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A Case of the Pot Calling the Kettle Black?

Recently the Wall Street Journal  reported that Temasek Holdings, with no sense of irony,  was pressing Standard Chartered to appoint more independent directors (  The article went on to say that, despite earlier reports in the FT, Temasek did not have any immediate plans to sell its stake in the bank. I discussed a possible sale of Temasek’s stake in “Roach Motel or Investing for the Long Term: You Decide What Best Describes Temasek’ s Investment Strategy” (

The WSJ article quoted “a person close to Standard Chartered” who said “the dispute stems from Temasek’s desire for the bank to have a supervisory board consisting of just one Standard Chartered executive, with the rest of the board made up of independent directors.” The article went on to say that in its latest annual report Temasek had added a section about governance saying “To provide effective oversight of management on behalf of all shareholders, we advocate that boards be independent of management. We do not support excessive numbers of executive members on company boards.”

While these are admirable principles in practice the sentiments made me wonder how many of Temasek’s board could be said to be independent of the company or its 100% shareholder, the government. I decided to look at the background of the other members of the board, apart from the Chairman, Mr. Dhanabalan and the CEO, Madam Ho Ching, to see how many were truly independent.  I also compared Temasek’s governance framework with the Norwegian Sovereign Wealth Fund to see how far we were following what could legitimately be called best practice.

The Role of Independent Directors

Independent directors are supposed to be there to safeguard the interests of shareholders and prevent management, who have inside knowledge, from profiting at the expense of shareholders. This could be by manipulating earnings to meet the targets set in their compensation plans, whether these are based on earnings per share or their share price. They are also there to prevent fraud or excessive risk-taking.

While Temasek may be owned by the Minister for Finance (the government) which appoints the Board, the real shareholders are of course the people of Singapore. The independent directors’ job is to look after the interests of the people and prevent management enriching themselves at their expense by tweaking their compensation plans or making their targets excessively easy.  In the case of Temasek where management are paid for exceeding a hurdle rate of return but do not get fired when they lose money (though there are clawbacks) there is an inherent bias toward excessive risk taking. The independent directors should also see that Temasek’s primary objective of maximising returns for their shareholder, the people of Singapore, is not diluted by other unrelated policy objectives such as making friends abroad, handing out charity or promoting Singapore’s image.

For instance it is difficult to see why we need the Temasek Trust to fund charitable initiatives as well as scientific research. These things should be done directly by government where Parliament is able to scrutinize the expenditure. In any case, if the government was really interested in good government Temasek’s annual report and budget would be presented and voted on in Parliament just as the Norwegian SWF is.

The Definition of Independent Directors

According to Wikipedia (, the NYSE states:

“no director qualifies as ‘independent’ unless the board of directors affirmatively determines that the director has ‘no material relationship’ with the listed company, either directly or as a partner, shareholder or officer of an organization that has a relationship with the company.”

The Singapore Stock Exchange’s own listing rules ( state the following:

2.3 An “independent” director is one who has no relationship with the company, its related corporations4, its 10% shareholders or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director’s independent business judgement with a view to the best interests of the company. The Board should identify in the company’s Annual Report each director it considers to be independent. The Board should determine, taking into account the views of the Nominating Committee (“NC”), whether the director is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the director’s judgement. Directors should disclose to the Board any such relationship as and when it arises. The Board should state its reasons if it determines that a director is independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination, including the following:

(a) a director being employed by the company or any of its related corporations for the current or any of the past three financial years;

(b) a director who has an immediate family member who is, or has been in any of the past three financial years, employed by the company or any of its related corporations and whose remuneration is determined by the remuneration committee;

(c) a director, or an immediate family member, accepting any significant compensation from the company or any of its related corporations for the provision of services, for the current or immediate past financial year, other than compensation for board service;

(d) a director:

(i) who, in the current or immediate past financial year, is or was; or

(ii) whose immediate family member, in the current or immediate past financial year, is or was,

a 10%shareholder of, or a partner in (with 10% or more stake), or an executive officer of, or a director of, any organisation to which the company or any of its subsidiaries made, or from which the company or any of its subsidiaries received, significant payments or material services (which may include auditing, banking, consulting and legal services), in the current or immediate past financial year. As a guide, payments5 aggregated over any financial year in excess of S$200,000 should generally be deemed significant;

(e) a director who is a 10% shareholder or an immediate family member of a 10% shareholder of the company; or

(f) a director who is or has been directly associated with6 a 10% shareholder of the company, in the current or immediate past financial year.

