CURBING CORRUPTION IN PRIVATE SECTOR ORGANIZATIONS:
LESSONS FROM SINGAPORE’S PUBLIC SECTOR
Sam Choon-Yin (11/04)
Private sector organizations are susceptible to acts of corruption. For example, a bank manager may grant overdrafts and other
banking facilities to a briber without proper checks on his/her creditworthiness thus subjecting the bank to unnecessary risk.
Corporate scandals are also getting increasingly common in recent years. The problem arises because the principals (owners
or shareholders) and agents (professional managers and their subordinates) have conflicting interests. It is well known that
private corporations’ objective is profit maximization while a typical public sector corporation aims to maximize the
society’s welfare. Despite differences in the objectives, there are lessons which the private sector organizations can
emulate from the public sector partly because both are susceptible to the agency problem. Since Singapore is often touted
as one of the least corrupt countries in the world, this paper argues that it is useful for private sector organizations to
emulate Singapore’s public sector experience in dealing with the corruption problem.
is often discussed in the context of public sector governance. However, acts of corruption can also take place in private
sector organizations. They may be treated as a form of an agency problem where company agents misuse the power entrusted to
them and make decisions that are not in tandem with the notion of maximizing the principals’ interest. For example,
executive managers may seek opportunities to expropriate company’s funds to pay higher salaries to themselves, furnish
their offices with unnecessary electronic gadgets and travel and spend excessively in business trips, instead of returning
the funds back to the shareholders.
managers are also trying to put company’s money into their own pockets through illegal accounting. Hiding liabilities
and inflating profits are getting common among companies to reward company agents in excess of what they actually deserve.
Recent well-known corporate scandals in the West took place in Enron, Xerox, Global Crossing, Tyco, WorldCom, Ahold, Vivendi,
Kellogg Company, Johnson & Johnson and Parmalat. In Asia, corporate scandals took place in Asia Pulp & Paper, Thai
Petrochemical Industries and SK Corp. Following the ‘discovery’ of the firms’ improper practices, their
stakeholders like shareholders, employees and creditors would eventually have to pay the price.
members of the private firms may also provide employment opportunities to their relatives and friends without proper screening.
They could offer exclusive contracts to relatives and friends without going through the proper procedures. Company agents
may bypass certain procedures or reduce the stringency of requirements to permit others to reap private benefit. This is possible
for example in loan assessment. A bank manager may grant overdrafts and other banking facilities to the briber without proper
checks on his/her creditworthiness thus subjecting the bank to unnecessary risk. In addition, a company agent may source for
low quality and high priced materials because he/she has received bribes from the seller. Consequently, the company may have
to mark up the prices to recover the increased cost thus affecting its competitiveness. Furthermore, productivity level of
corrupt agents tends to be lower because of their excessive attention paid to enrich themselves in the working place.
The above describes
some forms of corruption that can take place in private sector organizations. It is well known that the primary objective
of private sector organizations is net profit maximization whereas the public sector corporations tend to focus on maximizing
net profits to the society (in this paper, public sector corporations include commercialized enterprises like the government
linked companies, GLCs, and non commercialized enterprises like ministries and statutory boards). Despite differences in the
objectives, this paper argues that there are good practices in the public sector which the private sector organizations can
emulate so that they can further improve their management and audit practices. The reason being that both the public sector
and private sector organizations are susceptible to the agency problem although the problem is often discussed in the context
of corporate governance. In the later part of this paper, we describe how the agency problem is also applicable in the
public sector. Accordingly, emulating how the public sector has successfully aligned the interest of agents with that of the
principals may be a fruitful exercise for private sector organizations to undertake.
There are two
issues addressed in this paper; (1) to find out how Singapore’s public sector deals with the agency problem, and (2)
to examine how the approaches could be relevant to private sector organizations. Prior to that, it may be useful to (1) discuss
briefly the causes of corruption in private sector organizations, and (2) offer an explanation why emulating Singapore may
CAUSES OF CORRUPTION IN PRIVATE SECTOR
of corporate governance may be the reasons for corruption to take place in private sector organizations because the principals
(owners or shareholders) and agents (professional managers and their subordinates) possess conflicting interest. While the owners are generally interested in maximizing
firm’s profits, the agents may not possess the same drive. The problem arises when the agents make decisions aimed to
maximize their private interest at the expense of the principals. This phenomenon is known as the agency problem (Jensen and
Meckling, 1976; Fama, 1980).
