Fu Hua Hsieh: Ownership, Separation of Powers Support Ethical Business

Fu Hua Hsieh has served as an executive and non-independent director on the Singapore Exchange Limited (SGX) Board since March 2003. Mr. Hsieh became the chief executive officer of the SGX on March 1, 2003. Prior to this, he was managing partner of PrimePartners, an independent private-equity firm based in Singapore.

Mr. Hsieh has nearly 30 years of experience in merchant banking in Asia. He was group managing director of BNP Equities Asia in Hong Kong and also BNP Prime Peregrine Group (the joint venture Asian investment banking arm of BNP founded by PrimePartners). Prior to forming PrimePartners in 1993, he was chief executive of Morgan Grenfell Asia Holdings Pte Ltd, which he joined in 1974.

He is chairman of the Singapore Institute of Management (SIM) as well as a member of the National University of Singapore (NUS) Council. He graduated in 1974 from the University of Singapore with honors in business administration.

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You had a very nice job before you came to the Singapore Exchange. Why did you agree to take this high pressure position?

Fu Hua Hsieh: There are different reasons, obviously. One is a very personal reason. I describe it as an artist who has spent years honing his skills experimenting with small portraits. After this comes the opportunity to do a big mural. How then do you resist doing the big mural? An artist has to express himself. It is the culmination of one’s life skills and the desire to realize one’s fullest potential. So I call this the big commission.

But this opportunity came in a very uncanny way. I had not been in the stock exchange for more than ten years, and never been in this new building. But I came here for personal matters, to settle my mother’s affairs as she had passed away three years ago. Just as I walked into this building for the first time, my mobile rang. The search committee for the new CEO was calling, asking if I would come in for a chat. For the past year I had been feeling that it was time to do something special, but it was a rather unsettling time where I was not sure what that something special would be. So the call to consider the position was uncanny in its timing.

What were some of these “small portraits” that you were working on, preparing you to do this job?

I had been involved in investment banking and stock brokering, not just in Singapore but also around the region, and gathering business experience in the markets. In the last ten years I ran my own business.

Here in Singapore, governance of public institutions is largely confined to an inner circle. I was an outsider called in to do this job. My family and close friends said, “Look, the fact that an outsider is called is surely good for the country; surely you can make that contribution.”

What are the major challenges faced by the Singapore Exchange?

The Exchange came about through a merger of two organizations, the stock exchange and the futures exchange. This happened during very difficult economic times, particularly the last couple of years. The changes, as a result of the merger, and the declining business volume have created lots of stress within the organization.

Further, as the new person in charge, taking over from my predecessor, there will be differences in my management approach and the direction in which I see the organization progressing.

It is thus very important to build the institution right and that is the contribution I can make.

What are the major steps to do that?

People. It’s all about people, though of course you must get the process right. Any real building effort must begin with having the best people. Then you have two choices. You can make wholesale change to try to create what you need. Or, you can respect the legacy of what you have been handed. I am more inclined to reorient what I have, making the difference by bringing in a few key people, and refocusing the organization structure to better respond to the needs of our customers.

Changes at SGX

What other changes do you see ahead? Will there be international mergers of exchanges?

We already have an alliance with the Chicago Mercantile Exchange, which is the first of its kind in the world. We also pioneered another first with our co-trading linkage with the Australian Stock Exchange. As for Asia, it is still very much a fragmented community.

I suppose this is changing slowly because of the new set of circumstances we face today. In the past, countries relied heavily on foreign investment flows. Today, foreign investments have diminished greatly because everyone’s looking towards China as the main market. Hence, other Asian economies are now focusing on building their own internal economy rather than the export push.

What has been the impact from technology on the way the markets work?

Technology has created floorless trading. SGX was the first to offer this in Asia fifteen years ago. We were a trendsetter in this area for Asia. We set the trend again in 2001, with a co-trading link where we trade directly into Australia and they trade directly with us as seamless partners. At the moment we don’t see other exchanges trying to do this.

The New York Stock Exchange will delist a company when it falls below a certain amount.

I think the New York Stock Exchange has got what I call a “problem of plenty.” They have got too much. Exchanges like ours are just trying to grow.

So what is the process by which a new company comes on board?

The process involves finding someone to sponsor them, and full disclosure. Full disclosure here is not very different from the U.S.

What about the ethical health of a company? What if there were a way to do an ethics audit, and they would not pass? Today that is not a part of the disclosure.

Ethical health depends on what one means by ethics. Is it the type of business, the issue of governance, or is it the issue of compliance? There are various different dimensions. Companies here are required to meet high standards of corporate governance. I have to say that we do not make judgments on corporate or social responsibility. The markets make this judgment for themselves.


What about an Enron type situation?

Unfortunately, it usually would not be obvious until after it had happened. Very often in these situations all you can do is impose standards for compliance or conduct. I think the problem in the U.S. is really one where management does not share the same interests as shareholders.

