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A4 BUSINESS DAY C002D5556 Friday 24 August 2018 FT ANALYSIS How the Hong Kong Jockey Club exaggerates its charity Group has a gambling monopoly thanks to its donations to good causes — but FT data show it overstates its largesse Hudson Lockett So important is horseracing to Hong Kong life that Deng Xiaoping once reassured the population that “the horses will still run” as the UK prepared to hand over sovereignty of the territory to China. For those crammed into the Happy Valley stadium every race night since 1997, the late Chinese leader has been true to his word. Compact, noisy and filled with thousands of punters squeezed around the floodlit track, horseracing at Happy Valley is at the heart of Hong Kong island. It is also at the heart of the Hong Kong Jockey Club, the colonial-era institution whose members make up the city’s business and political elite, and which holds a government-granted gambling monopoly in the city. In the year to June 2017 that monopoly generated revenues of nearly HK$34bn ($4.3bn) on record betting turnover of more than HK$216bn — that is almost HK$30,000 gambled for every man, woman and child in the city. The monopoly is justified on the grounds that the club’s charity arm redistributes some of its profits to good causes — part of a deal dating back to 1952. But a Financial Times analysis shows the club exaggerates its donations, paying out only a sliver of the charity funds that serve to justify its lucrative monopoly. For instance last year a press release from the club detailing its annual results recorded “total charity donations” of HK$7.6bn but that counted money “allocated” to charitable organisations and community projects and thus earmarked for potential payment. The annual donations — defined by Hong Kong law as payments made, not just pledged — were just HK$2bn, according to the annual report of the Jockey Club Charities Trust. The gap between the two figures has the potential to become a flashpoint in a city where one in five people live below the poverty line — defined as half the median income of HK$8,000 per month for a single person. And income inequality has risen to a record level as real estate prices have soared. “The charities trust is a fig leaf to justify having the monopoly rather than having competition in that space,” says David Webb, a corporate governance expert and longtime critic of the Jockey Club. “If they simply paid an extra 1 per cent of their revenue to the government instead and let the government do it, they wouldn’t have that moral high ground.” Critics have been especially animated by the 2016 decision by the charity arm to bankroll a local branch of Beijing’s Palace Museum with a HK$3.5bn grant at the request of club patron and member Carrie Lam, now Hong Kong’s chief executive. The move, say critics, highlights the trust’s role as a piggy bank for pet projects that would struggle to win legislative support. It also provides an insight into how the Hong Kong elite is managing its relationship with Beijing. Coming after the tumultuous “Umbrella revolution” that saw thousands of protesters take to the streets to oppose moves by China to extend its influence in Hong Kong, the Palace Museum donation was seen by pro-democracy campaigners as an attempt by the Jockey Club to curry favour with the central government. Supporters of the club prefer to emphasise its local philanthropy. “The strong justification for the monopoly is the charitable status,” says Andrew Li, a former club steward and the first chief justice of Hong Kong, from 1997 to 2010. “If you don’t understand what the club does, just look around you.” From hospital wings to university buildings and middle schools, the Jockey Club logo — the same one that hangs outside its 102 neighbourhood betting shops — features on wall plaques across Hong Kong. It is a very visible sign of the money that has been raised and spent over the past six decades by a club whose members include the likes of Li Ka-shing, Hong Kong’s richest man. Yet what the club calls “donations” in press releases is essentially grant funding that may not be paid out for years or, in some cases, ever. The FT analysis shows that the Jockey Club’s charity arm has donated HK$30.5bn since its creation in 1959, rather than the HK$51bn it has publicly claimed, a gap of HK$20.5bn. Much of that is accounted for by HK$17.4bn in outstanding donations still to be distributed. Winfried Engelbrecht-Bresges, the club’s chief executive, insists donations pledged are as good as money spent, as the club has never defaulted on its commitments. But the club, Hong Kong’s biggest taxpayer, declined to provide a breakdown of where that money was pledged. Leong Cheung, head of the charities arm and a former operating partner at Bain Capital, acknowledges that for almost every project supported by the club some money is never distributed. In 2016 it recognised HK$340m that would never be paid out, freeing up those funds for donation elsewhere. Lusina Ho, a law professor at the University of Hong Kong who is an expert on trust and non-profit legislation, says that in the territory “a donation refers to an executed gratuitous transfer and hence strictly speaking does not include pledged donations”. By that measure donations did not double last year, as the club