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Singapore's capitalism
myth
By Gary LaMoshi
HONG
KONG - When people talk about Japan Inc or the US
military-industrial complex, they're referring to a
metaphorical representation of a perceived phenomenon.
But when they talk about Singapore Inc, they mean
Temasek Holdings.
Temasek is the Singapore
government's S$70 billion (US$40 billion) investment
vehicle with major stakes in Singapore's key sectors, in
line with its mission: "To contribute to Singapore's
economic growth by nurturing world-class companies
through effective stewardship and commercially driven
[sic] strategic investments." Temasek's only shareholder
is the Singapore Ministry of Finance, from which it was
spun off in 1974.
So when Temasek and
the Singapore government disagree, as they do over
quarterly corporate reporting, it's news. Even bigger news, in
this age of deregulation, free-marketeer calls for
bureaucrats to get out of the way of capitalism, and
knee-jerk condescension toward Singapore's nannyism: the
government is right on this matter.
Marx to
Lenin to Lee
The Heritage Foundation, a leading
US conservative think-tank, touts Singapore as one of
the world's two freest economies, but that's just a
myth. In fact, Singapore is the world's most successful
socialist state.
More than 80
percent of Singapore's population lives in
public housing, sheltered from the harsh realities of the
government-controlled property market. While Singapore
has the trappings of a democracy, the ruling People's
Action Party is living proof that the one-party state
survives outside the dustbin of history. Rather than the
sharp-elbowed unabashed capitalism of Wall Street,
Singapore's economic philosophy more closely mirrors
that of another tropical island with a signature rum
cocktail: Cuba.
Temasek is Exhibit A in
Singapore's blatant, and largely profitable, government
intervention in the economy. Buying a computer? Temasek
owns 70 percent of Chartered Semiconductor. Chatting on
the phone? Temasek owns 67 percent of Singapore Telecom.
Taking a vacation? Temasek owns 57 percent of Singapore
Airlines.
There's nothing wrong with any of that,
other than the blatant lies about unbridled capitalism.
(Since when was veracity among Senior Minister Lee Kuan
Yew's vaunted Asian values, or the Heritage
Foundation's?) In its charter, Temasek adopts an ideal
major investor's stance: "Temasek will exercise its
shareholder rights to influence the strategic directions
of its companies. But it does not involve itself in
their day-to-day commercial decisions." In another
document, it elaborates, "Temasek's guiding philosophy
is to 'put the right people in charge, make sure that
the decision-making process is transparent, and then let
them carry on with the business'."
Information, please
Financial reports
are the main way for Temasek and other investors to
exercise their rights and responsibilities, and the more
timely and complete the information the better. The
Singapore government, in its drive to make Singapore's
capital markets a more attractive destination for
overseas investment, recognizes that and declared
quarterly reporting mandatory starting next year.
But in his keynote address to the Asian Business
Dialogue on Corporate Governance last Thursday, Temasek
chairman S Dhanabalan slammed quarterly reports, a world
standard for nearly 70 years but still an anomaly in
Asia. "I am dismayed that we in Singapore have decided
to impose this practice on listed companies," Dhanabalan
lamented. Decrying management and market focus on
quarterly earnings, he added, "We seem to have tilted in
favor of traders in stocks rather than investors in
stocks."
Dhanabalan is also the chairman of
government-controlled banking group DBS. Two of those
letters pretty much sum up the merits of his position.
His basic premise that quarterly reporting causes
volatility is wrong, and the thinking behind his
argument shows that, despite differences with the
government on this issue, Dhanabalan hasn't strayed far
from the Singapore-think we all know and mock. But don't
take my word for it; listen to experts from opposite
ends of the globe.
"It is lack of information,
not too much information, that causes short-termism,"
Deborah Pastor, director of shareholder advocacy website
eRaider.com, said from New York. "Annual disclosure,
like pro forma earnings, forces investors to guess how a
company is doing. When investors do not have fresh,
reliable information, they have no choice but to trade
on rumor. Solid information leads to solid trading."
