SM Teo Chee Hean's Dialogue at the SID Directors Conference 2024

Ms Wong Su-Yen, Immediate Past Chairperson, SID: Senior Minister, it is great to have you with us today. Thank you so much for joining us, gracing us with your presence to talk about really important issues that are facing every single board director and every single boardroom today. We have just 30 minutes in this dialogue. So, it is not a lot of time and will have to go through at a pretty broad-brush level some of the issues that are confronting us and to get your perspective on that. I want to pick up from where Oon Jin left off – change is the law of life. So perhaps I could start by just asking you the first question, to share your views on some of the emerging risks and opportunities that are confronting directors and boards today. How is the operating context changing? What is your view on that?

SM Teo Chee Hean: Well, I think Oon Jin, as well as the speaker just now, and your wonderful video have outlined the major risks, and these would be things like your supply chains, the digital revolution, both in terms of opportunities and in terms of dangers, cybersecurity, AI, and climate change. Climate change is going to be a big thing for us and we are preparing for that as a country. We also have the geopolitical overlay, and also in many countries the domestic politics are also becoming a risk, because it is a gravitation towards the extremes; an emptying out of the middle ground. This is going to impact how receptive countries are to businesses and companies. So, I would say those are the main risks and I think they are well known to you. But the question is how do you deal with them?

Ms Wong: So how do you deal with them? Actually, I do want to talk about that in two contexts. One, what do you think boards and directors need to be thinking about given the complexities that they face? You know, many companies here are operating not just in Singapore, but in other operating environments. What should they have on their radar as they go into some of these markets?

SM Teo: Well, I think that quite often it is how you think about the problem and what questions you ask. Then, you can get the right answers. You ask the wrong questions, you end up getting the wrong answers. So, how do you structure the way you think about issues? What are the questions to ask? Then, I think you are more likely to get the right answers. So, let’s look at it from a Singapore point of view, and then we can distil the principles to see how we run a company, rather than a country.

On the climate change issue, for example, we have taken the view that we should look at what 2050 is going to look like and then plan on that basis. That means, “What will our energy sources be? What will the industry look like? What type of people will we need in 2050?” And then we plan how to get there. We do not look at, “What is your business today? How do we keep them going?” This is a different form of sustainability. We are not thinking of how to sustain your businesses today to keep them going, but we are looking at what the business is going to be like, what the world is going to be like in 2050, and how do we get there. These are some of the things which we are preparing for.

In dealing with geopolitical risks, what we are looking at is, “How do we diversify? How can we be honest and good partners to everyone?” We may not be the biggest partner, but we should be the most reliable, consistent partner to all our friends, and we maintain our principles. We say the same thing to people who may be quarrelling with each other; we are consistent. We do not say one thing to this person and another thing to the other person. We are consistent in positions, so we become reliable and trusted. These are the general principles that we follow. And internally, we make sure that we are stable and that we provide a good base for ourselves so that we can deal with both threats and opportunities. The recent transition, for example – Prime Minister Lawrence Wong has taken over and the 4G team is well into gear. I think it is an example of smooth, stable transition for the future.

Ms Wong: You know, SM, every single thing that you said can apply to a corporate setting. You need to think into the future. We can debate about whether it is 2050, or some other time horizon for an individual organisation. You need to look at what type of people you need for the future. You need to look at what kind of strategy you have for the future and ensure that you have something stable that you can work with as well. So, really good reflection as I was thinking about what you were saying.

One thing that I want to get your perspective on is, when you think about these risks, how are we looking at them at a national level – maybe we can talk about both geopolitics, cyber and talent, because these are some of the areas that I think directors are focused on. And how can directors and boards contribute to our collective success? Because we do not exist in a vacuum, right? We exist in a collective ecosystem.