In Singapore, the leaders of our big companies really own the company. Our businesses are still run by owners. So the likelihood of an owner pillaging himself is remote. Much more remote. He has the same convergent interests as the shareholder. There are different sets of problems and issues in a large company where essentially, management has little ownership.

If a CEO has lots of bonuses focused on the short term, this is a much different stake in the company than the owner who is interested in it long term.

Correct. The CEO may have a lot of incentives, but it does not make him an owner. The CEOs in the U.S. are transient owners. They are what we call “punters.” Do you know the term?

There was an article thirteen years ago by the Economist, basically saying shareholders are like landowners; you have a title of deed and you own your own home. It’s your house and you look after it; it’s your company and you look after it. But today a share certificate is only an entitlement to a dividend. You just cash in and cash out to take profit on it, but you have no underlying sense of ownership, therefore no underlying sense of responsibility. This is called a “punter.” So who owns the company? Nobody. So management steps in and tries to play the role of an owner, but without the same vested interest as the real owner or shareholders.

So this is fundamentally different in Singapore?

Fundamentally. The majority of companies have CEOs with a big stake in the company.

So this is one reason why we don’t have an Enron problem in Singapore. Even though so called governance standards are not as lofty as those set up in the U.S., the system of ownership provides more support.

What should American companies do about their problem in this area?

I have not really spent time thinking of a prescription, but it has to go beyond imposing governance to internalizing those values. It is more than just meeting the letter of the compliance, but the spirit as well. Of course it also requires that the shareholders have a greater voice, and it is necessary for managers and investors to have a commitment to engage with the best interests of the company.

Separation of Powers

Are there any other key distinctions?

Yes. In the U.K. they have the same situation as in America, since their companies are no longer run by owners either. They have the same risk as in America, yet they seem to have less of this Enron kind of issue. I would say that it has to do with the fact that they have the strong balancing role of a chairman. Similarly in Singapore we have a very entrenched view on the division between the CEO and the chairman of the company. In most American companies, the chairman and CEO are one job, though this may be weakening a little now. The strong bias in America is having the two roles together in one person. It creates the possibility of corruption through too much power.

How does this separation of duties work in practice? How do the two avoid stepping on each other and turning this in practice into dual leadership that slows things down and costs more?

The chairman’s role is to manage the business of the board and the board committees, and to preserve harmonious relations with the company’s shareholders. This involves developing the strategy of the company and issues such as governance and succession. The CEO is involved in all aspects of the company, and is responsible for making key decisions on the management and operation of the company.


Where are the markets vulnerable in Singapore?

Singapore is a small country so it’s very much easier here to check on somebody than in a larger country like America. The circles are small here. You keep meeting the same people, so information comes to you as to who is the “bad guy.” Therefore you are on the lookout.

Vulnerabilities will increase as we open our markets further. When our markets are more open to companies from outside Singapore, how would you know who’s the “bad guy”? How well do they govern themselves? We have a relatively homogeneous culture here, but we cannot apply this culture to companies from another culture. As companies come from totally different systems of proprietorship or integrity, we will have more challenges.

What about the issue of bribery in business? Singapore has some strong rules, but some of the surrounding nations don’t.

We do face this issue because, you’re right, there are different standards in countries around us and in the practices of its companies.

Bribery could undermine the performance or improve the performance of a company (laughing). Here you need to let investors really make up their mind because they will be the ones closer to a company than the Exchange can ever be, to know enough of the business practices. This is where the market will actually act as an informant.

How do you deal with the potential misuse of the market? I read that Osama bin Laden shorted some reinsurers before 9/11 in order to generate cash, for example. Do you have ways of dealing with your investors around this type of abuse?

Obviously we are working closely with our regulator and the IMF on issues like that. In fact we had a visit from the IMF on this very point. The good thing about Singapore and the Exchange in Singapore is we are working in an environment which is very well regulated. The participants all have to subscribe to fairly vigilant watch over money laundering, for example. So we are right up there with the major financial centers.

What about the other extreme of day traders? Betting on hourly performance on the market is not a long term investment. Does this concern you at all?

No. I think it is necessary as day traders provide liquidity for long term investors who will all choose their moments to get out of the market. When they choose, there must be day traders available to buy. Otherwise the market doesn’t work.

We look at your picture on the wall where people are holding up their hands making bids. This would seem to require a great deal of trust because they are not signing a contact. How will this process work if trust continues to be undermined?

Clearly each market must be regulated. There has to be good governance and we are very fortunate here to have strong enforcement of our regulations. All of our intermediaries are well supervised and licensed. So that is one part of it. We also have monitoring systems here to catch malpractices. In short, there is no substitute for enforcement of regulations. Whether people are poor or rich they are prone to malpractices. You must have a very strong, robust system and we do. Trust is not enough. We cannot function on just trust. Trust implies that you don’t need to really rely on enforcement systems.

