Good Corporate Governance

Good Corporate Governance

A.B. Susanto, Managing Partner, The Jakarta Consulting Group

The Enron scandal has caught the whole world by surprise. So,
it would appear, such scandals can still happen in developed
country like the United States.

The White House has become the center of public attention for
its alleged role in the financial fiasco. The same goes for the
highly prestigious international rating agency Standard & Poor's,
and the company's own auditor Anderson, which both failed to
detect the irregularities.

In Indonesia, the reform drive has opened our eyes to the fact
that many aspects of corporate governance have been implemented
without transparency. As a consequence, many companies have
incurred serious financial problems causing the state to shoulder
a burden of billions of rupiah in its state budget.

This is why good corporate governance is a must for
corporations -- blunders in managing a business entity will harm
not only the shareholders but also the public and the state as
stakeholders.

Basically, corporate governance deals with an improvement in
corporate performance through supervision or monitoring of
managerial performance, and at the same time it is needed to
ensure management accountability to both shareholders and
stakeholders.

Good corporate governance also constitutes an effort to
motivate the management to improve effectiveness and to control
its behavior so that it works for the interests of shareholders
and stakeholders.

In general, the concept covers four basic principles, namely
fairness, transparency, accountability and responsibility. In
essence, corporate governance is the process and structure of
various activities designed to ensure that corporate performance
matches what stakeholders expect.

In practice, corporate governance focuses on issues related to
accountability even though various other aspects that can further
corporate achievement should also be taken into account in terms
of their implementation. It is also important to maintain
harmony between corporate objectives and the purpose of
accountability.

Among the variety of mechanisms that can be developed to
support the creation of good corporate governance are:
* Executive remuneration. There is an assumption that the
remuneration paid to an executive correlates to his performance.
* Audit Committee. This committee is an independent body which is
expected to give input to the corporate council in monitoring
corporate progress.
* Internal Control. Corporate management should have a direct
controlling instrument to monitor various important developments
in the company so that various early warning signals about
corporate conditions can be quickly responded to.
* Shareholders/investors, particularly the institutional ones,
have a major interest in managing the company, a reason why they
pay close attention to the company's development.

Last but not least, here is a message to ponder:"To make Good
Corporate Governance work, namely to make Corporate Directors
behave in the interests of the stakeholders/shareholders, we have
to give them authority to develop the organization while treating
them with all due respect."