| Temasek Review 2011

Temasek is a Singapore investment company governed by the provisions of the Singapore Companies Act. Additional safeguards are enshrined in the Singapore Constitution to protect our past reserves.

As an investment holding company, we own and manage our assets on a commercial basis. Investment, divestment and business decisions are directed by our Board and management.

Under Singapore’s Constitution and laws, neither the President of Singapore nor the Government is involved in our investment, divestment or other business decisions, except in relation to the protection of Temasek’s past reserves.

Our governance framework emphasises substance over form, and long term over short term. It provides for accountability and a robust balance between empowerment and compliance.

We espouse the principles of commercial discipline, built on a culture of meritocracy, excellence and integrity. Our commitment to deliver sustainable long term value as one Temasek team is supported by an incentive philosophy which emphasises sustainable returns to align our staff as co-owners.

Relating to Our Shareholder

Incorporated on 25 June 1974, Temasek is a Singapore exempt private company¹ wholly owned by the Minister for Finance. Subject to the President’s concurrence, our shareholder has the right to appoint, remove or renew Board members.

We operate under the purview of the Singapore Companies Act and all other applicable laws and regulations governing companies incorporated in Singapore. Within this regulatory framework, Temasek operates with full commercial discretion and flexibility, under the direction of our Board.

We provide annual statutory financial statements audited by an international audit firm, as well as periodic updates to our shareholder. While not required to release any financial information publicly as an exempt private company, we have published our Group Financial Summary based on the audited financial statements in our annual Temasek Review  since 2004.

We declare dividends annually, balancing distributions to our shareholder and reinvestments to sustain future returns. As a commercial investment company, we pay taxes to the Singapore Government.

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Relating to the President

The President of the Republic of Singapore has an independent custodial role to safeguard Singapore’s critical assets and past reserves.

As a key institution, Temasek is designated a Fifth Schedule Company² under the Singapore Constitution with a constitutional responsibility to safeguard our past reserves³.

Our Chairman and CEO certify our Statement of Reserves and Statement of Past Reserves to the President at prescribed intervals as part of our responsibility to protect our past reserves.

We are required by the Singapore Constitution to seek the President’s approval before a draw⁴ occurs on our past reserves.

Reserves accumulated by Temasek before the term of the current Government form our past reserves. Current reserves are primarily profits accumulated after a newly elected government is sworn into power.

The swearing-in of the new Cabinet on 21 May 2011 after the Singapore Parliamentary General Election marked the start of a new term of government.

To safeguard the integrity of those involved in managing Temasek’s reserves, the President’s concurrence is required for the appointment, renewal or removal of our Board members. The appointment or removal of our CEO by our Board is also subject to the concurrence of the President.

In addition to its normal fiduciary duties to the Company, our Board is accountable to the President to ensure that every disposal of investment is transacted at fair market value.

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Relating to Our Portfolio Companies

Companies in our portfolio are managed by their respective managements, and guided and supervised by their respective boards. Temasek does not direct the commercial or operational decisions of its portfolio companies.

We exercise our shareholder rights fully, including voting at shareholders’ meetings, to protect our commercial interests.

We promote sound corporate governance in our portfolio companies. We support the formation of high calibre, commercially experienced and diverse boards to guide and complement management leadership.

We advocate that the Chairman and CEO in a company should be separate persons, independent of each other, to ensure an appropriate balance of power and greater capacity of the board for independent decision making.

Relating to the Wider Community

We are a responsible corporate citizen.

Our engagement with the wider community rests on the twin pillars of sustainability and robust governance.

In 2003, we committed to set aside a share of our returns for community contributions for each year that we achieve returns in excess of our risk-adjusted hurdle.

We established Temasek Trust in 2007 to independently oversee the financial management of endowments and gifts, including the endowment distribution to specific non-profit philanthropic organisations. The latter are, in turn, independently responsible to their boards for the development and delivery of the community programmes within their respective mandates. They include Temasek Foundation and Temasek Cares, which were formed with specific mandates for Asia and Singapore respectively. Other beneficiaries include foundations focused on education, research as well as international partnerships.

These non-profit philanthropic organisations form an additional group of stakeholders with an interest in the continued success of Temasek.

In addition, we actively engage regulators, multilateral agencies and other market participants to help promote fair and practical market oversight and to keep abreast of governance issues and trends.

Among the many engagements Temasek has had with regulators, the 14-year journey to support the transformation of the energy market stood out.

