Cost Management

Topic: Good Corporate Governance

By: Tania Ananda Mahdani (023113004) Pradypto Utomo (023111217) Trado Vansa Addraga (023113003)

1. How is the implementation of good corporate governance on companies in Indonesia? Answer: Recent experience indicate that it isn`t sufficient for management just to rely on how efficient is the process of managing. It needs a new instrument, Good Cooperate Governance (GCG), to prove that the management is going well. This concept emphasize on two important things, that is: first, the right of shareholder to be provided of right and just on time information, and second, the obligation of company to disclose accurately, just on time, and transparently all information of company`s performance, shareholders, and stakeholders. Various studies by national and international researchers proved the lack of understanding the importance and strategic implication of applying GCG principles by Indonesian entrepreneur. Besides, organization culture also influencing GCG application in Indonesia. In 1997, the East Asian Financial Crisis severely affected the economies of Thailand, Indonesia, South Korea, Malaysia, and the Philippines through the exit of foreign capital after property assets collapsed. The lack of corporate governance mechanisms in these countries highlighted the weaknesses of the institutions in their economies. Indonesia was one of the countries that experienced this crisis. In Indonesia, the after-effect of the crisis itself affected the economic development of the country. The evaluation made by Asian Development Bank (ADB) shows some factors that give great contributions to the crisis that happened in Indonesia. First is the high concentration of companys ownerships. Second, the ineffective control function from board of directors, third; inefficient and lack in transparency of the procedures on mergers and takeovers. Fourth, highly independent on external funding, and fifth; inadequate control from creditors. Indonesia has been implemented the GCG principles since signing the Letter of Intent (LOI) in cooperation with IMF, in which its most important intention is to improve the management of companies in Indonesia. Current problem that is still faced by Indonesia is lack in understanding about the principles and practices of good corporate governance by business and public communities generally, in Indonesia. Therefore, the international community still ranked Indonesia in the last place on the implementation of GCG as what has been done by Standard & Poor, CLSA, Pricewaterhouse Coopers, Moody`s Morgan, and Calper`s. The evaluation made by Pricewaterhouse Coopers that was placed in the Report on Institutional investor Survey (2002) placed Indonesia in the last rank together with China and India with score 1.96 for its transparency and openness. However, according to survey, if it was seen from the availability of investor to give premium to the price of its shares for public companies in Indonesia, the survey in 2002 showed improvement compare to the result in 2000. This showed the perspective of investors about the risk of not implementing GCG is getting better.

Through Corporate Governance Perception Index (CGPI), they were able to rank companies in Indonesia for its GCG implementation through researches planned in order to boost the quality in implementing the GCG concept, which can be done thorough continuous improvement by conducting evaluation and benchmarking. The Indonesian Institute created CGPI for Corporate Governance (IICG) together with SWA magazine. The program has been existed since 2001 until present, in which since 2001-2011 there were many participants, such as public companies, BUMN, BUMD, Banking, and BUMS. The participation for GCPI is voluntary, which involves active roles for the companies along with its stakeholders in order to help fulfill the program implementation. GCGI will force companies that participate to make a revision or improvement in the implementation of GCG practices in its surroundings.

