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)