Awareness of GCG improves, but lacks public support

Awareness of GCG improves, but lacks public support

Sudibyo M. Wiradji The Jakarta Post Jakarta

The implementation of good corporate governance (GCG) practices in Indonesia has shown positive progress since its introduction five years ago, despite the lack of support from the government and the general public.

According to the National Committee for Corporate Governance (NCCG), a number of GCG principles have now become mandatory for publicly listed companies.

"When it was introduced here in 1998, GCG was conceived only as 'knowledge', but now many companies have applied GCG principles in their business practices," NCCG chairman Nyoman Tjager said.

The former senior official of the Capital Market Supervisory Agency (Bapepam) said that all public companies were obliged to adopt GCG principles through a regulatory approach.

Among the mandatory GCG practices for public companies are the appointment of an independent commissioner, an independent director and an auditing committee.

"Almost all of the companies listed on the local stock exchanges have appointed an independent commissioner to their supervisory board since the introduction of the GCG principles in Indonesia," Nyoman added.

The GCG principles are generally defined as a set of rules that define the relationship between shareholders, managers, creditors, the government, employees and other internal and external stakeholders in regards their rights and responsibilities.

These principles guarantee the rights of shareholders; the equitable treatment of shareholders; the role of stakeholders; the timely and transparent delivery of information on all matters material to company performance, ownership and stakeholders, as well as the responsibilities of the board and management; the supervision of the management and the accountability to the company and shareholders.

Applying GCG practices have long-term benefits for companies, such as easier access in raising capital, a lower cost of capital, improved business performance and a good impact on share prices.

In Indonesia, the GCG concepts were introduced in 1998 at the peak of the country's economic crisis. Poor GCG practices and widespread corruption in the government partly contributed to the economic crisis.

Nyoman said the government has also required state-owned companies to apply the GCG concept to their activities, especially those principles related to transparency and supervision.

"Based on a recent assessment conducted on 16 state-owned companies, it can be concluded that there is a growing awareness among state company executives about the benefits of applying GCG principles," he said.

Nyoman, who is now a senior official at the office of the state minister of state enterprises, said that NCCG had produced the Code for Good Corporate Governance in Indonesia.

He acknowledged that the lack of government and public support impeded the flourishing of GCG in Indonesia, for example, as seen in the existence of red tape at government offices.

He said GCG should run parallel to public governance in the sense that each party in the public sector should also perform its role, function and task according to good governance.

In the context of regional authority, for instance, local regents, governors and mayors should support companies wishing to operate a business in their areas by simplifying the bureaucratic procedure. "In return, the company concerned should also conduct community development activities," he said.

Executive director of the Indonesian Institute for Corporate Governance (IICG) Dadi Krismantono shared Nyoman Tjager's views, saying that the companies' full commitment to implementing a GCG system would rely heavily on the macro-environment and thus, also required the government to apply good governance.

Implementing a GCG system cannot be separated from the environment where companies operate. "How can a company implement a GCG system properly when the macro-sector is not conducive to the system," he said.

The widespread red tape at the government level, for instance, has caused many companies to doubt whether they could adopt the GCG principles in their business practices, he said.

At the regulatory level, for instance, many public companies have questioned Bapepam's lack of consistency regarding the sanctions it imposed on public companies found to be in violation of the regulation.

It is thus unfair to blame companies for not fully implementing a GCG system in their businesses. "Both the companies and the government should apply governance," he said.

The latest survey on GCG ratings by the Indonesian Institute for Good Corporate Governance (IICG) disclosed that only a few public companies that implement GCG were fully aware about the benefits of GCG.

"Most public companies implement the GCG because they are obliged to do so," he said.