Transparency and corporate governance in RI<\/p>\n
This is the second of two articles by Mark Baird, the World
\nBank's country director, based on a presentation on April 25 at
\nthe conference on freedom of economic information, held here
\namong others by the LP3ES research group in cooperation with the
\nWashington-based Center for International Private Enterprise.<\/p>\n
JAKARTA: The underlying condition of the Indonesian corporate
\nand financial sectors at the onset of the crisis is well-known:
\nbanks were exposed to excessive levels of unhedged foreign debt;
\ncredit allocation by banks to companies showed little regard for
\nfuture debt servicing; companies were highly leveraged, with
\nsubstantial unhedged short-term foreign debt; and profitability
\nwas low.<\/p>\n
External discipline through competition was muted by entry
\nbarriers and legal monopolies, and the threat of hostile
\ntakeovers of under-performing companies was minimal in the face
\nof strongly entrenched insiders.<\/p>\n
Poor corporate governance was a major contributor to this
\nstate of affairs and in Indonesia has had the following
\ncharacteristics:<\/p>\n
* Corporate governance has been seen primarily as a compliance
\nissue rather than a means of enhancing corporate performance.<\/p>\n
* In common with many other parts of Asia, Indonesian
\ncorporates are predominantly family-owned, even when publicly
\nlisted.<\/p>\n
* Fraud and insider transactions have been common, disclosure
\nhas been weak and the disclosure and disciplinary mechanisms of
\nthe capital market have been ineffective.<\/p>\n
* Minority shareholders and other stakeholders have had few
\nmeans of protecting themselves against majority shareholder
\nabuses. Although mechanisms for addressing abuses do exist in
\nIndonesian Law they are little used and the weak judiciary has
\nlimited their effectiveness.<\/p>\n
* Managers and directors have been largely immune from
\nstakeholder accountability.<\/p>\n
* Banks have been ineffective monitors of corporate managers.<\/p>\n
* A weak bankruptcy and judicial system has left creditors
\nwith little leverage over their debtors.<\/p>\n
* State enterprises have been subject to significant
\nintervention by government in business decisions, and SOE
\nperformance monitoring has been almost non-existent.<\/p>\n
* The role of the regulators, the Capital Market Supervisory
\nAgency (BAPEPAM) and the JSX has not been strong enough to
\ncompensate for the weak judiciary .<\/p>\n
There have been recent positive steps to begin dealing with
\nthese weaknesses:<\/p>\n
* A number of private business organizations and non-
\ngovernment organizations such as the Indonesia Netherlands
\nAssociation and Transparency International have begun initiatives
\nto support improved transparency and corporate governance.<\/p>\n
* A broadly based National Committee on Corporate Governance
\n(NCCG) was created in late 1999. This committee comprises some 20
\nmembers from the public and private sectors representing the
\nlegal and accounting professions, the banks, state owned
\nenterprises, private corporates, the Stock Exchange and important
\nGovernment agencies such as BAPEPAM and the Ministry of Law and
\nLegislation.<\/p>\n
* The NCCG has produced a draft of a Code of Good Corporate
\nGovernance that addresses issues such as shareholders rights and
\nresponsibilities, the functions and composition of the Boards of
\nCommissioners and the Boards of Directors, internal and external
\naudit, the role of the corporate secretary, stakeholder rights
\nand stakeholder participation and monitoring of management
\ndecisions, timely detailed and accurate disclosure of management
\nand financial information.<\/p>\n
It also addresses confidentiality of information that can
\naffect share prices if it is leaked before it is officially made
\npublic, and restrictions on the use of inside information for
\npersonal gain.<\/p>\n
Corporate governance reform in Indonesia is still in its
\ninfancy and much remains to be done. It will be years before the
\nnecessary reforms are fully effective but there are some quick
\nwins to be made and a need now for immediate action to get the
\nball rolling so that it can gain momentum.<\/p>\n
Firstly urgent measures are needed to improve the business
\nenvironment in general, not only for large corporates but also