2. How is the regulation of good corporate governance that applies in Indonesia Answer: In implementing GCG in Indonesia, stakeholders play an important role. The Komite Nasional Kebijakan Corporate Governance that was schedule in 2005 has been changed to Komite Nasional Kebijakan Governance. It has issued and published GCG guidelines on March 2001. Those guidelines are then followed by the issuance of GCG guidelines for banking in Indonesia, Guidelines for Audit Committee, and Guidelines for Independent Directors in 2004. All of these publications are needed to give reference in implementing the GCG. The government also undertakes special efforts hand in hand with the business community in promoting and implementing good corporate governance. Two important sectors, which are BUMN and the Capital Market, has been a concern of government. A new aspect in the implementation of GCG in BUMN is an obligation to have a statement of corporate intent (SCI). SCI is essential to the company's commitment to shareholders in the form of a contract that emphasizes the strategies and efforts backed by management and the board of commissioners in managing the company. Capital markets also need to apply the principles of good corporate governance for listed companies. It is shown through various regulations issued by the Jakarta Stock Exchange (JSE), which states that all listed companies must implement GCG. GCG implementation is intended for improving the protection of the interests of investors, especially shareholders in listed companies. In addition, the implementation of GCG will encourage the growth mechanism of checks and balances in the management environment, especially in paying attention to the interests of shareholders and other stakeholders. This is related to the role of the controlling shareholders who appoint commissioners and directors authorized, and can influence company policy. In addition to the protection of investors, the regulation requires that systems that ensure transparency and accountability in business transactions between companies in a group that could potentially cause a conflict of interest. Excitement for public approval in the transaction is a form of application of the principle of accountability. The introduction of independent commissioners, audit committee, and secretary of the company is also the focus of the JSE regulations. Independence of the commissioners intended to ensure that an independent commissioner has no affiliation with the shareholders, the directors and the commissioner was not served on the board of directors affiliated companies, and understand the various modes of market regulation. While associated with the obligation to have an independent director, the two tier system that we have adopted, it will be more effective when the exchanges require companies to have a nomination and remuneration committees. The guidelines aim is to improving the quality of disclosure of public enterprises. These guidelines are the result of a collaboration between the JSE, IAI, AEI, and Bapepam. Recent developments in the capital markets is the submission deadline for the annual report 90 days after closing, shorter than the 120 days prior regulation. This was the indication of the consistency of regulatory enforcement GCG by Bapepam.

3. How about the implementation of good corporate governance in BUMN Indonesia? Answer: During a working meeting with the House of Representatives May 19, 2005, the Minister of BUMN reported allegations of corruption at 16 BUMN. This is an indication of widespread corruption GCG has not been implemented properly. Good corporate governance in the Indonesian company worst than other Asean member countries. Some of the barriers and problems of corporate governance in BUMN, among others, is the lack of awareness of the benefits of good corporate governance for corporate stakeholders, held just a formality, efforts to eliminate the practice of corruption is not maximized, and the board of directors, commissioners and GMS is not yet committed to implement GCG. At the BUMN nonpublic generally no independent directors. BUMN commissioners actually a lot coming from an active state officials, such as the director-general in the technical department, or a deputy minister or minister of specialized staff. As a result, labor commissioner could not optimal. Generally, the BUMN that have not gone public, which formed a new committee of the audit committee. Rose less than optimal. They only work part-time, often only comes once a month. The time allocated to general limited company, compensation is still relatively low. Company's internal control system tendency is not running optimally. Standard Operational Procedure (SOP) is often violated, the result is the frequent occurrence of cases of irregularities. Internal Audit Unit (IAU) less empowered. Low quality of human resources, Internal control unit functions dwarfed by the board of directors. Based on the observations, in general fraud (fraud) that often occurs at BUMN al: Inflation value or cost of the project, fictitious expenses, split the project to avoid the tender rules, gathering tenders where the tender is only a formality before the tender was no winner (surrogate directors). Board of Directors shall be glad if there is the procurement of goods and services such as the purchase of land, construction of buildings, land sales and sales office / home, procurement of computer / IT, IT or HR consultant appointment, procurement of equipment simulator pilot, plane and boat rental, boat sales and so on . These are all potential sources of corruption. In general, the external auditors during the audit generally rarely find large deviations. This is due to the general purpose is the provision of audit opinions accountant. Unlike the special audit (special audits) which aim to obtain the discovery that there were irregularities examined. To prevent distortion of material should be considered a performance audit (performance audit) BUMN every two years by an established public accounting firm and a special audit by BPK once a year, in addition to a general audit.

References:
http://www.bumn.go.id/16433/publikasi/berita/implementasi-gcg-di-bumnmasih-hadapi-banyak-kendala/ http://www.lmfeui.com/data/Peraturan%20Menteri%20BUMN%20No.%20PE R-01-MBU-2011.pdf Journal Ilmiah Mahasiswa Universitas Surabaya Vol.2 No.1 (2013) Good Corporate Governance dan Penerapannya di Indonesia, by Thomas S. Kaihatu Staf Pengajar Fakultas Ekonomi, Universitas Kristen Petra Surabaya Corporate Governance Perception Index