has said. They shrank 13 per cent, marking the first drop since the global financial crisis. That left charity trust assets, net of payments due within a year, at HK$43.1bn. Asked why it held on to so much money, Mr Engelbrecht-Bresges says the club wants sufficient reserves to honour its commitments and not let donations drop, “even if we would have zero income coming from the club into the trust”. Caroline Fiennes, director of Giving Evidence, which advises international clients on philanthropic best practices, says the quarter-century increase in trust net assets made no sense in light of its stable revenue from the club’s gambling operations. “That’s not hanging on to some additional assets waiting for a downturn,” Ms Fiennes says. “This is a pattern you might see only if a foundation thinks the economy goes in 30-year cycles.” Many of those contacted by the FT — from club members to non-profit organisations and charities — were unaware of how much money the trust held, or that the club’s definition of “donations” includes payments not yet made. Lam Cheuk-ting, a legislative councillor and former investigator with Hong Kong’s Independent Commission Against Corruption, says the club’s positive public image is largely due to its charitable donations which have not, to his knowledge, ever been subjected to serious public scrutiny. Businesses told to hire customs agents if there is no Brexit deal Government releases first set of contingency planning papers Jim Pickard and Adam Samson British companies exporting to the EU will face a blizzard of red tape if there is no Brexit deal, and should consider hiring customs agents to help them deal with it, the government said on Thursday. In a series of technical notices on the consequences of a no-deal Brexit, the UK’s Department for Exiting the EU said trade with the bloc would revert to “non-preferential, World Trade Organization terms”. Businesses should put steps in place to renegotiate contracts in the light of new tariffs, Dexeu said. It added that exporters should think about engaging “the services of a customs broker, freight forwarder or logistics provider to help, or alternatively secure the appropriate software and authorisations”. Dominic Raab, the Brexit secretary, conceded that there would be “some extra regulatory” changes, but these would be offset by the on World Trade Organization rules is acceptable live in a world of fantasy, where facts are not allowed to challenge ideology,” he said. There was no technical paper on the Northern Ireland border, but in the notice on trade, there was a warning that work still needs to be done to deal with “the very significant challenges” of trading across the border in the event of a hard Brexit. A technical notice on financial services warned that the roughly 1m British citizens who live in the EU may suffer disruption to their banking services as the UK is severed from European payments infrastructure, such as Target2, the real-time settlement system for the eurozone, and the Single Euro Payments Area, is severed. At the same time, however, 30m European citizens use British financial services — giving Brussels an incentive to strike a deal, ministers believe. The notice added that the cost of card payments is likely to increase for Britons buying from Europe because they will not be protected by an EU ban on credit card sur- Dominic Raab explains the consequences of a no-deal Brexit on Thursday © Reuters opportunities for companies looking beyond the EU. The technical documents go into great length about red tape, outlining the host of forms that will need to be filled in — such as customs declarations, safety declarations and export licences — and quangos to notify. Earlier this year, Jon Thompson, the chief executive of HM Revenue & Customs, told a committee of MPs that the fourfold increase in customs declarations that would occur under a no-deal Brexit, to 205m a year, would cost UK and EU businesses up to £20bn a year. Around £6.5bn of the total would be borne by EU businesses, but this could be passed on to UK consumers in higher prices. Mr Raab also revealed that 9,000 more civil servants would be hired just to deal with Brexit, on top of 7,000 already dealing Britain’s departure from the EU. The CBI business lobby said failing to reach a Brexit deal would “wreak havoc”. Companies had already spent millions of pounds and thousands of hours on getting ready for no deal, but smaller companies simply did not have the resources to assess the potential impact, said Josh Hardie, the CBI’s deputy director-general. “These papers show that those who claim crashing out of the EU charges, which came into force in January. Credit card surcharges paid by British consumers at home and abroad amounted to £166m in 2015, according to the Treasury. As he unveiled the technical papers, Mr Raab said he believes a deal is the “most likely outcome” of the negotiations, and that a no-deal scenario is “not want we want, not what we expect”. But the 25 initial papers will be followed by dozens more, covering issues ranging from organic food to nuclear regulation. Many of the documents stress London’s determination to ensure continuity after Brexit and to avoid any potential chaos from leaving with an agreement. For example, the UK would seek to continue farm payments as per usual until 2022 and also ensure the continuation of passporting rights for financial services companies for three years. Employment legislation and rules governing issues such as GM products would be kept as they are in the medium term. However, the papers included several examples of esoteric changes that would be necessary in a no-deal situation. For example, the UK would need to introduce its own cigarette packet warnings because Brussels owns the copyright to those used at present.
