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Corporate Governance Reform in Indonesia

Corporate Governance Reform in Indonesia. Sofyan Djalil Senior Lecturer - University of Indonesia and Executive Director of the Indonesian Institute of Commissioners & Directors Marcelino Pandin Vice Chairman, the Indonesian Institute for CorporateDirectorship.

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Corporate Governance Reform in Indonesia

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  1. Corporate Governance Reform in Indonesia Sofyan Djalil Senior Lecturer - University of Indonesia and Executive Director of the Indonesian Institute of Commissioners & Directors Marcelino Pandin Vice Chairman, the Indonesian Institute for CorporateDirectorship

  2. Four Questions to be answered: 1. What’s the CG situation in Indonesia? 2. What reform areas to be or have been introduced? 3. How far the CG Reform agenda takes place? 4. What are the challenges and opportunities ahead?

  3. Recent Indonesian Corporate Governance Situation • Banks have not been effective as intermediaries • Capital market is immature (20 companies controlled 70% market cap.) • Concentration of Ownership: close family network, and • government via SOEs & IBRA • State governance is not functioning as it should be. • - decentralisation confuses officers at the operational level • - legal system is immature and enforcement is lacking & unpredictable • Stakeholder issues take its strong position (unions, local gov., local community ) • International Investors sentiments and multi & bi-lateral agencies • support • In general, the Indonesian business culture and practices are still far from • OECD’s GCG Principles

  4. Indonesian Corporate Governance Broad Reform Areas • Strategy & Policy Co-ordination • Commercial Law Reform • Company Incorporation and Registration • Socialisation • Institutional Strengthening • Quality Recognition (related to CG) • Standards & Self-Regulation • Education & Research • International Co-operation • Source: ADB Project TA No. 3484 – INO, Dec. 2001

  5. How Far the Indonesian CG Reform Goes Country Level : • National Codes of Good Corporate Governance • GCG Sectoral Codes are coming • Intensive Socialiation • Ministerial Decree supporting CG in SOEs • Institutionalising the initiatives on GCG Reform (Change • Agent) e.g. Director Education – LKDI/IICD, • shareholder Activism : MISSI, IICG • SEC & JSX (Change Agent): disclosure on CG practices • Central Bank (Change Agent): Compliance Director of Banks (Veto • right), Risk and Compliance Procedures Firm Level: • Striving on how to put GCG Principles and Codes • into firm’s Internal system (CG Champions & Strategic Corp. Intent) • Many recognise GCG as new ‘fad’ but only few understand • Prioritised targets: SOEs, listed comp., companies manage public funds, • Banking (Bank Mandiri premium 1-2%)

  6. Challenges and Opportunities • Commitment from the country’s top decision makers • (Executive and Legislative) • Effective Public Governance & Judicial System • Implementation and Monitoring of CG National Programs • Building External & Internal Pressure Groups: class action, awards, activists • Providing Incentive Scheme & Best Practices • Building local experts and expertise in GCG • Continued Supports from multi and bi-lateral agencies • Introducing ‘new principles of doing business’ takes time

  7. Thank you

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