PT Timah; Experiences on applying Good Corporate Governance

One of the implementation of corporate governance in Indonesia is PT Timah. After running into financial problem in the early 90's, PT Timah undertook an exclusive restructuring. In line with the business reorganization, the company also undertook financial restructuring, which included quasi-reorganization, rebuilding its accounting and financial systems and policies, and renovation of its Management Information Systems.

Quasi-reorganization is basically a balance-sheet restructuring which comply with the prevailing Indonesian GAAP. The strategies include elimination of deficits in retained earnings, revaluation of assets, which were lower than their book-value, start afresh with zero retained earnings, and reconstitution of capital structure. The net impact of quasi-reorganization on the company's overall capitalization was reduction of the Government paid-up capital from Rp. 300 billion to Rp. 120 billion, even though Government injected fresh capital participation to finance the restructuring. Successful implementation of these strategies precluded the need to declare legal bankruptcy.

In July 1993, for the first time PT Timah obtain an Unqualified Opinion for its 1992 Financial Report audited by Public Accountant and this report was prepared in a relatively shorter period time, six month compared with 22 month for its 1989 financial report. Since 1994, PT Timah manages to complete the audit report in less than a month. This accounting report was an important part of the capital market authority requirement for sound and timely disclosure.

In implementing change during the restructuring exercise, PT Timah introduced and adopted new corporate culture. As a business institution with bureaucratic legacy, changing the mind set to more entrepreneurial culture is needed. PT Timah's corporate culture is based on the principles: Solidarity , Openness , Integrity with the underlying Work Attitudes of Trust, Openness , Positive Thinking , Rationality and Cost Consciousness .

To communicate the Culture and Work Attitudes, the Company has published a " Guide to PT Timah Corporate Culture" for distribution to all employees. It has also published a Do's and Don'ts for Employees. Specifically for partners and prospective partners, PT Timah has published "Guidelines to Partnership with PT Timah", which provides management transparency to stakeholders. PT Timah believes that culture and work attitudes constitute a vital part of good corporate governance.

Introduction, implementation and maintenance of new corporate culture and work attitudes has provided a strong foundation on their human resources in implementing good governance practices.

Introduction and application of information technology allows management to receive up to the minute management reports on the Key Result Area of the business facilitating on-time, real-time decision making. It also facilities accurate and timely reporting requirement of the capital market participants.

By the end of last year, PT Timah asked the help of a consulting firm to undertake an independent review and assessment to their corporate governance practices, and to provide them with suggestion on the necessary improvement.
There are 11 aspects of governance that comprise the principal focus of the consultant in assessing corporate governance in PT Timah Tbk. The 11 aspects are:

1. Definition of Roles and Powers of the Board of Directors and Commissioners
2. The existence and practice of Code of Conduct
3. Board & Management Appointment
4. Board Skills and resources
5. Board Independence
6. Business & Community Consultation
7. Strategy Setting
8. Management Reporting
9. Monitoring Board Performance
10. Risk Management
11. Procurement Control

In comparison to "better/world practice", the Consultant's assessment of PT Timah's governance is generally favourable. Out of the 11 aspects reviewed, six were ranked as good, and five in need of improvement. Not one was rated poor. These are encouraging results, but also challenge them to uphold these values and rectify shortcomings.

PT Timah's commitment to improving good corporate governance doesn't stop there. Timah's 1999 annual report includes a chapter on corporate governance for the first time. PT Timah is also in the process of nominating and selecting independent commissioners which have been approved by the Annual General Meeting of Shareholders. In the mean time, the Board of Commissioner is also setting up an audit committee, as recommended by the Bapepam.