Inside Hyflux's reckoning: A failure in culture and governance

The criminal trial of Olivia Lum, founder of the once-celebrated water treatment giant Hyflux, alongside its former chief financial officer and board of directors, marks a pivotal moment in one of Singapore's most significant corporate collapses. 

These proceedings cast a stark spotlight on a decade of profound governance failures that transformed a national icon into a cautionary tale. 

The company’s implosion, which ultimately wiped out the savings of tens of thousands of retail investors, is attributed not merely to market forces but to a catastrophic strategic misstep and fundamental failures in board oversight and risk management. 

The scandal serves as a quintessential case study in how unchecked ambition, coupled with a compliant board, can lead a corporate entity to ruin.

The prosecution alleges that Hyflux’s leadership deliberately withheld crucial information from both the Singapore Exchange (SGX) and its investors, painting a misleading picture of the company’s financial health and its true risk exposure.

 The alleged failure to disclose forms the bedrock of charges under the Securities and Futures Act, placing a sharp focus on the responsibilities of directors in safeguarding public trust.

Also Read: Hyflux CEO Olivia Lum to draw S$1 yearly salary until firm’s restructuring

A national champion's risky bet

For decades, Hyflux’s story was synonymous with Singaporean entrepreneurial success. Founded in 1989 by Olivia Lum, the company ascended from a S$20,000 startup to become a global leader in advanced water treatment and desalination technologies. Lum’s personal journey was a source of national pride, and Hyflux itself was seen as a testament to Singapore’s innovative spirit and its ability to compete globally. 

At its zenith in 2011, the company boasted a valuation of S$2.1 billion, making it a market darling and a seemingly safe investment for its approximately 34,000 retail investors, who would later face devastating losses.

However, the genesis of Hyflux’s collapse can be traced to a single, transformative project: the Tuaspring Integrated Water and Power Project. In 2011, Hyflux secured the contract from Singapore’s national water agency, PUB, to build the nation’s second and largest seawater desalination plant. 

What appeared to be a strategic milestone for Hyflux, however, concealed a high-stakes gamble that fundamentally reshaped the company's established water treatment business. 

The Tuaspring project was not just a desalination plant; it was integrated with a power plant, designed to supply its energy needs and sell excess power to the national grid. This marked Hyflux’s inaugural foray into the volatile and highly competitive open electricity market, a sector in which the company possessed no prior experience.

The company won the bid by offering to sell water to PUB at an exceptionally low price, a strategy made viable only by the optimistic assumption of substantial profits from electricity sales. The decision irrevocably tethered the project’s profitability to the unpredictable wholesale price of electricity, exposing Hyflux to immense market risks it had never encountered before.

Crucially, this strategic pivot was also poorly financed. After a consortium of banks raised "serious concerns" about the project's financial viability and the inherent risks of the electricity market, they declined to fund the power plant portion. 

To finance the more than S$1 billion project, Hyflux turned to the public, issuing hundreds of millions of dollars in preference shares and perpetual securities between 2011 and 2016. Thousands of retail investors, implicitly trusting the Hyflux brand, subscribed to these offerings, largely unaware they were funding a high-risk venture into an unfamiliar energy sector.

The anatomy of governance failure

The catastrophic failure of the Tuaspring project was not merely a management miscalculation; it represented a profound breakdown in corporate governance. The board of directors, entrusted with safeguarding the company’s long-term health and overseeing its risk management, demonstrably failed to provide the necessary scrutiny and independent oversight of this perilous and transformative venture. 

The ongoing trial of Olivia Lum, former CFO Cho Wee Peng, and four independent directors highlights these systemic failures, with charges focusing on disclosure-related offenses.

Prosecutors contend that Hyflux’s leadership intentionally omitted material information from its disclosures to the SGX and investors. Specifically, they are accused of failing to reveal that the Tuaspring project constituted a new and unproven business venture into electricity sales, that its profitability hinged almost entirely on these sales, and that this exposed the company to significant risks from volatile electricity prices. 

This crucial information, prosecutors allege, was deliberately withheld to avoid deterring investors whose funds were desperately needed after banks withdrew their support. The omission allegedly distorted the company's true risk profile, forming the basis for the charges of neglect against the independent directors. 

Moreover, one former independent director, Rajsekar Kuppuswami Mitta, pleaded guilty to a charge of neglect and was fined S$90,000.

Also Read: Troubled Singapore firm Hyflux questioned over CEO's remuneration

A board asleep at the wheel

On paper, the Hyflux board appeared to satisfy the formal requirements of good governance, with a majority of independent directors. However, a deeper analysis reveals a pervasive culture of complacency and a conspicuous lack of substantive oversight that fostered an environment ripe for groupthink.

