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Tuesday, December 20, 2005

Since so many people were eagerly gushing to me about the results of the KPMG audit of the NKF, I have downloaded the KPMG report myself (all 442 pages of it) so I can draw up a National Education lesson plan on "Lessons we can learn from the NKF".

National Education Lessons we can learn from the NKF scandal - Part 1

1) If you dig deeply enough into any organisation, you will probably find something wrong.

Before the NKF scandal broke, the NKF was the Primus inter pares of Singapore charities, receiving logistical support from Singtel and Mediacorp for its fund-raising efforts. Two thirds of Singaporeans donated to it, and it was praised even by the government ("I take my hat off to the NKF. They have been able to raise that kind of money over the years and we wish them well" - Acting Health Minister Khaw Boon Wan, 10 April 2004). It even had the self-assurance to do a very un-charitylike - sue people who told the truth (that they saw its CEO flying First Class - ah, what is truth?)

Now that it has fallen from grace, all of the filth has come pouring out. If such a lauded and hitherto spankly clean organisation can fall so far...

2) KPMG report page 15, Section 1.2.3:

"A not-for-profit organisation does not derive its energies from any profit-seeking motive... its members have organised themselves in pursuit of an altruistic motive... This altruism is the energy of the organisation, and any dilution in this motive will result in diversion of energies and the dissipation of efforts."

Not-for-profit organisations are founded for the aims of public service. Altruism and the desire to serve the community give the organisation its "energy". Thus, if members of a not-for-profit organisation have a profit seeking motive, energy will be diverted and effort dissipated, and this will interfere with the stated goals of the organisation and its ability to serve the public.

3) KPMG report page 16, Section 1.3.1:

"As at 17 July 2005, NKF had twenty-one members. Of these, only eight attended the Annual General Meetings... The members who attended the AGMs were the same ones who actively participated throughout the year in the management of the organisation, with all of them sitting on the all-powerful Executive Committee... With these members being the only ones like (sic) to actively exercise the rights and powers of members... the NKF ran the risk of diluting the effectiveness of the members' oversight of the management team."

There is no use having a large number of people on the management board if they are always absent, for then they will be unable to check the dominance of the rest. No doubt the same will happen if all members are of one mind, or if some are dominated or intimidated by a core few. Having alternative voices on the management board not beholden to a few supermen is thus essential.

"No organisation can be left to just one man to decide - like in the old China where the emperor says "this" and "that", and thing is done. I am curious how come in this case, how come the Board of Directors allow itself to be almost completely captured by the former CEO - what happened?" - Health Minister Khaw Boon Wan, December 4 2005

4) KPMG report page 17 & 45, Section 1.3.2, 1.11.7

"The tilt of the NKF's focus - closer to profit maximisation and further from its altruistic objectives - was hardly challenged by its members, the guardians of the NKF's mission, as a result of the management's success in accumulating surpluses... The phenomenal success of the NKF in scaling new heights in fund raising over a long period was possibly a key factor in diluting the effectiveness of management controls, Board oversight and regulatory overview. With the NKF continuing to be immensely successful in raising funds, Mr Durai commanded huge respect and loyalty within staff ranks. This... did so greatly impress the former Board that it would have been easy to overlook the signs of an organisation losing its way. The regulators, with the same deference to the NKF's association with success, satisfied themselves that there was no evil to be found."

Success makes organisations complacent, and the incumbent members of the management board will be less likely to challenge what a few supermen might decide to do. The normal checks and balances built into the structure of governance break down. Groupthink has to be guarded against, and members of the management board cannot all be beholden to said supermen, even if they do deliver success; they have to be unceasingly questioned.

5) KPMG report page 18, Section 1.4.3

"Since its incorporation in 2001... the former Board saw only two departures... Re-elections and replacements of directors are an important part of governance, providing fresh insights and keeping over-familiarity at bay."

It might be helpful to impose term limits, especially on those in key posts.

6) KPMG report page 20, Section 1.4.8, 1.5.1

"All the persons we spoke to were, without exception, of the belief that the former Board was synonymous with the Executive Committee, and in fact referred to the former Board and the Executive Committee interchangeably... The parallel Executive Committee set-up gave certain members of the Executive Committee powers, under the shareholder's mandate, without the attendant duties expected by law of directors."

Conflation of organs of governance is most unhealthy, and should be avoided at all costs to prevent conflicts of interest.

7) KPMG report page 21, Section 1.5.2

"The Executive Committee meeting minutes do not show serious debate by the Executive Committee on the NKF's performance in delivering on its objectives or of challenge to the management... The question of payments to the chief executive is at the heart of many debates on governance, and in this case we saw in fact the opposite of the challenge normally expected from the members."

Members of board of governance must constantly question whether the organisation is "delivering on its objectives", as well as monitor and challenge the monetary remuneration paid to their chief executives, to ensure it is not grossly inflated.

8) KPMG report page 22, Section 1.5.4

"At other times, the Executive Committee operated as a forum for formal discussions and simply recorded decisions which had already been taken."

Institutions of governance cannot simply be rubber stamps for decisions made by supermen; their mere presence does not ensure good governnace. Decisions have to be challenged and debated vigorously.

-End of Part 1-

Part 2, Part 3
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