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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

OCTOBER 1, 1999 VOL. 25 NO. 39

Success - One Measure
Public and private sectors can target 'parallel' goals
By POTE VIDET

A panel discussion on a somewhat inter-galactic topic, "Global Corporations vs. Nation States," led off the CEO summit at this month's Asia-Pacific Economic Cooperation (APEC) conference in Auckland. At this meeting, corporate leaders joined forces to influence government leaders meeting a few blocks away. In the discussion period, I put forth a thesis that private-public dialogue should focus on the definition of "success" in the corporate and government arenas, with an attempt to find common objectives.


Pote Videt
We should transpose the provate-sector concept of maximizing return on capital to public-sector objectives
 
Skeptics would argue that a CEO's success factor is making sure that quarterly earnings targets are met and that the company's stock price goes up. The "parallel" definition in the public sector is achieving high approval ratings and getting re-elected. Both definitions end up with a common objective: holding onto one's job.

As Motorola's vice chairman Gary Tooker noted in his response to my comments, however, leaders in both sectors should focus on longer term indicators of success. Legendary investor Warren Buffett epitomizes corporate success through a long-term strategic focus leading to maximizing shareholder value. A similar long-term approach by governments would reap benefits for stakeholders - the citizens. As a banker, I would offer one definition of long-term corporate success: maximizing return on capital, which is a function of two key variables - growth and efficiency.

As governments in the region undertake reform, we should transpose the private-sector concept of maximizing return on capital to public-sector objectives. Similar to successful corporations, successful governments increase the size of the national economic pie through growth and efficiency gains. Therefore the equivalent of "maximizing return on capital" to a policymaker should be instituting policies that allow for an efficient utilization of his nation's capital and resources for the public good.

To achieve this, political reform and economic reform must go hand-in-hand. Obvious examples of misallocation of resources resulting from limited political reform are corruption, cronyism and money politics. Less obvious examples include a politicized bureaucracy and creation of high barriers to entry in key industries. In such an environment, success factors revolve around developing deep government relationships, with less emphasis on efficiency and technology. The resulting lack of competitiveness becomes evident in an increasingly globalized environment.


Effective System of Checks and Balances
U.S. Corporate World Thai Private Sector
Disclosure:
SEC and market-induced standards
Disclosure:
Constitutionally required disclosures
Accountability:
Potential liability of board of directors
Accountability:
Press and NGOs as watchdogs
Enforcement:
Effective lawsuits, shareholder action
Enforcement:
Effective regulatory agencies and legal system

 
Political reform, therefore, must extend beyond just democratic objectives. Thriving democracies without a system of accountability and governance will not allocate resources efficiently. In several countries, progress on good governance in the corporate world has come about through a carrot-and-stick approach, with heavy reliance on the stick. For example, greater shareholder activism in the U.S. in the last 15 years has provided the necessary "checks" so that boards and management receive appropriate rewards and penalties for their actions. Good governance in the public sector requires such a system; it will not come about only through talk and agreed-upon standards. The building blocks are disclosure, accountability and enforcement.

Using the example of Thailand, I believe such a "parallel" public sector framework has been developed, as noted here:

In Thailand, the new constitution requires detailed financial disclosures by cabinet members as well as certain officials. A free press and active NGO community have played an important watchdog role, making the "fear of getting caught" a greater deterrent. And regulatory entities have been given more "teeth." But the threat of penalties must be real, under a strong legal and court system. Ultimate success lies in their effective implementation. In short, the three-pronged approach of legally required disclosures, third-party watchdogs and tough enforcement should lay the foundations for a more efficient allocation of resources for the country.

At the APEC CEO summit next year, I would propose a "Warren Buffett Award" for the government leader that best epitomizes the concept of "maximizing return on capital" through efficient allocation of resources for the long-term benefit of national stakeholders.

POTE VIDET is the Singapore-based managing director of Credit Suisse First Boston and a former deputy commerce minister of Thailand


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