BUSINESS DAY Opinion Kofi Annan, a profile in leadership There has been an outpouring of eulogies from all over the world for Kofi Annan, Ghanaian diplomat and former UN Secretary-General, who passed away on Saturday 18 August. It behoves us in this column to reflect on the lessons in leadership that his career could teach us. Kofi Atta Annan was born in Kumasi, Ghana, on 8 April 1938, from a long line of Ashanti tribal chiefs. He had a twin sister, Effua Atta, who predeceased him in 1991. He attended the famous Methodist boarding school, Mfantsipim, from 1954 to 1957. In 1958 he enrolled as an undergraduate student of economics at Kumasi College of Science and Technology before transferring to Macalester College in the United States, majoring in Economics. In January 1997 Annan was sworn-in as the seventh Secretary-General of the United Nations, taking over from the hapless Egyptian Boutrous Boutrous-Ghali whose hectoring professorial style had alienated the Americans. The organisation was on the verge of financial bankruptcy at the time. He was the first to have risen through the ranks, having joined the organisation as a lowly Budget Officer in 1962. NEWS YOU CAN TRUST I FRIDAY 24 AUGUST 2018 C002D5556 He served two consecutive terms from 1996 to 2006. We can garner valuable golden nuggets about his leadership style not only from UN reports, articles and publications, but also from his autobiography (Interventions: A Life in War and Peace, John Wiley 2012). The exalted position of UN Secretary-General is one of the most influential jobs in the world. It is certainly the ultimate prize for any career diplomat or international civil servant. His decisions can save millions of lives or send them to an early grave. The other side of the coin is that it is pretty much a thankless job. The great conservative English politician Sir Enoch Powell -- perhaps the greatest Prime Minister Britain never had -- famously declared that “all political careers end in failure”. This is particularly true of the office of UN secretarygeneral. It has been described as “the most impossible job in the world”. The first incumbent, Trygve Halvdan Lie of Norway (1946-1952) resigned in disgust; describing it as “a job from hell”. Writing in the London Guardian a few years ago, Rory Stewart noted: “It is difficult to think of anyone in public policy who has been more celebrated. He has already been given awards for “courage” (the JFK Memorial Museum), for “freedom” (University of St Gallen), and for “international justice” (the MacArthur Foundation); prizes for “security, and development”, for “culture, science and education”, and even for the “protection of human rights…The governments of Germany, Britain, Portugal, Austria, the Netherlands, Romania and Ghana have pinned medals on his chest. And he has won the Nobel peace prize.” But he has not been short of preservation of peace through collective security, international cooperation and preservation of a world governed by law and internationally accepted norms. It also aims to protect universal human rights and advance the cause of global welfare such that, in the words of the old Hebrew prophet Isaiah, the nations shall turn their “swords into ploughshares”. The UN is the successor to the defunct League of Nations ‘ more demanding global situation. He brought , his critics. A British commentator noted that, “Some people are given a tough job and they work wonders. Some people are given a tough job and they suck at it. While it’s tragic that casualties are to be expected, the body count was too high under Kofi Annan.” The UN is the first most successful organisation of mankind on a universal basis. The mandate of the organisation is which failed because it was neither universal in scope nor could it rise to the occasion when fascist Italy invaded Ethiopia in 1935 and Japan committed heinous crimes in Nanking, southern China. And Adolf Hitler scornfully worked out of the world body in his bid to carry out his dream of World Empire under the Third Reich. The UN recently celebrated 70 years of its existence. It has a near-universal membership of 193 countries. Its Secretariat has a staff strength of nearly 40,000 and an annual operating budget of US$5.4 billion. This does not include thousands of blue beret peacekeepers and other field staff engaged in numerous peacekeeping missions that also attract humungous extrabudgetary resources. The position of UN Secretary-General has been described as “the most impossible job in the world”. Whilst the permanent members expect the incumbent to be more of secretary than general, the demands of the job and the expectations of the international public require that he acts more as a general. The most successful have been those who managed to achieve an Aristotelian balance between the two opposing expectations. Ten lessons, in my opinion, underpin