Research on Good Corporate Governance
FCGI Publication 2006

All FCGI released research on Good Corporate Governance

Governance in Indonesia: Some Comments
This is a paper with some thoughts about the governance of Indonesia. The topic of the governance of a nation of over 220 million people, the fourth largest in the world, is one of great complexity. The topic is vast. However the aim of this paper is modest. The aim is merely to first, outline just a few of the main strategic issues of governance in Indonesia, and second, to outline some options for change.

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Survey of Banks’ Corporate Governance in Indonesia,
Corporate governance in the banking systems in Asia has been a focus of attention since the outbreak of the Asian financial crisis in 1997. The Asian Development Bank Institute (ADBI) in collaboration with the Center for Economic Institutions, Hitotsubashi University hosted a seminar on Corporate Governance of Banks in Asia in Tokyo in January 2005. The theme of their seminar was apt and timely, considering the widely articulated concerns that the poor internal corporate governance mechanism in the Asian banking institutions was a contributing factor to the crisis. Four country studies on Indonesia, the Republic of Korea, Malaysia and Thailand were undertaken by country consultants and four theme papers were written by field consultants on Board effectiveness, risk management procedures, the role of market discipline and deposit insurance for this seminar.

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Corporate Governance of Banks in Indonesia
One of the major factors for the vulnerability of Indonesian companies to the negative impact
of the 1997 financial crisis was their weak internal corporate governance mechanism. Like
other corporate entities in the region, the failure of Indonesian companies to implement
prudent corporate governance practices in their company management was related to a
number of factors, including a high concentration of company ownership and the lack of
transparency in the procedures for corporate acquisitions and control. In addition to the
problem of inefficiency, the Indonesian corporate sector was also vulnerable to the problems
of risk exposure associated with its over reliance on external funding, especially when there
was ineffective supervision by the Indonesian Board of Commissioner and inadequate
monitoring by creditors.

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