SM Teo: Well, we look at some specific areas and then we look at some generalities. One specific area is energy. Singapore is, if you like, an energy-disadvantaged country, we do not have oil and gas. We have never had it. You want to go to green energy, but even if you cover the whole island with solar panels, we will not be able to provide enough power for ourselves. Think of it this way – if you are living in a big house on a ranch somewhere in America or Australia and you put solar panels on the top of your roof, you will have enough power for your family living below. We put that on top of a HDB flat – we have got 100 families living below. So, the ratio is completely different. You are never going to be able to provide enough solar power for ourselves. We do not have wind; we do not have hydro. Nuclear we are looking at very carefully. I think the technology is not quite ready, but it is promising. So, what are we doing? We are looking at the importation of green energy and starting with green electrons from the countries around us. We use about 8.5 gigawatts of power right now, and we are looking at importing about four gigawatts, and we have made good progress on that. We are talking about 2030, 2035, and beyond. We were recently in Jakarta talking to them and we moved on to step two, with two gigawatts worth of green electrons from five consortia. Then we have, at step one, from another two consortia, 1.4 gigawatts of green electrons. You cannot sit around and wait and hope somehow in 2030, or 2035, that suddenly these things will appear. You have to build solar farms, lay cables, and prepare your infrastructure. So, we are already looking ahead at what we will need and then we are preparing today. So that is one specific example.

But when you are dealing with risks, I think you have to differentiate between two types of risks. One is a critical risk, which may be existential to your organisation; and one which is general risk. For example, if there is a global economic downturn, my business will go down. It is not specific, it may not be existential. So I think you have to look at what the existential risks are and make sure that you cover them just in case, and then you look at the other risks, and you find a way of dealing with them, but they may not be quite so serious. You have to balance the resources that you put into dealing with the various kinds of risks.

Ms Wong: I want to pick up on the whole green topic that you raised, and you talked about it in terms of ensuring that we have energy adequacy. But also, in there lie a lot of opportunities for companies as well. So, I am going to ask everybody a show of hands – which of you in your companies have looked at green from a risk perspective? Just a show of hands. Which of your companies? Some. How many of you looked at it from an opportunity perspective, which of you are looking at green opportunities, green finance, green tech, any of that? (More hands.) Okay, super. So, I think this is a bit of a pulse check in terms of where we are. And for those who are not yet looking at it, what do you think we should do?

SM Teo: Well, you should start looking at it. (Audience laughter.)

Ms Wong: There we go.

SM Teo: For example, we put in a carbon tax very early. And that is also because we have concluded that this is one of the things which we should do to prepare for 2050. Our national targets are to peak our emissions by 2030 and to go to net zero by 2050, so we looked at it and we felt we needed to do a carbon tax, but that was for our own purposes of getting an efficient and economically good way of getting carbon emissions to be reduced across companies and across the economy. But there are other external factors as well. The Europeans are going to do a carbon border adjustment mechanism, and that has motivated Thailand, for example, recently, to start introducing a carbon tax. Because if they do not do something themselves, when the exports reach the borders of the European Union, they are going to be subject to the CBAM (Carbon Border Adjustment Mechanism).

So, either you do it yourself, you prepare for it early; or if you do not do something about it, your businesses and exports are going to be impacted. So, these are things which we really have to start thinking about, doing something about, but there are opportunities. In a way, we have been green long before green became a fashionable colour to wear on your sleeve, and we have always tried to be clean. So these became an advantage for us. And if we work it right, we should be able to exploit those advantages to reach out to bigger markets – as a country and as companies. Some of the other transitions we have taken – we have one of the largest SAF (sustainable aviation fuel) facilities in the world. And we have also put in a sustainable aviation fuel requirement for airlines flying out of Singapore. We have done it in a somewhat innovative way, different from what other countries have done.

Ms Wong: For those who are curious about that, what should they know about sustainable aviation fuel, in terms of how we have done it in an innovative way. What is different?