Several key weaknesses contributed to this governance failure.

Excessively long tenures: Four of the independent directors had served on the board for over 14 years, with two serving for more than 18 years. Such protracted tenures can erode independent judgment, stifle fresh perspectives, and discourage critical questioning, leading to a focus on procedural compliance rather than substantive oversight.

Potential conflicts of interest: The board’s independence was further compromised by potential conflicts. One independent director, Lee Joo Hai, chaired the Audit Committee while his firm provided internal audit services to Hyflux. Another, Teo Kiang Kok, was a senior partner at a law firm that provided legal services to the company, raising concerns about impartiality.

Dominant founder-CEO: The board operated under the considerable influence of its powerful and celebrated founder, Olivia Lum, who held the dual roles of Executive Chairman and CEO. In such environments, there is a heightened risk that independent directors may struggle to effectively challenge the strategic vision of a dominant leader, even when it is fraught with peril.

Critical skill gaps: The board notably lacked deep expertise in the energy and power industries, the very sector into which Hyflux was making its billion-dollar bet. This significant knowledge deficit meant the directors were ill-equipped to properly assess the immense risks associated with the Tuaspring project, demonstrating a critical failure in board composition.

Inactive risk management: The board’s Risk Management Committee met only once during the 2017 financial year. This was a period when the company’s financial distress was escalating dramatically due to the failing Tuaspring project, highlighting a fundamental breakdown in a crucial oversight function.

This combination of factors created a boardroom environment where formal compliance merely masked a profound failure of governance. The board adhered to procedural requirements but failed to perform its most crucial functions: to challenge assumptions, rigorously scrutinise strategy, and protect the company and its stakeholders from undue risk.

The devastating fallout

The risks that the board failed to mitigate soon materialised with devastating consequences. From 2015 onward, as new power plants came online in Singapore, a surplus in supply caused wholesale electricity prices to plummet. The core assumption underpinning the Tuaspring project – that profits from electricity sales would subsidise cheap water – was irrevocably shattered.

The project began to hemorrhage money, leading Hyflux to report its first-ever net loss of S$115.6 million in 2017, with Tuaspring accounting for the majority of these losses. The financial situation deteriorated rapidly. In May 2018, Hyflux suspended trading of its shares and filed for court protection to reorganise nearly S$3 billion in debt.

Despite numerous restructuring attempts, the company could not be saved. In July 2021, the High Court approved Hyflux's winding up, officially marking the end of the once-mighty company. The collapse inflicted a painful and widespread financial blow, particularly to ordinary citizens. 

Approximately 34,000 retail investors, who had placed their faith and savings into Hyflux's perpetual securities and preference shares, were left with losses totaling S$900 million. Many of these investors were retirees drawn in by the company's blue-chip reputation and the promise of stable returns, only to see their nest eggs wiped out. The human cost of the Hyflux downfall continues to reverberate across Singapore.

Lessons from Singapore's costly tale

The 2025 trial of Hyflux's former leadership is more than just a legal proceeding; it represents a profound public reckoning for one of the most significant governance failures in Singapore's corporate history. 

The case of Hyflux serves as a powerful illustration of how a celebrated company, led by a visionary founder, can falter and ultimately fall when its board fails to evolve from a supportive council to a vigilant guardian of stakeholder interests.

The key lessons from this costly collapse are stark and enduring for all businesses.

Substance over form: Compliance with governance codes on paper is ultimately meaningless without a deeply ingrained culture of genuine independence, critical inquiry, and courage within the boardroom.

The dangers of a dominant founder: Boards of founder-led companies carry a heightened duty to ensure their oversight is not compromised by the founder’s influence, particularly during periods of high-stakes strategic shifts into unfamiliar territories.

Expertise is non-negotiable: A board must possess, collectively, the relevant skills and expertise required to thoroughly understand and effectively challenge the company's strategy. A critical lack of industry-specific knowledge, especially when embarking on a new, high-risk sector, represents a profound vulnerability.

Risk management is paramount: Robust, proactive, and diligently executed risk management is not a mere bureaucratic exercise but a core, essential function of the board, vital for navigating today’s increasingly complex and volatile business environments.

The fall of Hyflux stands as a painful reminder that corporate reputation is fragile and that the trust of investors, once lost, is almost impossible to regain. For the thousands who lost their savings, the trial may bring some measure of accountability. 

For the broader business community in Singapore and beyond, the Hyflux collapse offers invaluable, albeit costly, lessons on the true and profound meaning of corporate governance and the dangers of allowing a corporate culture to undermine its foundational responsibilities.