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You here Home » Corporate Governance » Articles » Public Governance & Corporate Governance in State Enterprises
Saturday, 22 Jul 2017

Public Governance & Corporate Governance in State Enterprises

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Nowadays we increasingly hear and read about "corporate governance". The term "public governance" appears to be newly known and emerged during the past several years and some identity this with "public administration". Before this, in Indonesia we had a Good Corporate Governance National Committee or GCG National Committee headed by I. Nyoman Tjager. Since November 2004, the National Committee of Governance Policy or the KNKG has been established by Decision of the Coordinating Minister for Economic Affairs number: KEP.49/M.EKON/11/YEAR 2004 with Chairman Mas Achmad Daniri, former President Director of the Jakarta Stock Exchange.

Corporate Governance talks about proper corporate management of companies with its four main pillars being transparency, accountability, responsibility and fairness. Until now the point of focus of efforts in the enforcement of good governance is on the corporate sector. If we use the overall or holistic approach, the corporate sector does not stand alone because it is certainly linked to the public sector that is varied beginning from the Government as regulator, as Shareholder in State Enterprises as well as other elements such as the parties from the legislation, prosecutors, investigators, court proceedings, etc.

There is no use in us trying to enforce GCG solely in the corporate sector without conducting the same in the public sector including towards the apparatus of taxes, the Regional Government, customers and excises, permit regulators and so forth. In fact in this case, the public sector, specifically the Government as executive MUST give a good example. This is also linked to various transgressions conducted in the corporate sector that obviously would not happen if there was no "counterpart" or more accurately described as "partner" opposite the corporate sector.

Like the motto that speaks about transgressions for example corruption or bribery namely IT TAKES TWO TO TANGO. The Government as one the parties in the role of regulator administrates the state based on the legitimacy it possesses. Corporations include state enterprises as well as private companies and cooperatives constitute a sector that must comply with and adhere to regulations.

The enforcement of GCG, other than to minimize conflicts of objectives among shareholders one side and management on the other (known as the "agency theory"), GCG has the objective to create a business world that competes in a healthy manner and provides optimum contribution to the state in the form of taxes. How about GPG or Good Public Governance? According to OECD, Public Governance that is implemented in a proper and effective manner Hill create various benefits such as strengthening efforts for the enforcement of democracy, human rights and improving welfare and prosperity for the people, minimizing the level of poverty, extending efforts for environment protection and using natural resources in a sustainable manner which in its turn shall increase the trust of the people in its Government.

A good and trustworthy Government trusted by the people is a Government that can become a role model and gives a good example in its governance. If the Government has already obtained the trust of the People and carries out and is committed to the upholding of GPB (and GCG certainly), then victory in the next General Election is predicted to be achieved relatively more certainly.

The Government as Owner of State Enterprises

It cannot be denied that although State Enterprises are owned by the STATE in accordance with its acronym, however in reality, whenever a government changes then policies or Boards of Directors also change then it can be said that the owner of State Enterprises is the "Government" currently in power. There is nothing wrong with this, specifically if the Government as Owner also enforces public governance in handling State Enterprise without exception. As the owner the Government should strive to be fair in order that State Enterprises have improved competitiveness in facing private as well as global competitors and operate efficiently and transparently.

What is actually the main issue faced by State Enterprises in their relationship with the Government as owner? In the OECD book Guidelines on Corporate Governance of State Owned Enterprises – 2005, the main challenge faced is the need for alignment of objectives between both sides (in this case the Board of Directors as "agent" and the Ministry of State Enterprises as the "Principal" – remember the "agency theory"), to prevent conflicts of objectives or goals. State Enterprises are often driven to confusion by the existence of several "principals" hence not creating a "unity of command". This issue must be avoided through agreement on the Long Term Plan of the company that is submitted every five years to the Shareholders.

Here the role of Government representatives (read "state") is necessary as a Supervisor sitting in legal official form as the Board of Commissioners. No clarification in role and responsibility of both parties also constitute a different challenge. The management of the company on one side and the Government as shareholder on the other need to mutually agree on their respective roles and responsibility. Overlapping and interference in duties and responsibilities could be the trigger to the inability of competing of State Enterprises. The largest challenge presently faced by our State Enterprises is the procedure of appointments of both the Board of Directors as well as the Board of Commissioner hence the ones holding office currently face uncertainty and day by day increasingly weakens the competitiveness of the company as well as the productivity of Human Resources.

The existence of a Final Assessment Team or TPA results in obscurity continuing all this time and a firm line is needed concerning procedures for appointment of members of the Board of Directors as well as the Board of Commissioner and their relationship with the TPA. The Government must realize that the main stakeholders of State Enterprises are the PEOPLE whom until now are continuously observing developments and have become keen observers such as the BUMN WATCH . The people shall evaluate how far the Government applies good public governance.

The Government as state regulator has the obligation to create a level of playing field without discrimination meaning that there should be no discrimination towards the private sector. In order to achieve this purpose, firm delineation is needed between the role of the Government as owner and the role of the Government as regulator. It would be naïve and contrary to fairness if there should a regulator sitting in the Board of Commissioners of State Enterprises such as has been corrected by PLN two years ago and by Pertamina last 2004. Other than that State Enterprises need to be provided with some flexibility in determining their capital structure. State Enterprises should be given open access to financial resources as long as not contrary to the statutory regulations.

As shareholder, the Government must also be active in carrying out correction endeavors through an internal control mechanism by the Board of Commissioners. The chain of accountability needs to be simplified through a more effective centralization or coordination of responsibilities of shareholders. Political interference from Shareholders should be minimized since total elimination would be impossible in a country like Indonesia. Nominations and appointments of the Board of Directors must be transparent and based solely on competence and expertise. Ignorance of competence and expertise factors, for example because of camaraderie or political consideration would sooner or later damage the performance of the company.

The Board of Directors has to be empowered through various means such as:

- Confirmation pertaining to the mandate of the Board of Directors and respecting their independence without interference in decision making. The mechanism of responsibility would be established on its own without having to be damaged by interference from the Government or Shareholders.

- Confirmation pertaining to the role, obligations and duties of the Boards of Commissioners and Directors. Indeed, statutory stipulations already regulate this issue; however in several cases the uncertainty of the Board of Commissioners constitutes the trigger to internal chaos. It often occurs that the Board of Commissioners is not in a position or is reluctant to act firmly in correcting a decision of the Board of Directors or not following up a resolution already agreed upon (NO ACTION TALK ONLY). Such attitude tends to be based on the consideration of saving its own position, not solely the factor of "unprofessionalism".

- Monitoring the performance of the Board of Directors in accordance with the motto – each party must always be aware that they are constantly under supervision – whether pro-active, active or repressive supervision.

Transparency must be encouraged in each State Enterprise. This can be done through various steps:

- Strengthening of internal control efforts

- Application of international standards in the process of company audit

- Disclosure and explanatory for each unconventional income of funds including aid from the state

- Issuance of overall performance report i

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