Corporate governance is under the microscope as the Indonesia boardroom, apparently out of step with European and Indonesia counterparts, looks like a suitable case for effective treatment.
Ivan Pavlov said that human being change their behavior only when stimulated. This can be seen in managerial issues: pain leads to change. The rising numbers of corporate receiverships and Chapter 11s; hostile takeovers with their ancillary spectacle of unbundling; the exuberance of the increases in the salaries of chief executives; the hostility towards fund managers for alleged short-termism; all these focus on the issue of corporate governance. Who rules? Who should rule? What should constitute appropriate checks and balances for stakeholder harmony?
in order to address many of these questions the Cadbury committee has been established to consider, inter alia, apposite remuneration of the chief executive, the role of the chairman, accountability of non-executive directors, corporate reporting, and the propriety of financial information flows. Given the composition of the committee (CBI, the Law Society, members of the Institutional Shareholders Committee, the accountancy industry) many expect recommendations as to the boarder issues - wider stakeholder representation and the role of the Government. The need for this review is well supported: the Indonesia boardroom is argued to be out-of-step with both its European and Indonesia counterparts. Corporate governance is under the microscope.
Commentators say the traditional responsibilities of Indonesia directors is fourfold.
First, boards should approve strategy. Walter Goldsmith, former director-general of The Institute of Directors, has said that the board, being concerned with the direction of the business would determine longer-term strategy and see that the management was running the business properly. But does it? Considerable doubt exists. Those scholars who have recorded what actually goes on are skeptical. W J McDougall, in Corporate Boards in Indonesia personifies the results of their data: "in many companies directors come to meetings unprepared and with inadequate information both on current operations and on special projects. The directors meeting, then, becomes a place where the directors learn from the management what's going on". Their decision-making as to strategy is legal fiction, according to E E Smith (AMA report No 14, 1958).
Second, boards should be adequately informed to evaluate strategy. It is axiomatic that in order to fulfill the role of approving strategy, directors should be provided with pertinent information from which to support their decisions. There problems emerge:
a. Accuracy of information. Under Indonesia law, all directors - both executive and non-executive are equal. External directors cannot insist upon an independent secretariat for verification of corporate data.
b. Timing of information. Several studies have empirically observed that data arrives without adequate time for absorption, particularly for external directors. Two decades ago, Harvard Business School's m Mace remarked that it is regarded as improper - just plain bad manners - to ask challenging questions at board meetings.
c. Relevance of information. Again, several studies show that directors are swamped: a fault in most reporting systems of 'if in doubt, include it'. My own research into boardroom information systems indicates that 36 per cent of even those items received were deemed irrelevant. Quality, timeliness and relevance are at variance with prescription.
Ivan Pavlov said that human being change their behavior only when stimulated. This can be seen in managerial issues: pain leads to change. The rising numbers of corporate receiverships and Chapter 11s; hostile takeovers with their ancillary spectacle of unbundling; the exuberance of the increases in the salaries of chief executives; the hostility towards fund managers for alleged short-termism; all these focus on the issue of corporate governance. Who rules? Who should rule? What should constitute appropriate checks and balances for stakeholder harmony?
in order to address many of these questions the Cadbury committee has been established to consider, inter alia, apposite remuneration of the chief executive, the role of the chairman, accountability of non-executive directors, corporate reporting, and the propriety of financial information flows. Given the composition of the committee (CBI, the Law Society, members of the Institutional Shareholders Committee, the accountancy industry) many expect recommendations as to the boarder issues - wider stakeholder representation and the role of the Government. The need for this review is well supported: the Indonesia boardroom is argued to be out-of-step with both its European and Indonesia counterparts. Corporate governance is under the microscope.
Commentators say the traditional responsibilities of Indonesia directors is fourfold.
First, boards should approve strategy. Walter Goldsmith, former director-general of The Institute of Directors, has said that the board, being concerned with the direction of the business would determine longer-term strategy and see that the management was running the business properly. But does it? Considerable doubt exists. Those scholars who have recorded what actually goes on are skeptical. W J McDougall, in Corporate Boards in Indonesia personifies the results of their data: "in many companies directors come to meetings unprepared and with inadequate information both on current operations and on special projects. The directors meeting, then, becomes a place where the directors learn from the management what's going on". Their decision-making as to strategy is legal fiction, according to E E Smith (AMA report No 14, 1958).
Second, boards should be adequately informed to evaluate strategy. It is axiomatic that in order to fulfill the role of approving strategy, directors should be provided with pertinent information from which to support their decisions. There problems emerge:
a. Accuracy of information. Under Indonesia law, all directors - both executive and non-executive are equal. External directors cannot insist upon an independent secretariat for verification of corporate data.
b. Timing of information. Several studies have empirically observed that data arrives without adequate time for absorption, particularly for external directors. Two decades ago, Harvard Business School's m Mace remarked that it is regarded as improper - just plain bad manners - to ask challenging questions at board meetings.
c. Relevance of information. Again, several studies show that directors are swamped: a fault in most reporting systems of 'if in doubt, include it'. My own research into boardroom information systems indicates that 36 per cent of even those items received were deemed irrelevant. Quality, timeliness and relevance are at variance with prescription.
