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The Wall Street Journal Asia
Will a new CEO bring change amid tough markets?
Singapore’s state-owned investment fund Temasek announced a change in leadership last week to a non-Singaporean CEO. We hope his appointment heralds a new era of openness.
Temasek manages public monies, yet much of what it does is hidden from the public it aims to serve. Its stated mission is “to create and maximise long-term shareholder value as an active investor and shareholder of successful enterprises.” But to what end? To support Singaporeans in times of recession, like now?
Government officials in the past said they are accumulating reserves for an unspecified “rainy day.” In a speech this month, Senior Minister Goh Chok Tong said reserves should be used only “under dire circumstances when one-off extraordinary measures are required to ward off catastrophe or prevent irreparable damage to the economy.” A spokesman tells us that, “Temasek’s charter is to manage these investments independent of the Singapore government on a purely commercial basis in order to generate sustainable returns for the benefit of future generations.” But who decides when to use the reserves, and under what metrics?
Temasek’s murky goals are part and parcel of Singapore Inc., where the line between public and private firms is often blurred. This corporatist approach worked for Singapore in its early years — though of course we’ll never know whether the market might have done a better job. Temasek was set up in 1974 as a holding company to manage state-owned firms and has nurtured successful, world-class companies such as Singapore Airlines and DBS Group, a major bank. The current CEO, Ho Ching, is the wife of Prime Minister Lee Hsien Loong.
Today, however, Singapore needs to develop a more vibrant private sector that encourages entrepreneurship and innovation. The city-state is in the throes of the worst recession in its modern history, with GDP forecast to contract as much as 5% this year. Expatriates are fleeing and the government, for the first time, is going to tap its reserves to the tune of S$4.9 billion ($3.3 billion) to help fund a stimulus package.
But if this is the “rainy day” Temasek is there for, why not give back the fund’s piles of cash to taxpayers and let Singaporeans invest their own money? As of March 31 — its last public annual statement — Temasek’s portfolio totaled S$185 billion. During the course of a parliamentary debate Tuesday, the government announced a 31% drop in the company’s net portfolio value between March 31 and November 30 last year. The decline was not unexpected, given the world financial crisis and some poorly timed investments, including $5.8 billion in Merrill Lynch and <pound>975 million ($2 billion) in Barclays.
Temasek says it oversees its portfolio prudently. But it has never provided historical financials to back up its claim of an 18% compounded annual “total shareholder return” by “market value,” nor has it released detailed results showing how money flows among its subsidiaries, the holding company and its government shareholder. Temasek outlines its compensation arrangements but doesn’t say how much it pays its top executives.
Temasek is 100% government-owned and isn’t required to release publicly audited financial statements. The President of Singapore must sign off on the “appointment or removal” of the CEO and board members, according to Temasek’s annual report. It cannot “draw on or diminish our past reserves without the President’s concurrence.” So even while it is a “commercially disciplined investment firm,” as the company says, Temasek still answers to the Singapore executive. This system would be more effective if Singapore boasted a more vibrant democracy with better checks and balances.
All of which makes last week’s change at the top of Temasek all the more intriguing, and an opportunity. Replacing Ms. Ho in October will be American Charles “Chip” Goodyear, who will be Temasek’s first foreign CEO in its 35-year history. Mr. Goodyear is a Wall Street veteran — not always a compliment these days — and the former head of BHP Billiton, the world’s largest mining firm. He has run firms accountable to their shareholders, and run them well.
The hiring of a foreign CEO is a notable change, and we hope it’s a signal that Temasek and Singapore’s leaders understand the need for more transparency in the company’s operations. The world is demanding more openness and accountability from sovereign-wealth funds, and the shareholder-voters of Singapore deserve nothing less.