GOOD

CORPORATE
GOVERNANCE

F. HELIANTI SASTROSATOMO
 Corporate Governance
“Corporate Governance is the system by which business corporations are
directed and controlled. The Corporate Governance structure specifies the
distribution of rights and responsibilities among different participants in the
corporation, such as the board, managers, shareholders and other
stakeholders, and spells out the rules and procedures for making decision on
corporate affair. By doing this, it also provides the structure through which the
company objectives are set, and the means of attaining those objectives and
monitoring performance.”
OECD -April 1999

F. Helianti Sastrosatomo
2
Background
The need for corporate governance follows the need to mitigate conflicts of
interests between stakeholders in corporations. These conflicts of interests
appear as a consequence of diverging wants between both shareholders and
upper management and among, although also other stakeholder relations
are affected and coordinated through corporate governance.

The East Asian Financial Crisis in 1997 severely affected the economies
of Thailand, Indonesia, South Korea, Malaysia, and the Philippines through
the exit of foreign capital after property assets collapsed. The lack of
corporate governance mechanisms in these countries highlighted the
weaknesses of the institutions in their economies.

F. Helianti Sastrosatomo
3
Key Elements of Corporate Governance
Honesty/Discipline - committed to good behaviour
Transparency - how well is information made available
Independence - measures to minimise or avoid conflicts
Accountability - can investors query and assess management actions?
Responsibility - internal mechanisms to “punish” mismanagement
Fairness - are all shareholders treated equally?
Communication - how effective is information communicated?
Social Responsibility - ethical standards, good corporate citizen, environmental behaviour

F. Helianti Sastrosatomo
Elements of Corporate Governance
CAPITAL MARKET

Shareholder Board
Governance Tax Governance
Law
RATING AGENCIES

Business Ethics
Values

REPUTATION
Awareness
Environment
Risks
Communication
Controls
Transparency
Other Stakeholders Executive
Governance Management
Governance

REGULATION

F. Helianti Sastrosatomo
OECD Principles of Corporate Governance
• Ensuring the basis of an effective corporate governance
framework
• The rights of shareholders and key ownership functions
• The equitable treatment of shareholders
• The role of stakeholders in corporate governance
• Disclosure and transparency
• The responsibilities of the board

F. Helianti Sastrosatomo
6
Benefits of Having Corporate Governance
1. Stimulating Performance and Improving Operational Efficiency
• Better Oversight and Accountability
• Improved Decision Making
• Better Compliance and Less Conflict
2. Improving Access to Capital Markets
Well-governed firms are perceived as investor friendly, providing greater confidence in their ability to generate
returns without violating shareholder rights.
3. Lowering the Company’s Cost of Capital and Raising the Value of Assets
Companies committed to high standards of corporate governance are typically successful in obtaining reduced
costs when incurring debt and financing for operations and decrease their capital costs. Therefore resulting in the
company paying lower interest rates and receiving longer maturity on loans and credits.
4. Building a Better Reputation
Companies that respect the rights of shareholders and creditors, and ensure financial transparency and
accountability, will be regarded as being an ardent advocate of investors’ interests resulting more public confidence
and goodwill.

F. Helianti Sastrosatomo
7
Stages of GCG Implementation
Preparation phase
1) awareness building
2) GCG assessment
3) GCG manual building, covering various aspects such as:
Corporate GCG policy, GCG guidelines for company organs, Code of conduct, Audit
committee charters, Disclosure and transparency policies, Risk management policies and
frameworks, Roadmap for implementation

Implementation Stage
1. Socialization
2. Implementation
3. Internalization

Evaluation Stage

F. Helianti Sastrosatomo
8
The Role of the Business in Achieving GCG
• Carry out a healthy business so that it can support growth the economy in a
sustainable way and increasing employment opportunities.
• Build systems that can ensure companies comply with regulations laws and
public policies and implementing good corporate governance consistently.
• Implement business ethics consistently including preventing and eliminate
corrupt, collusive and nepotism behaviors.
• Conduct in-depth review of laws and regulations public policy that has an impact
on its business including anti corruption and bribery.
• Provide active input in the process of drafting regulations direct and indirect
public legislation and policy directly.

F. Helianti Sastrosatomo
9
Regulations Regarding GCG in Indonesia
• Law No. 40 of 2007 concerning Limited Liability Company
• Law No. 25 of 2007 concerning Investment
• Law No. 13 of 2003 concerning Manpower
• Law No. 8 of 1995 concerning Capital Market
• Presidential Regulation No. 36 of 2010 concerning Lists of Business Fields that are
Closed To Investments and Business Fields that are Conditionally Open for
Investments
• Head of BKPM Regulation No. 12 of 2009 concerning Procedures and Guidelines of
Investment Application
• Ministry of Manpower and Transmigration Decree No. 40 of 2012 concerning
Certain Positions that are Prohibited for Foreign Workers
• Indonesian Code of Good Corporate Governance 2006
• All related regulations in OJK Capital Market

F. Helianti Sastrosatomo
10
The Governance Structure of a Limited
Liability Company
1. The General Meeting of Shareholders
2. The Board of Commissioners
3. The Board of Directors
4. Board Committees
5. External Auditor
6. The Internal Auditor
7. The Corporate Secretary