In the case
where there is a separation between ownership and control, the principals rely almost exclusively on contracts with agents
to protect their capital and interest. In the contracts, the agents’ duties, responsibilities, remunerations, etc, are
listed. Unfortunately, the contracts signed are often incomplete. The reason being that stating in the contracts exactly how
their agents are to allocate their time during office-hours is technically infeasible. It is also not easy to state implicitly
how agents are to distribute company’s profits and in what proportion of the after-tax profits are to be retained (Shleifer
and Vishny, 1996). Moreover, the agents are often not able to relate to the principals’ goal because it is difficult
in practice to break down financial goals into operational goals for agents (Osterloh and Frey, 2000). The agents could take
advantage of these loopholes to maximize their personal benefits. Their ability to hide knowledge and actions from the principals
exacerbates the problem.
Recent scandals involving manipulation of financial statements
suggest a need for private sector organizations to look elsewhere for guidance to improve their management and audit practices.
Why not learn from the public sector? Being bureaucratic and hierarchical, the principal-agent problem should also be susceptible
There are essentially two sets of relationship linking the principals and agents in
the public sector. The first involves the public (like voters) as principals and the state as agents. In a democratic society,
the public elects Members of Parliament (MPs) to run the country on their behalf. Among other things, the MPs must elect the
cabinet members to enforce statutes which the Parliament enacts. The problem arises when the state and public have conflicting
interest. The state (as agents of the public) may comprise self-seeking individuals, indicating that ‘public choices’
might not differ very significantly from ‘private choices’. As proponents of the Public Choice theory have predicted,
it is possible for public officers to make decisions that maximize their personal interest rather than those of the public,
which they supposedly represent. Theoretically, a democratic society should allow changes in the regime through the electoral procedures to get rid of the
undesirable state. In reality however, the underlying process may be lengthy, and subject to hindrances from interest groups.
As such, it may impose unnecessary social and economic costs, and create unintended consequences to the economies as was observed
recently in Indonesia (social unrest), Taiwan (more trouble with the mainland), South Korea (an impeachment effort), Sri Lanka
(the strengthening of the anti-negotiation party) and India (voting out a seemingly competent government).
The second set of relationship links the state as principal and their subordinates
like public sector managers as agents. The ministers for example must check that their subordinates in statutory boards and
ministries implement good policies and carry out their duties diligently and ethically. Because of asymmetric information
and the fact that employment contracts are often incomplete, it may be possible for agents to shirk in their responsibilities
and make decisions that maximize their own interest but at the expense of the public’s interest.
As the above shows, the agency problem is also applicable in the public sector albeit
in a different form. In the public sector, the chain of relationship involves the public, state and public sector managers
(public ® state ®
public sector managers) while the linkage in a typical public listed company involves the shareholders, board of directors
and professional managers (shareholders ® board of directors ® professional managers). To have a competent public administration, it is imperative
for the administration to recruit good men and enact good rules. Raising the standards of public governance requires the alignment
of agents’ interest with that of principals (represented by the public). A similar case could be applied in private
sector organizations. Raising the standards of corporate governance involves striking the right balance between compensation
and performance, and monitoring agents’ performance so as to narrow the ‘divergent interest’ between shareholders
and managers and contribute to a more superior corporate performance. This paper suggests a possible avenue for private sector organizations to tackle the agency problem and raise their standards
of corporate governance, that is, to emulate selectively some of the public sector practices. In the next section, we explain
why emulating Singapore’s public sector experiences in curbing corruption might be a right step to take.
WHY EMULATE SINGAPORE?
is often touted as one of the least corrupt countries in the world. For example, in the World Competitiveness Yearbook
(WCY) 2003 prepared by the International Institute for Management Development (IMD), Singapore was ranked fifth least
corrupt economy among 29 countries with population less than 20 million (after Finland, Denmark, New Zealand and Iceland).
