RI urged to implement good corporate governance
RI urged to implement good corporate governance
Johannes Simbolon, The Jakarta Post, Sydney
Australian experts have called on the Indonesian government
and public to exert greater pressure on the country's business
community to implement good corporate governance, noting that
good corporate governance would strengthen the nation's economy
and make it better prepared to face any crisis in the future.
The government should issue rules obligating Indonesian firms
to implement good corporate governance, while the public should
actively watch over the firms to ensure they follow the rules,
Australian Institute of Company Directors CEO John A. Hall and
Australian Shareholders' Association Ltd. director Stephen W.
Matthews said.
They were speaking during recent discussions with Indonesian
journalists participating in the AusAid-funded business
journalism program organized by the Indonesia-Australia
Specialized Training Program.
Hall noted good corporate governance had become a key issue
today following the accounting scandals that hit a number of
giant companies in the world, including Enron and Worldcom in the
United States and HIH in Australia. The corporate scandals have
hurt public confidence in corporations worldwide and affected the
global economy.
Following the scandals, calls have been mounting globally on
the business communities to have better good corporate governance
and on governments worldwide to strengthen regulations to push
companies in their respective countries to implement good
corporate governance.
The key point in good corporate governance is "disclosure",
which means corporate management should be transparent about
their decisions and activities that will affect the interests of
shareholders.
As far as Indonesia is concerned, Hall suggested the
government first focus on the implementation of good corporate
governance in state-owned enterprises and publicly listed firms
because the collapses of the firms could have a big impact on the
nation's economy.
The government could use the OECD Asian good corporate
governance standards as a guideline.
"I encourage the Indonesian government to oblige all state-
owned enterprises to comply with the guidelines set by the OECD.
That will send a powerful message to publicly listed firms. And
this will also enable the public to pressure the firms to follow
suit," Hall said.
The Organization for Economic Cooperation Development, which
groups dozens of developed countries, together with the World
Bank has organized five annual roundtable meetings since 1999 in
Asia to formulate good corporate governance standards for
implementation in the region. The last roundtable discussion was
held in Kuala Lumpur at the end of last march.
Based on the results of the roundtable discussions, the OECD
will release a White Paper on Corporate Governance in Asia on
June 11 this year, according to the agency in its website.
Separately, Matthews stressed the important role played by
shareholders to pressure publicly listed companies to implement
good corporate governance. Shareholders should keep monitoring
all the activities and decisions taken by the companies'
management to prevent them from making shady deals or issuing
"misleading" reports.
In Australia, for instance, Matthews said, the monitoring is
carried out by the Australian Shareholders' Association, which
now has 7,300 retail investor members. Each member pays A$75 per
year to finance the activities of the association's staff, who
are all skilled to examine the financial statements issued by
publicly-listed companies, which are often complicated and
teeming with technical terms beyond the grasp of many retail
shareholders.
Matthews warned that publicly listed companies often
deliberately "beautify" their financial reports to hide their
losses or mismanagement.
Because of this, the association always send their staff to
attend shareholders' meeting of publicly listed companies to warn
the companies' management against issuing misleading financial
statements. It also regularly makes analysis on the balance sheet
of publicly listed companies and send them to its members via its
website and newsletter to help them in making decision whether to
buy or sell certain shares.
Matthews claimed that his organization had played a role in
pushing publicly listed companies in Australia to implement good
corporate governance.
Matthews said such an organization could also be established
in Indonesia and would make a big contribution to development of
good corporate governance in Indonesia.
"The Australian Shareholders Association stands ready to
assist (Indonesia in establishing a similar organization) in any
way it can," Matthews said.
Key Points in OECD's White Paper on Asia Corporate
Governance
1. Protection of minority shareholders: The prevalence of closely
controlled businesses in Asia places minority shareholders at
risk of exploitation. Such exploitation occurs when controlling
shareholders and managers strip assets from the company through
abusive self-dealing, pay themselves excessive compensation,
engage in insider trading or act in their own interests to the
detriment of the company.
2. Bank governance plays a three-fold role in corporate
governance. The continuing need for equity capital often drives
good corporate governance since a company's track record with
equity investors greatly determines its ability to raise
additional public equity. Second, effective monitoring by lenders
helps prevent borrowers from abusing their funds. Finally, good
bank governance increases returns to the banks' own shareholders
and promote financial-system stability.
3. Audit and accounting standards and practices should take into
account international norms including auditor independence,
quality assurance, codes of ethics and continuing professional
education.
4. Boards of directors must improve their participation in
strategic planning, monitoring of internal control systems and
independent reviews of transactions involving managers,
controlling shareholders and other insiders.