\nfor small and medium enterprises that have the potential to be a
\nmajor productive force in the economy as well as major sources of
\nemployment and income. These measures include:<\/p>\n
* Promote better competition and create the new competition
\nagency provided for in the 1999 Law on Competition.<\/p>\n
* Start taking steps to reduce the burden of excessive
\ngovernment regulation, with its associated burden of corruption,
\non the business sector.<\/p>\n
* Strengthen the rule of law and the judicial system, in
\nparticular the commercial court as it affects the insolvency and
\nbankruptcy mechanisms, property rights and contract enforcement.<\/p>\n
* Accelerate banking and corporate restructuring, especially
\nby means of debt equity conversions. An important effect of this
\nwill be to dilute the concentration of corporate ownership and
\nbring fresh management into the banking and corporate sectors.<\/p>\n
Some specific measures needed to improve corporate governance
\ninclude:<\/p>\n
* Improve the requirements and the frequency of disclosure and
\npublication of financial information to bring them into line with
\nbest international practice, especially from listed companies,
\nbanks and other companies raising money from the public.<\/p>\n
* Improve disclosure of related party transactions and improve
\nrules and enforcement against the use of inside information.<\/p>\n
* Improve standards of accounting and audit in line with
\ninternational norms and provide more training for accountants and
\nauditors.<\/p>\n
* Strengthen rules governing the responsibilities and
\naccountabilities of supervisory boards, boards of directors and
\ninternal and external auditors.<\/p>\n
* Improve the quality of supervisory boards and boards of
\ndirectors by increasing the required minimum number of outsiders
\non these boards, set criteria for the selection of commissioners
\nand directors, and provide them with training as needed.<\/p>\n
* Strengthen all aspects of BAPEPAM but especially its
\ncapacity to monitor and enforce compliance with rules on public
\ndisclosure.<\/p>\n
* Fully implement the company registry, train its
\nadministrators, publicize its availability and provide training
\nin its use.<\/p>\n
* Strengthen minority shareholder rights by improving rules on
\nlisting and securities transfer.<\/p>\n
Next steps would include:<\/p>\n
* Explore the potential for the use of the public\/private
\nNational Committee on Corporate Governance (NCCG) as a forum for
\nall major stakeholders to discuss and plan corporate governance
\nreforms.<\/p>\n
* A first step by the NCCG should be to work to develop a real
\nconsensus among its members around its recently drafted Code on
\nGood Corporate Governance.<\/p>\n
* Government should move rapidly to implement the measures
\nwithin its own control, such as improving existing regulations,
\nimplementing new regulations, and strengthening public
\ninstitutions such as BAPEPAM, responsible for encouraging and
\nenforcing good corporate governance.<\/p>\n
* Private initiatives and self regulation should also be
\nencouraged. A good example is the recently announced corporate
\ngovernance agreement between the Indonesia Netherlands
\nAssociation and a number of Indonesian professional associations
\nand self-regulatory organizations. KADIN has also announced a
\ncampaign to promote improved corporate governance among its
\nmembers.<\/p>\n
* There is a need for broad programs using the media as well
\nas public meetings, conferences and seminars to develop public
\nawareness of the need for transparency and improvement in the
\ngovernance structures and mechanisms of the banking and corporate
\nsectors. The message is that better corporate governance and
\ntransparency can bring benefits to all; the general population,
\ncustomers, suppliers, employees, investors, shareholders and
\nmanagement alike.<\/p>\n
* Shareholder activism should be encouraged as a means of
\nenforcing good governance on public corporations. Such activism
\nhas been a major driving force for change in the United States
\nand elsewhere.<\/p>\n
* Non-government organizations and other \"watchdogs\" should be
\nencouraged to act as pressure groups for reform.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/transparency-and-corporate-governance-in-ri-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}