Synopsis
National Kidney Foundation (NKF), a voluntary welfare Kidney dialysis organization was in headline last week. Its CEO brought Singapore Press Holdings (SPH) and its journalist to task by suing them defamation and subsequently he retracted all the claims against the defendants in court during cross examination.
NKF vaunted its operation model was the paragon of all the voluntary welfare organizations. People from many countries come here to study its model. By aggressive fund raising campaign, such as charity show on TV, it uses its gigantic database (contain details of previous donors and contacts) to SMS or write mails appeal for donations. Each campaign they manage to garner more than 10m of donation. (It was said 2002 alone, NKF raised 67m) It used commercialized marketing tactics, to hand out lucky draw like a unit of apartment, car, or outright cash payment and use poignant scene of the kidney patients contrive to live in excruciating condition, stunt men or women performed by MediaCorp Artistes to generate breathtaking and exciting effects to lure donors to call the hotlines for their donation. It successfully accumulated 262m of reserves to date. Many voluntary welfare organizations are struggling hard to solicit funds to make ends meet. They are unique to have fabulous wealth that makes them an enviable voluntary welfare organization.
Some countrymen started questioning the necessity of the large reserves and its transparency of fund management. The Straits Times’s journalist was assigned the task to write an article about the controversies, a plumber tipping the paper that the CEO’s office bathroom installed a gold plated tap costing about $1,000. SPH checked with NKF for the truth. NKF’s reply asked for the contractor's identity and details as if the repeated incidence of the US court’s decision on the New York Times’s journalist (see note below) on the tipster. And subsequently SPH decided to publish the contractor’s account in the journalist’s article, headline, “NKF: Controversially ahead of its times?” which appeared on 19 April 2004. NKF sued the paper and the journalist for libel and boomeranged.
In the trial, there were many exposures giving shock to the public:
1. The defense lawyer noted if the NKF had to foot the entire dialysis bill of $31.6m a year (2003 total expenses in audited accounts). Its reserves can last for eight years.
2. On top of the CEO salary of S$ 25,000, he was paid ten to twelve months bonus during the past three years when economy was in the doldrums.
3. He owned Mercedes Benz 200 car for his personal and family use, the NKF paid the car’s road tax and picked up the bills for maintenance and repair. There were eight company cars provided for him and other six staff use.
4. NKF also erroneously overstated the number of kidney patients it treated.
5. The CEO was taking first-class flight on some airlines.
6. The CEO said paying $1,000 for gold plated tap was not expensive.The Defence Lawyer cross-examined the plaintiff with all the facts, at the end of cross- examination, the plaintiff retracted the suit.
What is the fatal blow of NKF saga?
Many are interested in this question. The crux of the problem is they try to change the nature of a voluntary welfare organization to a commercialized voluntary welfare organization. And it did not get the buy-in first from its biggest stakeholder—the donors.
The CEO accounted himself as CEO in the business sector. He wanted to enjoy the same treatments as if he was a business CEO. Every year the cash hoard was richer by more than 10m. He worked hard to push the marketing campaign. Shouldn’t he have the same rewards and perks as his business counterpart? I think he probably was granted by the board for all these entitlements, such as salary, bonus, privilege flying arrangements. So, we can’t say he abused his rights. He was accountable to the board. Then to whom the board was accountable? It is a private organization using its own funds to help kidney patients; the answer probably is the Commissioner of charities or external auditor doing the checks and balances. And it is imperative that they are functioning. It is interesting the swirl of corporate governance of the business sector has spun to the voluntary welfare organization. As for charitable organization, the regulatory and disclosure requirements are not as stringent as the business organization.
The Health Minister stepped in and has done all the right things necessary to contain the crisis.
Is commercialized voluntary welfare organization model workable?
The kernel of the truth for voluntary welfare organization is it is a tripartite. It is a function of the donors, the patients and the management that runs the operation and mobilizes volunteers. The goals are to extend their dialysis to every kidney patient possible; extend subsidies to financially stricken patients; and run the organization efficiently and effectively for every cent donated. I think these are fundamental intentions of all the donors. If the management want to manage the organization the way it intended, and ignore the tripartite. Any departure is resulting what is happening now to NKF.