Kofi Annan’s relative success as a global leader. First, get a good education. Kofi Annan was probably not the brightest young man of his generation. But he was a keen learner. He made it a point to grab every good educational opportunity. The opportunity of a Ford Foundation award enabled him to attend the prestigious Macalester College in the United States. He was an average student, but a keen THE NEW WEALTH OF NATIONS OBADIAH MAILAFIA - learner and a good sportsman. An all-round education is extremely important. But it must be complemented with development of the human personality through sports and engagement in extracurricular activities. Annan also did a masters at the prestigious Geneva Graduate Institute of International Studies. He later did a mid-career masters in management at the MIT Sloan School. A broad general education is necessary for the Continues on page 35 The aficionados of black music would recognize a familiar ring in the title of this piece. It is a takeoff on the Nina Simone song‘Why? (The King of Love is Dead)’. ‘The King’ referred, of course, to Martin Luther King Junior, who had just been murdered on a hotel balcony when Nina sang the song. The tears were flowing freely in those dark days. Passions were running rife, and chaos and death were in the air all over the United States of America. Nina Simone was an African-American diva, and something of a precursor for Aretha. She was weird, and she was larger than life. There will be another time to talk about Nina Simone, whose voice was deep and dark, so much so that it put the fear of God in the people who heard her music and were enthralled HumanAngle FEMI OLUGBILE The queen of soul is dead’: A tribute to Aretha Franklin by it, including those who did not like black people. It’s not over, the common saying goes, to this day, until the fat lady sings.The fat black lady. And Nina was not even fat. Aretha was. O – Aretha! She was the quintessential ‘black’ voice. Her voice that defined – more than any other, your youthful consciousness and emerging artistic sensibilities, growing up. Now that she is dead, you feel as though you have known her all your life. Getting into boarding school at Government College Ibadan as an eleven-yearold stripling, going away from home and parents for the first time, you were suddenly an individual, distinct from everyone else. You were e x p e c t e d t o have – opinion. It was a very liberating feeling. But it was also a scary feeling, with a lot of gaps in choices and preferences that you found yourself having to fill, going forward. People you liked. People you could not stand. Music to dance to. Music to listen to. A welter of c u l t u re i c o n s with their creations hit you in the eye. In your boarding house – Grier House, as in the rest of the school, the music of James Brown had everybody shaking their heads furiously on their necks as if they wanted to throw them off and gyrating their hips in something they called the ‘Boogaloo’. It was amusing to watch the older boys dancing at the House ‘Socials’ that held – was it once in a month? The small boys would snigger in the corner at the seriousness with which some of the big boys practised the steps, especially the more studious ones who you might have sworn would have no truck with dancing. There was a fever especially when the end of year was approaching, with a date set for ‘Endo’ – the End of Year ‘ She was the most charted female artist in history. She won eighteen Grammy Awards, and sold more than records, party at which the big boys played host to girls from St Anne’s School in town. Beyond their sniggering, the little boys would practice the steps they copied from their seniors in the safety of the communal washroom, or even in class, during break. But for you, Aretha’s was the real musical discovery of those early days. Her sharp, rasping voice belting out the notes and sentiments of ‘Respect’ made a powerful impression on you. You found the voice and the words reverberating inside your head, over and over again – in class, in lonely moments, playing on the field. Sometimes, inexplicably it brought you to tears. You would understand the experience later, as you matured. You had discovered The Black Voice, and its spell would stay with you. It was a label on a door, and as you grew in years, other powerful black women - Ella Fitzgerald, Nina Simone, Billie Holliday would walk through that door and inhabit your life and space. But Aretha was your first taste of that world, and the sound of her voice would always evoke in you complex details of the past and the present in a bitter-sweet mix that was difficult to explain to anyone, not to speak of sharing. Even when they hit a joyful note, those women, they spoke of a primordial pain and passion that you automatically empathized withand could feel in your bone. Aretha Franklin died on August 16, 2018, after a long Continues on page 35 Published by BusinessDAY Media Ltd., The Brook, 6 Point Road, GRA, Apapa, Lagos. Ghana OBusiness Day Ghana Ltd;; ABC Junction, near Guinness Ghana Limited, Achimota – Accra, Ghana. Tel: +233243226596: email: Advert Hotline: 08034743892. Subscriptions 01-2950687, 07045792677. Newsroom: 08169609331 . All correspondence to BusinessDAY Media Ltd., Box 1002, Festac Lagos.
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