But trust is also necessary for the market to work. Trust is still a fundamental of the marketplace.

Internal Management

These are high stress jobs for people who work internal to the Exchange. How do you create an environment of good health among your people?

This is something that we are working towards in SGX. Being a good employer means many different things: creating good career opportunities, caring for people, motivating them, rewarding them, and counseling them as they progress in their career. In short, we are no different from any business. With all of these different components, can we remove the stress? I doubt it. I don’t think we can remove stress from the job.

I was just reading the other day in the Wall Street Journal about how in America people feel guilty about taking leave. Firstly, compared with Europe, U.S. workers don’t get much leave. Further, people are wary of taking too much leave in the U.S. Singapore has the same problem. So the Europeans will answer that people should take their leave seriously because it helps to remove stress. I would hope that there are better ways than simply taking leave because I think it is a superficial way of treating stress.

The worst kind of stress comes from a deeply distrustful organization. One could argue that work stress is inevitable. That is why you engage in the work, to take that kind of stress, and you willingly take it for which you are rewarded. I think it is unhealthy stress that you try to avoid, and that comes from unhealthy relationships within an organization. Building good relationships in a company is vital. That means openness, a sense of trust, and empowerment.

What in particular are you doing to make this a healthy merger and how are you thinking about your people as you try to guide the organization through this time?

I think it’s to build back the trust that obviously breaks down when two different sets of people come together. We must build management systems. You must pay attention to how you facilitate decision making, making sure people are a part of the process, and then go for the results. You must recognize when camps emerge, and stamp them out quickly.

Fundamentally the key question is, can we live as one? After a merger there are different groups that emerge, trying to protect and preserve their aspect of the business. We must build bridges between them. Organizing them to live as one and work as one—that is what we are going through at the moment.

It really comes back to relationships, both formal and informal. So the way you realign organizations should focus actually on facilitating communication. The informal processes are just as important as the formal processes because it is how things are lived out.

I have put my senior colleagues through a 360-degree review. While this might be common in America, it has never been done here. We say we want an open organization, but we want to know we are working this way.

A CEO position can be isolated and lonely. What accountability do you have for yourself?

As you can see, it isn’t that lonely. Lots of people have been coming through that door (laughing)!

This is where I think it is very different than in America. I have a full time chairman, so I am accountable to him. I have always enjoyed and believed in working with him. So I don’t have the same luxury, and therefore scope for excess, as would be possible in America. So there is accountability here. I have another accountability here also—to the folks in this organization. I am accountable to them because if I say I stand for certain values, then I need to reflect those values.

We had lunch today with someone who is with an American company that has recently gone through a merger. He said that the Americans had a harder time with the merger than the Asians because the Asians respond to authority whereas the Americans always asked, “Why?” Is that a fair generalization?

I can imagine in America it could be different because people are outwardly challenging authority. But just because people are not outwardly challenging, you still have to ask what is going on inside. I have a chairman who is a wordsmith. He uses a military term, “dumb insolence.” On the outside you wouldn’t say that the person is insolent, but deep inside they’re actually insolent toward their commanding officer. So there could be dumb insolence in these Asian organizations.

So who knows really which is better? It’s a fact that Asian organizations appear to make less of a fuss, but does it mean they are motivated or that they are compliant but resistant deep down? Compliance is not what you want.

It’s not about forcing them to behave, forcing them to achieve. It’s really about inspiring them to achieve. With that goal, it is probably just as difficult whether in America or Asia.

Looking to the Future

The business world has been through a very difficult time with the economic downturns, partly because of the scandals. Do you have hope for the future of business? Will people regain confidence in the market?

You have to be hopeful when you are a CEO. You have to be hopeful when you run an exchange. I think it is the very nature of someone running an exchange. Otherwise you can’t do these jobs.

I came in at a time of the greatest gloom, when I joined this Exchange six months ago. Today if you look at the markets, we are doing bigger volumes than most years. However, you should not take it for granted when things look good. You must start to reflect. How well am I doing? What is the real challenge? What can go wrong?

So has this been a season of more scanning?

I think in the last six months, more introspection because of taking over a new organization and starting to put it in place. Now it is the time to begin scanning.

I didn’t have a sense of a strategy when I joined. I believe that if you choose the right people they will tell you where to go. The domain knowledge already resides here. You learn from the right people; cull their different views. Strategy for me emerged after choosing the people. They helped me get the strategy right.

The next six months will be the time to look outward. Once I have the ship in shape, I can chart new waters.

Are you feeling good about where you are at this point?

I have enjoyed my job more than anything I have ever done before. For some reason it just feels instinctively right, or so it is proving at the moment.

John Terrill (MBA, the Kellogg School, Northwestern University) and I had this conversation with Mr. Fu Hua Hsieh in his office in Singapore in August 2003. Al Erisman