He who lives by the peanut...

More non-moralistic musings on NKF

The NKF prides itself as a charity run on a commercial model. "Social entrepeneurship", according to its website - that translates into heavy marketing, tv charity shows, call centres, and the provision of a fleet of company cars for its CEO and so on (?!). Its supporters in Parliament tout it as the coming of the market economy into a traditionally not-for-profit sector, a Very Good Thing. The grounds for the expulsion of TT Durai and the board of directors as well as any future criminal proceedings should necessarily stem from evaluating its behaviour against the standard of commercial companies.

Again, in shorter form: the NKF and its Parliament supporters have always insisted on its status as a commercial (decode as "more professional") entity working in a non-profit sector. If the NKF were a registered company, would its actions have been legal and typical?

1. TT Durai had an undeclared commercial relationship with a NKF board member

From the Business Times archives,

Durai had a business relationship with former employee Matilda Chua when the NKF awarded a contract to an Indian call-centre company she represented. The NKF had contracted Proton Web Solutions to perform telemarketing work. Ms Chua, who is now a member of the NKF board, is the Singapore representative of Proton Web.

Mr Durai also failed to reveal that he had jointly invested with Ms Chua in another company, Global Net Relations, a company which was set up to perform call centre work and even operated out of the same premises as Proton Web at Suntec Tower. Mr Durai and Ms Chua were both directors in Global Net.

There are laws against this, of course. If the NKF was a registered company instead of a charity, this would've automatically warranted an investigation by Singapore's Commercial Affairs Department and its Corrupt Practices Investigation Bureau. Durai and Matilda Chua would be eligible for jail terms, lengthy fines, and a mandatory ban from holding any directorship or board membership of any company for a number of years.

2. Durai lied about the extent of NKF's reserves

The NKF CEO went public during the charity's drives, stating that the NKF reserves were in danger of running out in 3 years, hence securing massive donations from Singapore's public. The truth was revealed in court under the questioning of Davinder Singh: NKF has reserves of 260 million SGD, more than enough to last the organisation between 30 and 40 years, as it current spends only 7 million a year subsidising patient care.

3. The board lied about the number of NKF beneficiaries

In a letter published in ST's forum page on April 9, 2004, Dr Gerard Chuah, chairman of NKF Children's Medical Fund, stated that NKF treats 3,000 dialysis patients a year. But answers given in Parliament in May 2004 showed that NKF treated 1,512 patients in 2003. And a letter from Mr Yong on the same date (sued by NKF for the following statement, now known to be a fact) said NKF treated about 1,800 dialysis patients.

Again, from the BT archives,

"You knew it was an error. Did you correct it?" Mr Singh asked Mr Durai, referring to Dr Chuah's letter.

"No, it was not material," Mr Durai replied.

The heads of CEOs have rolled for similar false statements about their accounts and reserves - Enron, Royal Dutch Shell, and so on. Some are even in jail. But what do I know? The NKF isn't a registered commercial company, it's registered as a charity. In Singapore, there aren't any laws demanding the same standards of corporate governance for charities or due disclosure and transparency of even the accounts books.

The entire NKF board, CEO, and even its patron (Mrs Peanut) may have stepped down, and the Government has been forced by public pressure to announce an investigation into the charity. During the press conference on Wednesday, Health Minister Khaw Boon Wan said certain steps will have to be taken to restore public trust: the investigation will review accounting practices, funding needs, and pricing and subsidy policies. Decode (what the Minister did not say): the investigation will most likely not look into the criminal behaviour of Durai and his board.

The good Health Minister has reason to tread thinly - it isn't clear if Durai and the Board have broken any laws. It claims to be a very corporate charity, the Parliament praises it as a model for turning Singapore's charities into a market economy, and yet the Minister is reluctant to hold NKF to the standards and legal framework of a market firm. Interesting, no?

The penalties for deception by a company's CEO, board of directors, or for false statements on a company's revnue centre on one thing only: the sanctity of a market. A free market requires perfect information from its players. Only then can investors make informed decisions to allocate their resources to the correct companies. In deceiving the entire market, a company poisons the information flow, causing misallocation of resources and non-optimal results for the industry as a whole. This is why corporate entities are subject to strict regulation and are compelled by law to disclose information on their revenues and accounts - yet this is also why any non-capitalist market needs to have equally strict regulation as well.