Can Ho Ching Fix Singapore Inc.?

She's the ultimate insider, but putting her in charge of Temasek Holdings might make sense

To observers of Singapore politics and business, Temasek Holdings Ltd. has long represented everything that's right, and wrong, about the prosperous city-state. The government controls Temasek, which in turn controls some 40 companies, from shipbuilders to banks to chipmakers. Honest bureaucrats toil at Temasek companies, doing their best for Singapore Inc. But the state's heavy hand stifles entrepreneurial drive and prevents much-needed restructuring. Critics have long said that what Temasek needs is a new boss who'll shake things up, break the mold, and push Singapore out of its slump.

Well, Temasek has its new boss--but to cynics, the choice is a classic case of Singapore patronage. On May 1, 49-year-old Ho Ching was named executive director of Temasek Holdings. Ho, now responsible for the biggest corporate remake in Singapore history, is the daughter-in-law of Senior Minister Lee Kuan Yew and the wife of his son, Finance Minister Lee Hsien Loong.

It's no surprise that critics wonder if Ho is right for the job. While she would not comment for this article, other members of the Singapore elite acknowledge that her appointment is a public-relations issue. "It is awkward. We know that," Prime Minister Goh Chok Tong told BusinessWeek on May 29. "There is some conflict of interest, but you know, we work for the larger good."

Strange as it may sound, an appointment that looks like nepotism might make sense. Ho Ching's defenders say her marriage to Finance Minister Lee means she has the clout to prevail. The Stanford-educated Ho also has long experience in the state-led sector. For nearly five years, she ran Singapore Technologies Ltd., a defense contractor that is 100% owned by Temasek and makes everything from computer chips to rifles. For the most part, her stewardship of ST was praised. "I got her not because of her political connections," says Temasek Chairman S. Dhanabalan, the man who hired Ho for her new position, "but because of her competence and record."

In fact, thanks to those political connections, Ho almost didn't get the job. When Dhanabalan first offered her the post back in August, her husband, says Goh, made it clear that he was uncomfortable with the situation. After all, Ho would have reported directly to him. So Temasek management was "reconstituted" to provide a "buffer" between Ho and Lee, says Goh. Meanwhile, she stepped down as CEO of ST so she wouldn't report to herself. Now Ho is resigning from the boards of seven other state-led corporations.

So, can Singapore Inc. fix Singapore Inc.? Many analysts insist that only an outsider can break up the cozy corporate culture of patronage widely blamed for the lethargy of the so-called government-linked companies (GLCs). Critics note that Temasek directors sit on the boards of corporations Temasek owns, and that the board members of those GLCs sit on the boards of other GLCs. Moreover, most GLC execs, while highly trained and dedicated, have spent their careers toiling at state-controlled companies, earning them the sobriquet "hothouse flowers." The solution, say critics, is for an outside investor to take a stake in Temasek, whose 13 top companies posted combined revenues in 2001 of $30 billion. But a U.S. equity fund manager in Singapore says no one "is in enough pain here to want to do that."

The Singapore government clearly believes a foreigner would lack the political power to enact changes. That's why it has turned to a member of the Lee family. "Putting in Ho Ching is a smart move," says one Singapore banker. "When you have the kind of clout she has, you can get a lot done without worrying about other variables."

Singapore companies are long overdue for a shakeup, especially given the economy's fragile state. After all, according to the U.S. State Dept., the GLCs account for 60% of the economy (though the Singapore government insists it's more like 13%). By and large, the GLCs are underperforming the private sector and the stock market (table). And while most are meeting Temasek's target of a 12% return on equity (ROE) or better, critics say that's because many of the GLCs enjoy what amounts to a domestic monopoly. For example, the Port of Singapore Authority is the sole port operator.

Moreover, analysts argue that applying a profitability measure as broad as ROE is meaningless to a conglomerate like SembCorp Industries, which is owned by Temasek and has diverse businesses, ranging from a zoo-management company to an Internet service provider. The only way to get an accurate picture, they say, would be to break the conglomerate into core businesses and apply industry-specific measures to each of them.

What should Ho do first? Analysts believe she should complete planned restructuring tasks. One is the clumsily executed merger between DBS Bank and PosBank, which resulted in dual networks of branches and ATMs. Another is to force the merger of shipyards owned by SembCorp Industries and Keppel Corp., a process halted after arguments over pricing. And, say analysts, Ho should lean on SembCorp to spin off such subsidiaries as SembCorp Logistics, SembCorp Engineering, and Pacific Internet, a process halted in 2000 when they failed to fetch expected prices.

More difficult, perhaps, will be changing Singapore Inc.'s corporate culture from one that puts a premium on loyalty and political service to a more free-wheeling ethos. In particular, observers would like Ho to trim corporate boards of dozens of civil servants, military officers, and members of parliament.

The big question is whether Ho has the management talent to get the job done. Some contend that being CEO of Singapore Technologies is not like running a real company because it uses Defense Ministry research labs, saving on what would otherwise be huge research and development costs. And Ho's performance at ST was called into question in parliament following the 1997 collapse of Micropolis, a subsidiary that made high-end disk drives. Its failure cost Temasek $340 million. Dhanabalan insists Ho was right to shutter Micropolis and cut its losses. For his part, Goh defends not only Ho but the entire Lee family on grounds that Singapore's talent pool is too small and the family's academic record too impressive not to employ them in key positions. "It is an exceptional family," says Goh. "Do we discriminate against them just because they're related?"

And therein lies the crux of the debate. No one disputes the achievements of Singapore's First Family. Under Lee senior, the city-state rose from an impoverished swamp to become a prosperous First World city. And yet, more recently the government has struggled and largely failed to bring the forces of the free market to bear on the nation's state-controlled companies. Ho Ching may be the right person to sort out Singapore Inc. But it remains to be seen if she can make the corporate bureaucrats under her hew to her will.

By Michael Shari in Singapore

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