CHAPTER I

INTRODUCTION

1.1 Research Background

Governance is a new paradigm in governance management. There
are three pillars of governance, namely government, private sector and
society. Meanwhile, the government management paradigm that
previously developed was government as the only organizer of
government. In the early 1900s, a meeting of donor countries was held, led
by the World Bank. This meeting, later became known as the "Washington
Consensus". During the meeting it was revealed that a lot of foreign aid
was leaked due to bad governance practices (government that is not
accountable, not transparent, abuse of authority, corruption, etc.).
Therefore, it was agreed that recipients of assistance should be given
conditionality, namely the willingness to practice good governance
(openness, democracy, checks and balance, etc.). So, since the mid-1900s,
foreign aid was accompanied by conditionalities to reduce leakage of
foreign aid and the effectiveness of developing country governments. Prior
to the ongoing political reform in Indonesia or around 1996, several
international institutions such as UNDP (United Nation Development
Programs) and the World Bank, introduced a new termilogy called good
public governance or good governance. The popularity of this termology is
sticking out among the government, academics, and non-governmental
organizations in line with the provision of assistance directed at
developing good governance. The importance of implementing the
principles of good governance for non-profit organizations is to improve
performance in running the organization's wheels. Good governance
requires a paradigm shift in thinking and acting for all elements of the
public sector. This change in thinking is directed at producing a
transparent, accountable and effective financial management that supports
increased public participation and legal supremacy in the financial sector
and improves organizational performance. Corporate governance is a
conception of clean, democratic, and effective governance in accordance
with the ideals of forming a civil society. Good governance is governance
that builds and applies the principles of professionalism, accountability,
transparency, excellent service, democracy, efficiency, effectiveness, legal
supremacy and can be accepted by all people.
According to the National Committee on Governance (2014), there
are 5 principles of corporate governance, which are (a) Transparency
means the obligation for managers to carry out the principle of openness in
the decision process and in the delivery of information. (b) Accountability
means the principle for managers who are obliged to foster an effective
accounting system to produce reliable financial reports, so that it is
necessary to have clarity on the functions, implementation, and
accountability of each organ of the company (c) Responsibility means that
managers are obliged to provide accountability for all actions in managing
the company (organization) on the stakeholders. (d) Independence means
that managers in making decisions must be free from pressure or influence
from any party, (e) Equality means that managers must treat primary
stakeholders (suppliers, customers, employees and government) and
secondary stakeholders (government and society) fairly and equally. One
of the keys to winning global competition and running a business
organization in a sustainable manner is by implementing Good Corporate
Governance (GCG). The emergence of various scandals and misuse of
corporate functions is a measure of the bad corporate governance of a
corporation, because one of the aspects that becomes a reference is related
to transparency and Corporate accountability is far below Singapore
(8.93), Malaysia (7.72) and Thailand (4.89) (Kaihatu, 2006). The
emergence of various scandals and misuse of the functions of a
corporation is a measure of the bad corporate governance of a corporation,
because one of the aspects that becomes a reference is related to corporate
transparency and accountability.
Organizational governance is very important because it can help
how an organization determines how it can achieve its goals. So far, good
governance is known to only be applied in the world of government and
corporations, but nowadays not only government and corporate
practitioners apply the principles of good governance, but non-profit
organizations are also required to become professional organizations by
applying these principles. good governance.
Along with the development of the times, good governance which was
initially only found in government organizations, nowadays can be found
in its application to non-profit organizations. Weiss (2000) states that
corporate governance in a general sense is good governance, which is
generally applied in public sector organizations, especially governance.
However, good governance is not limited to the government sector alone,
but is also related to the implementation of other public organizations,
including non-profit organization.
Corporate Governance is a structure, system and process used by
internal and external parties to regulate, supervise and balance the
relationship between owners and stakeholders. Corporate governance is
not only applied to profit organizations, but also to non-profit
organizations.
Research on corporate governance in non-profit organizations is different
from research conducted on profit organizations. Researchers see that
research on GCG in profit organizations has been carried out a lot, such as
research conducted by Putri (2014), which concludes that the
implementation of corporate governance at profit-oriented organization
has been going well. On the other hand, research that discusses GCG in
non-profit organizations, especially churches are very rarely done, even
though it has been done before. In research conducted by Kaihatu (2006),
the conclusion is that the application of the five principles of corporate
governance in the non-profit organization is appropriate and has been
implemented properly. And Hartanto's research (2011) reveals that the
fairness, transparency, accountability, and responsibility of the non-profit
organization are adequate.
Moreover, research conducted by Ginting (2014) shows that
accountability in church organizations in the position of income funds has
not been entirely carried out by the non-profit organization. The
expenditure of funds at certain posts still exceeds the predetermined
budget. Planning and budgeting that have been carried out are not in
accordance with the stipulated budget.
In a research conducted by Dwiridotjahjono (2010), there are
several obstacles to implementing corporate governance principles in
Indonesia, one of which is cultural constraints. The existence and culture
of the assumption that acts of fraud and transactions with insiders are just
things that are commonplace and commonplace and even acts of
corruption are seen as something that is not wrong. This condition is added
to by the weak practice of disclosure and openness.
Based on the phenomena and gaps from previous studies, there
have been many researches on the non-profit organization. Meanwhile,
research in non-profit organization organizations is very rarely found in
research because the non-profit organization is more closed and very
hierarchical. In this study, the object that the researcher chose was the. The
selection of research at the non-profit organization was based on
considerations of organization size, number of people, and good growth so
that it could be used as a reference for other non-profit organizations.
Awaliyah (2015) said that today's demands require non-profit
organization to work in a very competitive environment. Non-profit
organization must improve their performance so that they can provide
better quality programs and give the best results in achieving their goals
for social change. Some of the challenges faced by non-profit organization
include, namely, limited accountability and management capacity, lack of
resources and opportunities to increase staff capacity, lack of networks and
networking opportunities among non-profit organization in order to
support individual organizations and the non-profit organization sector,
and difficulty ensuring stable funding.
The more critical the community, making the principles of
corporate governance as a solution to the demands of professionalism in a
non-profit organization. Because the implementation of corporate
 governance principles has several principles, including accountability,
transparency, participation, law enforcement, capture power, equality,
efficiency, effectiveness, professionalism, and supervision.
In addition, researchers also see that studies discussing and
comparing the implementation of corporate governance principles in non-
profit with profit organizations is rarely conducted. Therefore, researchers
became interested in conducting research on "The Application of
Corporate Governance Principles in Non-Profit Organizations"