I do not oppose voluntary welfare organization to borrow commercialized marketing tactics, but it should treat its donors as valued customers with transparency and honesty; refrain from by fair means or foul tactics. On television, It urged you to dial 1900-112-8888 (8 calls). No dollar amount was stated beside the hotline. Some donors might want to donate smaller amount, and was misled by following the hotline number and later see red about hefty telephone bill of their donation. I am not clear whether this devious tactic contravenes to Section 4 of the fair trading acts, which reads “To omit anything, if as a result a consumer might reasonably be deceived or misled.” Real life experience from the paper and my ex-neighbor’s son who chalked up more than a thousand dollars bill by keep calling the hotline at home when the mother was sweating at the factory shop floor telling me that some donors are misled to make the most expensive call flashing on the TV screen.
What is perceived also as blight is the controversial lucky-draw marketing tactic. It aggressively and repeatedly flashing on the TV ads, appealing at charity show, SMS to potential donors beckoned the donors as if they were betting for material gains. These aggravated and also tainted the motive of many donors which perceived their donations were for a good cause. The model failed to reconcile whether it is charitable act or act like betting with Singapore pools, because the original charitable nature of the campaign has changed.
Is it equitable to peg the CEO salary on par with the business CEO?
It is an interesting question. I am not a compensation expert. Some said it was peanut, other said if he (The ex-NKF CEO, a trained lawyer) had worked in the private sector, he would have earned much more. Well, the compensation he received is possible only in private sector if he is working at senior level of some top-notch legal firms. Being a lawyer is no longer that glamorous as before. Some lawyers even change their career.
Using training background as a benchmark to reward the incumbent in different trade, the rationale is the opportunity costs. This logic is especially prevalent in the public sector. That makes the government the employer of choice. No wonder my cousin, my schoolmate’s son who have just graduated from NTU, even my nephew ready for second year in NUS opted to work as teacher, prison officer. I chided their short sightedness. After contemplation, I tell myself they may not as stupid as I think. Compared with private sector, the public sector offers higher starting pay, and at this point in time higher increments (NWC, government has to take a lead), stable income, and probably the government is the last employer to retrench workers. If you don’t make stupid mistake as the ex-NKF CEO, the average whole-life income working in public sector may be higher than their in the private sector.
My experience in private sector tells a different scenario. Many employers try to suppress your take home pay if the economy turns bad or you are unemployed. Many employers want to start your salary based on your last drawn if within their budget rather than taking into consideration your experience, potential contribution, your responsibility and pay you adequately. The American compensation system probably is the fairest among all if you have read American books about compensation. They spell out a list of determining factors for consideration for designing pay-package. They emphasize tying pay-package with a set performance criteria.
How should we peg the salary of the CEO in a Voluntary Welfare Organization?
The ex-board peg ex-CEO’s compensation using private sector benchmark. The new chairman said he would work for free. According to the paper, some CEOs of VWO said they were earning five to six thousand dollars a month. An intelligent MP benchmarked the CEO’s pay with the public hospital. The Health Minister tried to be objective, taking into account the size of the job.
The unblinkered truth is it is probably difficult to put a dollar amount for running a Voluntary Welfare Organization. As different people has different life goal. And it seems that pegging the pay to private sector is not acceptable to many donors. Their expectation is probably that you need to sacrifice a bit of your pecuniary needs to join a Voluntary Welfare Organization. It narrows down to a specified range in between the CEO of other VWOs and the CEOs of the public hospitals. I think many donors do not expect the CEO to work for free, they request the compensation to be transparent.
Can we in direct comparison the CEO’s job of Voluntary Welfare Organization with the private sector?
Certainly you can. This question is twisted to compare the job scope and risks and rewards .of both sector I am not to derogate the CEO of the Voluntary Welfare Organization. Many of them are great people. They have different life goals. Mercenary motive is not their prime goal. My targets of this question are towards those take material rewards as paramount importance.
I may be wrong because I have never worked in NKF. I think the main duties of CEO entail running dialysis centres in Singapore and raising funds. He does not need to manage fund in a way to maximise returns and taking unnecessary risks because he is a trustee of the donated fund. He supposes to invest the reserves in very low risk investment, such as government bonds. To free him from this duty, he can engage private fund manager as trustee to do the job.
In fact, to attribute credit for the amount of funds raised to the CEO is unjust. Fund raising is to appeal to the donor conscience and sympathy. Their act to donate is voluntary. Whereas in private sector, to persuade customer to part with their money to buy their goods; most of the time customer is passive. This makes earning in private sector so much harder. Competition also quickly erodes margin.
