Monday, August 03, 2009

Different Strokes for Different Folks

Temasek Holdings, one of Singapore's Soverign Wealth Funds has been a major feature in the news during the past two weeks. First, it's CEO-designate, Mr Charles "Chip" Goodyear decided not to take up his post due to "strategic" differences between himself and the board. Then news leaked out that Temasek had lost a staggering amount of money and finally, Ms Ho Ching, the current CEO (and wife of the Prime Minister) decided to announce that Temasek would invite the public to invest alongside it.

Even the most devoted columnist could claim that this has been a good month for Temasek. The internet chat rooms and forums were abuzz with scathing remarks about Temasek and it's major shareholder - the Ministry of Finance. Just as Temasek tried to put a spin onto things, the usual detractions about the "lack of transparency" were being thrown all about cyberspace.

Both sides may have a point but I believe that they miss the "bigger" picture. At the heart of all of this is the question of whether politicians necessarily make good business people and visa-versa. This question becomes especially prominent in the Singapore context in as much as our top politicians and civil servants usually become heads of the large local corporations that dominate the local economy.

There is a certain logic to this. The Singapore government invest heavily in developing people. The schoolars selected by the government do end up in the world's best educational institutions. Look at any major change of command parade in the military and you'll find that both incoming and outgoing generals got into Cambridge and graduated with a first and then proceeded to do their MBA in places like Harvard Business School or Cornell. Top civil servants and politicians have glowing academic credentials and one would imagine that such people would have no problem switching between government and business.

To some extent it's worked. I happily use government subsidised health care. I dreaded the idea of being in an NHS hospital in the UK. For British Airways, profitability only came with Thatcherism and being sliced out of State Hands and placed into the care of the business people. By contrast, SIA has been profitable from day one - even with a high level of government ownership and several former Chief of Air Force on the board of directors.

So, it's not necessarily true that State ownership is bad for busienss. The Singapore government is exceedingly business minded. In international survey after international survey, Singapore is ranked as one of THE best places in the world to do business. In the past year, I've dealt with the Economic Development Board for the opening of a plant for both 3M and Alcon. As one representative from an Indian Multi-national says, "If you think your EDB is awful - try dealing with the Indian version."

A good businessman can be a good civil servant and that applies in other parts of the world too. Saudi Arabia's SAGIA (Saudi Arabian General Investment Authority) is a prime example. Mr Amr Al-Dabbagh, SAGIA's Chairman and Governor was a former businessman before he took over the investment authority and that's not all. SAGIA recruits from people with business experience. Meshari Al-Khaled, SAGIA's Country-Director in the ASEAN region is a former ABN Amro banker. Thanks to the international and commercial experiences of its key people, SAGIA is regarded as highly efficient and effective in what it does.

However, the very concept that a good civil servant or politician automatically making a good business person is flawed. Generally speaking, these three groups are good when they stick to being what they are and not when they cross into different turfs. In the Singapore context, this is somewhat of heresy but if one has spent a day or two in the real world, one will realise the fallacy of civil servants and politicians making good business people - even in an economic crisis where the business community has run to the government for help.

It's so simple - government and business are two different games and the people who are good at the respective games have different skill sets meant to deal with their respective games. Perhaps sports offers the best analogy. How many world class soccer players do you know who managed to become world class rugby players. Michael Jordan is one of the greatest basketball players in history but he tried to play baseball - he didn't get very far. Ivan Lendel was one of the great tennis players in his time. He tried to take up golf as an alternative career - it didn't work out.

In business, the focus is on profits and business organisations are geared towards that. Everything that a business man does goes towards trying to make a profit. A businessman will hire and fire according to the needs of the business. Fancy degrees will only get you so far, if you don't deliver. A head of a mid-sized accounting firm put it best, "I simply ask, am I making money from you?" Business by its very nature is not meant to be charitable, even if good social affects come out of it - things like jobs for people, better technologies for society are the by product of a good business.

How do business people stay focused? The answer is simple - competition. As long as a businessman has to face competition, he'll be forced to think of ways to hire more effectivly and come up with better products and services for the customers. Once competition is eliminated, the business person has no incentive to give you "good-stuff" if he can make the same amount of money giving you "crap."

