Temasek makes unlikely corporate governance hero

Fri May 18, 2012 1:19pm BST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By John Foley

HONG KONG, May 18 (Reuters Breakingviews) - Temasek is taking a stand – sort of – on corporate governance. The Singaporean state investment fund abstained last week from backing the re-election of a group of board directors at Standard Chartered (STAN.L), according to people familiar with the situation. The reason, StanChart suggests, is Temasek’s preference for a more independent governance structure.

The state fund makes an unlikely corporate governance hero. But Temasek has some grounds. StanChart’s board has recently become less independent. Its ratio of six executives to ten non-execs – with one extra exec added in 2012 – is higher than that it is at cross-town rival HSBC (HSBA.L). It's legitimate to ask if non-execs have enough clout.

One could argue that Temasek is missing a trick by not speaking up. The fund shies away from making public statements that might position it as an activist. But making a clear statement on a worthy issue like board independence would win plaudits from other shareholders, and dispel the myth that sovereign wealth funds can’t be transparent.

Taking a clear line, though, might raise questions for Temasek around its recent investments in Chinese banks. Take ICBC (601398.SS), in which Temasek bought $2.3 billion of stock in April. Typically of China’s big lenders, it has just six independent directors on its 16-strong board. True, there is a separate supervisory board. But with top executives hand-picked by the government, also the bank’s biggest shareholder, there’s little suggestion that the banks are run independently.

Temasek has clearly tilted itself towards Chinese lenders in recent years, and has made big profits in the process. Getting exposure to those banks’ rapid growth necessarily comes with accepting China’s governance quirks. But there is a fine line between being diplomatic and being inconsistent.

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CONTEXT NEWS

- Temasek, the Singaporean investment fund, abstained from backing the re-election of several directors of Standard Chartered at the UK lender’s annual general meeting on May 9, according to people familiar with the situation.

- The voting was anonymous, and Temasek declined to comment. Temasek’s stake in Standard Chartered was 18 percent as of the end of February, Reuters data shows.

- Seven directors received large abstentions, each representing 18 percent of the company’s votes. They were Vis Shankar, Steve Bertamini, Jaspal Bindra, Mike Rees, Richard Meddings – all executive directors – and non-executives Oliver Stocken and Richard Delbridge.

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(Editing by Robert Cole and David Evans)

((john.foley@thomsonreuters.com)) Keywords: BREAKINGVIEWS TEMASEK/

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