Name: Jennifer Chen

NIM : 03011190078

Corporate Governance

Definition

There are no single definition for all situations and jurisdictions. The Corporate Governance is
essential for public company. However it is also possible for private company to use it to know if
it their company can survive or not in the market. It is simply about “running a company
properly” by being responsible to stakeholders.

Internal Perspective

a) Corporate governance is a system of relationships, defined by structures and processes.

 Employees  Management  Board of Directors  Board of Commissioners
b) These relationships may involve parties with different and conflicting interests.
 Principal-agent problem
 Majority versus minority shareholders.
c) All parties are involved in the direction and control of the company.
 Shareholders (GMS)
 BOD
 BOC
d) All this is done to allocate rights and responsibilities – to prevent abuse and increase
long-term shareholder value.

External Perspective

a) Relationship between the company and its stakeholders.

 Through legislation or contract, or
 By way of social or geographic relationships,
 b) Stakeholders include:
 Inventories
 Employees
 Creditors
 Suppliers
 Consumers
 Regulatory bodies
 State agencies
 Local community
 Environment
c) They contribute to the long-term success of the company so it is important to engage with
them.

Corporate Governance Codes

There are more than 200 Corporate Governance Codes that have been written in some 72
countries and regions, in which most of them focus on the role of BOC and BOD of a company.
Also, the Organisation for Economic Co-operation and Development (OECD) principles has 4
values, which are:

a) Fairness: Fair treatment for all shareholders with equal punishments and rewards to

the employees, for the sake of company’s survival.

b) Responsibility: A company will avoid every companies without sense of responsibility,

like for instance, the manager’s mistakes are thrown to the subordinates.

c) Transparency: It is important to have timely and accurate company’s information

gathered and analyzed before facing issues.

d) Accountability: Should have effective management and responsibility, in which the

higher their position, the less guidance and the more responsibilities they have.
Why Corporate Governance is Important

In general, companies with high standards of governance tend to be healthier and hence,
contribute better to the national economy and society. They also reduce the risks on attracting
investors as well as maintaining long-term relationships with their partners. Specific Benefits:

 When information is received faster and accurate, performance will be stimulated and
operational efficiency will be improved, as decision making is improved.
 When a company is well-governed and generate more profits, investors will be attracted
to invest there and hence, the company’s market value will increase.
 Company’s cost of capital can decrease and the asset’s value will raise.
 Will build a better reputation for the company as they respect the shareholder’s rights as
well as ensure financial transparency and accountability to the public.

Indonesia’s Corporate Landscape

a) Dominant Role of State-Owed Enterprises

 Many important sectors in Indonesia’s economy remain either State monopolies, or
largely dominated by wholly SOE
 Banking, electricity, mining, oil and gas, post and telecommunications,
railways and shipbuilding sectors.
b) Concentrated ownership
 Single controlling shareholder, members of a family or a small group of shareholders
 Little protection for minority shareholders
 Often, there is a lack of proper documents
c) Little Separation of ownership and control
Most controlling shareholders also act as the company’s president director and sit on the
BOD. Failure to separate ownership and control typically results in:
 Weak accountability and control structures
 Abusive related party transactions, and
 Poor information disclosure to outsiders or minority shareholders.
 d) Inexperienced and inadequate corporate bodies
 In reality, it is common for BOD to:
 Attempt to bypass the supervision mechanisms in the AoA
Eg. Internal auditors or the BOC; and
 To limit direct contact with the controlling shareholder.
 The role of the BOC, its Committees, the President Director and the BOD remain
unclear in the day-to-day company operations.
 These individuals are supposed to be experienced and capable
 In reality they may lack awareness of their responsibilities, due to
historical lack of general good practice in their areas.

Corporate Governance in Indonesia

a) Applicable Laws and Regulations

Good Corporate Governance (GCG) Code must be followed by Public

Companies and can be followed by Private Company. Moreover, the 3 types of rules in
the CG Regulations are: Legal Requirements (Using mandatorial words, like must or
obliged to), Comply or explain rules (Using the word ‘shall’), and Suggestions (Using the
word ‘can’).

b) Advantages of Public Listed Companies:

 Have access to investors
 Free transferability of shares
 Limitation on the risks to shareholders
 Diversification of risks
c) Disadvantages of Public Listed Companies:
 Compliance with securities regulations, disclosure, and other regulations
 Have a complex organizational structure
 Costs of attracting and retaining shareholders
 Need to have professional management and higher minimum charter capital.

The Non-Listed Companies and Listed Companies must have General Meeting of
Shareholders (GMS), Board of Commissioners (BOC), Board of Directors (BOD).