Business and markets are good at creating jobs and wealth but if in checked problems start. One of the usual problems comes when businesses become too cozy with each other. Look at the current financial crisis. Business people were cozy with banks, which didn't always lend with the strictest financial criteria in mind. Wise governments recognise this and generally let businesses run themselves and only step in when it looks like a dominant business is about to eliminate all competition.

Government is a different ball game. A politician needs to consider many factors in decision he makes. To a businessman, firing people makes sense becomes it's less headcount and therefore wages to pay. To a politician, firing people is very difficult because these people either become dissillusioned enough to vote against you or worse - start a revolution. For the civil servant, life is about ensuring that the political mashine runs. Business heros are people like Jack Welsh who value candour and make swift (and sometimes harsh) decisions. Politics by contrast is a game of compromise.

It's clear that the skill sets are different and assuming and putting people who are good at one game to play another usually end up in dissapointment. Yes, many of the Temasek Linked companies are cash rich and many have established overseas branches. With the exception of SIA, this usually has nothing to do with common business skills let alone managerial talent and everything to do with near monopoly powers in the domestic market.

One ingenious way of promoting a general's skills in business is to talk about how he ran Chartered Industries or Singapore Technologies Pte Ltd. Yes, tecnically the organisation in question is a private company but you can hardly call it a real business when the only business the company has is to sell products to one customer - the Singapore government. Shifting army generals into Chartered Industries is not sharing talent to increase value to society - it's simply moving someone from one branch of the government to another.

How many people on Temasek or GIC's board of directors faced "competition" and the idea that they could go "bankrupt" if they screwed up. Mr Goodyear comes to mind and by now, we should all know what happened to him. I just hope for his sake that his parachute was made of solid gold and he's now making Crosus blush

Personally, I think the best thing to do is to float Temasek on the stock exchange. Everyone will win. The public will feel a sense of ownership as shareholders. The government will no longer have to spend time writing letters to the foreign media explaining that the CEO's position has nothing to do with her position as the Prime Minister's wife - something which not even Singaporeans believe. Most importantly, Temasek will honestly be able to say that it makes decisions purely on commercial grounds.

One example where this has worked is in Israel. Given that Singapore borrows allot of its ideas from Israel (SAF was created by instructors from the IDF), let's borrow another good idea - make the State holding company a commercial venture. Israel Corp is run by business people rather than former civil servants. It is listed on the Tel Aviv exchange and most importantly, its been highly profitable. When Israel Corp claims it's made money, nobody tries to hide in a corner and mumble - it's financial claims are open to public scrutiny.

Israel's culture is notoriously secrative and yet it allows it's national holding company to be run by business people. The results are there for all to see.

Yes, the Singapore government has been good to business but it's been good to business as a government. As government's go, Singapore is exceedingly lucky to the have the government that it has.

But being good at being a government does not mean that the government is good at running businesses. The results of the government in business are mediocre at best. Just look at Temasek. Surely, we should heed the words of our transport minister, Mr Raymond Lim who says,"We should not be in business found in the Yellow Pages."

1 comment:

Tan Ah Kow said...

I concur with your general thrust that a civil servants/politician does not necessarily make a bad business man.

However, I think you might have missed, might I add, a much bigger picture when you tried to illustrate your case with the examples of SIA, EDB and glowing report of the government's business friendly attitude.

Firstly, in your examples atesting to the fact that our civil servant/politician turned corporate head. It is worth noting that in all these examples, these so-call talents were parachuted into a "successful" -- however, you choose to define success -- model to start with. So in a sense, they had not had to do much other than to steward what is already there.

Secondly, to be a good at business is not just about ensuring profitability but also to build good value proposition. On paper many of our seemed profitable but many of the so-called profitable corporations are competing in what is in essence monopolies. So are these examples of real demonstration of business acumen on the part of these parachuted in talents? Hey maintaining profitability of a company is easy when compared to building value.

You might argue that SIA is a case where it has to compete internationally but it is worth noting but much of SIA profitability does not come from flights. A substantial from hedging on price of aircraft -- buy low sell high (hence their boast of youngest fleet, just like many middle eastern are doing now). For this, capital injection is crucial so question where do they get this money from? Is it a coincidence that mainly state owned company are able to do this? Hmmm.


Thirdly, there might be a confusion on your part that a government friendly government does imply that people running the government necessarily have good business acumen. Yes it is one thing to be friendly to be business (especially foreign ones) but not quite the same as being able to run a business in a really competitive environment. More importantly, being able to manage a real crisis.