By the year 2010, it is estimated that foreign investors will be the majority owner in 80% of Indonesia’s top 200 companies. In terms of gaining foreign investment, this is good news. The bad news is, this poses a threat to good corporate governance (GCG) implementation in Indonesia. Why is that ?Foreign investor will surely bring a new corporate culture in local company which they’ve acquired or controlled. Again, this is good in term of boosting company’s performance. The new owner will bring change, introduce new values, new best practices, execute new strategies and adopt new technology.
But not all change leads to better. There is a risk in transparency and accountability of the firm. These two components of GCG will only be achived if there is a just separation of interest and independency between the supervising-monitoring organ and the operating organ in the firm. Foreign investor, with their new values, tend to mix-up these two functions.
Indonesia –as many other Anglo-Saxons law countries- adopt two-boards system. Singapore for example, which many of its companies have majority share in Indonesian firm, adopt single-board system. Contrary of single-board system, there are two independent organs in a firm: the Board of Commissioner (BoC) and Board of Directors (BoD). Both organs are in the same level and represent common interest of shareholders through general meeting of shareholders. BoC is collective while BoD is collegial.
So, just because you own [majority] the firm does not make you President. You cannot intervene directly in daily operation. Certainly you cannot be President and CEO at the same time.
‘General Guidelines on Good Corporate Governance Indonesia‘ booklet published by National Committee on Good Corporate Governance (NCGCG), explains in detail the separate function of the two organs. BoC mainly focuses on monitoring in the long term and act as preventive organ while BoD focuses on sustainable profitability in shorter term. Again, these two organs are equal. With the separation of roles and function, both board can work effectively.
This is one hard lesson from national economy crisis in late 90′s. Confict of interest in BoC and BoD leading to ineffective function, puny internal control and audit, and lack of disclosure are the factor contributing to bad investment, excessive exposure to debt and un-hedged foreign debt.
This article is based on discussion with NCGCG in their recent visit to Bisnis Indonesia.
