Corporate Governance dan Etika Bisnis

Definition There is no universally accepted definition of corporate governance Existing definitions of corporate governance fall along a spectrum: ‘Narrow’ views  restricted to relationship between a company and its shareholders ‘Broader’ views  relationship between a company and its stakeholders

Definition Rezaee (2009): Corporate governance is the process affected by a set of legislative, regulatory, legal, market mechanisms, listing standards, best practices, and efforts of all corporate governance participants, including the company’s directors, officers, auditors, legal counsel, and financial advisors, which creates system of checks and balances with the goal of creating and enhancing enduring and sustainable shareholder value, while protecting the interests of other stakeholders

Definition OECD - Organization for Economic Co-operation and Development: Corporate Governance is the system by which business corporations are directed and controlled The Corporate Governance structure specifies the distribution of the right dan responsibilities among different participants in the corporation, such as the board, managers, shareholders, and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides this structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance

Aspects of Corporate Governance 3 aspects of corporate governance examined: Shareholder aspect Stakeholder aspect Integrated aspect

Shareholder Aspect The shareholder aspect of corporate governance is based on the premise that shareholders provide capital to the corporation that exists for their benefit Support agency theory

Agency Theory Agency relationship is a contract under which one or more persons (principal(s)) engage another person (agent) to perform some service on their behalf which involves delegating some decision making authority to the agent.

Agency Problem The essence of agency problem is separation of ownership and control Principal have difficulties in assuring that their funds are not expropriated or wasted on unattractive projects

Conflict of Interests Insiders have an information advantage over other parties (i.e. outsiders). Insiders: Management, Majority Stockholders Outsiders: Creditors, Minority Stockholders, Government, Employees, Public These parties pursue their own interests (i.e., self interest), which can be conflicting As a result, the parties whose action is unobservable tend to shirk (i.e., insiders), which is detrimental to the other parties

Stockholder-Manager Conflicts The self-interested behavior of managers may be at conflict with the interest of stockholders. Managers may favor growth and larger size of the firm: Greater job security Larger compensation Greater prestige Larger discretionary expense accounts

Stockholder-Manager Conflicts (Cont’d) Consumption of excessive perquisites. Direct benefits: use of company car, expense accounts. Indirect benefits: up-to-date office decor. Shirking They may not put forth their best efforts.

Stockholder-Manager Conflicts (Cont’d) Principal and agent sign a contract that specifies what the manager does with the funds, and how the returns are divided between them. The problem is: complete contracts are infeasible. As the consequence, the manager ends up with substantial control rights.  Agency costs

Shareholder Aspect Corporate governance is designed to reduce the agency costs and align the interests of management with those of investors

Stakeholder Aspect Focuses on the broader view of the company as the nexus of contracts among all corporate governance participants with the common goal of creating value Concentrates in the maximization for all stakeholders

Integrated Aspect The primary goal of corporate governance is not simply to reduce agency costs, but to create a right balance of power sharing among all corporate governance participants driven by the responsibility to create and enhance long-term shareholder value while protecting the interests of other stakeholders

Corporate Governance Structure There is no globally accepted corporate governance structure Nature of cultural, social, legal, regulatory, business, and economic systems

Corporate Governance Principles OECD (2004) Principles: Ensuring the basis for an effective corporate governance framework The rights of shareholders and key ownership functions The equitable treatment of shareholders The role of shareholders in corporate governance Disclosure and transparency The responsibilities of the board

Corporate Governance Principles Corporate governance structure should be developed based on the following principles: Value-adding philosophy Ethical conduct Accountability Shareholder democracy and fairness Integrity of financial reporting Transparency Independence

Corporate Governance Functions Oversight Managerial Compliance Internal Audit Advisory External audit Monitoring

Corporate Governance Functions Oversight Board of directors  fiduciary duty of overseeing the managerial function in the best interests of the company and its shareholders Managerial Management  run the company and anage its resources, operations, and disclosures of relevant and reliable financial and nonfinancial information

Corporate Governance Functions Compliance A set of laws, regulations, rules, standards, and best practices developed by state and federal legislators, regulators, standard-setting bodies, and professional organizations To create a compliance framework

Corporate Governance Functions Internal audit Provides both assurance and consulting services to the company Legal and financial advisory Provides legal advice and financial advice External audit Lend credibility to the company’s financial reports

Corporate Governance Functions Monitoring Exercised by shareholders, particulary institutional shareholders, who are empowered to elect and, if warranted, remove directors Other stakeholers can also affect corporate policies and practices

