Jakarta, December 12, 2010 – A new World Bank report shows that the country has made clear progress in all areas of corporate governance: laws and institutions, protecting investors, enhancing disclosure, and improving the performance of boards. However, there are still some key gaps compared to international standards or their peers in the region, who themselves have also gotten better.
The Corporate Governance Report on Standards and Codes provides an assessment of Indonesia’s corporate governance policy framework. The report highlights: recent improvements in corporate governance regulation; makes policy recommendations; and provides investors with a benchmark against which to measure corporate governance in Indonesia. Key steps taken to improve corporate governance in recent years include: (a) improvements to the legal framework, e.g. the 2007 Company Law; rules on corporate governance for banks introduced by Bank Indonesia; revisions and extensions of the Code of Good Corporate Governance, (b) better protection for investors through enhanced and enforced Bapepam-LK (Capital Market and Financial Institutions Supervisory Agency) regulations, and (c) a higher of degree of professionalism among boards of commissioners in listed companies in carrying out their responsibilities.
However a lack of reporting of ultimate ownership and control hinders the effectiveness of rules on conflicts of interest and many companies post little information on their company websites. The Code of Good Corporate Governance is voluntary and companies do not have to comply or explain their adherence. This has reduced awareness of and compliance with the Code. Commissioners still do not carry out many key functions and minority shareholders have little influence on board member selection. Courts are slow, and are generally not used by shareholders to protect their interests or seek redress.
“While Indonesia has made substantial progress in recent years to improve the corporate governance of listed companies, it still faces significant challenges,” said Mr. David Robinett, Senior Private Sector Development Specialist, World Bank and lead author of the report. “To better protect investors and develop capital markets, Indonesia must do more, especially in terms of implementing its own best practices in the code and having full information on who owns and controls corporate assets“
Indonesia’s scores have improved since the last Report on Standards and Codes was carried out in 2004, with the biggest increases in shareholder rights and equitable treatment of shareholders. Compared to other countries in the region, Indonesia still lags in some key areas, but is closing in on the regional pacesetters, particularly India, Thailand, and Malaysia. Moving forward, the report recommends to regulate ownership disclosure and other nonfinancial disclosure; make more effective use of independent commissioners and audit committees; require companies disclose their compliance with the Code of Good Corporate Governance; encourage board and media training.
Good corporate governance enhances investor trust, helps to protect small shareholders, and can encourage better decision making and improved relations with workers, creditors, and other stakeholders. It is an important prerequisite for attracting the patient capital needed for sustained long-term economic growth.
The Corporate Governance Report on Standards and Codes is part of a global initiative to benchmark relevant laws and practices against the OECD Principles of Corporate Governance. 72 Report on Standards and Codes have been conducted in 59 countries, including many in South and East Asia.