1.2 Research Questions

Here are the research questions that will be discussed in this paper:
1. How is the application of the principles of corporate governance in
non-profit organizations?
2. What is the difference(s) in the application of corporate governance
principles in non-profit organization with profit organization?
3. What is the obstacle(s) that non-profit organization faces during
the application of corporate governance principles?

1.3 Research Objectives

The aims of this research are to know whether Non-Profit
Organization complies with the principles of corporate governance and the
obstacle that Non-Profit Organization face during application.
This research also will help Non-Profit Organization in order to
evaluate the application on the principles of corporate governance and
solve the problems that arise during the application.
In addition, here are the research objectives that are expected to be
covered from this research:
1. To understand the application of principles of corporate
governance in non-profit organization.
2. To find out the difference(s) in the application of corporate
governance principles in non profit organization with profit
organization.
 3. To understand the obstacle(s) that non-profit organization faces
during the application of corporate governance principles.

1.4 Contribution
This research is expected to give contributions for non profit
organization especially for Subak in Bebandem district. Also, for who has
concern with the application of corporate governance principles in non
profit organization. Moreover, here are the contributions that are expected
in this research:
1. As an evaluation for Subak in Bebandem district about the
completion of organization policies relating to the corporate
governance principles.
2. As a consideration for Subak in Bebandem district in order to
prepare plans, strategies, and policies that are more effective and
efficient in the future.
3. As a comparative reference that are expected to increase the
knowledge and literature in the field of corporate governance.

1.5 Limitation
In order to make the research focused, it is necessary to have a
limitation on this research. The limitation of this research is the author
only use one non profit organization which is Subak in Bebandem district.
The author also does the research on the analysis of application on
corporate governance principles in non profit organization.

1.6 Writing Scheme

The scheme of the paper is structured as follow:

CHAPTER I Introduction
In this chapter, we will discuss research background, research
questions, research objectives, contribution, limitation, and paper scheme.
CHAPTER II Literature Review
In this chapter, we will talk about the theories that underlie
Corporate Governance, principles of corporate governance, the application
of corporate governance principles, the steps of application corporate
governance principles, and the application of corporate governance
principles for profit organization,

CHAPTER III Methodology

In this chapter, it describes the research methodology that is consist
of time and place of study, subject and object of study, research design,
data collection technique, method of analysis, and validity and reliability
of data.

CHAPTER IV Result and Discussion

In this chapter, we will discuss the result from the analysis of
application corporate governance principles in non profit organization and
the obstacle(s) that non-profit organization faces during the application on
corporate governance principles. Furthermore, there will be an analysis of
the application corporate governance principles in non profit organization
with profit organization.

CHAPTER V Conclusion and Recommendation

In this chapter, we will describe the conclusion of the research,
limitation of research, recommendation, and implications. Moreover, there
will be open direction for further research in the future.
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