NKF Saga: Moral Hazard

NKF Saga: Moral Hazard

Many Singaporeans are very angry with NKF and its CEO due to the revelation made in court. One of my friends SMS me in great anger, message said “If $600K are peanuts, then my monthly $6 contribution is just peesai! I will cancel my monthly giro donations immediately!”

Some call for blood (TT Durai and Board of Directors please resign!), some call for accountability. But what is the real issue behind this saga?

In economics and management, the root problem is termed as “Moral Hazard”. As the term explains, it is technically not illegal but lies more on the MORALITY in management. Moral Hazards could only happen in public entities that utilize public funds. Examples of these entities are Public Listed Companies, Charitable Organizations and the Government.

One fine example of Moral Hazard is those who are entrusted to run these organizations, used the public funds to give himself bigger office, bigger desk, big perks, privileges, exceptionally high pays (especially in the case of government and charitable organizations) etc. These decisions are normally made in the daily running of the organizations which did not need to go through those who have a stake (moral stake as a donor, taxpayer, investment or otherwise) in these organizations. In NKF saga, the mention of expensive toilet bowl and tap is a sign of “Moral Hazard” in play. These are not “illegal” technically, but it puts doubts on the moral standing on those who made such decisions as public monies are involved. Sometimes, things like high salaries are difficult to determine whether they are excessive or not, depending on the organizations’ status. However, there are clear cuts things like big offices, extravagant fittings, using public funds to pay for personal items like road taxes and such etc.

The only way to prevent or control Moral Hazard is to put in sufficient checks and balances within the system so that the various decisions could be monitored and vetted. Sometimes, it takes external or internal whistle blowers to put pressure on the organization to avoid Moral Hazard. To cultivate such a culture, freedom of speech and expression without fear or favor must be guarded by the system.

The only reason why the past whistle blowers are being subdued is basically because they are individuals that are taking on a huge organization with overwhelming resources. The system must ensure that the defamation law must be just and unbiased when public interest is in question. That is to say that the organization must prove itself fully that there are no Moral Hazard in its running. Full disclosure and transparency must be enhanced in these organizations and the system of rules and laws must ensure that it is being practiced. Some protection to the whistle blowers must be ensured. It is a delicate task of balancing.

Singaporeans must also be educated on the potentially high possibility of Moral Hazard occurring in a huge government. The only effective way is to elect through the democratic process an opposition force that will put on pressures and checks on the ruling party. And they must register their preferences on an equitable system that will safeguard the rights and power of the minority opposition in questioning and performing the role of whistle blowers to the government.

Nobody is perfect in this world and human beings are subjected to many temptations especially when you wield overwhelming power. At the moment of weakness, one could just make that stupid mistake or judgement. Thus, those in great power must be subjected to adequate checks and balances from others not in their rank to ensure minimum abuses and Moral Hazard from happening.

The culture of FEAR would in fact detrimental to good corporate governance of public organizations that utilize public funding. If this FEAR is not overcome by the Moral Courage of potential whistle blowers, many abuses and Moral Hazard would go unnoticed. Thus we must eradicate such culture of FEAR by giving protection to whistle blowers in view of public interests. Laws should be made to protect whistle blowers, at the same time include rules that prevent abuses by the public.

I hope that Singaporeans could learn something more than anger from this NKF saga and really reflect and think about how it applies to the running of a government too. There are signs of Moral Hazard happening in our government simply by looking at the seven wonders of Singapore. But it seems that nobody thinks that it is a big deal at all. Then why the huge reaction to NKF’s excess now? It is to me that a government should maintain as high a moral ground as those who are running a charity. This is something for us to think about.

Goh Meng Seng