F. Helianti Sastrosatomo
11
The Internal Corporate Documents
1. The Company Articles of Association (AoA)
2. The Internal Regulations of a Company
Such as Corporate governance internal rules which are required for listed
companies, and Internal labor rules which are compulsory for all companies with
10 or more employees.
3. Company Codes of Corporate Governance
Most codes are brief and simple statements of principle that generally reflect the
desire of the Board of Commissioners and the Board of Directors to conduct
company operations in an honest, fair, legal and socially responsible manner.
4. Company Code of Ethics
a basic guide of conduct that imposes duties and responsibilities on a company’s
officers and employees towards its stakeholders, including colleagues, customers
and clients, business partners (e.g. suppliers), government and society.

F. Helianti Sastrosatomo
12
 Compliance Journey: Where is your operating company today?
• Compliance Maturity Model
Level 1
• Basic compliance
system
 Code of conduct
 Compliance function in place
 Basic processes defined
 Basic policies defined
Rules Based
Compliance
1 F. Helianti Sastrosatomo
3
Level 2
• Group-wide rules and
processes
 Staff well informed about rules
 Group-wide compliance
organisation in place
 Engagement of senior
management
Level 3
• Compliance part of
daily life and strategy
 Staff well trained to apply code of
conduct
 Compliance rules also apply to
suppliers and partners
 Staff proactively reports possible
violations
 Alignment of compliance and
strategy to create value
Level 5
Level 4
• Compliance fully
integrated into business
and internally assured
 Business integrated approach to
compliance
 Clear decision making
 Compliance is cost effective and
efficient making use of technology
where appropriate
 Compliance performance is
internally assured
• Values, behaviours
and compliance
fully aligned and
externally assured
 Compliance enables business to
take place within risk appetite
 People do the right thing even
when nobody is watching or it is
difficult
 Compliance performance is
internally and externally assured /
verified
 Competitive advantage
Values Based
Compliance
Asean Corporate Governance Scorecard
Is a joint initiative of The ASEAN Capital Markets Forum and The Asian Development Bank to asses, based on
publicly available information, the corporate governance performance of publicly listed companies in the six
participating ASEAN member countries (Indonesia, Malaysia, Singapore, Philippines, Thailand and Vietnam)
and benchmarked against international best practices. Therefore encouraging publicly listed companies to go
beyond national legislative requirements. This common methodology provides foreign investors and external
fund managers comparable information to form part of their investment decision-making process.
The Assessment is based on:
1. Rights of Shareholders
2. Equitable Treatment of Shareholders
3. Role of Stakeholders
4. Disclosure and Transparency
5. Responsibilities of the Board

1 F. Helianti Sastrosatomo
4
Whistle Blowing System
The act of reporting wrongdoing within an organization to internal and external parties. It is
raising a concern about malpractices within an organization or through an independent structure
associated with it.

Key Aspects
• Clear definition of individuals covered by the Policy
• Non retaliation provisions
• Confidentiality
• Process
• Communication

1 F. Helianti Sastrosatomo
5
Whistle Blowing System Benefits
• The availability of critical and key information for the company to those who must
immediately handle it safely and in a controlled manner.
• With the increasing willingness to report various violations, there is a sense of
reluctance to commit violations because of a belief in an effective reporting system.
• The availability of an early warning mechanism for the possibility of a problem caused
by a violation.
• Reducing/minimizing the risk faced by the company due to violations in terms of
financial, operational, legal, work safety and reputation.
• Reducing costs in managing the consequences of a violation.
• Increasing the company's reputation in the eyes of stakeholders, regulators, and the
general public.

1 F. Helianti Sastrosatomo
6
Bank Global
• Since January 13, 2005, Bank Indonesia has revoked the business license of Bank Global. BI
has also frozen the bank's business activities as of December 14, 2004. The bank was lured
by other cases of diversion of customer funds into mutual funds without the knowledge of
the customers. The Global Bank's problems are caused by fraud in the form of ownership of
securities and fictitious lending.
• Mutual fund sales issued by PT. Prudence Asset Management through Global Bank, mutual
funds marketed to customers / consumers are not listed at BAPEPAM, aka illegal. Mutual
fund product sales are not supported by adequate documents, such as prospectus, proof of
mutual fund participation units signed by the issuer. Mutual fund marketing is only by word
of mouth and never published.
• In the case of Global Bank, the right to information about the unclear flow of funds from
mutual funds marketed by Bank Global is not notified to its customers. This is due to the
fact that Global Bank has learned that the mutual funds offered to customers are illegal
mutual funds. As such, Bank Global customers are disadvantaged consumers because their
right to obtain true, clear and honest information about conditions and mutual fund
guarantees cannot be fulfilled by Bank Global.

1 F. Helianti Sastrosatomo
7
Q&A

F. Helianti Sastrosatomo 18
 “Good corporate governance is about
'intellectual honesty' and not just sticking
to rules and regulations, capital flowed
towards companies that practiced this
type of good governance.“
Mervyn King

F. Helianti Sastrosatomo 19