A non-partisan case against Tony Tan as President
The question of independence has periodically arisen for the various presidential candidates. But much of it thus far has been focused on questions of partisan independence; how independent a candidate can be said to be from the ruling party. In this post, let’s look at the issue of independence from another perspective. There’s good reason to believe that Dr Tony Tan would be in a serious conflict of interest if he is elected President since he left Singapore’s GIC as its deputy head only very recently (1st July 2011). For the purposes of this post, let’s avoid talking about anything related to Tony Tan’s past record as Cabinet minister.
For the moment let’s ignore his record of past support for the graduate mothers scheme, his refusal to extend tax breaks for lower-educated mothers, his role in doubling the foreign student quota in local universities through overseas recruitment and generous scholarships and grants, his son’s questionable NS stint, his record of pushing for CPF contribution cuts in 1985 and later in 2003 when he argued labour costs in Singapore are getting too high, and who angrily opposed Ong Teng Cheong’s move to approve a workers’ strike in the shipping industry in 1986 when the management exploited the workers. Indeed it’s hard to look past those, but let’s just set that aside for now.
Let’s just focus on the issue of whether Tony Tan would be considered sufficiently independent from the standpoint of corporate governance.
What is the role of the President? Donaldson Tan of NAR recently argued here that the President’s custodial role in the safeguarding the reserves amounted to the same level of oversight expected of an external non-executive director (perhaps the Chairman of the board of directors). Non-executive directors are elected by the shareholders of the company and not by high level company insiders. Similarly the President is elected by the shareholders of the reserves (the electorate) rather than appointed by the Cabinet to exercise oversight over the reserves and its management and cannot be appointed by company insiders to avoid a question of conflict of interests.
Until 1st July 2011, Dr Tony Tan was Deputy Chairman of GIC, a self-described private company wholly owned by the Government of Singapore. As it says on its web page, GIC manages and invests Singapore’s foreign reserves:
We are a private company wholly owned by the Government of Singapore. It was set up with the sole purpose of managing Singapore’s foreign reserves. The Government, which is represented by the Ministry of Finance in its dealings with GIC, neither directs nor interferes in the company’s investment decisions. It holds the board accountable for the overall portfolio performance.
Therein lies the conflict. As some bloggers and people on the Internet have pointed out, according to a guideline issued by the Singapore Institute of Directors, directors are considered independent only if they have not worked in the company for the past 3 years:
Examples of such relationships, which would deem a director not to be independent, include:
- a director being employed by the company or any of its related companies for the current or any of the past three financial years;
Given that Tony Tan left GIC less than 2 months ago, how can anyone plausibly consider him independent enough from the standpoint of corporate governance to exercise oversight over the reserves which are invested and managed by his former company?
Dr Tan Cheng Bock, has in fact pursued this exact line of questioning:
Later, Dr Tan Cheng Bock suggested that if Dr Tony Tan became president so soon after vacating senior posts at the GIC, there may be a conflict of interest.
He noted how in the corporate world, former senior executives sometimes had to wait three years before they could return to oversee the company, which in this case would be GIC, he added.
“Can you convince Singaporeans that after having left three months ago, you go back to be involved in GIC in whatever manner, is this independent enough? As a Singaporean, I want a clear answer,” said Dr Tan Cheng Bock.
In his response, Dr Tony Tan reiterated the distinction between the Government’s oversight of GIC and the President’s custodial responsibilities over the reserves. To which Dr Tan Cheng Bock replied: “I think we let Singaporeans decide.”
– Spirited exchange between Tan Cheng Bock and Tony Tan, The Straits Times, 17th Aug 2011.
Plausible scenarios of conflict of interest are easy to construct. Imagine a financial crisis which has yet to manifest its worst form. Stocks look cheap. GIC, which is sitting on other strategic or profitable long-term investments and unable to liquidate them to get cash signals to the government that it wants more reserves so that it can invest them in distressed stocks. The government, which sits on GIC’s board of directors okays the request. The second key to the reserves, a hypothetical President Tony Tan who was until very recently GIC’s Deputy Chairman easily approves the request. GIC buys up the distressed stock with the approved capital injection and over the next years, watches in horror as its value plummets.
Such a scenario has in fact partially occurred. The investments in Citi and UBS; the former for which GIC got lucky when the US Treasury miraculously brokered a deal between Citi and its SWF investors to lower the conversion price (of the convertible bonds) from $26.35 to $3.25 to enable GIC to realise a profit when Citi’s stock regained slightly and the latter (UBS) where GIC is still sitting on a loss of 5.6 billion francs. Dr Tony Tan had admitted in a 2008 interview that then investments in Citi and UBS were “out of character”, a tacit admission that GIC knew it taking a huge and possibly risky gamble which departed from its more traditional conservative role as a portfolio investor.
Elsewhere, in the United States, similar concerns were raised as to whether Henry Paulson, who went from being CEO of Goldman Sachs to the office of Treasury Secretary and later oversaw the big bank bailouts of 2008 which saved Goldman Sachs and its largest debtor, AIG, exercised due diligence in avoiding conflicts of interest in executing his duties.
Will Singapore see the same scenario play out with Dr Tony Tan as President? It’s something of an irony that opposition candidates are often accused of wanting to squander the reserves on short-term populist handouts. Now a similar question should be asked of Tony Tan: Can Tony Tan be considered sufficiently independent purely from the standpoint of good corporate governance to exercise oversight to safeguard the hard-earned reserves from possibly risky GIC investments?