Fear is in the air

Since the brilliant grab for power in Aware, there have been many postings questioning the group and its intention. There were many speculations and even talks of bigger things to come and bigger organisations to capture. Why should there be fear as long as the group is legitimate and not criminal? In a democracy, it is all about organisation. The people with the resources and organisation skills will be in a better position to grab power, and then grab anything they want. And with morality at its most perplexing time, when rights and wrongs are all grey, who shall stand on high moral grounds to be the judge of who is good or bad? Let the contest of ideas, organisation, ability and talent begins. And winners take all. Everything is up for grabs to the talented and well organised.

My feedback to the Stock Exchange in June 2005

The Relevance and Effectiveness of Corporate Governance I will like to express my appreciation to the Stock Exchange for asking the public for feedback to improve the trading system. I will just touch on three issues here, A. Corporate Governance and Independent Directors, B. Responsibilities and Accountability of Issue Managers/Auditors, and C. The Roles of SGX as a Regulator and a Business Concern. A. Corporate Governance and Independent Directors Independent Directors can play a very important role in ensuring that companies are proper and professional in the conduct of their businesses. By being involved, and being hands on with company operations, the Independent Directors are by far the most suitable candidates to help in ensuring compliance and due diligence in all corporate matters. However, the current procedures and system of appointing Independent Directors are seriously flawed. It is not the numbers that matter, but how Independent Directors are being appointed to the Board of Companies. When companies and their management staff have the sole prerogative to appoint Independent Directors, when the remuneration and tenure of Independent Directors are dependent on the goodwill of company management, how independent can Independent Directors be? Like it or not, Independent Directors have vested interests to maintain a cordial relationship with the company’s management and even major shareholders. There is thus a need to balance the opposing demands to oversee company operations in a professional manner and, on the other hand, to be acceptable to company management so as to be nominated to the board again. Independent Directors who are too thorough, too demanding, or even becoming whistle blowers, will soon work themselves out of all company boards. They will carry their reputations along with them and will not be appointed to any boards in a matter of time. No whistle blowers can ever hope to be invited to sit in any organizations. They can blow their whistles only once. In order to maintain as ‘correct’ a relationship as possible, and to improve the chances of being reappointed, Independent Directors may have to compromise their positions, and may even restrain themselves in the execution of their duties, thus undermining their roles as the watchdog of company wrongdoings. Recommendation 1 A new procedure to appoint Independent Directors is obviously needed. Independent Directors must be appointed independent of company management. Those appointed by company management have a credibility problem. There will always be a doubt as to whether they can be truly independent if their benefactors are the company management. It is a practical and real issue. The setting up of an unrelated independent body to appoint Independent Directors to company boards is a prerequisite to impartiality and transparency. The position of Independent Directors must not be compromise in anyway if they are to do a proper job. Otherwise it is a fallacy to believe that Independent Directors are really independent. What good is there if all the Independent Directors are either the relatives, friends or drinking kakis of the management, chosen and paid for by the management? A possible candidate to take on this task is the Stock Exchange itself. Or alternatively the Securities Investors Association of Singapore, SIAS, can be appointed by SGX/MAS to assume this role. SIAS is an ideal candidate as it is the representative of small investors who, as a group, represented quite a substantial interest in companies listed in the SGX. The small investors have so far been the victims of all these corporate frauds, and it is time that their interests be taken care of. Independent Directors selected and appointed by an organization representing small investors could fit in this role nicely. No other organization can claim to represent the small investors and to defend their interests. By giving SIAS a bigger role in this area, SGX and MAS can then be seen to be fair to the small investors. For the Independent Directors to be effective, three Independent Directors should come from SIAS and be represented in the Nomination, Remuneration and Audit Committees of the Companies. These committees shall provide the Independent Directors with access to information that affects the health and wealth of the companies. SIAS can set up a department to select, train and appoint Independent Directors under a set of guidelines that best served to protect the interests of small investors, and in the process self regulate company operations and management to comply with SGX regulations and good governance. An added feature is for SGX to emphasise the responsibilities and accountability on all Independent as well as non Independent Directors. Appointment to company boards must not be seen as a birthday party, but a serious undertaking that demands professionalism and integrity. All directors, including Independent Directors, shall be held accountable for negligence, wrongdoings or not doing their due diligence while on the boards. They must be made aware that they are holding in trust the interests of all investors, large and small, and must not be found wanting, or they