Thursday, October 30, 2014

The Temasek story: Growing with Singapore

October 29

Temasek Holdings works for a better tomorrow as a responsible and trusted steward, said its executive director and CEO Ho Ching, who was awarded the Asian Business Award by London-based business think-tank Asia House. Below is an extract of her speech at the award ceremony dinner in London on Monday.

Singapore was already known in the second century to the Greco-Roman world as a trading post. Ptolemy named it Sabana. Third-century merchants from China called it Pu Luo Zhong — the Island at the End.

In 1819, nearly 200 years ago, Sir Stamford Raffles took over Singapore towards the tail end of the Anglo-Dutch spice trade tussle in the Far East. This little island trading post grew quickly.

Fast forward another 120 years to the end of World War II in 1945. Britain began to devolve its colonial powers through various forms of self-government around the world. The first municipal elections in Singapore were held in 1948.

Eleven years later, in 1959, Singapore was granted its first full, internal self-government. The newly-elected Singapore Government soon discovered — to its utter dismay — that it was staring at a budget deficit of about S$14 million for the year. The government kitty had also been emptied by its predecessor, to the tune of about 10 per cent of the island’s gross domestic product of a quarter billion pounds.

The newly-minted Prime Minister and his new Finance Minister went to work with a vengeance. They cut their own salaries by almost a quarter; allowances of top civil servants were also reduced. Projects were shelved. It was an all-out effort to reduce the deficit for the year.

It was not an easy time. Emotions ran high, as you can imagine, with this unprecedented salary reduction. But logic and example prevailed and the Civil Service pulled together.

By the end of the year, the Finance Minister reported a surplus of S$1 million. This surplus in the first year of self-government set the tone and timbre for fiscal prudence and budget discipline for successive governments.

Next came the 1965 crisis, or nationhood development. This time, Singapore found itself bereft of a large hinterland overnight after the short-lived merger with Malaysia. This left the tiny and newly independent nation scrambling and scrabbling for a living and for living space. Per capita income was all of S$1,600, or £184 in those days. Average life expectancy was a little over 64 years.

But troubles never come singly. In late 1967, barely two years into Singapore’s independence, Britain — facing its own financial crisis — decided to cut spending by withdrawing its military forces east of the Suez by 1971. The British forces in Singapore were not only a security umbrella for trade to flow freely through the Strait of Malacca through the east. They also accounted for about 20 per cent of Singapore’s GDP and were the largest single source of employment on the island.


A massive manpower conversion programme was started immediately to train base personnel for new jobs. Swamps were drained to build a new industrial town for factories to make up for the withdrawal of the British forces.

Young investment promotion officers were soon buttonholing dinner guests in the Philippines, the United States, Japan, Britain and Europe to invest in Singapore. The Government was prepared to provide loans or put in risk capital as a co-investor to encourage the likes of Cerebos, a chicken essence producer from the United Kingdom, to start up plants and create new jobs for its people.

British naval dockyards were converted into ship repair yards so workers could retain their jobs. Military electrical workshops were transformed into electrical services companies.

Yet, in the midst of the desperate drive to attract investments and create jobs, Singapore saw how choking pollution and tearing smog were engulfing cities in the US, Europe and Japan. So in 1970, barely five years after independence, Singapore set up the Air Pollution Unit, reporting directly to the Prime Minister. The Government was prepared to lose investments that did not comply with standards for clean air.

Our resolution was tested early. When Singapore was bidding for a petrochemical investment against strong international competition, the Government required the potential investor to install scrubbers to minimise pollution, even at the risk of losing that investment. The scrubbers were duly installed.

When 1971 arrived, the island hummed with companies, big and small. Factories, local and foreign, were busy producing for the world. There was no massive unemployment from the British pull-out.

That year also saw our first annual Tree Planting Day. It was a symbolic, but also very important, commitment to keep our environment clean and green. Industrialisation, in our minds, was to go hand in hand with green, beautiful nature for our people and children.

Nine years into independence, as Singapore emerged from a series of crises, the Government found itself as an owner of a smorgasbord of companies. Government loans for businesses had already been spun out to form the Development Bank of Singapore, which, today, is DBS, the largest bank in South-east Asia.