SM Teo: Well, the first thing about sustainable aviation fuel is it is still very expensive. So, if I may expand on that, one of the things I think we all need to do is actually to put in at least a shadow carbon tax to assess the business prospects, the costs and revenues that may arise from any business activity which we are doing or which we are planning to do. The difference is this – in some countries, they have no mandates. Some countries, they have a mandate, and they say X percent of the fuel that you uptake into an aircraft departing from the country must be SAF. What we have done is to mandate a percentage by cost, not by volume, because the price of sustainable aviation fuel varies quite considerably today. So, if the price goes up, and if you fix the percentage, it has a big impact on the airlines, and they cannot predict exactly what it costs. So, we have said, by percentage of cost. You must have a certain proportion of sustainable aviation fuel. So, if the cost of sustainable aviation fuel goes down, then the airline will be able to, or should be able to, uptake a higher percentage of SAF. If the cost goes up, the airline uptakes a lower percentage, so then they have more cost predictability. This is a model that we have used for uptake of sustainable aviation fuel, and the airlines seem to like that, because it gives them more predictability. It is a very, very innovative and different model.

Ms Wong: It is, and it very much acknowledges the commercial realities that an airline actually has to deal with in terms of looking at their cost base. Maybe we switch gears a little bit, because earlier you also talked about some of the threats, and we all know this around cyber and digital so perhaps you could also give a bit of a perspective, as boards and directors, what is it that we really need to be thinking about in terms of upskilling ourselves? Because as complex a field as the green and sustainability field is, what are some of the hot buttons that you think we really need to be mindful of?

SM Teo: In the cyber area?

Ms Wong: Digital technology, which could include cyber or other aspects.

SM Teo: Well, I think it is to have a realistic appreciation of what it is. There are a lot of buzzwords out there, and we must not end up like the emperor in The Emperor's New Clothes. As directors, sometimes you have to be the little boy that says, hey, the emperor is not wearing any clothes. And this fad, really is a fad, and you better understand what is underlying it. So I think sometimes, as directors, you have to be that little boy in the room who can say, “but he's not wearing anything” for some new idea, new-fangled technology, which comes up and which, everyone said, oh, this is such a great idea, this is the buzzword. If you do not include it in your speech, you are sort of behind time, and if you do not include it in your company report, your company really does not know what it is doing. But you better know what is happening and what it is doing.

What are the risks associated in crypto? What are the risks associated with digitising systems? What tends to happen in a lot of organisations is this, you start digitising, and you basically have your current systems, and you start adding digital capabilities that speed you up, and then incrementally, it improves the way that you are running your business. And you reach a stage where you cannot run your business without it anymore, but you do not really know when you crossed that line, and so you do not really know how much of a risk depending on that technology is now to your business. Because in the past, it was just an adjunct which was an aid to you doing your business more efficiently. But at some point, you became more and more reliant on it, that it becomes essential for you to do your business. So some of these things you have to understand when it has transitioned from being an aid to you doing your business faster and better, to being so essential that if it fails, the business stops. I think sometimes when you apply technology, you unknowingly or unconsciously cross that boundary, but you need to be aware of that.

Ms Wong: And in some ways, because we are so interconnected, actually, the risk is very high if we do not have backups. All of a sudden, when something fails, this is a domino effect, and then everything crashes.

SM Teo: Yeah, but we do not have to always think of the doomsday scenario. So we have to differentiate between those things which are critical, critical failures, and those things which may degrade operations, but are not critical. So you have to allocate resources for possible failures in that way. Otherwise, you have safety belts for everything, but then you still have to watch the company’s bottom line.

Ms Wong: So be intelligent about it, make smart choices. Now, of course, the theme of this conference includes sustainability, digital and a third element is human capital. So maybe we can talk a bit about some of the risks and threats and opportunities from the human capital perspective, if you look out again, maybe for the longer time horizon, 2050. What should boards and directors be thinking about in this frame?

SM Teo: Well, if we are thinking 2050, that is 26 years down the road, so many of you ought not to be board directors anymore. (Audience laughter.)

Ms Wong: Good point.

