Address by Minister Grace Fu at the Singapore Institute of Directors (SID) Directors' Conference
Corporate Adaptability, Diversity & Sustainability Critical For New Capitalism
Ladies and Gentlemen
Good morning. It is a pleasure to join you today.
We are without doubt in challenging times, where existing models of economic development and governance are being transformed. Globalisation, demographic forces, technological advancements, greater social awareness and advocacy, and an expanded stakeholder base, are but some of the changes that are confronting us today.
GLOBAL TRENDS AND FORCES
Let me start with some global trends which, in my view, will shape the future economic landscape.
The first is globalisation, which came about with the lowering of barriers to trade and investment. Capital flows generate economic activity and job opportunities, attracting talent and labour. Congregation of talent and labour in turn attracts more capital. And people, enterprises, capital, converge in cities, drawing people from rural regions and across national boundaries. Cities are projected to contribute to 75% of global GDP growth till 2025 1.
We see a steady migration of industries and capital towards developing countries, where the largest and fastest-growing labour pools are. This has brought about a rapid eastward shift in the world’s economic centre of gravity towards Asia. $1.5 trillion in foreign capital flowed into emerging markets in 2012, accounting for a third of global capital flows. Of this, more than half was foreign direct investment, reflecting the expansion of multinational companies and global supply chains into new consumer markets2 .
The second global driver is demography. Societies are ageing around the world, as birth rates decline and life expectancies rise. The large baby-boomer generation is turning 65. Globally, the number of people aged 65 and older is projected to triple from 500 million today to 1.5 billion in 20503 . Developing countries age faster than developed countries due to more rapidly declining fertility rates and faster increases in longevity. France and Sweden, for example, took a century to double their share of persons aged 65 and above from 7% to 14%. In contrast, countries like China, South Korea, and Singapore will take only 2 decades to make that transition4 .
As populations age, countries will face the twin challenges of sustaining economic competitiveness with an ageing workforce, and financing the social costs of ageing. Governments around the world have recognised this. China, the world’s most populous country, took the first step by relaxing their one-child policy in November last year. Ageing population will change the tenor of our workforce and consumer landscape – businesses will have to re-think strategies to tap the “silver” workforce and the “silver” market.
The third driver of change is technology. Extraction of shale gas, advanced robotics, 3D printing and data analytics are driving changes in productivity and jobs, allowing more to be done with less. Technology which enabled the extraction of previously inaccessible shale gas reserves has halved the share of US energy import from 30% in 2005 to 16% in 2012, making US companies more competitive and spurring other economies to search for similar alternative energy sources5 .
The benefits of technology however, are not evenly distributed and have led to job polarisation. Middle-skilled jobs with routine tasks are mechanised and replaced, while high-skilled jobs are in greater demand. Robots with enhanced sensing, dexterity and intelligence are estimated to impact one-fifth of total employment costs globally6 . Technology will favour skilled labour and businesses that are best able to exploit them. Unless there is a corresponding increase in skills, polarisation of workforce could further widen income inequality.
The fourth trend is rising social awareness and advocacy. The issues here are wide-ranging, and several have urgent global focus. The Paris 2015 UN Climate Change Conference has caused countries to examine national targets for carbon mitigation, and countries to work towards a global climate change agreement. Workers’ rights and income inequality pre-occupy the national agenda in many countries. Exploitation of the environment has mired businesses in long-standing debates.
Such issues have both social and economic implications. The World Bank estimated that the costs of environmental and natural-resource degradation in China could amount to up to 9% of her GDP. Closer to home, the Parliament has recently passed the Transboundary Haze Pollution Bill, which seeks to provide for criminal and civil liability for the conduct of entities which cause or contribute to haze pollution in Singapore.
We see social advocacy moved to the forefront of the global agenda, riding on social media and virtual networks where voices are magnified, impacting models of economic development and governance. Corporate social responsibility therefore becomes an indispensable part of business strategy, in this increasingly complex environment where risks are multi-faceted.
RESPONSIVE AND RESPONSIBLE CAPITALISM
So what does this all mean to businesses and to the board? To remain competitive in this new economy, businesses would need to practise what I call responsive and responsible capitalism, built upon the principles of adaptability, diversity and sustainability. Let me cover these in turn.
First, adaptability. Businesses that are able to adapt and respond flexibly to these changes will have a better chance of success in not only weathering the changes but also reaping benefits from them.
The twin drivers of technology and demography are fundamentally changing the workforce and the market place. Whether these changes present challenges or offer opportunities depend on how businesses respond to them. Businesses that are able to harness technology, and to capture the women and “silver” segments, as human resource and as consumers, will be rewarded.
Corporate leaders will need to develop an adaptable workforce. Keeping skill sets relevant will be important, with formal educational qualification becoming less relevant as technology evolves. The key recommendations of the ASPIRE committee are for the Government to provide more support, opportunities and options for deepening skills and expertise, to help individuals progress in their careers, while keeping abreast with changing technology. Employers must step up to their roles in the training, re-skilling and upgrading of their employees, to encourage learning on the job and building industry expertise.