Transparency International (TI), a fledging non-governmental organization established in 1993, constantly ranked Singapore
as one of the 10 least corrupt countries. For many years, Hong Kong based Political and Economic Risk Consultancy Limited
(PERC) has ranked Singapore as least corrupt among a handful of countries it surveyed (see Table 1).
TABLE 1. CORRUPTION RANKING FOR SINGAPORE
Transparency International (TI) Ranking for Singapore
Total number of countries surveyed
Political and Economic Risk Consultancy (PERC) Limited Ranking
Total number of Asian countries surveyed
Source: CPIB’s website (downloaded on 1 March 2004) (http://www.cpib.gov.sg)
In the preceding section, we have explained that there are certain commonalities between running a country and running a private
sector organization. Both cases for example could face the agency problem. The achievements that the public sector in Singapore
has made in curbing corruption could be synonymously associated with the notion of ‘higher standards of corporate governance’
in the corporate world. However, we are not suggesting here that Singapore provides the only model for others to emulate.
Based on the corruption ranking, there are other countries like Finland, Denmark and New Zealand which are less corrupt than
Singapore. But a distinctive feature of the city-state is that it represents one of the few countries that have managed the
GLCs quite successfully, in addition to the fact that the ministries and statutory boards are relatively efficient and effective.
In a recent ranking of the top companies in Singapore in terms of their market capitalization, the top four companies were
Singapore GLCs namely, Singtel (S$39,066.2 million), DBS Group (S$26,783.7 million), SIA (S$20,949.7 million) and Chart Semiconductor
(S$20.8 billion) (Business Times, 1 July 2000, quoted from Low, 2001, p. 425). It is a common practice in Singapore to appoint
retired or semi-retired public officers to serve in the GLCs. The achievements in combating corruption in the public sector
could have affected the standards of corporate governance in the GLCs.
It is also
useful to note that as far as Singapore is concerned, existing literature considers the principal-agent problem almost exclusively
in the context of the private sector (Goodwin and Seow, 1998; Eng and Mak, 1999; Phan and Mak, 1999; Yeo and Koh, 2001; Pang
and Leung, 2002). Studying the problem in the context of the public sector, and see how it can be relevant to the private
sector organizations, may be timely and relevant.
SINGAPORE’S EXPERIENCE IN CURBING CORRUPTION: A BRIEF REVIEW
the reasons why emulating Singapore might be useful, we proceed to exposit Singapore’s experience in curbing corruption.
Primarily, the government has relied on five measures.
was setting up of an independent agency, the Corrupt Practices Investigation Bureau (CPIB). The CPIB has legal powers to obtain
support from organizations and institutions both from the private and public sectors. Placed within the Prime Minister’s
Office, the CPIB is mandated to carry out all investigations pertaining to acts of corruption. It reports directly to the
Prime Minister and requires the President to approve the appointments of key personnel. Under a provision in the Constitution,
even the Prime Minister can be investigated (Ho, 2003). A number of corrupt cases investigated by the CPIB in Singapore involved
prominent politicians like Teh Cheng Wan, Glenn Knight, Yeo Seng Teck, Choy Hon Tim and Lim Geok Hwa, and businessmen like
the Royal Brothers (Raj and Asok Kumar), Ng Chee Kheong and Tay Huay Hong. An interesting feature of the CPIB is that it has
a strong support from the public in carrying out its duties. It appears that the public is generally supportive of the CPIB,
readily willing to provide information and assist the agency in its subsequent investigations possibly because they trust
that the CPIB will adhere to strict confidentiality and protect them against harassment, and that fair, impartial and thorough
investigations will be carried out (this was pointed out in the CPIB publication ‘Swift and Sure Action: Four Decades
of Anti Corruption Work’). .
Second, penalty costs imposed on the corruptors were raised when the PAP took over the government.
The Prevention of Corruption Act (POCA) was enacted on 17 June 1960 to strengthen the anti-corruption legislations, replacing
the older Prevention of Corruption Ordinance (POCO) Act enacted in 1937. Among other things, the new legislation (POCA) increased
the penalty for committing corruption-related offences to imprisonment of up to five years (from two years) or a fine of up
to S$100,000 (from S$10,000) or both. In certain cases like bribery of MPs, the offenders could be jailed up to seven years.