Corporate Governance Mechanisms Internal and external governance mechanisms Internal: BOD, particulary independent directors Audit comittee Management Internal controls Internal audit functions External

Corporate Governance Mechanisms Internal mechanisms BOD, particulary independent directors Audit comittee Management Internal controls Internal audit functions

Corporate Governance Mechanisms External mechanisms Capital market Market for corporate control Labor market

Framework of Corporate Governance

One Tier System Sumber: FCGI. Peranan Dewan Komisaris dan Komite Audit dalam Pelaksanaan Corporate Governance (Tata Kelola Perusahaan)

Two Tier System Sumber: FCGI. Peranan Dewan Komisaris dan Komite Audit dalam Pelaksanaan Corporate Governance (Tata Kelola Perusahaan)

Pemegang Saham RUPS Dewan Komisaris Dewan Direksi Stakeholders Employees Customers Suppliers Creditors Society Standards (for example, accounting and auditing) Laws Regulations Internal External Private Regulatory Bank Markets Capital market Labor market Product market Corporate Governance Mechanism : The Internal and External Architecture Reputational agents Accountants Lawyers Credit rating Investment bankers Financial media Investment advisors Research Corporate Governance analyst Internal Auditor Accounting Management Source : Modification from Corporate Governance : A Framework for Implementation, Cadburry, 1999 & Corporate Governance, Kim & Nofsinger, 2004 Penguatan Governance harus melibatkan berbagai pihak baik internal perusahaan maupun eksternal dalam konteks pengendalian Board sehingga pencapaian tujuan perusahaan tetap konsisten.

Sources of Corporate Governance Corporate laws Securities laws Listing standards Best practices

Corporate Governance Reforms SOX in 2002

CG di Indonesia Pada tahun 1999, Komite Nasional Kebijakan Corporate Governance (KNKCG) dibentuk berdasarkan Keputusan Menko Ekuin Nomor: KEP/31/M.EKUIN/08/1999 Pada bulan November 2004, Pemerintah dengan Keputusan Menko Bidang Perekonomian Nomor: KEP/49/M.EKON/11/2004 telah menyetujui pembentukan Komite Nasional Kebijakan Governance (KNKG) yang terdiri dari Sub-Komite Publik dan Sub-Komite Korporasi Menggantikan KNKCG

CG di Indonesia KNKG: Telah mengeluarkan Pedoman Good Corporate Governance (GCG) Pertama kali tahun 1999, kemudian disempurnakan tahun 2001, dan terakhir tahun 2006 Pada awal tahun 2004 juga telah mengeluarkan Pedoman GCG Perbankan Indonesia dan pada awal tahun 2006 mengeluarkan Pedoman GCG Perasuransian Indonesia

CG di Indonesia Pasar Modal: Bapepam-LK telah mengeluarkan berbagai regulasi terkait GCG Komisaris independen Komite audit Kewajiban penyampaian laporan keuangan dan laporan tahunan Benturan kepentingan dan transaksi afiliasi Pedoman Penyajian dan Pengungkapan Laporan Keuangan Emiten dan Perusahaan Publik

CG di Indonesia Perbankan: BUMN: PBI No. 8/4/PBI/2006 mengenai Pelaksanaan Good Corporate Governance bagi Bank Umum BUMN: Kep Menteri BUMN No: KEP-117/M-MBU/2002 tentang Penerapan Praktek Good Corporate Governance pada Badan Usaha Milik Negara (BUMN)

Corporate Governance Rating Investor focus on corporate governance generated a demand for and interest in the development of rating metrics or systems that gather, analyze, rank, and compare corporate governance practices of public companies

CG in Indonesia Country Level Firm Level Example: survey by CLSA, ACGA, and Transparency International Firm Level Example: survey by IICG (Corporate Governance Perception Index / CGPI)

CLSA – Score CG 2005 and 2007

CLSA – Score CG 2003

Corruption Perception Index

CGPI - 2001

CGPI – 2001 (Cont’d)

CGPI – 2002

CGPI - 2003

CGPI – 2005 (berdasarkan penerapan GCG tahun 2004)

CGPI – 2006 (berdasarkan penerapan GCG tahun 2005)

CGPI – 2006 (berdasarkan penerapan GCG tahun 2005)

CGPI – 2007 (berdasarkan penerapan GCG tahun 2006)

CGPI – 2008 (berdasarkan penerapan GCG tahun 2007)

Corporate Governance Reporting CGR should: Disclose all relevant information about the company’s corporate governance Focus on the company’s sustainability performance Provide transparent information about performance and its impacts on all stakeholders Assess the company’s responsiveness to the needs of its stakeholders