A case in point is Creative Technology, the CEO thought MP3 would be his secret weapon for the company success, and he said he had some tricks up his sleeve to combat the war with Apple. But he failed, not only the war with Apple was a loss, he saw his Zen MP 3 product margin quickly eroded due to keener competition. Creative Technology share price took a nosedive. The business risk for both side (VWO and private) is incomparable. Creative Technology has to run at a non-stop pace, because the product life cycle is short and they have to keep innovative to make sure some of the new products eventually will work out. They have to weather bad time for economic downturn when consumer keeps their spending habit tight. For NKF, Singaporean is generous in the sense that even bad time they have the heart to continue their support to charitable drives. So, if the CEO took the amount donated as his personal performance, I think it is not a fair performance measurement.
How much reserves are enough?
I came to know that the rule requires VWO to spend only 30% of the funds collected. I think it is rigid. Because there are factors to be taken into account, such as uncertainty of the amount to be collected, the increase of number of beneficiaries, the economic cycle etc. If you expand very fast, probably you need to be very prudent about the reserves to cater for rainy day or unforeseen circumstances. Rigid rule only resulting sometimes reserve is piling up very fast and other time cash trap. Why not let the funds expert to decide?
Going forward
Trust and confidence can diminish precipitately in a day and take long time to regain. To ameliorate, there is no magic other than to hold open and be honest tenaciously. What you do is more important than what you say at this stage.
To improve transparency, NKF needs to communicate and espouse open book management. NKF can benchmark listed company to give quarterly results. A scorecard publishes on their web including financial and non-financial indicators such as Cash flow statement, number of patient treated, number of patient to amount donated, total expenses to number of patients etc. It is all voluntary, there are no statutory disclosure requirements or accounting standards demand such disclosures.
It can concentrate just on Kidney dialysis service rather than venture into cancer treatment to compete resources with cancer Voluntary Welfare Organization. NKF can improve its services by implementing one-stop services; such as setting up clinic for Kidney patients, global sourcing for cheaper medication for kidney patients. Open itself up to use Chinese medicine to treat Kidney decease. It also can assess and offer financial aids to the needed kidney patients languishing in poverty.
Note: I quoted the New York Times journalist's case as analogy, in hindsight, the complex political context was not known to me earlier when this article was written. The case departed my original intention and the quoting was inappropriate.
Reference:The Straits Times
Epilogue--The Next chapter 23 April 2007
The NKF saga which caused a furore has moved to a new chapter, under the leadership of Gerald Ee, the NKF has undergone restructuring, a new NKF reborn. New NKF is now more professionally run. Mr Gerald Ee strengthened the governance structure, trimmed costs by eliminating redundancies, instituting new policies to replace mishmash policies, brought in new management team, brought the culprits to task and restored the public confidence. Mr Ee deserves a medal for his free contribution to reorganize the charitable organization.
NKF is only the interlude of a bigger picture. What comes to my mind to write this “The Next Chapter” is after watching “Ren Ci Charity Show” last Sunday. Venerable Ming Yi failed to elevate himself climbing to the top of City House is a harbinger of wider inherent problems. His show used to garner large part of donations in the show. But he is not god. The test of his physical strength never before put him in a dire straits. He is already forty-five years of age. How many years more he can participate in a stuntman like show to make the wonder? Unsatiable viewers want stimulations, excitements before donating their dollars. That put on higher and higher expectations on the artistes and the organizers. Because of diverse interests in viewership, and not all superstars worth inviting on a cost benefit basis and putting the burden on the venerable even make me more worrying. Many of the contribution for his performance are devotees, sympathizers, excitement searchers. My premonition is something quite amiss. What happen to the patients and employees of the hospital if one day he ceases to continue such performance? The assertion that donations will continue to pour in as before is apocryphal. Especially their settings are expanding means larger and larger amount of money will be required. Can they make it?
The only way to solve this problem is to have diverse sources of donations. There should be professionals either in-house or outside organizing fund-raising programs. The in-house fund-raising professionals will cudgel her brain to contact large organizations as co-sponsors. Many charitable organizations are entitled to issue tax-exempt receipts to the donors. As stand-by donors give assurance and promises of financial aids in case of urgent needs. Many professionals are willing to participate in charitable work. To make use of their circles and contacts, charitable organization can canvass a pool of potential find-raisers targeting at wealthy singles, rich families, and bigwigs to make some life time transfers after their lives. All these require detailed work and are being professionally run. Our fund-raising must progress to a new chapter to be responsible to the beneficiaries.
