SENIOR CIVIL SERVANTS (Policy on sitting on boards of private companies and Government-linked companies)

Mr Lew Syn Pau asked the Deputy Prime Minister what is the Government's policy on senior civil servants sitting on the Boards of Directors of private companies and Government-linked companies; and whether there are conflicts of interests and, if so, how are these conflicts resolved.

The Deputy Prime Minister (BG Lee Hsien Loong): Mr Speaker, Sir, the Civil Service has for many years operated a scheme to appoint senior civil servants to the Boards of Directors of Government-linked companies (GLCs). Such appointments help the officers to better understand the nature of business and industry, and at the same time enable the company to benefit from the officers' contributions.

Each such appointment is individually vetted and approved by the parent ministry of the officer and/or the Public Service Division, to ensure that no conflict of interest will arise. The officers appointed do not receive directorship fees directly from the companies. Instead, the GLCs pay the fees to the Directorship and Consultancy Appointment Council (DCAC), which in turn pays the officers an annual allowance, depending on their level of responsibility on the boards.

Hitherto, the civil service has rarely approved appointments of officers from the Ministries to the boards of non-GLCs. However, there have been exceptions.

For example, Mr Teo Ming Kian, Chairman of the National Science and Technology Board (NSTB), sits on the board of AsiaOne. PSD approved this after the Ministry of Trade and Industry which supervises NSTB assessed that there was no conflict of interest with Mr Teo's primary job as Chairman of NSTB, and that it would not affect Mr Teo's performance of official duties as a public officer. In addition, Mr Teo was not allowed to accept any shares or options which AsiaOne may offer to its Board of Directors. Mr Teo accepted the invitation to sit on the AsiaOne board primarily to better understand these newly emerging Internet companies so that he could help develop a more supportive environment for them. Besides Mr Teo, a few NSTB officers sit on the boards of private companies in which NSTB is a significant shareholder, as part of fulfilling its science and technology development charter.

Several officers of the Economic Development Board (EDB) and EDBI (or EDB Investments), which is EDB's investment arm, have also been appointed to the boards of private and public listed companies. Their appointments are approved by the Managing Director or Chairman of EDB, who are responsible for ensuring that there is no conflict of interest. Approval is based on several criteria:

Firstly, as part of work. For example, where EDB or EDBI are co-investors; where EDB or EDBI officers, by virtue of their domain knowledge, can add value to the companies; or where the companies specifically ask for an EDB representative on their board for comfort.

Secondly, for networking purposes, when it helps the officers to learn and understand more about the companies, industries, technologies, and emerging trends, in order to further develop existing and new industry clusters;

And thirdly, for career development and exposure, where such appointments will broaden the exposure and experience of the officers as part of their career development.

In the case of the Chairman of EDB himself, Mr Philip Yeo, Members would be aware that he retired from the Administrative Service last year and is currently employed directly by EDB. His employment contract specifically allows him to accept board memberships with remuneration, subject to there being no conflict of interest and with approval from the Minister for Trade and Industry.

Mr Yeo is currently a non-executive director in several private sector companies, including, for example, Infosys Technologies which is a leading Indian IT company, SilkRoute Holdings which is an investment holding company of e-commerce start-ups, and United Overseas Bank. The Ministry of Trade and Industry, in fact the Minister, approved these appointments after satisfying itself that they did not pose any conflict of interest to Mr Yeo's duties in EDB and NSTB. Should any of the companies have dealings with EDB or NSTB, for example, while seeking Government assistance or tax incentives, EDB and NSTB have standard operating procedures to prevent conflict of interest.

The involvement of Ministers on company boards is governed by a Code of Conduct for Ministers. Paragraph 3(iii) of the Code reads:

"A Minister should not hold any directorship in public companies or participate actively in any professional practice. Nor should he be associated in a formal or advisory capacity with any commercial undertaking or receive any remuneration from them.

Except that the Prime Minister may authorise the Minister to hold such office or participate in or be associated with any of the aforesaid activities where he considers it in the national interest for the Minister to do so. The Prime Minister's authorisation shall be published in the Gazette."