SM Teo: Some of you will be, so the important thing is who is going to take your place after that? I mean, of course, you have to prepare yourself and do your work right now. But succession planning for any company, whether it is for business executives or for board directors, is something important. So if you look at Singapore as an example, I think we have always been mindful of succession planning and making sure that we can have a smooth transition. And the secret to stability and continuity is not sending out search parties all over the world to look for the elixir of eternal life. Even if you found the elixir of eternal life, I am not sure you will be happy with it. The secret to continuity and stability is actually good succession. And it is something that should not be left to chance, you should plan for it. And I think that is particularly true for one class of companies – these are the family companies, where succession is very important to think about very carefully.

If you look at other countries, there have been a lot of political transitions these last few months. There will be one or two more significant ones in the coming month or two, and sometimes it looks more like a flip of a coin rather than something which is sort of organised and planned. You have to understand that in many of these countries, you may change the government, you may change the leader, but actually you have not changed the problem. The structure of the problem remains the same, whether you have Leader A or Leader B succeed, because you still face the same population, you still face the same level of knowledge, expertise and population, you still face the same budget constraints that you have, budget balance – in many cases, budget deficit. You still face the kind of national resources that you have in terms of reserves or debt – in most cases, it is debt. So whether it is A or B, and whether you have changed government, the structure remains the same. So the responsibility for governments and for companies and board directors is to make sure that you get the structure right within the time that you are in charge of it, and when you hand it over to your successors, that they have a good set of cards to play with, and not a poor set of cards to play with.

Ms Wong: I think, to wrap up our conversation, many reflections that I had around this discussion really were the fact that we can take the frame at a national level and really apply it to an organisation level. Take a long term view, ensuring that there is sustainability of the organisation or the country, as the case may be. Make sure that you are developing the people that will take it forward into the next step. Ensure that when you look at digital you are placing your right bets in different places, at national level, company level, and then in terms of sustainability, the same thing, ensure that you are looking out towards a longer view. And so I think for us as board directors, it is important to take reference and learn from some of the directions that we are headed in globally, and make sure that we are taking reference from that, ensuring that we are building all these aspects into our business.

I want to leave you with the final word, SM Teo, if you think about the one thing that boards and directors should take with them when they go back to the board. So you made a point about asking the right questions. What is the core essence of what you think boards and directors really need to get right to transform and grow for the future, to support their organisation’s success, as well as Singapore’s success.

SM Teo: Well, I think (SID’s chairperson) quite succinctly put it, it is not just to conform, and to perform, but to also transform. I think that is quite a nice way of putting it. And in a sense, nationally, that is what we are trying to do too. We are trying to do well today, we are trying to maintain a good, clean governance system. We are trying to do well for people in our country today. And we are very mindful of the risks and opportunities of the future, so that we transform for the future. In many ways, if you look at it, we are almost an oasis here in Singapore. You look at the conflicts, the turmoil, the political instability in so many countries, the move towards extremism, to both ends of the political spectrum because of the inability of the countries to fulfill the needs of the people. And also because of politicians who exploit those dissatisfactions, who pull people to extremes, and you end up with countries where it always seems as though everybody is fighting with everybody today, both literally and figuratively. You switch on the television and you look at a talk show, actually, it is a shouting show, because people are trying to talk over each other all the time, they are not listening to each other. And where is the common ground, where are you trying to build consensus?

And I would say that in many ways, here in Singapore, we are living almost in an oasis. And that in itself is an opportunity, because in a time of uncertainty, where you have stability and a place from which you can do business to go out into places which are not as stable, then you have an advantage over other places. And this is what we are trying to achieve here in Singapore, the internal strength, the domestic cohesion, strengthening the middle ground, making it better for people, improving the lives, providing a stable platform for you and your companies to venture out into the world.

Ms Wong: And on that note, thank you very much for joining us today, SM Teo. Please join me in thanking SM Teo for sharing his perspectives. Thank you.

SM Teo: Thank you very much.