“Related corporation” is defined thus:

The term “related corporation”, in relation to the company, shall have the same meaning as currently defined in the Companies Act, i.e. a corporation that is the company’s holding company, subsidiary or fellow subsidiary.

In Temasek’s case their Governance Framework in their last Annual Report states that a majority of the Board can be considered independent. However can they really be considered independent by accepted standards of corporate governance? Let us examine the composition of the Board to determine the validity of that claim.

Temasek’s Board

Temasek’s Board of Directors has the following members:

S. Dhanabalan

Ho Ching

Kua Hong Pak

Goh Yew Lin

Teo Ming Kian

Marcus Wallenberg

Michael Lien

Cheng Wai Keung

Lim Boon Heng

Madam Ho Ching is of course the CEO of Temasek so she is obviously not independent.

Mr. Dhanabalan, the Chairman, is a member of the Executive Committee so he is not independent. In any case as a former minister he has a relationship with Temasek’s shareholder.

Mr. Kua Hong Pak is the MD and Group CEO of Comfort DelGro Corporation and Deputy Chairman of SBS Transit Limited and VICOM Limited. ComfortDelgro was created by the merger of SBS with the NTUC owned Comfort. As one of the duopolists in the public transport industry (together with Temasek-controlled SMRT) and a company in which Singapore Labour Foundation is still the largest shareholder, it could be described as dependent on the government’s goodwill. It is noteworthy that Mr. Lim Boon Heng, recently appointed as a Director of Temasek, penned the foreword to “The ComfortDelgro Story”, an account of how ComfortDelgro was put together and in which the government played a prominent role. Mr. Kua therefore could not be described as independent according to either the NYSE or the SSE guidelines.

Mr. Goh Yew Lin is a member of the Board of Trustees and Chairman of the Investment Committee of NUS. The government has complete control over NUS, including the appointment of Trustees, by virtue of the NUS (Corporatisation) Act.

Mr. Teo Ming Kian is the Chairman of Mediacorp, a 100% owned Temasek subsidiary and also of Temasek Life Sciences Laboratory Limited, which is funded by the Temasek Foundation. Previously he was a Perm Sec and senior civil servant. Therefore he cannot be considered independent.

Mr. Michael Lin is a member of the Board of Trustees and of the Investment Committee of NUS.

Mr. Cheng Wai Keung is the Chairman of Wing Tai Holdings. Wing Tai is a publicly listed property developer that has built a number of prime residential developments. However the government is the monopoly owner of land in Singapore.  Wing Tai’s relationship with the government could thus be considered one of dependency particularly as it has to deal with a number of government agencies apart from SLA and URA.

Mr. Lim Boon Heng was of course a Cabinet Minister until 2011 so he cannot be considered independent. He was also previously the Secretary General of NTUC. I have already mentioned his role in relation to the formation of ComfortDelgro above.

Apart from Marcus Wallenberg it is difficult to see how any of the directors of Temasek  can truly be considered independent on any definition of the term that is not excessively narrow. Even Mr. Wallenberg or Temasek should disclose how much business they or related corporations do with Skandinaviska Enskilda Banken or with Electrolux or whether Temasek or GIC hold any shares in these companies.

A Pure Piece of Wayang for the International Stage?

Of course Temasek should have a vested interest in seeing that the companies it invests in follow good corporate governance principles. However, clearly they and the government do not apply this principle at home.

This is not to say that Temasek’s non-executive directors are not capable of acting independently. They may very well do so. However by the standards of the SSE’s own listings manual and the NYSE rules the overwhelming majority cannot be classified as independent.

Some readers may object of course that with an SWF it is impossible to have truly independent directors. This is particularly true in Singapore where the government owns such a large chunk of the economy and exercises such a pervasive influence over the rest. However this is an argument for privatization of Temasek and the dismantling of the government’s control over the economy not for allowing things to remain in their present unsatisfactory state.

I am not in favour of a half-way house. However, at the very least, we should adopt the Norwegian practice. There the SWF is administered by the central bank but the supervisory board is appointed by Parliamentary vote. The annual report and risk parameters are also debated and voted on in Parliament (.

It is unacceptable that we have not been given an explanation by our government for the seemingly very poor returns of our SWFs (  Without a move to higher standards of transparency and accountability, including properly independent directors and Parliamentary oversight, it is unlikely that we will see any improvement in the future.


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