transformation: From Ordinary to Extraordinary. The definition of ‘Extraordinary’ has been left open. I have given some ideas on what I feel extraordinary means in governance terms, and I wish you a fruitful conference as you contemplate your own answers. Thank you.