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Indonesian Institute for Corporate Director
IICD Event
05
Aug

What is Good Corporate Governance (GCG) ? - Ir Tony Silitonga MBM MBA DBAcan

Aug 05, 2011

Many studies indicate that one major contributing factor causing the 1997 Asian crisis is poor function of good governance system at both government and corporate level. Financial crisis that started in 1997 in Thailand has been very fast to enter South East Asia, and Indonesia. The lack of corporate governance is one cause blamed for the crisis. Some research studies have pointed out that the Asian Financial Crisis has been attributed to the poor governance in the corporate sector. Indonesia has been tried to defense by enlarging “intervention band while strictly control managed floating system from 5%-8% in June 1997 the intervention band enlarged to 12% one month after. The Asian economic crisis has appeared to hit Indonesian economy badly in all sectors. Four years after the crisis, the Office of the Attorney has revealed numerous cases of inflated project value that smell of subsequent looting, one of bad corporate governance conducts. When Asian crisis occurred, Indonesia still has other non-Asian countries to go for help.
 
However, the crisis today is the World Crisis, where Indonesia could no longer expect support from other countries, since all countries appeared to be influenced by this crisis. Compliance Week recently reported on a policy paper issued by the Association of Chartered Certified Accountants attributing the current financial crisis today to failed corporate governance, not sub-prime mortgage defaults as others have suggested. The principal cause of the credit crunch was not sub-prime mortgage defaults but a failure of corporate governance at banks, according to international accountancy body the Association of Chartered Certified Accountants.
 
So, What is Good Corporate Governance (GCG) ?
 
Good Corporate Governance (GCG) is about respect the FACT, such as The right man at the right place at the right time. FACT means Fairness, Accountability, Clarity (which consists of Responsibility and Integrity/Independency), and Transparency. Implementing GCG will encounter cost/TARIF. TARIF stands for Transparency, Accountability, Responsibility, Integrity/Independency, and Fairness.

 FACT means - Fairness, Accountability, Clarity, Transparaency
   
The implementation of this GCG concept, however, will ensure a good brand name of corporation, or in Indonesian terms we called CITRA,..which stands for Clarity, Integrity/Independency, Transparency, Responsibility, and Accountability.
 
Good corporate governance is one of the keys to healthy financial markets in today’s globalised economy. Good corporate governance is key to the integrity of corporations, financial institutions and markets, and central to the health of our economies and their stability.
 
Mc.Kinsey’s research on more than 250 global investor that having a portfolio investment with accumulated size of more than US$ 3.2 Trilyun shows that more investor to rely on GCG rating compared to financial reports, especially for their investment in Asia. Specifically for Indonesia, more than 55% global investors would base their investment on Non-Financial reports (sustainability report/GCG Score Report), and the investors valued high GCG rating corporation in Indonesia a premium of 27%.
 
Viewing the Indonesia economy today, Indonesia would need investment fund to move national economy. Listen from the market where current investors rely more on non-financial reports (sustainability report/Good Corporate Governance Report) rather than financial reports in deciding their investment portfolio, a comprehensive picture of Good Corporate Govenance implementation in Indonesia would be needed. There are at least two lessons to be learned: Effective corporate governance needs to be implemented and Corporate governance is no longer a quarterly exercise; it is something that needs to operate on an ongoing basis
 
Success in such environment depends critically on the effective leadership in the boards of directors: executive board and commissioner’s board. Temptation to engage in agency problem is a permanent feature of corporate governance. It is the duty of directors to insulate the corporation as far as possible against such temptation and to quickly recover should the unexpected events occur. Directors are liable to public shareholders and wider stakeholders for any act of management opportunism committed in their organization.
 
One of the main corporate governance reforms is the need to improve director professionalism through director education. IICD Director educational program covers all salient issues of good and competitive directorship where participants will also be encouraged to serve as champions of governance reforms in Indonesia.