What is Corporate Governance?
There is no one definition that is generally accepted and applied to every situation or jurisdiction. However, The Indonesia Corporate Governance Manual published by Indonesia’s Financial Services Authority or Otoritas Jasa Keuangan (OJK) and the International Financial Corporation (IFC) provides a definition of Corporate Governance (CG) as structures and processes for the direction and control of companies.1 There are four main principles to establish Good Corporate Governance (GCG) according to the OECD Principles, namely: fairness and equality, responsibility, transparency, and accountability.2 There is one more principle that is deemed necessary to achieve GCG, namely independence. This GCG principle is needed to achieve the company’s business sustainability in regard to minority shareholders and other stakeholders.
What are the laws and regulations governing Good Corporate Governance?
Law Number 40 of 2007 concerning Limited Liability Companies (Company Law) does not explicitly regulate GCG but provides important points in the implementation of GCG in companies.3 The GCG terminology can be found in the Financial Services Authority Regulations or Peraturan Otoritas Jasa Keuangan (POJK), such as POJK 73/2016 concerning Good Corporate Governance for Insurance Companies and POJK 29/2020 concerning Amendments to POJK 30/2014 concerning Good Corporate Governance for Financing Companies.4 This is because OJK as an independent institution, has the function of implementing an integrated regulatory and supervisory system for all activities in the financial services sector,5 which tends to require higher legal compliance. Thus, regulations regarding good GCG standards must be formulated for company activities related to financial services. In addition, CG can also be found in the Decree of the Minister of SOEs KEP-117/M-MBU/2002 concerning the Implementation of GCG Practices in State-Owned Enterprises or Badan Usaha Milik Negara (BUMN) providing a definition of CG, namely, as a process and structure used by BUMN organs to improve business success and corporate accountability in order to realise shareholder value in the long term while taking into account the interests of other stakeholders, based on laws and regulations and ethical values.6
How important is it to implement Good Corporate Governance?
The implementation of GCG in the company is very important so that the company’s goals are achieved without harming any party and stakeholder. Democratic priciples of one share, one vote, may be open to abuse, usually to the detriment of the minority shareholder. Access to decision making to Board Level and Senior Management positions are also often less transparent and Executive and Director Remuneration are open to abuse. The implementation of GCG has a positive impact on the company by increasing the value of the company.
This is because the principles of GCG promote transparency, especially on crucial matters, such as the company’s financial statements, competence of Board of Directors, optimising decision making, and increasing employee motivation. Problems such as abuse of authority that harm the company can be minimised by implementing GCG. GCG promotes investors’ and the public perception that the company has its commercial interests at heart when making decisions. This increases confidence and the value of the company increases. In the long term, the implementation of GCG is also a guarantee for the creation of a good corporate culture that can continue to maintain a sustainable corporate reputation. In
a broader perspective, GCG also encourages the creation of an efficient and consistent market that is economically beneficial for the country. TWK/SPU
paragraph (1) letter b; Article 101 paragraph (1) Company Law.
66 paragraph (1); Article 66 paragraph (2); Article 102 paragraph (1); Article 89 paragraph (1); Article 53 paragraph (2); Article 82 paragraph (4); Article 84 paragraph (1); Article 85 paragraph (1); Article 61 paragraph (1); Article 61 paragraph (2); Article 62 paragraph (1); Article 62 paragraph (2); Article 43 paragraph (1); Article 97 paragraph (6); Article 114 paragraph (6); dan Article 138 paragraph (3) Company Law.