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