Commissioners' accountability
The controversy over the two substantially different audited financial reports of publicly listed Bank Lippo for the third quarter of 2002 is once again raising big questions about the government's practice of using positions on the boards of commissioners of state companies primarily as an additional source of income for senior officials.
Bank Lippo, which is 60 percent owned by the government, could not have made such a big mistake if the bank's commissioners had taken their responsibilities seriously and properly supervised the management.
Issuing an audited financial report in November with Rp 98 billion in net income, but then publicizing another audited report for the same period in December with Rp 1.3 trillion in net losses in its books, as Bank Lippo did, was truly a massive failure in corporate governance.
Disseminating misleading information on a publicly traded company, let alone a bank with fiduciary responsibility, is a crime because financial reporting has a major effect on the way the economic game is played and is also the cornerstone on which the market discipline rests.
It is precisely because high quality financial reporting is so essential for the efficiency and stability of the financial market that publicly traded companies, especially banks, have been subject to tough disclosure requirements.
As it so happens, the government's representatives on Bank Lippo's board of commissioners are among the busiest officials in town. Syafruddin Tumenggung is the chairman of the Indonesian Bank Restructuring Agency (IBRA), one of the most important instruments in managing the economic crisis. He has been preoccupied with massive loan restructuring and asset disposals ahead of the end of IBRA's mandate next February.
Anggito Abimayu, a special assistant to the finance minister, and Hadiah Herawati, an assistant to the chief economics minister, are unquestionably highly capable persons in financial matters, but they have been similarly overloaded with job assignments from their respective bosses, who also happen to be the busiest members of the Cabinet.
Why were these super busy officials still on Bank Lippo's board of commissioners? Has the stock of capable and honest financial experts run so low?
We think the level of compensation awarded to company commissioners is high enough to attract many highly competent and honest professionals from the private sector to fill the positions.
One cannot help but see the additional assignment of busy officials to the boards of commissioners of state companies mainly as a means of giving low paid, yet highly capable and dedicated, officials an additional source of income. This practice has been going on since the late 1960s.
There are many other officials from the finance ministry, the office of the chief economics minister and IBRA who sit on the boards of commissioners of state companies. The officials are highly capable professionals who actually deserve compensation that is 10 to 20 times their official pay standard. But their ministerial bosses are not able to discriminately raise their pay levels above the compensation standard for the civil service.
But such casual manners in treating positions on the board of commissioners could endanger the company as the management virtually has a blank check to run things without proper oversight. And the consequences could be quite devastating, especially if the company is a bank like Bank Lippo, which raises funds from the public, is listed on the Jakarta Stock Exchange and is partly owned by the investing public.
Companies Act No.1/1995 accords the board of commissioners a very important function and role, stipulating that commissioners shall supervise the management (board of directors) to ensure that the directors are held to strict codes of conduct and that commissioners shall execute their jobs with a high sense of goodwill and responsibility for the company's best interests.
But how could the three government commissioners at Bank Lippo perform well when they had been so overwhelmingly preoccupied with their primary jobs? How could they have possibly detected and prevented fraud or other wrongdoings at Bank Lippo?
We should allow investigations by the stock market watchdog, Bank Indonesia and IBRA, as the nominee government shareholders, to ascertain as to whether there had been a criminal conspiracy or collusive deals behind the two substantially different audited financial reports.
But even without criminal intent, such a massive failure in corporate governance as the one that took place at Bank Lippo could recur or take place at other state ccompanies if the government continues to use positions on the boards of commissioners mainly as additional sources of income for its low paid officials.