The full liberalisation of the power and gas industries in Singapore started with the corporatisation of Singapore Power and the consequent hiving off of three independent power generation companies. In the initial phase, we brought in business leaders as independent board members, worked with them to build commercially-driven management teams, introduced best industry practices and improved efficiency, so that the companies would be well positioned to operate in a competitive market.

In parallel with the progressive liberalisation of the Singapore energy market, we studied the experiences in other markets, tapping on independent experts, while working closely with stakeholders ranging from unions to boards of the power generation companies. The objective was to ensure that a deregulated power generation sector continues to deliver high quality and competitively priced energy, as well as attract new and timely capacity investments on an ongoing basis.

We shared our findings and recommendations with the Singapore energy market regulator and policymakers, working closely with them to marry policy objectives with practical market solutions. We eventually launched the divestment of all three wholly owned power generation companies, with the full support of the regulator, unions and management, under the aegis of a robust and well defined regulatory framework.

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Relating to the Wider Community

Temasek Board and Committees

Our Board comprised 10 members as at 31 March 2011, a majority of whom are non-executive independent private sector business leaders. They bring relevant experience from the private sector and industry to our deliberations.

Our Board provides overall guidance and policy directions to our management. Each year, the Board is scheduled to meet for two days each quarter. The Board will meet more often when necessary. Six Board meetings were held during the year ended 31 March 2011.

Specific authority has been delegated to various Board committees:

• Executive Committee (EXCO)
• Audit Committee (AC)
• Leadership Development & Compensation Committee (LDCC)

Each committee is chaired by a non-executive Director who is independent of management.

On the recommendation of the AC, our Board approves the annual audited statutory accounts prior to submission to the shareholder for adoption at the Annual General Meeting.

During the year, the AC approved amendments to the Whistle Blowing Policy.

Board and Committee Processes and Decisions

Board members may participate in meetings via telephone or video-conference. Decisions at Board and Committee meetings are based on a simple majority of the votes. In the case of a tied vote, the Chairman has a second or casting vote. Where a Board resolution is obtained via circulation, the resolution becomes effective upon approval by at least two thirds of our Board.

Board members with interests that may conflict with specific Temasek interests are recused from the relevant information flow, deliberations and decisions.

Quarterly Board meetings include Executive Sessions for the non-executive Directors to meet without the presence of management. The annual CEO succession review is part of these deliberations.

Temasek Management

The governance role of Temasek management is to ensure that the institution complies with the rules and regulations of the jurisdictions where we have investments or operations. We have robust systems and processes in place to assist us in such compliance.

Our systems and processes are continually updated and refined, in particular for new markets and new asset classes, or to incorporate new technology platforms or capabilities.

During the year, we reviewed and updated our Temasek Code of Ethics and Conduct which is our framework to guide Directors and employees in their daily dealings.

Board Committee Membership
as at 31 Mar 11

	Board5	EXCO	AC	LDCC
S Dhanabalan	Chairman	Chairman		Chairman
Kwa Chong Seng	Deputy Chairman	Deputy Chairman		Member
Kua Hong Pak	Member		Chairman
Ho Ching	Executive Director & CEO	Member		Member
Hsieh Fu Hua	Executive Director & President	Member		Member
Simon Israel6	Executive Director & President	Member
Goh Yew Lin	Member		Member	Member
Michael Lien JL	Member		Member	Member
Teo Ming Kian	Member	Member
Marcus Wallenberg	Member

1. 1Under the Singapore Companies Act (Chapter 50), an exempt private company has no more than 20 shareholders and no corporate shareholder, and is exempted from filing its audited financials with the public registry.
2. 2Other Fifth Schedule entities include Government of Singapore Investment Corporation Pte Ltd, which manages the reserves of the Singapore Government, and statutory boards involved in managing critical assets, such as the Central Provident Fund (CPF) Board and the Monetary Authority of Singapore.
3. 3Temasek does not manage the CPF savings, foreign exchange reserves of Singapore, or the reserves of any other Fifth Schedule entity. Each Fifth Schedule entity is managed independently, and is separately accountable to the President through its own board and CEO for the protection of its own past reserves.
4. 4A draw on our past reserves occurs if our total reserves are less than our past reserves, or if our current reserves are negative.
5. 5Koh Boon Hwee, who has been on the Board of Temasek Holdings since November 1996, retired from the Board effective 1 October 2010, upon the expiry of his term of office.
6. 6Simon Israel retired from his position as Executive Director & President effective 1 July 2011.

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