21/11/2022

Good Corporate Governance

Wan Juli

Moral imperative
• Few trends would so thoroughly undermine the very foundations of
our free society as the acceptance by corporate officials of a social
responsibility other than to make as much money for their
shareholders as they possibly can. >> Milton Friedman
• Whether management is duty bound to consider wider moral
imperative and to adopt socially responsible attitudes
• Corporate behaviour displays both facets of human behaviour: ethical
and unethical (but are not actually illegal)

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Ownership and Control

• Adam Smith: society in general can only be improved through
individuals working to benefit themselves - than the creation of
wealth through individual effort benefits society as a whole.
• With the desire of the public to invest and the growing size and
power of commercial organizations, untrammelled by government
interference, at least in the early years, the need to trust those who
spent money entrusted to them grew and with it the need for some
form of regulation and audit.
• As the company grew in size and influence the power of directors
grew also, and the influence of the shareholders diminished.

Moral hazard
• Moral hazard arises when a party that is insulated from risk behaves
differently than they would if they had to face the full effect of that
risk.
• As management knows more than the shareholders, they may be
encouraged into inappropriate courses of action that the
shareholders are unable to monitor.

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Fiduciary capitalism
• A capitalist model in which corporations are influenced and guided by
shareholders, particularly large institutional shareholders such as
pension fund and mutual funds that act on behalf of many smaller
investors through financial intermediaries – insurance companies,
pension funds, investment trusts, etc.
• As institutional investors influence corporate decision making, cotrol
is exercised by a framework of corporate influences rather than by
the moral code of individuals. The framework consists largely of:
codes of corporate governance, the bodies representing major
institutional investors, the external auditing profession, and
regulators

Agency theory
• Holds that agents do not necessarily take decisions in the best
interests of their principals.
• The objectives and goals of principals and agents mostly conflict and
agents will naturally make the choice that benefit them the most,
choices that may not be the most beneficial decision for the principal.
• Poor principal has no alternative but to compensate the agent well for
their endeavours so that they will not be tempted to go into business
for themselves using the principal’s asset to do so.

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Agency costs
• The risks that they will use the organization’s resources for their own
benefit so they, effectively, have to be paid not to take actions that
might be detrimental to the interest of the shareholders;
• The costs arising from monitoring the agents’ activities (by producing
audited FS) and the costs of incentives such as share options designed
to align the objectives of principals and agents to some degree

Corporate Governance
• System by which organizations are directed and controlled
• The direction, management and control of an organization
• It relates to the way in which companies are governed with a
particular emphasis on the relationship between shareholders and
directors.
• Corporate governance has underlying issues of the need for concern
for good corporate ethics to value what is right in society and how it
conducts itself

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• The purpose of corporate governance is to facilitate effective,

entrepreneurial, prudent management that can deliver long term
success of the company.
• Elements:
• The company must act in the best interest of its owners (shareholders)
• Considerations should be given to all stakeholders
• It must comply with relevant codes
• Considerations should be given to the balance of power within the board of
directors
• Fair remuneration should be exhibited
• Risk must be monitored and managed
• Good ethics must be observed and CSR must be considered
• It should employ independent auditors

Definition of CG
• CG is the system by which companies are directed and controlled
• Governance of companies is the responsibility of the board of directors
• The appointment of directors and auditors is the shareholders’ role in
governance
• Shareholders also need to satisfy themselves that an appropriate
governance structure is in place
• The board is responsible for setting the company’s strategic aims and
providing the leadership to put them into effect
• The role of the board is to supervise the management of the business and
report to shareholders on their stewardship
• The board’s action are subject to laws, regulations and the approval of
shareholders in general meeting

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Code of best practice: principles

• Transparency: make available or widely known
• Accountability: required or expected to justify actions or decisions
• Probity: the quality of being honest and morally upright
• Equity: the quality of being fair and impartial

OECD Principles
• Protect and facilitate the exercise of shareholders’ rights
• Ensure strategic guidance of the company the effective monitoring of
management by the board
• Make timely and accurate disclosure on all material matters
• Recognize the rights of stakeholders and encourage active
cooperation
• Ensure equitable treatment of all shareholders
• Promote transparent and efficient markets, be consistent with the
rule of law.

