Ineffective supervision

Ineffective supervision

The commentaries appearing in the media on the crisis relating
to the liquidation of a great number of banks reveals that there
is a latent deficiency in the supervision system within the
Indonesian corporation structure that was disregarded which
subsequently caused the revocation of the banks' licenses by the
government.

Much has been said on the subject, but the discussions have
predominantly dealt with the macroeconomic and monetary aspects
of the problem. Aside from the external factors, it is obvious
that the internal problem regarding the supervisory deficiencies
within the Indonesian corporation structure is commonly ignored.

The crucial deficiency within the Indonesian corporate system
lies in the blatant ineffectiveness of the supervisory functions
that are supposed to be performed by the board of commissioners
(dewan komisaris) over a company's board of directors.

Articles of association stipulate that approval is needed from
the board of commissioners for specific transactions involving
large disbursements and investments. But such approval by the
board of commissioners, as required by law, tends to be
disregarded, perhaps for practical reasons. The risk that such
anomalies may give rise to disputes in lawsuits is brushed aside.

In comparison, the Japanese corporate supervisory system, as
exercised by the kansa-yaku, over the business operations boards
of directors, may be worthwhile to consider.

The Indonesian komisaris is in Japanese translated into kansa-
yaku -- but "auditor" is a more proper translation of Kansa-yaku.

The supervisory powers in the Japanese corporation system are
concerned with auditing and the supervision over the execution of
business operations by the board of directors.

It may be admitted that as long as human beings essentially
remain to operate whatever system that may exist, fraudulent
malpractice will remain. Nonetheless, such eventualities must be
regarded as exceptional cases to the expected rule of an
effective and workable system.

It's a pity that the present system of the board of
commissioners in the Indonesian corporation structure tends to
degenerate into a pro forma institution of prestige rather than
accomplishing its role as an effective supervisory body, so as to
live up to the law and the demands of times.

With a view to the 21st century, we are glad to hear that
mergers of banks will take place, so that only healthy banks will
serve the people. Nevertheless, there still remains a need to
create a workable and effective supervisory system within the
Indonesian corporation structure.

SAM SUHAEDI

Jakarta