What lies ahead for the CEO

What lies ahead for the CEO

By Bob Widyahartono

JAKARTA (JP): With the growing interdependence of nations and
wave upon wave of change and innovation, more enterprises are
being compelled to find ways and means of coping with the impact
on social values and industrial structure.

The chief executive's primary responsibility is to redesign
and implement strategies upon which the success of the firm
depends.

Because strategy and technology have become dynamically
interrelated, the chief executive officer (CEO) of the future
will have to foresee the implications of technological
development and make fateful, strategic choices on which
technological course to pursue. He or she will be able to do this
only through direct involvement with the problems of the firm,
and a grasp of leading-edge research.

The corporate leader of the next decade must also understand
and accurately interpret the rapid changing business environment.
Having the competence to create strategic plans, the CEO must be
able to inspire top executives with certainty that with teamwork,
corporate goals -- embodied in the CEO's own vision of the
company's future -- can be realized.

World trade has grown faster than world output, foreign direct
investment has surged, imports have penetrated more deeply into
industrial nations, and remain challenging. Quite a number of
enterprises have been successful, particularly medium and small
scale enterprises, in going global.

This success has been partially enabled by the courage to
innovate through creative application of new technologies and
ways of doing business. And in this age of creativity and
innovation, the safe route could even jeopardize corporate
sustainability.

On the other hand many conglomerates have experienced abnormal
growth. But that growth has been mostly "blown up", enjoying
improper protection as a result of unhealthy connections with
government elite. They conglomerates were hit hard by the crisis
and many have been taken over by the government.

Moreover most of those businesses are family businesses, where
the board of directors, management staff and other important key
positions were chosen mainly because they are trustworthy in the
eyes of the owner, trusted not to leak confidential information
to outsiders.

The current financial crisis highlights the dangers weak
corporate governance can pose to sustainable economic development
in an era of globalization. Weak standards of corporate
governance played a role in creating the crisis as a result of
poor reporting of financial performance and credit obligations.

Many conglomerate owners do not even understand or pretend not
to comprehend what "good corporate governance" or professional
management audit is.

Corporate governance is understood and defined as the
relationship between a firm's ownership and management. The
relationships and duties of the board of directors and management
relate to shareholders. Corporate governance is inward as well as
outward responsibility.

Effective corporate governance establishes a system of checks
and balances over the control of a firm -- and therefore chances
of mismanagement and misuse of corporate assets can be reduced.

Even senior managers are often unaware and uncaring of core
principles of corporate governance, which cover four critical
areas:
1. Fairness for minority shareholders in protecting against fraud
and insider trading of shares;
2. Transparency through improved disclosure of accurate and
timely information on a firm's performance;
3. Accountability of management through effective "checks and
balances" among the board of directors, managers, shareholders
and professional auditors;
4. Responsibility of the firm as a member of society to abide by
the laws, and act with recognition of public needs, known as
"owners responsiveness."

Most Indonesian businesses, whether large, medium or small
scale in whatever sector, are family businesses and are only
extended to involve non-family professionals for functions where
family members are not competent. In such situations, good
corporate governance is never practiced.

For Indonesian businesses, deregulation and opening-up in the
real sector is still in the initial stage. Merits of
privatization include cost and price reduction, increased
efficiency with better business performance, improved services,
increased customer satisfaction, and augmented government
revenues.

As a member of the World Trade Organization, Indonesia has
reaffirmed that all steps in the direction of regional
liberalization will be consistent with the goals of the WTO. This
should provide "powerful impetus" for further multilateral
liberalization.

Consequently a new ideology is emerging which affects almost
every nation, including Indonesia -- the retreat of the state
from direct intervention in the economy. This trend will promote
privatization and eventually reduce state monopolies.

Deregulation in the real sector will be accomplished over
time. There is no easy way to manage this, since vested interests
are entrenched and will resist change.

The business sector will increasingly become an agent of
change, while the government will be limited to coaching and
acting as umpire in economic development, even more so with the
new law on regional autonomy.

But do we have independent competent private enterprises at
least of medium scale in the regions, particularly outside Java
and Sumatra, and not merely as branches of their headquarters in
Jakarta?

In this environment the Indonesian business world will have to
undergo fundamental transformation. The changes will not be
beneficial for all parties: knowing which change to make will
separate the winners from the losers. Lessons can be learned from
the many medium and small scale businesses which have survived
the ordeal.

The writer is an economist and senior lecturer at the Faculty
of Economics, Trisakti University in Jakarta.