gcg in indonesia

Topics: Corporate governance, Corporation, Auditing Pages: 6 (1577 words) Published: December 15, 2013

Cost Management

Topic: Good Corporate Governance

Tania Ananda Mahdani (023113004)
Pradypto Utomo (023111217)
Trado Vansa Addraga (023113003)

1. How is the implementation of good corporate governance on companies in Indonesia?

Recent experience indicate that it isn`t sufficient for management just to rely on how efficient is the process of managing. It needs a new instrument, Good Cooperate Governance (GCG), to prove that the management is going well. This concept emphasize on two important things, that is: first, the right of shareholder to be provided of right and just on time information, and second, the obligation of company to disclose accurately, just on time, and transparently all information of company`s performance, shareholders, and stakeholders. Various studies by national and international researchers proved the lack of understanding the importance and strategic implication of applying GCG principles by Indonesian entrepreneur. Besides, organization culture also influencing GCG application in Indonesia.

In 1997, the East Asian Financial Crisis severely affected the economies of Thailand, Indonesia, South Korea, Malaysia, and the Philippines through the exit of foreign capital after property assets collapsed. The lack of corporate governance mechanisms in these countries highlighted the weaknesses of the institutions in their economies. Indonesia was one of the countries that experienced this crisis. In Indonesia, the after-effect of the crisis itself affected the economic development of the country.

The evaluation made by Asian Development Bank (ADB) shows some factors that give great contributions to the crisis that happened in Indonesia. First is the high concentration of company’s ownerships. Second, the ineffective control function from board of directors, third; inefficient and lack in transparency of the procedures on mergers and takeovers. Fourth, highly independent on external funding, and fifth; inadequate control from creditors. Indonesia has been implemented the GCG principles since signing the Letter of Intent (LOI) in cooperation with IMF, in which its most important intention is to improve the management of companies in Indonesia.

Current problem that is still faced by Indonesia is lack in understanding about the principles and practices of good corporate governance by business and public communities generally, in Indonesia. Therefore, the international community still ranked Indonesia in the last place on the implementation of GCG as what has been done by Standard & Poor, CLSA, Pricewaterhouse Coopers, Moody`s Morgan, and Calper`s.

The evaluation made by Pricewaterhouse Coopers that was placed in the Report on Institutional investor Survey (2002) placed Indonesia in the last rank together with China and India with score 1.96 for its transparency and openness. However, according to survey, if it was seen from the availability of investor to give premium to the price of its shares for public companies in Indonesia, the survey in 2002 showed improvement compare to the result in 2000. This showed the perspective of investors about the risk of not implementing GCG is getting better.

Through Corporate Governance Perception Index (CGPI), they were able to rank companies in Indonesia for its GCG implementation through researches planned in order to boost the quality in implementing the GCG concept, which can be done thorough continuous improvement by conducting evaluation and benchmarking. The Indonesian Institute created CGPI for Corporate Governance (IICG) together with SWA magazine. The program has been existed since 2001 until present, in which since 2001-2011 there were many participants, such as public companies, BUMN, BUMD, Banking, and BUMS. The participation for GCPI is voluntary, which involves active roles for the companies along with its stakeholders in order to help fulfill the program...

References: http://www.bumn.go.id/16433/publikasi/berita/implementasi-gcg-di-bumn-masih-hadapi-banyak-kendala/
Journal Ilmiah Mahasiswa Universitas Surabaya Vol.2 No.1 (2013)
Good Corporate Governance dan Penerapannya di Indonesia, by Thomas S. Kaihatu Staf Pengajar Fakultas Ekonomi, Universitas Kristen Petra Surabaya
Corporate Governance Perception Index
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