Speech By Mrs Josephine Teo, Minister Of State For Finance And Transport, At The CPA Forum 2012

Your Excellency Doug Chester
Australian High Commissioner
Mrs Deborah Ong
Mr Low Weng Keong
Distinguished participants

Good morning

Introduction

1.   Thank you for inviting me to speak at this year’s CPA Forum.  I’m no expert on corporate governance but welcome the opportunity to contribute some thoughts to this journey towards good corporate governance in Singapore. A key theme today is that companies should “internalise the values, spirit and purpose behind governance rules”. This shall be my focus today.

Evolution of Corporate Governance globally and in Singapore

2.   As you know, “corporate governance” as an area deserving top leadership attention, gained prominence in the 1990s. It started out with standardisation of rules for companies, as articulated in the UK Cadbury Report and the OECD Principles of Corporate Governance. Since then, there have been many milestones in the corporate governance journey.

3.   Corporate scandals such as those involving Enron and WorldCom in 2002 triggered a review of corporate governance rules. Thereafter, there was a period of reprieve which was followed by a renewed sense of urgency in the aftermath of the 2008 global financial crisis. Investors, shareholders, and regulators point to weaknesses in governance as one of the key reasons for the financial crisis and now place greater emphasis on how companies manage their risks.

4.   In Singapore, our corporate governance journey has been smoother. We had the good fortune to learn and adapt from global best practices and also the mistakes of others. Over the years, the government has enhanced the corporate regulatory framework and promoted the adoption of best practices through the Code of Corporate Governance.

5.   We have also encouraged the private sector to play an active role. Some private-sector initiatives include training of directors and investors, as well as the setting up of awards to recognise outstanding companies for their commitment and efforts to adopt high corporate governance standards. The private sector has also partnered academics to produce surveys and regular report cards such as the Governance and Transparency Index – all of which are very welcome by investors.

6.   There is broad agreement that good governance helps to sustain good corporate performance. In general, businesses which are serious about corporate governance have tended to focus their efforts on four key areas:

i. Proper processes to appoint suitably qualified persons to their boards and to assess the effectiveness of directors
ii. Effective controls to assess and manage companies’ risks
iii. Processes and structures to ensure robust decision making in an objective manner;
iv. A system of accountability to shareholders.

Besides Systems and Processes, build Knowledge and Capabilities

7.   With regards to robust decision-making, it makes sense to scrutinise larger expenditures or projects, and ensure there is a process to ensure financial efficiency. It is equally important that the process builds in a better way to do things and to derive more value out of the spending or investment.

8.   In the public sector, we are involved in many infrastructure projects. Schools, hospitals and roads are continually being built and upgraded to meet expanding needs. The Ministry of Finance established the Gateway Process to strengthen the management of large infrastructure projects by putting the projects through a series of reviews and approval “gates” for concept and design.

9.   In addition, the Centre for Public Project Management or CP2M was set up in January last year to build up public sector expertise in building design and project management. CP2M helps public agencies to achieve greater value for money in their infrastructure projects by sharing with them design principles and applying lessons gleaned from similar building projects completed by other parts of the government.

10.   For instance, the expertise built up by CP2M gave them insights into how the Singapore University of Technology and Design (SUTD) could better plan its campus. CP2M officers proposed for the tennis courts to be located on the roof of the indoor sports hall instead of on the adjacent ground, and this freed up land for the university’s future expansion. Together with another proposal to re-route the service driveway, the overall changes created more green communal space for students and staff to enjoy. Such design innovations have created good non-tangible value for the university, in addition to very significant cost savings.

11.   The role of CP2M and the Gateway Process illustrates how knowledge and capabilities can complement systems and processes in support of good corporate governance. This is the first point I wish to share – that knowledge and capabilities are equally important to good corporate governance. Each organisation will have to find its own way of developing systems and capabilities to meet its needs. We can well imagine such capability building to be even more important in the private sector, driven by the bottom-line.

Duty of care at all levels

12.   Let me turn now to the second point which I feel is quite important. Good governance goes beyond systems, processes and controls. No organisation can institute such comprehensive controls as to eliminate all risks. It is impossible to write rules to govern all situations. Also, circumstances change and a set of rules which is robust today may well be obsolete in a matter of months or weeks. What will provide added assurance when an organisation has done just about everything prescribed as good practices?