Five-year plan
"In finance and in
weather, longer-range forecasts are inherently less
accurate than short-range forecasts, and a company is
more likely to miss a six-month forecast than a
three-month forecast, so the market is in fact much more
vulnerable to shocks when data are only released twice
yearly," said David Webb, editor of Hong Kong corporate
governance watchdog Webb-site.com.
"Taking
[Dhanabalan's] argument to the extreme, perhaps
companies should only report every five years, in line
with the supposed business cycle, to avoid management
behaving in a 'short-term fashion'," Webb suggested.
"Then minority shareholders would just have to speculate
in the intervening years about what is really going on
inside their company. Clearly that does not make for an
efficient market."
Lack of information hardly
makes for efficient investing either, so it seems
ridiculous for Temasek to oppose increased information.
Webb, a former investment banker, unraveled the mystery:
"Controlling shareholders, through their board seats,
have access to corporate data on a real-time basis.
Within the limits of what is practical, there is no
reason to withhold such information from outside
shareholders, as it creates information asymmetry
between shareholders."
In other words, Temasek
gets its information and, naturally, uses it
responsibly, but Dhanabalan doesn't trust you to have
it. That's a dose of Singapore paternalism that's too
strong for Singapore's government to spoon up these
days.
It's bad enough that investors who want to
play the game in Asia have to buy companies with
controlling shareholders in markets that offer few
protections for minority interests, but a controlling
shareholder that's also the government poses special
dangers. Dhanabalan spent the bulk of his keynote
address assuring investors that Singapore Inc leads the
fight to build shareholder value for all investors.
The character issue
"The character of
Temasek derives from the character of the political
leadership in Singapore with the qualities of honesty,
probity, meritocracy, focus on the right rather than the
popular decision and transparency being the main
features. Temasek has defined for itself a proactive
stewardship role. Being an involved, interested and
informed owner, and with enough clout, it can help
prevent the types of excesses seen in the US."
However, the Temasek way can lead to some
uniquely Singaporean excesses. Dhanabalan ought to know,
since he was in the middle of one last year.
To
face overseas competitors at home and in the region
better, Singapore's government encouraged mergers among
its banks. Small banks resisted the call. Luckily for
the government, Dhanabalan's DBS launched a lowball bid
to gobble up Overseas Union Bank (OUB), which failed to
find a white knight. United Overseas Bank (UOB) came to
the rescue with a higher bid and promised to merge the
two banks' boards of directors. DBS was big enough
already, and the government was delighted to see
second-place UOB grow.
Unfortunately, DBS's
investment banker Goldman Sachs took its client's
takeover bid seriously. Its analysis of the bids
lambasted the UOB offer and its unwieldy merged board,
saying "this combination is designed to keep family
control intact without regard for shareholder value".
The government considered Goldman's analysis a rude
intrusion that threatened to scuttle its preferred
union. After a chat with a reportedly enraged Lee Kuan
Yew, DBS in effect abandoned its bid, published
newspaper ads featuring a retraction of the previously
obscure Goldman report, and agreed to pay UOB and OUB
S$1 million each as a wedding present. Goldman chairman
Henry Paulson jetted in to kowtow to the banks and
regulators and paid the hong bao to the two
banks, plus expenses to DBS.
In his speech last
week, Dhanabalan assured, "There is no divergence
between Temasek's interests and those of other
shareholders since its aim is to ensure that TLCs
[Temasek-linked companies] are well managed and create
value for the benefit of all shareholders." As long as
those investors share Temasek's stated mission "to
contribute to Singapore's economic growth", that is.
Judging from Dhanabalan's words and deeds, when the
mission conflicts with the quest for shareholder value,
it's easy to guess which side gets the nod.
(©2002 Asia Times Online Co, Ltd. All rights
reserved. Please contact content@atimes.com
for information on our sales and syndication policies.)
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