The new legislation also required the person accepting illegal gratification to pay back the amount that he/she had taken
as a bribe in addition to the punishment imposed by the court (Section 13). More power was given to the CPIB officers to arrest
and search investigated persons (Section 15) and scrutinise the accounts of individuals working in the public and private
sectors regardless of the positions they held (Section 17). The CPIB also has the authority to summon witnesses to court to
assist in its investigations.
was strong political leadership to inculcate the incorruptible virtue. All MPs, ministers and public officers are expected
to set good examples for others to follow. For instance, all PAP members are required to declare their family assets to the
Prime Minister while the ministers (including the Prime Minister) declare their family assets to the President to prove that
they have not acquired funds through illegal means. There were also constant appeals by the political leaders to the moral consciousness of the public servants, reminding them of the benefits of doing good and
the negative implications of corruption on the nation. The political leaders have not hesitated to shame offenders,
regardless of their status, to further raise the opportunity cost of engaging in acts of corruption (names and photos of offenders
were often exposed to the public). The initiative imposes high cost to the offenders (and their family members) and is particularly
powerful in Asian countries because Asians are generally afraid to ‘lose face’. Singapore is not an exception.
increasing efforts were put in to improve standards of operating procedures in public enterprises. The ‘Public Sector
for the 21st Century’ (PS21) initiative for example was introduced on 5 May 1995 to foster an environment
that induces and welcomes change for greater efficiency, service excellence and cost-effectiveness (Commonwealth Secretariat,
1998). Other initiatives aimed to improve public services include cutting red tape,
reengineering key business processes and introducing more pro-business policies. An example is the Zero-In Process (ZIP) initiative. Established in 2002 as part of the ‘More Vision, Less Bureaucracy’
movement to review rules and cut red tape, the ZIP program encourages ministries and other government agencies to work closer
together and deliver more integrated services to the public. One of the outcomes of the ZIP project is the creation of Lead
Agencies which assist in solving problems related to the maintenance of public areas. Essentially, the government believes that corruption is more likely
to thrive in an inefficient administration where agents can take advantage of loopholes to beat the system. Conversely, efficient and easy to follow procedures have the effect of reducing the need for businesses
to incur additional expenses to bribe someone in getting things done for them. Advancement of technology has also been
leveraged to lessen the need for the public to have direct contacts with public officers thus reducing the opportunity for
acts of corruption. An example is the introduction of the electronic tax filing system since February 1998.
LESSONS FOR PRIVATE SECTOR
ORGANIZATIONS: A PRELIMINARY LIST OF RECOMMENDATIONS
In this section, we advance five lessons which private sector organizations could emulate using the public sector’s
experience alluded earlier as guidelines.
Lesson 1: Set up an independent anti-corruption committee
Private sector organizations could set up independent committees to spot, investigate and eradicate ethics-related problems.
An independent board member should head the committee, which reports directly to the Chief Executive Officer (CEO), with the
committee members appointed by the Chairman. Because it is possible for the CEO to be investigated, it is useful to empower
the committee and allow it to carry out its investigations despite having views that are in contrary with that of the CEO.
The committee’s terms of reference must highlight this provision.
The probability of catching the offenders must be increased so as to lower the opportunity for corruption. A would-be offender
may decide against committing the offence if the chance of being investigated is perceived to be high. In this respect, empowering
employees to voice their concerns may be useful given their close proximity to ground level activities. The threat of whistleblowing
has undoubtedly been a powerful governing tool. It is well known for example how whistleblower Sherron Watkins had ‘assisted’
in bringing down the Enron Corporation. Accordingly, it pays for the Board of Directors or persons-in-charged to carry out
the investigations and correct the reported problems before the public knows about them. It is important that the anti-corruption
committee assures the affected staff that they are protected against harassment, and that fair and thorough investigations
will be carried out.
Besides the employees, the committee may give formal voting rights for corporate decisions to creditors, customers, environmentalists
and other interest groups. This is to formally integrate the stakeholders’ interests into the company’s decision-making
process (Frey, 2003).