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Good governance standards for public

services 6
• Promote values for whole organization and demonstrate good
governance through behaviour
• Focus on the organization’s purpose and on outcomes for citizens and
service users
• Take informed transparent decisions and manage risks
• Engage with stakeholders and make accountability real
• Develop the capacity and capability of the governing body to be
effective
• Perform effectively in clearly defined roles.

Generic principles of good governance

• Develop the capacity and effectiveness of the governing body
• Agree and promote values
• Engage with shareholders and stakeholders
• Be fair and impartial
• Protect people’s rights
• Behave ethically
• Set strategic purpose and outcomes
• Identify and manage risks
• Make informed and transparent decisions
• Monitor performance
• Disclose everything so that accountability is effective
• Comply with the law
• Define roles and responsibilities

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UK Corporate Governance Code

• Leadership
• Companies need to be headed by effective board
• The board is collectively responsible for the long term success of the company
• The role of the head of the company running the board and the executive
running the company’s business should be carried out by more than one
individual
• The chairman leads the board and is responsible for its effectiveness
• Non executive directors should challenge and develop proposals on strategy

UK Corporate Governance Code

• Effectiveness
• The board and its committees should consist of members with appropriate skills, experience,
independence, and knowledge to enable them to carry out their duties and responsibilities
effectively
• Formal, rigorous, and transparent procedures for the appointment of new director of the
board should exist
• Directors need to devote sufficient time to the company to enable them to carry out their
responsibilities effectively
• Directors should receive an induction when they join the board
• Directors need to update and refresh their skills and knowledge regularly
• Information needs to be provided to the board in a timely manner and of appropriate quality
to enable it to carry out its duties
• The board needs to have a formal and rigorous policy that annually evaluates its own
performance and that of its committees and individual directors
• All directors need to be submitted for re-election at regular intervals, provided they have
continued satisfactory performance.

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UK Corporate Governance Code

• Accountability
• It is the responsibility of the board to produce and understandable and
balanced assessment of the company’s prospects and position.
• The board needs to maintain a suitable relationship with the company’s
auditor
• Corporate reporting, risk management, and internal control principles need
establish formal and transparent arrangement determined by the board
• The board needs to establish the level of risk it is willing to take to achieve the
company’s strategic objectives
• It is the board’s responsibility to maintain sound risk management ad internal
control systems

UK Corporate Governance Code

• Remuneration
• No directors should be in a position where they involve in deciding their own
remuneration
• Remuneration packages need to be sufficient to attract, retain, and motivate
directors of the right quality to run the company successfully
• A company should not pay more than is necessary for the services of directors
• A significant proportion of executive directors’ remuneration needs to be
linked to corporate and individual performance
• A formal and transparent policy needs to exist develop executive
remuneration and fix the remuneration packages of individual directors

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UK Corporate Governance Code

• Relations with shareholders
• The board has a responsibility to ensure that satisfactory dialogue with
shareholders takes place
• The dialogue should ensure that shareholders have a mutual understanding
of the company objectives
• The AGM is a suitable mechanism to communicate with investors and
encourage their participation.

Approaches
• Regulatory approach
• Given set of corporate governance
requirements to be adhered to
• Limited discretion on the application
and interpretation
• May not be flexible enough to deal
with new and changing circumstances
and business environment
• Narrower definition of ‘rules’
• More of a tick-box exercise
• Clear guidance on what is appropriate
and what is not
• Principles-based approach
• Key principles need to be complied
with and explained
• Different organizations may interpret
and apply principles differently
• Flexibility to handle changing
circumstances and business
environment
• Broader definition of ‘rules’
• Less of a tick-box activity, more a set
of guiding practices
• Behavior is more open to
interpretation

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Prinsip GCG Komite Nasional Kebijakan

