23 May 2013

What does conflict of interest really mean?

This is business as usual

But if you wear too many hats

Or if you are both the left and right hand

You're really playing games with public funds

Conflict of interest is very easy to understand, very easy to identify

Here's the egghead definition and its restatement into simple English, courtesy of the Journal of Business Ethics (39:1-2, 67-74). It is:

"...a situation in which a person has a private or personal interest sufficient to influence the objective exercise of his duties as say, a public official, an employee, or a professional.

Simply put, a conflict of interest occurs when your obligations to a party or the greater public could be influenced or compromised by self interest, a prior commitment, competing loyalties, or an inability to be objective."

On the very specific issue of town councils, the Victoria state ombudsman says in its 2008 report "Conflict of interest in local government": 

"Those interests may be pecuniary... or non-pecuniary, such as the interests of the official's family or other close associates, or organisations to which the official belongs."

That is to say, conflict of interests occur when you:
Give contracts to friends, party members, or family members;
Are both the drafter/approver of contracts as well as the bidder for a contract;
Are both an employee of local government as well as a shareholder or director in a company engaged by local government; or
Oversee for the town council the work you carry out for the town council.

To put it even more simply: conflict of interests happen when you wear too many hats; or when you are both the left and the right hand when the key principle in corporate governance is never let the left hand know what the right hand is doing.

To put it for dummies: conflict of interests happen when you're not independent.

So what happens when there is a conflict of interest? The standard advice given in all governance textbooks is to recognise it; disclose it; then remove yourself from the decision making and ideally from the entire discussion.

No exemptions for the PAP and WP; or, a plague on both your houses!

We do not wish to rehash the details of the AIM saga, the FMSS saga, or the Jurong town council saga. But here's what happens when we apply everyday standards of corporate governance, as well as international norms (as represented by the Victoria ombudsman's report on conflict of interest in local government) to Singapore's town councils.

AIM: owned by party members - conflict of interest
FMSS: owned by "friends" and supporters - still conflict of interest

FMSS: directors and shareholders are also employees of town council - conflict of interest

AIM: awarded contract by party member, precisely because he knew AIM was party owned - conflict of interest

Esmaco Town Management Services. GM of town council is MD of company hired as estate manager - conflict of interest!

It does not matter if he was appointed GM after his company got the contract. In corporate management, all we are interested in is whether 1. he reported the conflict of interest and 2. whether he reported the conflict of duty, and 3. whether he has recused himself from evaluation and overseeing the work carried out by Esmaco.

Still more conflict of interest issues in WP's AHTC?

Khaw Boon Wan raised (13 May 2013, Straits Times) and Sylvia Tan acknowledged (14 May 2013, Straits Times) that FMSS is owned and operated by party supporters, not party members.

Leaving aside this very clear-cut textbook conflict of interest, we'd like to ask WP three more questions.

1. Can WP confirm that no party member or their family or associates have ever been awarded a WP town council contract or sub-contract?

2. The shareholders and directors of FMSS are also employees of the town council, who is their client. Leaving aside the conflict of interest, can WP tell us who at the town council then oversees and supervises the work of FMSS?

3. As town council managing agent, has FMSS sub-contracted to any party who has a conflict of interest - i.e. any WP member; relatives of WP members; FMSS shareholders and directors themselves; town council members; relatives or friends of FMSS shareholders and directors; relatives or friends of town council members?

14 May 2013

What the MND review really means

How does one conduct a comprehensive review while wearing blinkers?

Headed by one Mr Tay Kim Poh (apparently a deputy secretary in the Ministry of National Development), the MND team found that the PAP-AIM deal was

1. Not illegal
2. Followed due process and did not represent a conflict of interests

We have already predicted in February that the deal would not be illegal, though the ownership of AIM by PAP would fall under a grey area. The deeper issue of political financing and political donations were not addressed by the "comprehensive" MND review, which only strove to investigate the deal through the blinkers of the Town Council Act.
We've already pointed out that Singapore's regulatory framework of political parties with respect to these two issues is at odds with international legal norms, which ban political parties from owning private enterprises.

Further, it's only through very imaginative acrobatic manoeuvrings that MND could find the deal in accordance with due process and free from conflict of interests. MND had to accept that being town councils, appointments and contracts will be, can be, and can be allowed to be preferential, can be parcelled out as political appointments.

By allowing this, MND in effect says that certain practices which could end the political career and legacy of... let's say a former mayor of Paris, would be perfectly legal and above board in Singapore because we allow that local government is, by nature, "politicised".

Implications of MND's findings

1. The civil service or at least the team headed by Tay was simply incompetent, and utterly stupid.

2. The civil service or at least the team headed by Tay lacked independence, and had become politicised. They were charged by the prime minister to conduct a comprehensive review and turned up a heavily blinkered review.

Whether there was self-censorship or behind-the-scenes political pressure, this may cause some to conclude that the civil service is either very openly batting for the ruling party or intimidated by the prospect of having to investigate the party. The MND review may ironically further undermine public trust in the system.