It was not the business of government to be looking after shares and investments in businesses and companies. These ranged from minority shares in a hotel to the wholly-owned Bird Park, from a co-investment in a commercial detergent maker to an innovative open-concept zoo as a wholly-owned public good.

Temasek was formed in 1974 to take over this mixed bag of companies and investments, from a golf shoemaker to Cerebos.


The ethos of Temasek was already shaped at birth by Singapore’s post-war history — to live within our means and be financially disciplined; to do the right things with tomorrow clearly in our minds, particularly for our future generations; to make sure our drive for survival and prosperity goes hand in hand with a respect and nurturing of a clean and green environment for our people.

From the start, the Government took a hands-off approach to Temasek. Subsidies were most definitely out of the question. Companies in our portfolio were allowed to fail, as the golf shoemaker did subsequently. Neither Temasek nor the Government would be there to bail them out. With that accountability came the responsibility to make their own decisions. The Government — and it took discipline on its part — played no part in the commercial decisions of the companies. And likewise Temasek.

Take Singapore Airlines (SIA), for instance. From day one, SIA knew it had to innovate and compete internationally or fold; after all, there was not much domestic air traffic opportunity for an island that is all of 30 miles (48km) at its widest span — only a little further than a marathon run.

SIA made its own commercial decisions. Few of its international competitors in the airline industry operate with such commercial independence away from Government subvention and influence — even today.

The greatest gift, at birth, from the Singapore Government to SIA was to help negotiate with the British government for air rights. Its second gift was to run a clean and lean government and an efficient economy that is well plugged into the global market.

SIA is but one of the many examples of our portfolio companies that have succeeded through innovation and sheer determination and not state support. Many of these companies grew with Singapore’s transformation and Temasek grew with them.


This year, Temasek is celebrating its 40th anniversary. We have tried to capture the spirit of Temasek in our Temasek Charter — as an active investor and long-term shareholder, as a forward-looking institution and above all, as a trusted steward. Meritocracy and integrity are our watchwords. We invest in businesses that operate and compete effectively for the long term and do not take short cuts at the expense of the community at large.

We puzzled as to how we can foster an owner’s mindset in Temasek. We mulled over various ideas and decided about 10 years ago to introduce deferred compensation plans, linked to risk-adjusted returns.

For our senior folks, a substantial part of our bonuses and incentives are deferred for as long as 12 years, or about two business cycles. This aims to foster a long-term ownership mindset. If the returns are not sustained, we share negative bonuses — in other words, bonus clawbacks. In doing so, we try to align interests and behaviour towards long-term ownership.

Underlying all these various systems and initiatives is the idea that we work for a better tomorrow as a responsible and trusted steward.

Thus, 10 years ago, we committed to setting aside a portion of our returns above our risk-adjusted hurdle. This was to be used to uplift the community at large, particularly in a developing Asia. To date, we have established and sponsored 16 community endowments, each with specific mandates to build people, build capabilities, build bridges between communities and rebuild lives.

From funding less glamorous research into mental health or Parkinson’s disease to developing pilot programmes to support ageing in place; from lending a helping hand to caregivers, single parents and traumatised children to (launching) programmes for disaster recovery and rebuilding lives; from bringing together youth across a diverse Asia to learn and grow together to programmes on governance and town-planning for civil servants from around Asia — these are but a small sliver of what the various endowment staff have done to touch the lives of more than 170,000 people across Asia over the past decade.

Singapore will be celebrating its 50th year of independence next year. It has been a journey that has made a difference to the lives of our people. In less than five decades, per capita GDP has grown more than 100 times in US-dollar terms. Life expectancy went from less than 65 years in 1965 to more than 82 years last year.

As you can see, we may have owed our success to Britain’s fateful decision to withdraw its forces from Singapore by 1971 — that decision forced us to innovate and industrialise at a great pace.

As we face the uncertain world of change and the exciting challenge of the digital age, I do hope that Singapore and Temasek will make a difference — to bring about a better and kinder world, a more sustainable and thoughtful world and above all, a more peaceful, compassionate and inclusive world.

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