Lesson 2: Increase the penalty cost
It is well established that
an employer has the right to discipline an employee who has acted improperly in the workplace. Because of the associated cost
imposed on the organization (like loss of goodwill and reputation, and wastage of managers’ time to deal with the issues),
the offenders should be liable to pay a penalty. However, it is important that before any penalties are imposed, the performance
standards are properly defined and made known to agents. Detecting deficiencies must be done objectively and fairly, with
the causes properly defined and assessed.
It has been suggested that
punishments should only be imposed as a last resort (because an organization incurs costs in imposing punishments like the
affected workers becoming anxious, fearful, revengeful, and violent), possibly when the offences are committed despite repeated
warnings (Dubrin, 2003). In other circumstances, corrective discipline (like encouraging, coaching, and training) may be imposed
to correct one’s behaviour before more severe punishments are applied. Severity of the offences should also matter.
In the case of private sector corruption, severe punishments ought to be imposed. Expropriation of organizational funds has
violated the agents’ fundamental duty to care for shareholders interest, potentially resulted in the organization’s
downfall and subsequently loss of shareholders wealth. In fact, the ‘buy and hold’ strategy may no longer be appropriate
for company hit by scandals. The reason being that the share prices might never be able to return back to previous levels
since the share prices might have fallen drastically and the company’s reputation severely damaged.
It is useful that other colleagues
know about the ‘punishments’ imposed by the corporations so that they are aware of the consequences for acting
corruptly. The possibility of them and their family members being shamed in public could discourage would-be offenders from
engaging in improper practices. An ideal situation is for the organization to create an environment whereby trust, honesty,
diligence, cooperation and ethical are very much appreciated and rewarded by managers. It may be useful to reach a level where
fellow workers condemn one who violates these ‘virtues’. The violator should bear the costs of violating them,
perhaps not necessarily in monetary form, but non-monetary punishments from fellow workers like being ‘neglected’
during formal meetings or informal gatherings. How far is this feasible? One of the expected limitations of this is that the
affected persons may decide to leave the organizations. Even if the affected workers do not leave, they may be discouraged,
turned violent and segregated from the rest of the workers. The main argument for imposing high penalties therefore may lie
in its ability to prevent anyone from acting corruptly in the first place.
Lesson 3: Strong political leadership to inculcate the incorruptible virtue
Chairman of the Board, CEO and executive managers must set good examples for others to follow. Otherwise, efforts to preach
the desired behavior and outcomes will be futile They should
constantly appeal to the moral consciousness of their staff and remind them of the benefits of doing good and the negative
implications of seeking private benefit at the expense of the principals’ interest. The intention is to inculcate a
corporate norm that acting incorruptly is unacceptable. Studies have shown that a typical person tends to follow the group
norm in his/her working place. O.C Ferrell, John Fraedrich and Linda Ferrell for instance, noted that
as many as 80 percent of the workforce adopted the follow-the-norm mentality rather than following their own instincts or
go against the norms (Ferrell, Fraedrich and Ferrell, 2002). As such, establishing corporate norms is useful so that internal
rules are complied with. Corrupt agents should pay the price
like being shunned by their colleagues, and losing their reputation and job if the norms are violated.
Executive managers may
be requested to declare their family assets periodically to the Chairman. Because of its sensitivity, some may protest against
the move. It is essential thus for the objective(s) to be clearly conveyed to the staff. This should include the intention
to safeguard the company interest. It may be useful to involve only top managers in this exercise, at least in the initial
stage. More can be involved when acceptability of the practice increases. However, it should be noted that the above measure
might not cure the problem associated with the incentive contract. Stock options plans for example provide the incentive for
executive managers to inflate company profits and hide its liabilities so that rewards in excess of what they actually deserve
are obtained when the options are exercised. Even if the agents’ family assets are declared, executive managers may
still be able to manipulate the financial statements and get away with it. If no one spots the irregularities, the resulted
gains would have been obtained albeit unethically. Nevertheless, declaration of managers’ family assets should serve
as a useful deterrence against acts of bribery and extortions. Successes in these acts will subsequently generate suspicious
increment in their assets. If there is an allegation against the executive managers of assets wrongfully gained, they should
be asked to explain how the assets were acquired. If they are not able to explain how they had acquired the assets, the anti-corruption
committee for corruption should investigate the matter further.
