Wayang Party: Why a system which relies on implicit “trust” will fail
The Wayang Party wrote an interesting post today comparing the top-level management model of Ren Ci’s charity to Singapore’s governance:
I was absolutely dumbfounded when I read in the Straits Times that the management committee of one of Singapore’s largest charities – Ren Ci did not know how much they were paying their chief executive. (read article here)
They could have asked, admitted Ren Ci Hospital’s committee member Chan Ching Oi, but they did not.
Instead, they let its CEO and founder Ming Yi decide on what he deemed to be a ‘fair’ salary, Mrs Chan said on the witness stand yesterday, while testifying on the third day of a criminal trial against the Buddhist monk.
Ren Ci is the second largest charity in Singapore which was set up by the charismatic Ming Yi in 1991.
How can a charity which deals with millions of dollars of donations from the public be so sloppy and careless when it comes to corporate governance?
Mrs Chan’s lame defence that Ren Ci’s focus in the first decade had been to ‘get things done’, with less emphasis on corporate governance issues does not exonerate her or fellow directors on the management committee from blame.
Indeed it appears particularly shocking that neither Ren Ci’s top management committee nor Ming Yi’s secretary knew how much he was paid every month. The same question may be asked of the manner in which both our sovereign wealth funds, Temasek Holdings and GIC Singapore has been run:
Both funds are run by a Board of Directors like any other corporate companies. However, we have no idea about the following:
1. Who is responsible for deciding the pay and bonuses of these directors and executives?
2. What are their salaries, bonuses and perks?
3. Do these executives hold directorships in other companies?
These are legitimate questions which every Singaporean ought to ask the government. Unfortunately, it is unlikely we will obtain an answer from the Minister of Finance Tharman who appears to favor a system based on “trust”.
Let us recap this exchange between Inderjit Singh and Tharman on 5 February 2009 in Parliament on the hasty approval of the use of our reserves by the President:
What’s missing is the process that the President took after he got briefed by the government. If we could get a sense of what they discussed and what process they went through to decide, then this may clear many of these questions.”
“I’m not sure why it is relevant. At the end of the day, this is a system that is different from Norway and Australia, where as much detail as possible is provided. This is a system that relies on trust in the individuals who are in charge including those appointed to the CPA and the Elected President. Do you trust them? Have they made decisions wisely? Has the government been acting responsibly?”
Indeed, as the American financial crisis has shown, relying on an unspoken and implicit (and presumptuous) concept of “trust” often leads to disaster of gargantuan magnitude. The opaque manner in which credit derivatives were traded and valued (over the counter) and the lack of a clearinghouse where such shady transactions could be scrutinised resulted in the worst credit crunch for America to date since the Great Depression.