will be taken to task. They are paid to do a job and this comes with a heavy responsibility. B. Responsibilities and Accountability of Issue Managers and Auditors Issue Managers are the key people who promote and market a company to investors resulting in large sums of monies being invested by the public. The Issue Managers and their associates, especially the management and finance professionals, are the people in the know. They are also the people who prepare the company operations and financial reports. How truthful, accurate and proper are these reports will solely be dependent on the professionalism, trustworthiness and integrity of these professional people. The investors, including professional fund managers, are likely to make their decisions based on these reports and the presentation of the company by the Issue Managers and the management. It is accepted that Issue Managers/Auditors and company management will want to present the best picture they can to the investors. It is their task to sell the company. What the investors and regulators can hope for is that these people are truthful and professional in the packaging and marketing of the companies. They are expected to do their due diligence. They are not expected to make misrepresentation of the companies, or worst, make fraudulent reports to deceive the investors into investing in unsound companies. Recommendation 2 Nothing short of accountability and making good of what the Issue Managers/Auditors and company management made their companies out to be. Caveat emptor is not enough. When there are misrepresentations or wrongdoings, the guilty parties must be dealt with severely. Full restitutions for losses must be made to compensate the innocent investors. The public must not be put in a position where they are at the mercy of Issue Managers/Auditors and company management without any recourse. It is inadequate and unfair when a public issue goes drastically wrong due to negligence or misrepresentation and caveat emptor becomes a convenient excuse. Issue Managers/Auditors and company managers must all be aware of the severity of their actions and the recourse of criminal proceedings if they are found to commit wrongdoings or negligence in the course of listing the companies. The SGX has a duty to protect the public investors. C. Role of SGX as a Regulator and as a Business Concern SGX is now a private company with profit making as a primary objective. Its other role as a regulator is now incompatible with its new status. There is a conflict of interests and the two functions must be detached and managed separately. SGX cannot function as a player as well as a referee in the same game. It cannot be objective when it is also involved in generating profits for itself from the system. Even if it does try to be objective, other parties may not perceive it in the same way. Its dual roles only complicate matters further and will undermine the credibility of SGX. People will always be skeptical of whatever actions or decisions it takes that affect the players and the market. Recommendation 3 For transparency and good business practice, SGX may want to consider relinquishing its role as the regulator of the stock market. An independent agency shall replace SGX to ensure that there is fair play and a level playing field for all the players. No matter how impartial or above board SGX can be, it is in the best interest of SGX for it to be monitored separately. This is to avoid being accused of any complicity whenever a decision is seen to be doubtful in the eyes of the public. An interested party can never be objective in its own dealings. A Side Issue I must raise this issue though it is not directly related to the above. It is very serious and it is affecting the viability of the stock market and the stockbroking industry if nothing is done to arrest the problem. I will make it very short and brief. Before the liberalization of the industry, foreign funds must trade through local broking houses, paying commission for their trades. With liberalization, these huge funds can now trade on their own by setting up offices here. And trade they did at no commission. What this means is that they could literally trade in hundreds of millions of dollars worth of stocks at practically no cost other than the minimal clearing fees and GST. They could thus push stocks up or down at their whims and fancy, making profits at the expense of small investors and traders. The big trading volumes we are seeing daily are thus fictitious. We have replaced syndicate trading of the past with fund manipulations at a more vicious scale. With syndicate trading activities, at least they still pay some commission that will somehow filter back to lubricate the system. With big fund trading today (including proprietary trading), no commission of such nature will be generated. If syndicate trading activities were seen as an undesirable and criminal act, how can we justify fund manipulations as legitimate and desirable, and at no cost? When all the small players and traders are wiped out from the market, when there are no more money to be made from the market, these big funds could just wind up their activities over night, and we will have a ghost town, a stock market devoid of trading activities. It will lead to an immediate collapse of the stockbroking industry. The scenario that I have painted may have been too extreme. But the possibility of it becoming a reality is very real. We have already witnessed the first phase of casualties, the small traders. Most of them have lost their pants or are too fearful to reenter the market. What the SGX may want to consider is to provide a level playing field for the big boys to play. Let the fund/broking houses, the proprietary traders and the private syndicates be the market movers on equal terms. Let them rejuvenate the market and trade within the existing rules. But the terms given to these players shall not be vastly different from the small players and investors. A special levy comes into mind.