Lesson 4: Promote service excellence
As was mentioned earlier, service excellence and the need to comply with standard operating procedures are difficult to co-exist
with acts of corruption. Bypassing standard procedures in private sector organizations should therefore be condemned and made
easier to detect so that opportunity for corruption could be lowered. To standardize the procedures, it is useful to leverage
on technology. Procedures, rules, guidelines and terms and conditions could be posted in the company’s website. With
greater certainty, it may no longer be necessarily for one to bribe others to get things done since he/she could carry out
the tasks himself/herself electronically.
In this respect, the anti-corruption committee may establish company code of ethics and state formally the acceptable standards,
procedures and decisions, which a majority in the organization is expected to follow.
Lesson 5: Pay competitive salaries to the agents
If individuals are responsive to incentive and disincentive measures, paying competitive salaries to the staff may serve as
a useful deterrent against acts of corruption. The briber would then have to pay a more substantial amount to entice one to
act corruptly. Paying competitive salaries also helps the organization to retain competent staff.
To further reduce the incentive for corruption, private sector organizations could adopt the pay for performance principle
with a greater proportion of the staff salaries converted into variable form. This may be useful because individuals are generally
marginal thinkers (Mankiw, 2001). Additional incentives create additional efforts to excel in the working place. However,
there are at least two issues which should be considered in relation to this approach. First, it is important that a good
staff appraisal system is in placed so that staffs could be assessed objectively and fairly.
Second, like in a typical public corporation, the pay structure should be designed in such a way that the staffs have
to go through a long drawn out process before they are qualified for higher compensation or reward (to match with their improved
performance). This helps to promote persons of highly developed intrinsic motivation to work in the private sector organizations
while short-term materialistic ones are avoided (Frey, 2003). Otherwise, improper practices like manipulation of financial
statements are more likely to surface since the agents will concentrate more of their attention on compensation rather than
on effort - a root cause of many corporate scandals taking place in recent times. This is also in recognition of the fact that employment contracts are often incomplete. For example, it is difficult in practice
to break down the financial goals into operational goals for the agents, thus disabling them to relate very well to the principals’
goals. Accordingly, the principals should not rely exclusively on extrinsic motivation like paying higher salaries to align
the agents’ interest with theirs. The firm should also pay attention to intrinsic motivation (Osterloh and Frey, 2000;
This article emphasizes that acts of corruption are not limited to public sector corporations. Private sector organizations
are equally susceptible to this phenomenon. Understanding the causes of corruption is useful so that appropriate actions can
be introduced to eradicate the problem. It has taken the Singapore government more than four decades of hard work to grant
the country the premium of having a clean and almost corruption-free society. Private sector organizations should realize
that they too can attain a similar status.
We believe that the Singapore public governance model provides useful lessons for private
sector organizations. The government has repeatedly displayed its ability to overcome difficulties that could threaten the
country’s economic growth – recent events include the Asian financial crisis in 1997 and outbreak of the SARS
virus in March 2003 - through its restructuring efforts, quick and superb ability to enact good policies, getting them across
to the people and finally implementing them. It is also well known that the city-state has one of the largest international
reserves in the world with its standards of living comparable with those of the OECD countries. Constantly ranked as one of
the least corrupt economies in the world, Singapore bucks the common view about the inefficiencies of state-owned enterprises
because a number of the GLCs are on the route of becoming, or have already turned world-class companies.
In recent years, some corporate laws like the Sarbanes-Oxley Act and the new standards imposed by the New York Stock Exchange,
have imposed mandatory disclosure requirements. However, the latter was accused of strapping ‘all listed companies into
a single model of corporate governance’ thus failing ‘to take into account the diversity and variance among firms’
(Bainbridge, 2003, p. 29) while the Sarbanes-Oxley Act was deemed too ‘uniform’ such that it will ‘preclude
experimentation with differing modes of regulation’ (ibid, p. 31). Unlike them, our recommendations do not follow a
‘one-size-fit-all’ principle. We recognize that firms are unique and should have a greater say in terms of their
corporations are to be governed. They should never adopt practices or models from others blindly or in a wholesale manner
without incorporating their unique and local features. Any recommendations must be treated merely as guidelines and it is
up to the relevant parties to implement them in ways that are deemed sensible to them and the stakeholders.
a need for micro studies to further our understanding on the process of organizational change in the public sector and problems
encountered. Accordingly, future direction research should include identifying and assessing, at micro or organizational level,
more specific lessons which the private sector organizations could emulate from the public sector. It may also be useful to
identify potential problems which private sector organizations may encounter in the process.
