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.