Governance
• a. Transparansi (Transparency)
• Transparency yaitu keterbukaan dalam mengemukakan informasi yang material
dan relevan serta keterbukaan dalam melaksanakan proses pengambilan
keputusan. Perusahaan dituntut untuk menyediakan informasi yang cukup,
akurat, tepat waktu kepada segenap stakeholdersnya. Informasi yang
diungkapkan antara lain keadaan keuangan, kinerja keuangan, kepemilikan dan
pengelolaan perusahaan. Keterbukaan dilakukan agar pemegang saham dan
orang lain mengetahui keadaan perusahaan sehingga nilai pemegang saham
dapat ditingkatkan.
b. Kemandirian (Indenpency)
• Independency atau kemandirian adalah suatu keadaan dimana perusahaan
dikelola secara profesional tanpa benturan kepentingan dan pengaruh/tekanan
dari pihak manapun yang tidak sesuai dengan peraturan perundang-undangan
yang berlaku dan prinsip-prinsip korporasi yang sehat. Perusahaan dikelola
secara profesional tanpa benturan kepentingan dan pengaruh/tekanan dari pihak
maupun yang tidak sesuai dengan peraturan perundang-undangan yang berlau
dan prinsip-prinsip korporasi yang sehat.

Prinsip GCG Komite Nasional Kebijakan

Governance
• c. Akuntabilitas (Accountability)
• Accountability yaitu kejelasan fungsi dan pelaksanaan pertanggungjawaban organ
perusahaan sehingga pengelolaannya berjalan secara efektif. Bila prinsip accountability
(akuntabilitas) ini diterapkan secara efektif, maka perusahaan akan terhindar dari agency
problem (benturan kepentingan peran). Perusahaan harus dapat
mempertanggungjawabkan kinerjanya secara transparan dan wajar, untuk itu perusahaan
harus dikelola secara benar, terukur dan sesuai dengan kepentingan perusahaan dengan
tetap memperhitungkan kepentingan pemegang saham dan pemangku kepentingan lain.
d. Pertanggung jawaban (Responsibility)
• Responsibility adalah kesesuaian atau kepatuhan di dalam pengelolaan perusahaan
terhadap prinsip korporasi yang sehat serta peraturan perundangan yang berlaku.
Peraturan yang berlaku termasuk yang berkaitan dengan masalah pajak, hubungan
industrial, perlindungan lingkungan hidup, kesehatan/keselamatan kerja, standar
penggajian, dan persaingan yang sehat. Para pengelola wajib memberikan
pertanggungjawaban atas semua tindakan dalam mengelola perusahaan kepada para
pemangku kepentingan sebagai wujud kepercayaan yang diberikan kepadanya.

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Prinsip GCG Komite Nasional Kebijakan

Governance
• e. Kewajaran (Fairness)
• Fairness adalah keadilan dan kesetaraan dalam memenuhi hak-
hak stakeholder yang timbul berdasarkan perjanjian dan
peraturan perundang-undangan yang berlaku. Fairness
diharapkan membuat seluruh aset perusahaan dikelola secara
baik dan prudent (hati-hati), sehingga muncul perlindungan
kepentingan pemegang saham secara fair (jujur dan adil).
Perusahaan harus senantiasa memperhatikan kepentingan
pemegang saham, pemangku kepentingan lainnya dan semua
orang yang terlibat di dalamnya berdasarkan prinsip-prinsip
kesetaraan dan kewajaran stakeholder

Unsur dan Aspek GCG

1.Participation. Mengarah pada jaminan keterlibatan bahwa setiap warga
negara dalam pembuatan suatu keputusan, baik secara langsung maupun
melalui intermediasi atau institusi yang mewakili kepentingannya. Hal ini
dibangun atas dasar demokrasi dan partisipasi secara konstruktif.
2.Rule of Law. Bahwa hukum harus mencerminkan nilai keadilan dan
kesamaan setiap orang didepan hukum serta dilakukannya law
enforcement dan hak asasi manusia.
3.Transparency (Transparansi). Hal ini dibangun atas dasar kebebasan
informasi dimana proses, lembaga, dan informasi dapat langsung diakses
oleh pihak-pihak yang membutuhkan. Setiap informasi tersebut harus
bersifat komunikatif, dapat dipahami dan dimonitor.
4.Responsiveness. Bahwa setiap proses dan kelembagaan yang ada harus
dapat melayani setiap stakeholders.

