Lecture 2: Chapter 11.

Roles and Responsibilities of Other

Corporate Governance Participants
 Introduction, p - 307
Roles and resposibilities of corporate officers: Professional
advisory to the BOD and Management.
Structure
Measurement
Management Recognition
Disclosure
Auditor - SOX
 Primary Objectives - p,307/308
1. Understand advisory by: legal, financial, bankers .
2. Notice change and make sure in line communication
with legal.
3. Identify the rules and regulations implemented by
the SEC, OJK (Otoritas Jasa Keuangan)
4. Understand the roles and responsibilities of financial
advisors, specifically securities analysts.
5. Recognize the need for independence in research.
6. Comprehend the financial accounting standards.
 LEGAL COUNSEL, p-308

1. To ensure compliance with applicable

laws, rules, and regulations
2. Thus, a lawyer’s role function has been
as the outside gatekeeper.
3. Lawyers monitoring accounting with
SOX policy, policy of capital market
isuing by SEC, OJK in Indonesia.
4. The Board of Directors should established a
practice of regular and executive meeting.
 Communication with Legal Counsel, p-309.
1. Communication between general counsel
and independent directors. Legal counsel
adds value to the companies” Sustainable
performance. Thus the appointment,
retention, and compensation of the company
should be approved by the board of directors.
Noted:
a. investigate relevant legal issue
b. find-out potential violation by the company or its directors
c. communicate these legal matters
d. take appropriate steps to correct the violation.
 Communication with Legal Counsel, p-309.
2. Communication between outside counsel
and general counsel.

Noted:
a. established policies and procedures for
outside lawyer, to see whether or not
employee or officers engage in material
violations of law or fiduciary duty.
b. require outside lawyers provide important
information and analysis of legal matters.
SEC Rules of Professional for Lawyers, p-310
1. SEC rules for attorney: require corporate
attorneys to report suspicious of fraud and
violations of securities laws.
2. The lawyer is responsible for reporting such
violations to the company. The lawyer must
report the evidence to the audit committee.
3. Legal counsel as advisors to management
and the board plays an important role
identifying financial reporting risk for
management and any noncompliance with
regulations in financial disclosure to investors.
 Responsiblities of Legal Consel, p-311
Legal counsel, or general counsel, represents the
organization in legal disputes. They advise executives and/or
the Board of Directors about legal issues related to the
organization's business activities (e.g., government
regulations, contracts, property, taxes, labor).
The primary roles of legal counsel are to:
1. Ensure compliance with laws, regulations, and rules
2. Provide legal advice and legal compliance issues
3. Comunicate material or ongoing violations of law
 Responsiblities of Legal Consel, p-311
Legal counsel, or general counsel, represents the
organization in legal disputes. They advise executives and/or
the Board of Directors about legal issues related to the
organization's business activities (e.g., government
regulations, contracts, property, taxes, labor).
The primary roles of legal counsel are to:
1. Ensure compliance wit laws, regulations, and rules
2. Provide legal advice and legal compliance issues
3. Comunicate material or ongoing violations of law
 Financial Advisors, p-312.

Financial advisors, through their discretionary

authority to manage investments on behalf of their
clients (investors) and participate in proxy voting,
play an important role in corporate governance.

Investment advisors are required to exercise due

diligence, maintain objectivity, and service their
clients to the best of their ability.
 Securities Analysts, p-313.

Security analysis by brokerage firm to analyze

Financial performance of the corporation such as:
1. Asses the quality of the company as an
investment.
2. Make recommendations based on their
analysis
3. Analysis are regulated by the NASD
(National Association of Securities Dealer).
 Peranan OJK Mendukung APU PPT
APU PPT (Anti Pencucian Uang dan Pencegahan Pendanaan
Terorisme)
Keuangan.
 Tindak pidana pencucian uang pasif, 
yaitu
Menikmati hasil:pidana pencucian uang
Menyembunyikan UIANG
Menyamarkan asal usul UANG
Sumber lokasi UANG
Setiap Orang yg Peruntukan UANG
Pengalihan hak atas UANG
Kepemilikan UANG
Atau menggunakanharta kekayaan yg diketahui
atau patut diduga merupakan hasil tindak pidana.
Pendanaan terorisme adalah segala perbuatan dalam
rangka menyediakan, mengumpulkan, memberikan atau
meminjamkan Dana, baik langsung maupun tidak langsung
dengan maksud untuk digunakan dan/atau yang diketahui
akan digunakan untuk melakukan kegiatan terorisme,
organisasi teroris atau teroris.
Dampak Pencucian Uang dan Pendanaan Terorisme:
1. Mengancam stabilitas perekonomian dan integritas sistem keuangan.
2. Dapat membahayakan sendi-sendi kehidupan bermasyarakat,
berbangsa

dan bernegara.

