Hyflux's Collapse: Governance Lessons + An Interview with Prof Mak

This podcast episode delves into the downfall of HyFlux, a water company in Singapore. It analyzes the factors that contributed to its failure, including reliance on project financing, cash flow difficulties, and attempts to improve financial ratios through alternative sources of finance. The episode also highlights the weaknesses in corporate governance, particularly the dominance of the founder and CEO, Olivia Lam, and the lack of experience in electricity generation. An interview with a corporate governance expert sheds light on the importance of good governance and the lessons that can be learned from HyFlux's failure. The expert discusses the influence of a controlling shareholder on investment decisions, the impact of business models on governance risks, and the significance of directors with relevant industry backgrounds. As the episode concludes, it explores the challenges of defining and evaluating relevant industry experience and emphasizes the importance of technology backgrounds in decision-making. Additionally, it suggests addressing practical barriers to implementing the Singapore Code of Corporate Governance rather than introducing further guidelines. Takeaways • HyFlux's downfall was a result of its reliance on project financing and significant cash flow struggles. • The company attempted to improve its financial ratios by using alternative sources of finance resembling debt but classified as equity. • The lack of experience in electricity generation and weak corporate governance, particularly the dominance of the founder and CEO, contributed to HyFlux's collapse. • A corporate governance expert emphasizes the importance of good governance and the role of boards and management in considering business risks. • The influence of a controlling shareholder can impact investment decisions and impede checks and balances. • Business models can present governance risks, and understanding and evaluating the business model is crucial for preventing fraud or aggressive accounting practices. • Directors with relevant industry backgrounds bring valuable insights and expertise to governance and decision-making. • Defining and evaluating relevant industry experience is essential when considering board composition. • Having a diverse mix of competencies and skills is crucial for effective governance and decision-making.