13.   I believe that in fact, a more long-lasting assurance for an organisation is a culture where every member feels a strong sense of “duty of care”. This is not a complicated idea. It is about each member of the organisation taking ownership of his area of responsibility, to highlight potential problems, to pursue opportunities for improvement, and to act in a responsible manner towards customers, suppliers , co-workers or indeed, anyone one he comes into contact with on behalf of the organisation. A culture where “duty of care” permeates the whole organisation can be a powerful safeguard against gaps in governance that are yet to be uncovered and filled.

14.   I hope in your discussions today, you will talk about how to cultivate a duty-of-care mindset at all levels in your organisations. This is in fact the goal of the Government i.e. for each and every officer to exercise duty-of-care in all that they do and not just blindly follow Standard Operating Procedures (SOPs).

15.   In this regard, I’m happy to share a small example. The Ministry of Finance has a shared services unit known as VITAL, which processes payments for government ministries. Recently, a VITAL Payment officer received an electronic invoice from a vendor with the vendor indicated as the payee, which is quite normal. The VITAL officer, however, in verifying various aspects of the claim, discovered that the vendor was under a factoring arrangement with a bank. This means that payment should in fact have been made to the bank. The officer highlighted this to the vendor, who re-submitted the invoice, this time with the correct payee indicated.

16.   Had the officer not done so, and the vendor somehow did not pay the bank, the governm ent agency procuring the service would have been liable for payment to the bank, with no certainty of recovering the amount from the vendor. VITAL now has an SOP to ensure that its payment officers check for factoring arrangements before processing payments. This exercise of duty-of-care seems to be insignificant except that it led a process improvement which has helped to avert potentially costly mistakes in procurement.

17.   I wish to point out also, that for duty-of-care to take root, we need a healthy attitude towards mistakes. In this example, the staff was acting alone. But in a case where the staff operates as part of a bigger team, the staff who spots the mistakes of colleagues must feel empowered to point them out and not be labeled somehow as a “sabo” king. Sloppiness and carelessness should not be condoned but honest mistakes should simply be treated as opportunities to learn and improve.

Duty of care to community and society

18.   Before I end, let me add a third point – which is that good corporate governance extends beyond the organisation, to the wider community and society within which the organisation operates. There is thus also a responsibility to be mindful of the impact of our actions to those outside the organisation. I believe some people have coined the term “corporate citizenship” to refer to this duty of care to the wider society.

19.   Here, I would like to make a plea to you to consider your potential contribution to improving the lives of low-wage workers, many of who work for your organisations as cleaners, landscape technician and security guards. When we procure the services of contractors, we often base our decision on value-for-money. This is not wrong. But before you award the contract to the lowest-cost bidder, I would like to encourage you to probe the contractors to find out the terms of employment they offer to the workers, the training and the tools with which they are provided to do their jobs effectively. You may well discover that some contractors are perhaps not running their business in a robust and sustainable way. I want to suggest to you also, that by exercising a duty-of–care towards these workers, you are in fact signalling to the contractors and to your own staff the kind of duty-of-care you expect from them.

20.   In the government, we have decided to procure services only from accredited cleaning service providers and well-graded security agencies. We do so knowing that the cost is not the only measure of value and because we believe our duty-of- care extends to contracted workers as well. We support this move towards best-sourcing rather than cheap-sourcing because the accreditation requires the contractors to meet standards of good employment and business practices. However, we alone cannot transform the cleaning and security sectors. Government contracts cover just about 10% of the cleaning workforce. So I am urging to you to consider adopting best-sourcing as part of your corporate citizenship.

21.   In closing, I wish to thank you once again for inviting me. Good corporate governance is a worthy pursuit. I hope my remarks will encourage you to think beyond systems and processes to include the role of knowledge and capabilities in strengthening corporate governance. I am optimistic that if we put our minds to it, we can reach beyond our responsibilities to our organisations to exercise a duty-of-care towards everyone that our organisation touches, in the wider community and society.

22.   Have a fruitful day ahead!