3. Mengganggu rasa aman dan kedaulatan negara mengingat tindak pidana

terorisme dan aktivitas yang mendukung terjadinya aksi terorisme
 Status Badan Hukum
1. COMMANDITARE VENNOTT SCHAP (CV): Badan Usaha dimiliki
seseorang pribadi atau kelompok
2. PERSEROAN TERBATAS (PT), Badan Usaha diatur dlm UU no.40 tahun
2007
3. Badan Usaha Milik Negara (BUMN); Modalnya sebahagian besar dimiliki
oleh negara
4. Koperasi; unit ekonomi berdasarkan azas kekeluargaan
5. PMA – bisa berbentuk Joint venture 51;49 equity
6. UMKM-Usaha Mikro Kecil dan Menengah
7. Ventura Kapital – joined equity
8. BOT (Build, Operate, Transfer)
 Status Badan Hukum
9. Franchise Asosiasi Franchise Indonesia juga menjelaskan definisi
waralaba sebagai suatu sistem pendistribusian barang atau jasa kepada
pelanggan dengan franchisor yang memberikan hak kepada individu atau
perusahaan lain untuk melaksanakan bisnis dengan brand, nama, sistem,
prosedur dan cara-cara yang telah ditetapkan sebelumnya, (McDonalds;
&-Eleven; Dunkin Donalds; Pizza Hut; Circle K).
10. Joint Operation (JO) adalah bentuk kerja sama operasi, yaitu
perkumpulan dua perusahaan atau lebih yang bergabung untuk
menyelesaikan suatu proyek. Penggabungan badan atau perusahaan ini
bersifat sementara sampai proyek tersebut selesai.
 Status Badan Hukum

11. Turnkey Project:

 Ini adalah kontrak dimana perusahaan setuju untuk merancang

sepenuhnya, membangun dan melengkapi manufaktur/bisnis/

fasilitas pelayanan dan mengubah proyek ke pembeli bila sudah

siap untuk operasi untuk remunerasi.
 (1). Ownership of listed companies
The potential differences of shareholder power
1. There is no dominance position (equity spread
between many individuals and institutions).
In which Institutional shareholders dominate
2. A stte-run enterprise, such as Gazprom-Russia;
Pertamina- Indonesia.
3. A single shareholder owns a major shareholding
Which some large shareholders form a block shares
4. A family company which is listed with outside shareholders
5. A listed company could be the subsidiary of another major
company.
 (2). Sareholders rights
Ownership of a share provides the right to:
Have your name, address, and shareholding
- Receive notice of all shareholders meeting with specific time
- Receive the formal company accounts, directors, and auditors
- Attend shareholders’ meeting
- Vote, eiher in person or by proxy, at all shareholder meetings
- View the company’s statutory records
- And to receive dividends that have been duly declared for that class of share.
 Shareholder rights
Shareholders do not have a right to:

● attend internal meetings of the company

● access management accounts or other corporate
information
● get involved in management matters.
 (3). Shareholder activism
Model of the company
- Shareholders were individual and met together to receive report
- To re-elect them or to propose new management, and to approve significant
changes.
- Shareholders democracy with each share having voting rights, was feasible.
- In USA shareholders threatening or initiating proposal for the nomination and
election.
- In the UK, shareholders do have the right to have resolutions put on the ballot
and, if successful, they are usually biding on the directors.
 (4).Shareholders relations
In the USA, the SOX act of 2002 increased the emphasizes on investor
relationship by demanding greater corporate transparency, compliance,
and enhanced financial dislosure, with board-level responsibility for
financial reports.
In the UK Financial Reporting Council amended the corporate governance
code to require companies to explain to their AGM (annual general
meeting) how to they intend to engage with shreholders when a
significant percentage of them have voted against any resolution.
Professional investor relations can improve a company’s standing and
ultimately its share price.
 (5). Disclosure of substantial shareholdings
and directors’ interest
Transparent and timely disclosure of information about the
ownership structures allows existing shareholders and potential
investors to make informed decisions.
In Singapore, the companies act requires a substantial shareholder
of a listed company holding 5% or more of the total shareholders
votes, whether resident in Singapore or not, to disclose their
interests in the voting shares.
The shareholder must give written notice to the listed company
within two business days of becoming or ceasing to be a substantial
shareholder.
Disclosure of substantial shareholdings and directors’
interest
In Singapore, failure to obey the Company Act can incur civil penalties and
failure to follow the listing rules could lead to the ultimate sanction of delisting.
In Indonesia OJK is a government’s body to suspend disobey company.
In the UK, the transparancy required companies to maintain a registry of
companies’ beneficial owners, showing who owns and controls them.
Insider dealing ( or insider trading) is the buying or selling of shares on the basis
of information that is not yet available to the stock market. It is illegal in almost
all juridictions, although some countries were slow to criminalize the activity.
American hege fund company, and some of its officers pleaded guilty because of
insider trading.
(6). The Governance of Complex Corporate Structures