Businesses will also need to creatively tap on the different sources of human capital available today. From retaining highly mobile talent through progressive talent development programmes; attracting and retaining younger employees with more diverse needs; integrating business and social missions through social enterprises; to leveraging on the rich experience of older workers through job redesign, reemployment and age-friendly initiatives. It is timely that this conference will feature a broad spectrum of social enterprises, tapping on the strengths of those who have special needs or special causes and providing opportunities for them.
Second, diversity. In a globalised world, businesses need diversity in leadership and management to manage the risks and complexity involved. Management and Boards are measured against a broader set of performance indicators as well-connected consumers and investors put higher expectations on the products and the companies who make them. For example, environmentally conscious consumers in the EU, are demanding companies to adopt responsible 4 farming and logging practices. And to manage the ensuing complexity, one way is to ensure that leadership has access to the counsel of a diverse Board.
Selected carefully, a Board that has diverse expertise and perspectives will bring tangible benefits to the company. Take the female workforce for example. As a group, women have become more educated, independent and financially self-reliant. Female makes up more than half of our university cohort. As we cope with a slower growth in foreign manpower, we need to harness this pool of talent. The Board must provide leadership by putting in place HR policies and practices that will systematically develop this pool of women employees. Women board members will provide relevant insights and guidance, and attend to the development and retention of women employees in the company.
Unfortunately, progress has been slow in Singapore. The report by the Diversity Task Force regarding Women on Boards (DTF) released earlier this year found that we are below the global average in proportion of women holding directorships. Women actually hold only 8.3% of directorships in Singapore Exchange (SGX)-listed companies7 , below the global average of 11%8 . Even some of the largest listed companies do not have a single woman board member. For example, Genting Singapore, Global Logistics Properties Ltd, Golden Agri-Resources Ltd, Olam International, Starhub Ltd, Wilmar International9 . And I will assure you the next time if I am invited back to this conference I will read a longer list. Close to three-fifths of SGX-listed companies have all-male boards7 , and I urge investors to do something about it. We can definitely do better.
Third, sustainability. Sustainable businesses are better positioned to meet the challenges of the future. Businesses that have started to reduce their carbon footprint and diversify their energy sources would be ready for potentially tighter carbon emission standards and possible energy scarcity in the future. Businesses that already take responsibility for their business processes, such as practising responsible agri-farming and environmental protection, such as in the discharge of their waste, their waste water, their air emissions, will be ready for potential changes in environment regulations.
We should also not underestimate the value of having a reputation for being responsible, when public risks have to be managed. And we have seen in recent cases many of such outbreaks. Incidents that we do not expect would cause public attention and therefore bring about reputational risk for many companies. So sustainability, and having a reputation and a system to manage corporate social responsibility puts businesses a step ahead of the rest.
Responsible and sustainable companies actively engage internal stakeholders and investors, and are transparent about their business operations. Sustainability reporting is one way in which companies can understand the impact of their business operations on the environment, and therefore take action to minimise their environmental footprint. I encourage more companies to see the value in submitting sustainability reports to the Global Reporting Initiative. The SGX has issued guidelines to encourage companies to disclose their environmental and social impact, in recognition of a growing investors’ need. Such a move reflects the increasing emphasis placed by investors, businesses and the people sector, on environmental sustainability.
In closing, driven by global shifts, the landscape within which companies compete and seek out opportunities has indeed changed.
With the concrete steps that the Government has taken and is taking, the growth of the foreign workforce in Singapore has slowed, and is currently at a more sustainable pace. Total population growth in the past year is the slowest it has been in the last decade. Businesses naturally face a tight labour market as we restructure the economy. Singapore, and the Singapore Government, remains business-friendly and will support companies improve their labour productivity. We will continue to help businesses grow and succeed here, to create good jobs for Singaporeans.
Companies must seize opportunities by practising responsive and responsible capitalism – underpinned by the principles of adaptability, diversity and sustainability. This conference platform provides a good opportunity to discuss these issues further, and I wish everyone here a very fruitful discussion. Thank you for your attention.
1 Source: Urban World: Mapping the Economic Power of Cities. McKinsey Global Institute, 2012.
2 Source: Financial Globalisation: Retreat of Reset? McKinsey Global Institute, 2013.
3 Source: UN World Population Prospects: The 2010 Revision.
4 Source: An Aging World. National Institute on Ageing and US Census Bureau, 2009.
5 Source: US Energy Information Administration. Dec 2013
6 Source: Disruptive technologies: Advances that will transform life, business, and the global economy. McKinsey Global Institute, 2013.
7 Source: Findings of the Diversity Task Force regarding Women on Boards. Apr 2013.
8 Source: Women on Boards Survey. GMI Ratings, 2013.
9 Source: Companies Websites. 2 Sep 2014