3. The MND review legitmises the idea that local government in the form of town councils are held to lower standards of corporate governance and due process, and higher thresholds of conflicts of interest than the private sector. This is the gateway to open preferential contracts, clientelism, and procurement corruption.

In light of all these, we at Illusio again renew our call for the Town Council-AIM deal to be investigated fully by the Auditor-General of Singapore and the Register of Societies. We further call upon the Minister for National Development to step down and for his deputy secretary to be censured by the head of the civil service for publishing a review that holds local government to lower standards than the private sector.

09 May 2013

The Ministry of National Development comprehensive clown show

We examine the Ministry of National Development's oft-delayed, long-awaited review of the transaction between the People's Action Party's 14 town councils and Action Information Management, published on 3 May 2013 (PDF link), in light of the parliament sitting on 13 May 2013.

Whatever happens on Monday—a dramatic showdown headed by a bold opposition, a comedy of missed chances authored by an underperforming opposition, or a grotesque self-interested bipartisan agreement to sweep all embarrassing issues under the carpetthe ruling party and the establishment press will declare the sitting a fitting closure to a contentious debate, and call for the citizenry to lay aside their misgivings, move on, and to reinvest their blind trust in a to-be-reformed town council system.

We present this post so our readers can see for themselves on Monday whether Monday's debate is the real thing, a clown show, or pure political kabuki.

Will Monday's parliament session be a farcical pie fight?
Follow the breadcrumbs with Illusio!

The issues as we see it

The public disquiet in the streets, online, and in social media over the AIM affair stems from several concerns:

1. Conflict of interest of the political variety. In the tender process, PAP-appointed party member Ho Pin Teo basically gave the contract to a company only he and other senior party members knew was "owned" by the party and managed by fellow party members. This was special knowledge of a relationship that could not have been found in any public record.

2. Questions of procedural irregularities and non-transparency
a. conflict of interest not reported in town council's annual report on the AIM contract deal(s) amounts to a breach of due diligence.
b. Teo's reason for awarding the contract - that he knew the special status of AIM - was not reported in the town council annual report. This may be perfectly legal within the bounds of the town council regulations, but amounts to another breach of due diligence.
c. non-transparent tender for a contract of no viable commercial value, which basically is one of the criteria for determining procurement corruption (whether legal or illegal).

3. Political trust, legitimacy of the PAP.

How did the PAP come to own a private business and not have the business declare its true ownership or even declare its ownership? Is this legal?

Even if legal, is this a circumvention of laws on political donations in Singapore, and completely at odds with international legal norms on political financing?

Can the people place their trust in the PAP if it owns a clandestine business empire and is legally entitled to own a clandestine business empire?

How can a political party manage become so secretive when the laws regulating political parties (i.e. the Political Donation Act, Societies Act) are written to ensure they operate with transparency and scrutiny?

Note that the majority of these three sets of concerns are ethical and procedural, not legal.

The issues as MND saw it

1. MND reviewed the external audits of the PAP town councils but not AIM's audit reports. It accepts the town councils' assertion that AIM made no profit, that whatever was paid to it was to cover its operating costs... It should have just reviewed the annual audits of AIM instead.

2. MND clears the town councils of any illegality. The public outcry was about ethics, transparency, politicisation of town councils, and conflict of interest.

3. MND clears the town councils and Ho Pin Teo of any conflict of interest only because MND accepts that town councils will have political conflicts of interests, that party MPs will engage party-affiliated companies to manage their town councilsand then pretends these aren't really conflicts of interests that matter.

Strangely enough, MND exonerates AIM. Reason? The company actually developed the TCMS in 1996, so it had a track record prior to the tender in 2010. MND however doesn't ask why AIM was even given the 1996 contract, as a $2 company with STILL zero staff in 1996.

MND, investigating with blinkers on

By refusing to acknowledge the real reasons for the loss of public trust in the system, the MND's review is unlikely to restore this trust.

It is clear that MND's investigation falls far short of popular expectations, even far short of Minilee's directive for a comprehensive review. It has stuck to a purely legalistic review, only of the town councils - leaving AIM and its political affiliations out of the picture. By not questioning AIM and its political affiliations, it obviously does not find any procedural irregularities with a senior PAP member awarding contracts to a company whose PAP affiliations were not public knowledge.

It has not found any conflict of interests because it already accepts as a matter of principle, that political conflicts of interests will arise and are encouraged by the current town council system.

We at Illusio believe that MND's blinkered report fully justifies our stand that it was the wrong agency to investigate the town councils. We call upon the Auditor-General of Singapore and the Registrar of Societies to launch an independent investigation to audit the PAP Town Councils, AIM, and the People's Action Party, to ensure full transparency, to identify weaknesses in the legislation and regulation of town councils and political financing, and to suggest measures that will restore Singaporeans' trust in the political and town council system.