Complex corporate structures can be grouped in three

board categories

1. pyramids, in which the holding company sits on top of a

pyramid of subsidiary and associate company.
2. chains, in which one company or shareholder group holds an
interest in a string of companies.
3. networks, in which a set of companies owns shares in each
other.
 The Governance of Complex Corporate Structures

Networks, in which a set of companies owns shares in each other. To be clear on

definitions:
- a holding company is a company that holds all or a
dominant share of the voting rights in another company.
- a subsidiary company is a company in which another company (its holding
company) holds all of its voting shares (a wholly owned subsidiary) or a
majority of its voting shares (a partially owned subsidiary).
- an associate company is a company over which another company exercises
dominant power, even thought it does not hold a majority of the voting rights
in that company for example where the other shareholdings are widely spread.
 Complex corporate structures
● Pyramid group

○ Holding company

○ Subsidiary company

○ Associate company
 (7). Block-holders and universal ownership

Block of shareholders: they may be able to influence corporate decision,

including acquisition policy; on the appointment or dismissal of directors, and on
financial strategy, including dividend policy or capital restructuing.
In Sweden, corporate control became consentrated in block holdings
In Italy, voting trusts or voting syndicated are groups of large shareholders.
- About a third of large Italian companies are dominated by such
coalition of large shareholders.
- In Italy, information on all such trusts has to be registered and this
knowledge is publicly available.
- Prevention conflicts of interest between large shareholders
Block holders are also significant in South Korea, Russia, China.
 (8). Dual-listed Companies

In a traditional takeover situation, one company acquires the shares

of the others, which then becomes a subsidiary or associate
company of its parent holding company. The group maitains its
two separate stock exchange listings, with different shareholders
typically in differenct countries.
The benefits for dual listing include:
- continuing existing successful business
- protecting brand names
- taxation benefits
- sustaining national pride, avoiding claims that one country is
losing, it’s company to another.
 Dual listed company

The disadvantages can be:

- Conflict between the two managements, for example
on resources allocation
- Disagreement between the boards, unless all directions
are common to both
- Legal difficulties in applying the inter-company contracts
- Challeges from shareholders about unfair benefits to the
other company
- Taxation difficulties, icluding transfer prices for inter-group trading
- Problems if the group wants to unravel the dual listing agreements.
 (9). Dual-class shares

A dual class stock is the issuing of various types of shares by

a single company. ... The class offered to the general public
has limited or no voting rights, while the class available to
founders and executives has more voting power and often
provides for majority control of the company.
Dual-class shares are often issued to protect the ownership
power of a dominanct shareholding class.
For example:
Issue “A” class share-in which each share has one vote
Issue “B” class shares, in which each share has 100 votes
The founders of Google, Lary Page and Sergey Brin, exercise power
through dual-class shares.
- holding has only around 20% equity, but they control aroung 60% of
the voters.
- The Ford Motor Company has dual-class shares, giving greater powr to the
Ford Family.
- The Murdoch family held around 13% of the shares, butr could exercise
over 40% of the voting rights
 (10). Listings on alternative stock markets

The primary benefit of going public via

an IPO is the ability to raise capital
quickly by reaching a large number of
investors. A company can then use
that cash to further the business, be it
in the form of research, infrastructure,
or expansion.
 Advantages
and Disadvantages
Advantages of Going Public
- Greater liquidity
- Better access to capital
- Financially – accountable and transparan
Disadvantages of going Public
- Equity holders more dispersed
-Must satisfy requirements of public companies
-Alert in varieties of transactions
During the economic and buying STOCKS
market boom in 1990s,

Case study of financial Scandals: in 2002 ???????

Enron; Global Crossing, Qwest, WorlCom