Senior Minister Lee Kuan Yew serves on several international advisory boards, including Daimler-Chrysler, J P Morgan and TOTAL which is a French oil major. These appointments have been invaluable in helping him to appreciate the major changes taking place in the business and financial world, and what Singapore must do to catch up.

As Mr Lee told Parliament last year (during the debate on Singapore 21 on 6th May 1999), having had the advantage of time and opportunity to attend meetings with top bankers, top executives in different parts of the world, he had concluded that our previous aspiration of becoming the centre for Southeast Asia was inadequate. This is a global stage, whether we like it or not, and to play in this global market, we must have talent of a global standard.

SM also described how having been exposed as a member of an international advisory board of a big American bank, he could see the speed at which they themselves were changing and spreading throughout the world, and concluded that we had no choice but to stop protecting our local banks from foreign competition or face the prospect of being wiped out.

Mr Speaker, Sir, in the next phase of our economic development, we will need to recruit many talented individuals, in Singapore and worldwide, to contribute in different ways to our economy and society. We will need specialists and generalists, chairmen and board members of statutory boards and companies. The distinction between GLCs and non-GLCs will become less relevant.

It will be invaluable for the public sector to have officers who understand how companies work, and are au fait with developments in the business world. Allowing civil servants to serve on the boards of companies will help to achieve this. There must of course be proper rules to safeguard against conflict of interest, and to ensure that the civil servant's primary responsibility and loyalty remains to his organisation and the Government.

The public sector encompasses a wide range of agencies, from Ministries at the core of public policymaking, to research institutes which are really at the periphery of Government, and statutory boards which are somewhere in between. The appropriate rules and constraints governing the appointment of officers to boards of companies will therefore vary for the different parts of the public sector. PSD is reviewing the existing rules and practices, to see how best we can achieve this flexibility in the new situation, while upholding the integrity and ethos of the public service.

Mr Lew Syn Pau: Sir, there may be no conflict of interest where the individual civil servant is concerned, but where the companies are concerned, there is a perception in the private sector that such companies with senior civil servants on the board have an unfair advantage over the other companies. How do you address this concern of the private companies without the privilege of having senior civil servants on the board?

BG Lee Hsien Loong: Mr Speaker, Sir, first, we must make up our mind whether there is a problem and then decide how to deal with it if there is one. If there is not one, whether there is a perception and whether there is ground for it or not. It is not a new thing for civil servants to serve on company boards. They have done it for GLCs for many years - DBS, SIA, Sembawang, Keppel. And frankly, some of these companies would not have been built up had there not been very strong and effective civil servants, like Joe Pillay in SIA, to run these companies and build them up into what they are today.

We are now in a new position. We could continue the old scheme where we make these arrangements for GLCs and then say, "For non-GLCs, you are beyond the pale." Or we have to review the position and say, "Well, it is a new situation. Whether you are a GLC or not, it is not a crucial distinction." The crucial distinction is: is it going to make a difference to Singapore? Is it in the national interest? And is there any conflict of interest when the officer serves on the board? Does he make a contribution? If so, then we work out schemes which enable us to do this and maintain the integrity of the civil service. And people in Singapore know that if you have a civil servant on the board, you do not get favours done. Sometimes, the contrary, because then, they may find out something is wrong with the company. Or knowing that there is a civil servant on the board, the Government may be doubly cautious not to make an exception or exercise discretion when otherwise it might have done so.

These are issues which we have to work out. We have to take the steps very carefully because we have a very strong reputation to uphold. The integrity of the civil service and the ethos of the civil servants - that they are in the Government and that is their primary job. There are other things which they can do and which we think is good for them to do, and we make arrangements, but do not forget where their primary job is. I think we want to preserve that. But if you are in a research institute and you have developed a patent, or got a new idea, or some new protein or drug, and you want to go and start up a company and profit from this, but we say that you cannot do that, then the only people who are going to work in research institutes are the ones who are not going to have ideas. Because the ones who have ideas will be off on their own, and there are many other places in the world where these arrangements have been made and there are opportunities to do it, including universities like MIT, Harvard, Stanford, Cambridge or Oxford, which also have been trying to find the right interface between where the university stands and where the private sector begins. So we have to find the right form. I assure you we will try and do it very carefully.