RI worst in 'corporate governance': Survey

RI worst in 'corporate governance': Survey

AKARTA (JP): Indonesia has been rated as practicing the worst
quality of corporate governance among six Asian countries,
according to a survey by an international consulting firm.

McKinsey & Company's Investor Opinion Survey for Asia, which
was officially released here on Monday, said that Indonesia
scored 1.1 points on the one-to-five point scale, where five
points mean "very good" and one point means "very poor."

"The survey asked 250 global investors from the U.S., Asia,
Europe and others to rate the corporate governance practices in
six Asian countries, including Indonesia," Robert F. Felton, an
executive from McKinsey & Company told reporters.

Out of those global investors being surveyed, 40 percent are
from the U.S., 30 percent from Europe and the remaining 30
percent from Asia and other nations, according to Felton.

The six Asian countries being the object of the survey are
Indonesia with 1.1 points result, Malaysia (1.5 points), Thailand
(1.7 points), Korea (2.0 points), Taiwan (2.5 points) and Japan
(2.6 points).

Felton said the survey also asked whether the 250 global
investors were willing to pay a premium in purchasing certain
corporate shares in the countries for better corporate
governance.

"Our survey indicates that investors are willing to pay, on
average, a 27 percent premium for well-governed companies in
Indonesia," Felton said.

In the survey, investors are provided with a choice of two
companies that have the same financial performance, but differ in
board governance, one with 'good' governance and the other with
'poor' governance, according to Felton.

Then they were asked whether they would be willing to pay more
for the company with the 'good' governance, and if they said yes,
they were then asked to estimate what percentage premium they
would be willing to pay for that company, Felton added.

Felton said that almost 100 percent of the respondents
answered that they would pay more for the good governance company
and for the case of Indonesia they said a 27 percent premium, on
average, was appropriate.

Felton also said that corporate governance was about
international accounting and auditing standards, shareholder
rights and competition policy of companies.

"Internally, it refers to the checks and balances of power and
decision-making within a company -- particularly between
management, shareholders and increasingly, employees and other
stakeholders," Felton said.

He said that corporate governance in Indonesia was still in
its infancy and there were still much to be done.

"It will be years before the necessary reforms are fully
effective but there are some quick wins to be made," he added.

W.T. Wright, a lawyer from the Canadian-based mutual fund
Investors Group added the Indonesian capital market particularly
needed to have better minority shareholder rights and a stronger
regulatory system overall.

"These are important to attract more foreign investors to come
here," he said.

He added that his company had between US$10 million and $15
million invested, or less than 1 percent of its total portfolio
in the Indonesian equity market. (udi)