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Unsur dan Aspek GCG

1.Consensus Orientation. Hal ini menyelesaikan bahwa prinsip corporate
governance menjadi mediasi antara kepentingan yang berbeda untuk
memperoleh pilihan yang terbaik bagi kepentingan yang lebih luas dalam setiap
kebijakan maupun prosedur.
2.Equity. Bahwa semua warga negara mempunyai kesempatan yang sama dalam
upaya meningkatkan dan mempertahankan kesejahteraannya.
3.Effectiveness and Efficiency (Efektivitas dan Efisiensi). Adanya jaminan bahwa
setiap proses dan lembaga yang ada harus menghasilkan sesuatu yang sesuai
dengan program yang telah digariskan dengan menggunakan sumber daya yang
tersedia.
4.Accountability (Akuntabilitas). Bahwa pengambil keputusan dalam
pemerintahan sektor swasta dan masyarakat mesti bertanggungjawab kepada
publik dan lembaga-lembaga stakeholders.
5.Strategic Vision. Pimpinan suatu perusahaan harus berlandaskan perspectif
corporate governance.

Aspek-aspek pelaksanaan GCG

1.Perlindungan terhadap hak-hak dalam Corporate Governance harus mampu melindungi
hak-hak para pemegang saham, termasuk pemegang saham minoritas. Hak-hak
tersebut mencakup hal-hal dasar pemegang saham, yaitu : a) Hak untuk memperoleh
jaminan keamanan atas metode Pendaftaran kepemilikan; b) Hak untuk mengalihkan dan
memindah-tangankan kepemilikan saham; c) Hak untuk memperoleh informasi yang
relevan tentang perusahaan secara berkala dan teratur; d) Hak untuk ikut berpartisipasi
dan memberikan suara dalam Rapat Umum Pemegang Saham (RUPS); e) Hak untuk
memilih anggota dewan komisaris dan direksi; f) Hak untuk memperoleh pembagian laba
(profit) perusahaan.
2.Perlakuan yang setara terhadap seluruh pemegang saham (the equitable treatmment of
shareholders). Kerangka yang dibangun dalam Corporate Governance haruslah menjamin
perlakuan yang setara terhadap seluruh pemegang saham, termasuk pemegang saham
minoritas dan asing. Prinsip ini melarang adanya praktik perdagangan berdasarkan
informasi orang dalam (insider trading) dan transaksi dengan diri sendiri (self dealing).
Selain itu, prinsip ini mengharuskan anggota dewan komisaris untuk terbuka ketika
menemukan transaksi-transaksi yang mengandung benturan atau konflik kepentingan
(conflict of interest).

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Aspek pelaksanaan GCG

1. Peranan pemangku kepentingan berkaitan dengan perusahaan (the role of stakeholders).
Kerangka yang dibangun dalam Corporate Governance harus memberikan pengakuan terhadap
hak-hak pemangku kepentingan, sebagaimana ditentukan oleh undang-undang dan mendorong
kerja sama yang aktif antara perusahaan dengan pemangku kepentingan dalam rangka
menciptakan lapangan kerja, kesejahteraan, serta kesinambungan usaha (going concern).
2. Pengungkapan dan transparansi (disclosure and transparancy). Kerangka yang dibangun dalam
Corporate Governance harus menjamin adanya pengungkapan yang tepat waktu dan akurat untuk
setiap permasalahan yang berkaitan dengan perusahaan. Pengungkapan tersebut mencakup
informasi mengenai kondisi keuangan, kinerja, kepemilikan, dan pengelolaan perusahaan. Informasi
yang diungkapkan harus disusun, diaudit, dan disajikan sesuai dengan standar yang berkualitas
tinggi. Manajemen juga diharuskan untuk meminta auditor eksternal (KAP) melakukan audit yang
bersifat independen atas laporan keuangan.
3. Tanggung jawab dewan komisaris atau direksi (the responsibilities of the board). Kerangka yang
dibangun dalam Corporate Governance harus menjamin adanya pedoman strategis perusahaan,
pengawasan yang efektif terhadap manajemen oleh dewan komisaris terhadap perusahaan dan
pemegang saham. Prinsip ini juga memuat kewenangan-kewenangan serta kewajiban-kewajiban
profesional dewan komisaris kepada pemegang saham dan pemangku kepentingan lainnya.

Whistleblowing
• Is not a grievance. The aim is to report wrongdoing, not to air
workplace grievances
• There is a confidential helpline
• Persecution or exposure of a whistleblower or malicious reporting
should be a disciplinary offence
• Confidential 24/7 hotline

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Bribery Act 2010

• UU PTPK di Indonesia
• US: FCPA

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