Why it might be difficult for the government to withdraw from business

BY Tan Boon Seng

February 10, 2002

Some corrections: To check go to http://www.sgdi.gov.sg/
[1] Prof Wee Chow Hou is no more Dean of Business Administration in National University of Singapore. He's now a Professor at the Nanyang Business School, NTU.
[2] LTC Fong Choon Khin is an LTC (NS)
[3] Tan Eng Bock has retired from the force
[4] Dr N Varaprasad is in NUS and havinrg a seat on the board called Health Promotion Board.

Singapore Window obtained this documentation. As far as we know, the information is correct.
IF readers know of any inaccuracies please contact the webmaster.

GOVERNMENT-LINKED companies (GLCs) appear to be playing a bigger role in the Singapore economy than ever before. With Singapore experiencing possibly its worst economic downturn since independence, the government is re-examining its economic policies. The government’s deepening and broadening involvement in private enterprise is among the policies being scrutinized by the government’s Economic Review Committee. Some officials hint at a reversal of this practice but others appear to disagree.

A closer look at the issue suggests that reversing this policy is difficult. The government’s withdrawal from business could hurt the employment, income and ownership interests of people closely connected to it –

1)      relatives of senior government leaders,

2)      former senior government officials,

3)      former senior military commanders,

4)      current senior government officials, and

5)      current and former ruling party politicians. The outcome may also hurt the government’s efforts to co-opt its politicians from the private sector.

The Policy Debate

Minister of State for Trade and Industry Raymond Lim in November said that the government might in future do less of  “leading from the front”. He also suggested the possibility of introducing competition law to address the dominance of GLCs. Mr Tharman Shanmugaratnam, Senior Minister of State for Trade and Industry, in December said that: “What really matters for East Asia is a shift towards open, competitive markets, and away from the state-driven industrial policies and the collusive domestic networks that have led to low returns on investment.”

However, Deputy Prime Minister Brigadier-General Lee Hsien Loong, who is heading the Economic Review Committee, has clarified the extent to which the government will withdraw from business. He said GLCs would continue to be “one of the thrusts forward” for the Singapore economy. His wife, Mdm Ho Ching, who is Director of Temasek Holdings and Deputy Chairman of Singapore Technologies, has shared her dream for Singapore Technologies to become a “global champion”, “to make the seemingly impossible, a reality”. Mr S Dhanabalan, Chairman of Temasek Holdings, has also made it clear that the government will not withdraw from businesses it deems it to have a “strategic” interest in. Mr Dhanabalan said the government also intends to be involved in businesses of a high-risk nature. These remarks were made even before the committee’s work had begun.

The Interests of People Closely Connected To The government

1) Relatives of senior government leaders

That the government seems reluctant to withdraw from enterprise could be complicated by its potential effect on the interests of people closely connected to the government. DPM Lee and his father Senior Minister Lee Kuan Yew are at the helm of GIC, possibly Singapore’s largest GLC in terms of assets. DPM Lee’s wife, brother, and a few other relatives are also holding key positions in GLCs. While the situation is presumably a coincidental outcome of free market meritocracy, it could be a source of constrain as DPM Lee considers how to revive private enterprise in Singapore. The following table illustrates the situation:

In addition to the above list of DPM Lee’s relatives, there’s also Dr Lim Suet Wun, his sister-in-law’s brother, who is Chief Executive of Tan Tock Seng Hospital. The “restructured” hospital remains a government department. But as one of Singapore’s largest hospital, it competes with the private sector in providing health care services. DPM Lee and his father are not remunerated for their leadership of GIC. However, several of their relatives are senior managers of GLCs, who are receiving not only salaries and bonuses but also stocks and stock options in the companies. For example, DPM Lee’s wife Mdm Ho Ching owned 60,000 Chartered Semiconductor shares, 240,000 Chartered Semiconductor share options, 35,000 ST Assembly shares, 100,000 SembCorp Industries share options, and 50,000 Singapore Food Industries shares, among other interests in GLCs as of year-end 2000. And DPM Lee’s brother Brigadier-General Lee Hsien Yang owned 2,120,000 SingTel share options as of March 2001.

2) Former senior government officials

Though not an explicit policy, it has become an institution of sorts that senior government officials in Singapore move on to hold key posts in GLCs after their service in government. Former ministers in the PAP government are at least close political allies of Deputy Prime Minister Lee and his father, while former senior civil servants are trusted appointees of the government. The following table lists a number of such people:

As with any business, state-controlled or otherwise, there is a tendency for managers at the top to appoint people whom they have shared a common past with. Since many past and present officials lead GLCs, these people tend to appoint other past or present officials to key positions in the GLCs. For example, Mr Liew Mun Leong was Chief Executive of SISIR from 1988 to 1992 when Mdm Ho Ching served as a Member of the SISIR Board. He is now Chief Executive of CapitaLand, the property arm of Singapore Technologies. Ms Leong Wai Leng was Deputy Chief Executive of SISIR from 1990 to 1993. She is now Deputy Chief Executive of Raffles Holdings, the hotel arm of Singapore Technologies. Mr Anthony Seah was a Division Head of SISIR from 1988 to 1991. He is now Chief Executive of PREMAS International, the property management arm of Singapore Technologies. Colonel Tham Kui Seng was General Manager of a SISIR subsidiary from 1991. He is now Chief Executive of CapitaLand Residential. Given the perceived shortage of talent in Singapore, Colonel Tham’s experience as the Army’s logistics chief is presumably valuable in efforts to develop “premier, high quality” homes around the world. Colonel Kee Teck Koon was Director of SISIR from 1991 to 1993. He is now Chief Executive of The Ascott Group, the serviced residence arm of Singapore Technologies. With nine years in the Armed Forces behind him, Colonel Kee leads “Asia Pacific’s largest serviced residence company”, building a “luxury brand that projects an elegant, meticulous lifestyle that appeals to top executives” and offering “the ultimate refinement in served accommodation”. Lieutenant-Colonel Ed Ng was General Manager of a SISIR subsidiary from 1990 to 1991. He is now Executive Vice President of CapitaLand.