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Yeo, Victor and Koh, Pearlie, 2001, The Role of Boards and Stakeholders in Corporate Governance: Country
Paper for Singapore, a paper presented in the OECD Third Asian Roundtable on Corporate Governance held in Singapore, 4th
- 6th April 2001.
Worthington, Ross, 2003, Governance in Singapore (RoutledgeCurzon, USA and Canada).
Stephen Prowse defines corporate governance
as rules, standards and organizations in an economy that govern the behavior of corporate owners, directors and managers,
and shape their duties and accountability to outside investors (Prowse, 1998). Andrei
Shleifer and Robert Vishny refer to the corporate governance as the ‘ways in which suppliers of funds to corporations
assure themselves of getting a return of their investments’ (Shleifer and Vishny, 1996, p. 2). The Singapore committee on corporate governance, which submitted its report to the Singapore government
in March 2001, refers to the term corporate governance as processes and structure by which the business and affairs of company
are directed and managed, in order to enhance long term shareholder value through enhancing corporate performance and accountability,
whilst taking into account the interests of other stakeholders. This definition sees the corporations as trustees for the
public, not only for the owners. It recognizes that managers have a fiduciary responsibility to the public. The managers are
expected to balance the shareholders’ interests with those of the creditors, employees, suppliers and so on, thus lending
support to the stakeholder approach of governance. A good survey of the literature and empirical research on corporate governance
is found in Pei (2004).
Singapore is a modern city-state. In
2003, the country’s real GDP per capita read more than S$40,000 up from S$4,000 in 1965. The government has played a
crucial role in the development process which includes eradicating corruption problems, building the necessary infrastructure
and institutions in support of economic development, taking the lead in business ventures through the GLCs and implementing
sound policies. The ruling party, the People’s Action Party (PAP) was formed in 1954. Since elected in 1959, the PAP
has won majority votes in every election. Its popularity with the people was due mainly to the strong economic growth that
many perceived to have been brought about by PAP’s high standards of public governance. The PAP for instance does not
tolerate acts of corruption. Singapore’s political system is constitution-based with a single parliament, judiciary
system and government. The voters elect members of the parliament (MPs) to represent them, enact new policies and review existing
Previously, the responsibility in maintaining public areas
is shared by more than one agency. This arrangement imposed inconvenience to the public since more time was required to settle
the matter, not surprisingly perhaps as different agencies had to sort out which one of them should actually correct the problem.
The Lead Agencies were created to tackle such problems. Instead of waiting for the affected agencies to sort out who bears
the cost and responsibility, the Lead Agencies would first solve the problem for the public, and then work out with the affected
Consider Singapore’s tax authority,
the Inland Revenue Authority of Singapore (IRAS). In 1996, the IRAS embarked on the Business Process Reengineering (BPR) program
to enhance its competency and effectiveness in view of the increasingly tax arrears unsettled and increased public dissatisfaction.
A notable change was its decision to leverage on the advancement in technology to support its call for voluntary compliance
to tax regulations. The core area of the BPR was the establishment of the Inland Revenue Integrated System (IRIS) - ‘an
elaborated computer system program that allows all tax types to be dealt with in an integrated one-stop service manner’
(Sia and Neo, 2000, p. 536). The use of IRIS minimizes tax complications. It allows the IRAS’s officers to follow standard
procedures in obtaining taxpayers’ latest information or income status in an easier, cheaper and faster manner therefore
permitting them to better detect taxpayers and their corresponding tax liabilities. Another important development was the
introduction of the electronic tax-filing system from 16 February 1998. The system helps to lower the costs of tax filing
because taxpayers could file their tax returns via the phone or Internet at the comfort of their homes and offices. Time is
saved and procedures have become simpler and easier to follow. Moreover, using the computers lessens the necessity for taxpayers
to have direct contacts with tax administrators thus reducing the opportunity for improper practices from taking place. We
believe that private sector organizations can enjoy these benefits as well.