When privatisation is a fear word

Privatisation used to be the key word to symbolise improved efficiency, better quality of products and services and a necessary evil, higher cost. The last part is always unspoken. No body wants to talk about it. Two letters by Ang Ah Ho and Zhuang Kuan Seng in the Sunday Times were literary pleading for mercy against HDB and privatisation. They questioned the role and responsibility of HDB in a tender exercise for Sengkang wet market. It went to the highest bidder, Renaissance Properties, at $500,001 pm. All these make business sense as the new tenants will definitely improve the efficiency of running the wet market as well as improving the quality and services. The residents only see fear of higher cost of basic food that they will get from the market. And they were concerned even in the way HDB framed its reply in a nonchalant way. But they were barking up the wrong tree. HDB is no more a govt organisation. It is privatised, just like the wet market is going to be. And profit is one of its key goals. They must remember how the second batch of Duxton Pinnacles flat owners have to cough out another $200k for each unit because the prices of similar flats have gone up. The residents in Sengkang should look at the brighter and positive side of things. Life style will improve with new concepts in wet marketing. The fish, meat and vegetables will be fresher and of better quality. And the stall holders will probably say thank you when they buy from them. And the higher cost of living is just part of the deal. It has to be. But it will be very affordable. All new housing estates have better quality food courts than the heart of Raffles Place and Chinatown. The food centres at Golden Shoe, Hong Lim and Chinatown are much cheaper, $2.50 can get one a bowl of noodle or rice, mixed vegetable rice or chicken rice. But the quality must be not so good as the food courts at HDB estates, and no aircon some more. Soon everyone will be frequenting food courts in HDB estates. I pray and pray that these hawker centres will not be privatised. Personally the quality of their food, at $2.50, is damn good. But I am biased. And so must be all the happy customers, some wearing ties and Prada frequenting them. Please do not privatise them. Not everybody has a first world income and want to pay first world prices for basic needs. As for the Sengkang residents, they are welcome to Raffles Place to enjoy a $2.50 meal, if they can afford the train or bus fare. For the time being, they should count their blessings. Actually we must be very thankful that the govt did not privatise all the ministries. Of course the quality and efficiency will improve, but the cost of their services will be much higher than now.

Working is a crime! The officer was in hot pursuit of an illegal worker. He fell, picked himself up immediately and continued the chase. The culprit was arrested. Such is the drive, dedication and commitment of a well trained team of MOM officers in the call of duty. They have a job to do and they did well. Efficiency in the line of duty is hallmark in all civil servants. And one should not forget the exemplary efficiency and effectiveness of our car park attendants. They never miss issuing a ticket if it is deserving. What am I grumbling about? The illegal immigrants were not selling pirated VCDs or operating a gambling den or prostituting. Many were just moonlighting as cleaners and odd job labourers. They were prepared to sweat, work hard, to exchange their labour for a few dollars. Why are they turned into criminals, chased around by govt officers, arrested, fined and maybe even caned? Yes, they are criminals. The law said so. No permit to work is a crime. Period. What about the employers who employed them and exploited them for their cheap labour? Why were they not arrested? Would it not be easier to arrest the employers and terminate this vicious cycle when hungry men and women are turned into criminals just because they want to work? Oh, these are children of lesser gods. Just a general comment. The law is neutral and has no feelings, and inhuman at times. And the law is the law. The issue is the zealousness in the execution and persecuting of the violaters. I would be more at ease if public officers, in the course of their duties, think a little about rights and wrongs, about being humans, about justice and fairness, about righteousness and moral principles. If public officers cannot think or will not think, and leave morals and principles in their lockers, govts will be better off deploying a task force of Robocops, machines that just do within thinking, with no morals, no feelings and no moral principles. I am saying this in general. This sickness is affecting govt officers all around the world, and particularly so in dictatorship or authoritarian regimes. And worst of all, the biggest violators of such inhuman acts is the US. There, children of lesser gods have no rights, and are treated as collateral damages. The hideous acts of public officers when they abused their positions of power are more criminal than the crimes committed by criminals. Sad thing is that they did not think so and think that it is their job, in the course of duty,something to be proud of. A couple of days back there was this woman in China who had her 4 front teeth knocked out by public officers just for protesting about a crime or injustice done to her. Sometimes you would not know who are the real gangsters. I always call George Bush and his team gangsters.

Aware – What a brilliant coup!

They came and took over Aware in an AGM. Veterans and established Aware members were in shock and disbelief. They were caught completely off guard when an army of new members marched into the AGM and out voted almost everyone, and grabbed 9 out of 12 executive committee seats. With the exceptionally high turnout the incumbent committee still did not see it coming. And one by one the old committee members were knocked out of office by brazen new faces, all unknown. How would they dare to do such a thing? Who were they, what do they stand for, how could they just take over an established institution, just like that? No big no small! The old committee members were jolted out of their comfort zone. It was very troubling, alarming, and they made an attempt to challenge the right to take over. Basically they were saying, hey, this is our turf, you have no right to do this. If you want to take over, join the queue and wait to be invited. Unfortunately the new and brash challengers were in no mood to explain the whys. Neither did they bother about the feeble resistance. They simply brushed them aside, irrelevant. Their main concern was to win as many seats as they could. They were well prepared for it, with military precision. It was a coup well executed! Well done girls. Your planning and execution were meticulous and brutally efficient and effective. I am keen to know what is their next target. With such organising skills and talents, they could achieve anything they want to. Don’t just stop at Aware.