If the government withdraws from business, a prestigious and lucrative destination for senior government officials would be taken away. Senior managers of GLCs are compensated at globally competitive levels. Many of them are also shareholders of the GLCs they manage. Non-executive directors are paid regular director’s fees and are even given stock options, which can be substantial. The stipends are not pittance. They may lose out if the government gives up ownership of GLCs.

3) Former senior military commanders

DPM Lee, his wife, and his brother established their careers in the Ministry of Defence. DPM Lee was with the Armed Forces for 13 years, rising to Chief of Staff General Staff (Deputy Army Chief) before becoming a politician. His wife Mdm Ho Ching, whom he got to know in the Ministry of Defence, was with the Ministry for 10 years, rising to senior positions in Defence Science Organisation and Defence Materials Organisation before joining Singapore Technologies. His brother, Brigadier-General Lee Hsien Yang was with the Armed Forces for 15 years, rising to Director of Joint Operations and Planning Directorate before joining Singapore Telecom. The following table lists a number of their colleagues in the Ministry of Defence who have also moved on to GLCs or are holdings key appointments in GLCs:

The proprietary interests of certain former senior military officials are not insignificant. For example, Colonel Quek Poh Huat, President of Temasek Holdings, owned 823,228 ST Engineering shares and 36,890 SembCorp Industries shares, among other interest in GLCs as of March 2001. Lieutenant-Colonel Tay Siew Choon, Chief Operating Officer of Singapore Technologies, owned 54,598 SembCorp Industries shares, 1,479,578 SembCorp Industries options, 171,000 Singapore Computer Systems shares, 80,000 Singapore Computer Systems options, 270,000 Singapore Food Industries shares, 400,000 Singapore Food Industries options, 53,850 CapitaLand options, and 100,000 STT Communications options, among other interests in GLCs as of year-end 2000.

The policy of early retirement for senior military men enables them to offer their innate and acquired abilities to GLCs. Former Commandant of SAFTI Military Institute, Brigadier-General Chin Chow Yoon, who is now Chief Executive of Bintan Resort Management, brings with him a lifelong experience of overseeing living environments such as the Officer Cadet School and leisure establishments such as the Singapore Discovery Centre. Colonel Goh Chee Kong, Director of Corporate Communications for SMRT Corporation, can draw on his experience talking to officer cadets and their trainers, as he was previously Commander of Officer Cadet School.

4) Current senior government officials

Senior government officials are holding key appointments in GLCs while still in government. Some of them receive not just directors’ fees but also stock options. For example, Lieutenant-Colonel Boon Swan Foo, Managing Director of Agency for Science, Technology and Research, owned 224,433 ST Engineering shares, 2,005,000 ST Engineering share options, 28,800 Chartered Semiconductor shares, 14,250 ST Assembly share options, and 53,850 CapitaLand share options among other interests as of year-end 2000. Colonel (Prof) Lui Pao Chuen, Chief Defence Scientist of Ministry of Defence, owned 161,444 ST Engineering shares and 12,950 SembCorp Industries shares, among other interests as of year-end 2000. Mr Liow Voon Kheong, Assistant Managing Director of Economic Development Board, owned 80,000 stock options in Chartered Semiconductor as of year-end 2000. The following table lists a number of officials who are at the same time directors of GLCs:

5) Current and former ruling party politicians

The situation could be further complicated by present PAP MPs holding key posts in GLCs. The non-executive directors receive not just directors’ fees but may also have shares and share options in the GLCs they direct. For example, Mr K Shanmugam, MP for Sembawang GRC, owned 70,000 SembCorp Industries share options and 30,000 Chartered Semiconductor shares, among other interests in GLCs as of year-end 2000. The following table lists non-ministerial MPs holding senior management and directorship positions in GLCs:

Former PAP MPs also fill key posts in GLCs. The following table illustrates this situation:

The government’s efforts to co-opt its politicians from the private sector

The PAP has often looked to GLCs for potential candidates as MPs, parliamentary secretaries and ministers. GLCs provide a uniquely effective way for the party to assess potential candidates outside of the civil service. Without being able to own businesses in the private sector, the ruling PAP government might find it more difficult to find people whom it has worked with and whom it can trust. The following table lists a number of present PAP MPs who were selected as electoral candidates after working in a GLC:

The government’s Public Sector Divestment Committee in 1987 recommended that the government withdraw from commercial activities where its role was no longer needed to avoid competition with the private sector. Since then, the government has reduced its stakes in several GLCs through public offering of shares. It has also selectively divested a few companies.

Yet its participation in the economy remains entrenched and has even become more widespread. The government continues to control many of the GLCs that are listed on the Exchange. New acquisitions, ventures into new businesses, and the corporatisation of services previously administered by statutory boards have expanded its involvement in the economy. The liberalization of certain industries previously monopolised by a GLC have resulted in only more GLCs.

Given that state involvement in business could be benefiting the government and the people closely connected to it, it is appreciable that even greater resolve would be needed this time for a policy revision.