Good governance key to business success

The government is calling on Indonesian companies to continuously strive for good corporate governance, as the principle will help them maintain their performance and survive the ongoing economic turbulence.

In his opening remarks at the 2015 Annual Report Awards on Tuesday, Coordinating Economic Minister Darmin Nasution said there were three main lines of defense in good corporate governance: a company’s internal management, public accountants and regulators.

“So, first things first, a company’s internal management needs to maintain a good governance structure,” Darmin said. “Then, if those three lines of defense have been knocked down, law enforcers need to intervene. There’s no other way.”

According to the World Bank, corporate governance is described as a set of rules, standards and organizational concepts in economics that regulate the behavior of a company, directors and managers.

The implementation of good corporate governance, Darmin said, would also help companies to adapt to the changing landscape of market competition, in which many start-up companies have emerged and disrupted existing business models.

Poor corporate governance practices implemented by Indonesian companies are alleged to have exacerbated the impacts of the 1997/1998 Asian financial crisis on Indonesia.

This then prompted regulators to collaborate with the private sector to strengthen the regulatory and corporate governance framework in the country.

The Financial Services Authority (OJK), in cooperation with the International Finance Corporation (IFC), launched in early 2014 the good corporate governance roadmap and manual.

According to the roadmap, there are five core components that need to be addressed by firms namely, corporate governance framework, shareholder protection, stakeholder roles, transparency of information as well as the roles and responsibilities of the board of commissioners and board of directors.

However, presently, the implementation of good corporate governance in Indonesian corporations is still far behind other ASEAN countries. Among 50 companies receiving the 2014 ASEAN Corporate Governance Awards in Manila last year, only two companies were from Indonesia, namely publicly listed lenders CIMB Niaga and Bank Danamon.

Based on the ASEAN corporate governance scorecard, Thailand leads the way with 23 companies in the top 50, followed by the Philippines with 11 in the top 50, Singapore with eight and Malaysia with six.

Therefore, OJK capital market supervision director Nurhaida urged all companies to improve their governance to boost efficiency and eventually benefit the country’s economy.

As part of the effort to improve good corporate governance practices in the country, the OJK, along with other financial institutions including the Indonesia Stock Exchange (IDX) and Bank Indonesia, has held the Annual Report Awards every year since 2002.

This year, 303 companies joined the event, seeing an increase from 84 participants in its first staging. Among winners from 11 categories were Indonesia’s biggest mortgage lender Bank Tabungan Negara (BTN), toll road operator Jasa Marga, private lender Bank Nusantara Parahyangan and integrated energy company ABM Investama.

However, the increasing number of participants was not in line with the improvement of those companies’ governance quality, said former Development Finance Comptroller chief Sudaryono, who served on the presiding jury for the award. “The average total points received by all participants was slightly down compared to last year,” he said.

Source: Jakarta Post. Date: September 29, 2016