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.