Last year, after the third part of the Batman Trilogy, I wrote this “fun” piece on corporate governance. This reflects my love for movies but I also feel that while corporate governance is a serious subject, we have to ask ourselves from time to time “Why so serious?”. I have used this in my corporate governance and ethics course at NUS as a first week reading to get the students to not think that the subject need necessarily be dry. I hope you like it. Warning: Do not read this if you do not have a sense of humour.

Mak Yuen Teen, Unpublished.

In a poignant scene from the movie “Batman Begins”, a young Bruce Wayne was with his dad, Thomas Wayne, on the train built by Wayne Enterprises, as they travelled into the city on that fateful night when Bruce’s parents were murdered. As it passes the Wayne Enterprises building in the distance, Bruce asked his father “Is that where you work?” His father, a doctor, replied: “No, I work at the hospital. I leave the running of our company to much better men.” Bruce asked: “Better?” His father then added: “Well… more interested men.”

This sets the scene for many lessons in corporate governance and ethics from the marvellous Batman trilogy.

The above scene highlights how professional managers can ruin companies built up by families. The professional managers were indeed interested men, but they took the company on a very different path. It started making all sorts of weapons. The values of the family-owned company were clearly lost, perhaps because the professional managers were only interested in making as much money as possible to increase their compensation through some questionable “pay for performance” scheme.

Wayne Enterprises, like many other companies, had poor risk management and internal controls. How else can we explain the company having an “applied science division” left unsupervised, which had all sorts of prototypes such as the material used to make Batman’s cape and a military vehicle which became the Batmobile? Central to the plot of the first movie was how Wayne Enterprises lost a highly dangerous weapon as it was being shipped – surely a case of failure to properly safeguard assets, a not uncommon internal control failure.

We also learn how a controlling shareholder of a company often still acts as if the company belongs to him. When Bruce decided that he was ready to become Batman, he could just take whatever he wanted from the applied science division. The man looking after the division, Lucius Fox, was even willing to paint the Batmobile black, presumably at the company’s expense. He said to Bruce: “The way I see it, all this stuff is yours anyway”. Pity the minority shareholders of Wayne Enterprises.

Bruce and his butler, Alfred, then discussed how to buy the Batman cowl. Alfred suggested using a shell company incorporated in Singapore and buying at least 10,000 cowls to avoid suspicion (Alfred was obviously a multi-skilled butler). Of course, they would have to register the company with the Accounting and Corporate Regulatory Authority (ACRA). Alfred may register the company in his third cousin’s name, so it may be difficult for ACRA to know that the company is a front for Batman.

To be fair, in reality, it would more likely be a British Virgins Island or Cayman Islands shell company, but it was nice to hear “Singapore” getting a mention in a Batman movie. But this scene highlights increasing concerns amongst many global regulators about the use of shell companies in jurisdictions with lax supervision to conduct sham transactions, launder money, evade tax and finance terrorists – and not just to buy Batman cowls.

A family owner can still exert great control over a company even after it is listed. The head of Wayne Enterprises, who appeared to be both the Chairman and CEO as is common in US, walked into the boardroom near the end of the movie after the company had gone public to discover that Lucius was chairing the board meeting. A call to Bruce revealed that he had bought back enough shares through charitable foundations and trusts to control the company, and Bruce had decided unilaterally that Lucius was going to run the company. In the real world too, a controlling shareholder often controls the appointment of the Chairman – even though articles of association often provide that the board should elect the Chairman. In the same way too, some substantial shareholders in Singapore companies do try to hide their real identity using various vehicles (such as nominee companies and trusts). It may be difficult even for the board and management of a company to uncover who the real beneficial owners are. This is a current weakness in our regime on disclosure of substantial shareholders. So what Bruce did in the Batman movie he can do in Singapore too.

The big lessons from the second Batman movie, The Dark Knight, were mostly ethical ones. However, it also touched on cross-border issues as Batman made his way to Hong Kong to snatch a crooked accountant back to the US. Even though there is an extradition treaty between Hong Kong and US, the legal process would probably have taken too long. Anyway, in the movie, the enforcement officers were largely corrupt. If public governance is poor, rules and regulations are pointless.

The Joker pushed Batman into real ethical dilemmas. When the Joker had the District Attorney (DA), Harvey Dent, and Batman’s loved one, Rachel Dawes, wrapped up in explosives in two separate locations, Batman was faced with a difficult choice – should he save the DA who can save the city, or save his loved one? He opted for love, which I am sure many ladies would appreciate. Unfortunately for him, it turned out that the Joker had tricked him and he ended up saving a badly burnt Harvey instead. Harvey became Two-Face, like some of our independent directors.

As Batman became desperate to capture the Joker and save the city, Lucius found Bruce hacking into the phone conversations of the entire city, like a News Corp employee. Lucius was not pleased, saying that it was wrong and that he would resign over it even as he agreed to help Bruce “just this once”. Is it ethical to hack into the private calls of individuals for a greater public interest? I guess the News Corp employees also felt phone hacking was acceptable because of a wider “public interest”. The trouble of course is that it is difficult to see what the public interest is in many of the cases.

In one of the most pulsating scenes in the movie, there was a twist of the well-known Prisoner’s Dilemma in game theory, with real prisoners. Two ferries, one carrying prisoners and another carrying ordinary people, were wired with explosives. Each was given a trigger to blow the other ferry up, thereby saving themselves. If one ferry was not blown up before the deadline, both ferries would be blown up. Should the lives of the prisoners be worth less and therefore that ferry should be blown up? Is it justified for passengers in one ferry to blow up the other ferry to save themselves? What if one ferry is full of lawyers and the other full of accountants?

In the third Batman movie, The Dark Knight Rises, it was clear that Wayne Enterprises had become very much more a weapons manufacturer. There was now the Bat (the one that can fly), the Batcycle, and lots of armoured vehicles. It had also invested in a clean energy project for a fusion reactor, which was owned by Miranda Tate, a board member of Wayne Enterprises. Talk about conflicting strategic objectives, although it could also arguably be a diversification strategy.

Obviously, the investment in the clean energy project would constitute an interested person transaction which would have to go through the audit committee. Of course, with Batman as the controlling shareholder, the audit committee is likely to be there in form rather than substance. Sadly, there was no proper risk assessment as it was discovered belatedly that the fusion reactor could also be used as a nuclear weapon. The decision was made to shut down the project, which nearly bankrupted the company. Poor risk management can destroy companies.

Lessons were obviously also not learnt about the importance of sound internal controls because almost everything was then stolen by Bane (the villain) and his gang. Bane decided to head down to the stock exchange as he decided that the way to cause great chaos was through the financial system. Unfortunately, the Wall Street banks had already beaten him to it earlier by causing the global financial crisis. As he went into the exchange, an employee said “There’s no money here to steal” to which Bane retorted “Well then, why are you here?” This is an apt allegory to the realities and perhaps the source of problems in the world today. While most of the real wealth is created in the real economy, the financial system has become the heart of the global economy – and we are all vulnerable to heart failure. Through illegal trades executed using Bruce’s identity, Bane bankrupted Wayne Enterprises, which therefore joined Barings Bank, Societe-Generale, UBS and JP Morgan as victims of rogue trading.

Soon, Bane and his gang, together with prisoners he had freed, marched down and occupied Wall Street. Thankfully, Batman did save the day. With what is going on around the world today, I hope we will be just as lucky.