Financial Crime World

Corporate Governance in Indonesia: Understanding the Complexity

Introduction

Corporate governance has become a crucial aspect of business operations in Indonesia, yet many companies still fail to grasp its depth and complexity. In this article, we will explore the definition, history, and importance of corporate governance, as well as its implementation in Indonesia.

What is Corporate Governance?

Corporate governance refers to the system by which a company is directed and controlled. It is not a universally applicable concept, as definitions vary depending on institutions or authors in different countries.

Key Components of Corporate Governance

  • Accountability
  • Transparency
  • Fairness
  • Responsibility

The Role of Stakeholders

Stakeholders play a crucial role in corporate governance as they have interests in the company’s success and can impact its performance through their actions.

Brief History of Corporate Governance

Corporate governance has evolved over time, with early forms dating back to ancient civilizations. It is not limited to specific countries but is an international concept, with various frameworks and regulations in place globally.

The Business Case for Corporate Governance

Implementing corporate governance offers numerous benefits, including:

  • Stimulating performance
  • Improving operational efficiency
  • Enhancing access to capital markets
  • Lowering the company’s cost of capital
  • Raising the value of assets
  • Building a better reputation

Implementation in Indonesia

The corporate governance framework in Indonesia is governed by laws such as ICL 1995 and regulations like the Corporate Governance Code published by The National Committee on Governance (KNKG).

Key Institutions Active in Corporate Governance

  • Financial Services Authority (OJK)
  • Indonesia Stock Exchange (IDX)
  • Indonesian Institute for Corporate Governance (IICG)

The Chairman’s Checklist

The Chairman’s Checklist provides a framework for directors and other company organs to assess their understanding of corporate governance, its significance, and their compliance with regulations.

Best Practices for Implementing Corporate Governance

Companies must commit fully and continually to the principles of fairness, transparency, accountability, and responsibility to successfully introduce structures and processes that enable them to hold shareholder trust. They should familiarize themselves with:

  • OECD Principles of Corporate Governance
  • Legal framework of Corporate Governance in Indonesia
  • Corporate Governance Code applicable to companies in Indonesia (the CG Code)

Conclusion

Corporate governance is a complex and multifaceted concept that has evolved over time and is not limited to specific countries or institutions. Its implementation comes with costs but offers numerous benefits, including stimulating performance, enhancing access to capital markets, lowering the company’s cost of capital, raising the value of assets, and building a better reputation.

Indonesian companies must commit fully and continually to the principles of fairness, transparency, accountability, and responsibility to successfully introduce structures and processes that enable them to hold shareholder trust. They should familiarize themselves with the OECD Principles of Corporate Governance, legal framework of Corporate Governance in Indonesia, and the Corporate Governance Code applicable to companies in Indonesia (the CG Code).

References

  1. ICL 1995 (Indonesian Company Law)
  2. Corporate Governance Code published by The National Committee on Governance (KNKG)
  3. OECD Principles of Corporate Governance
  4. Indonesia Stock Exchange (IDX)
  5. Indonesian Institute for Corporate Governance (IICG)