GCG Challenges In Corporations And MSMEs – Part Five

Good Corporate Governance
Good Corporate Governance
Image by UX Indonesia on Unsplash.

By Ridwan Zachrie, Edited by Nadhifah Khalishah Agusalim

This is the fifth and final blog of a series surrounding the importance of developing Good Corporate Governance (GCG) with Indonesian values for MSMEs in Indonesia.

In this post, we’ll be looking at the challenges both large corporations and MSME sized companies face, and the strategies they can take to reduce the friction between the system that they want to create and the people who run it. Acknowledging these challenges is an important starting point for building GCG awareness.

GCG Challenges In Large Corporations

As an initial step, and before trying to build the basic values ​​of GCG for the MSME sector, it’s worth trying to understand some of the challenges faced by large corporations.

There are several questions to answer in efforts to promote GCG, which are closely related to human relations in corporations at any level. No matter how good the concept of GCG is, one of its successes will depend heavily on the individuals who run it. GCG systems will be difficult to run if the people do not have the desire and need to run it. In other words, the success of GCG must be built simultaneously between the system and the people who will run the system.

To start with, we need to first build “GCG awareness” which is critical for a successful GCG roll-out. To build awareness, we first have to understand some of the challenges that often occur in the initial efforts of a corporation and an MSME sized company to implement GCG.

These are the challenges that large corporations face related to implementing GCG:

Cultural Barriers

Cultural barriers can sometimes create resistance when responding to new ideas. My friends have had several experiences implementing GCG in companies, and they say there are many issues around consistency, especially regarding the principles of transparency and accountability as this affects the power of creativity and innovation.  They think that ‘business tricks’ that have been successful so far could be classed as “not GCG” so they can no longer run.

Organizational Conflict

Conflict can occur in any organization, for example, when employees who compete with each other using the principle of information disclosure as a “weapon” to try and bring each other down.

Misinterpretation of GCG Implementation

GCG implementation usually involves supervisory committees, for example Audit Committees, Risk Monitoring Committees and the like, which are considered a burden by the top leaders of the company because they have to incur additional costs or agency costs to recruit professionals in these fields.

So How Do We Respond To These Challenges?

The first step is to conduct GCG Awareness so that everyone in the organization, at every level, is committed to the same cause. If GCG is part of everyday work activities, implementation runs much more smoothly.

The failure of GCG implementation is often due to the failure of the company’s top leadership in translating concepts into daily actions and work activities.

GCG awareness must be part of the organizational strategy focus so that GCG principles can be transferred and implemented and become part of the company’s operational strategy.

Some of the steps that we can try include:

First, the principles of GCG are translated into part of operational activities.

Second, every strategy related to the organization must be based on GCG.

Third, make GCG principles a daily necessity.

Fourth, implement GCG implementation as a continuous process.

Fifth, every step of strategic change that leads to GCG must start from the top leadership.

GCG Challenges In MSME Sized Companies

In principle, the challenges faced in MSME sized companies are the same as they are in larger corporations, albeit but with different characteristics. Below are the challenges that MSME sized companies face when trying to implement GCG systems.

First, there is often a lack of information that can be obtained by financial institutions or banks about trustworthy MSME companies.

Second, it’s difficult for MSME companies to provide company financial information needed by banks because of the lack of knowledge possessed by MSMEs.  There are even MSME companies that don’t even have a balance sheet or don’t know how to make a good balance sheet.

Third, the characteristics of MSMEs whose company management is still relatively traditional and uses a simple financial and accounting system, not to mention the lack of facilities, managerial knowledge, placement of human resources that are not optimal as well as lack of market access.  Associated with the implementation of GCG, these characteristics need to be addressed by MSME companies.

Combining Innovation And Awareness

Consider the case of one of the MSME companies, namely Nyonya Meneer in the 1980s.  Bad business governance practices almost made Nyonya Meneer drown.  The company was coloured with conflicts of interest in the company’s management system, which at that time was not built with good mechanisms.  Shareholders are no different from the Board of Directors.

Therefore, we can be sure that every company, both large and small, has different characteristics, so the approach to implementing GCG success must be appropriate yet innovative.

Along with awareness, it will further strengthen the company’s commitment to implementing GCG and foster a sense of ownership from all levels.  In the end, GCG implementation will be successful because of effective top-down communication.

Building The Basic Foundation Of GCG Based On Indonesian Values

In building the basic concept of GCG based on Indonesian values ​​for MSMEs, there are three main exercises regarding the “Basic Foundations” that must be built together by all components of the nation who are concerned about empowering governance in MSMEs:

First, Building National Commitment. 

National commitment is the basic foundation of the successful empowerment and implementation of GCG in the MSME sector.

Without a commitment from all stakeholders to the importance of successful governance in the MSME sector, the GCG campaign in MSMEs is just like holding up a wet thread or returning to mere jargon.  This commitment must start from the Government together with other stakeholders in the MSME sector.  This can be started by developing the GCG Vision and Mission for MSMEs.  This Vision and Mission will underlie the spirit of implementing norm-based GCG in the MSME sector with the main objective of building the nation’s independence.

Second, Creating GCG Mechanisms And Structures For Msmes. 

It is necessary to build a GCG mechanism for MSMEs, which is outlined in the form of laws and regulations such as the GCG Guidelines/ Policies for MSMEs and the Code of Conduct.

This mechanism is important as a means of controlling the rules of the game, so that in the future the implementation of GCG principles in MSMEs can be controlled effectively and efficiently.  This mechanism needs to be supported by building a clear GCG structure in charge of the MSME sector so that it does not overlap with GCG empowerment activities in other sectors such as SOEs, corporations, and others.

In order to achieve maximum results, it is necessary to start separating sector GCG empowerment activities, which are supported by responsible infrastructure, with clear roles and functions, so that the round of GCG empowerment in MSMEs will go through one door.

This infrastructure must be handled by institutions at the Ministerial level.  This means, even if it becomes the responsibility of the Ministry of MSMEs, the functions and duties of the MSME Minister must include the empowerment of GCG in the MSME sector, by forming a Special General Directorate to handle GCG Empowerment.

Third, Build GCG Monitoring/Monitoring For Msmes. 

The measure of the success of GCG empowerment can be seen by the extent to which the principles of universal GCG or TARİF (Transparency, Accountability, Responsibility, Independence, and Fairness) have been grounded among MSMEs.

Here, an activity known as GCG Awareness will begin to be carried out in order to make the implementation of MSMEs a necessity and not just the fulfilment of applicable regulations. Therefore, it is necessary to develop tools that can be used as a monitoring function, such as GCG reports, and GCG ratings that can be used as benchmarks for the success of GCG empowerment in MSMEs.

Conclusion

The success of implementing GCG in the MSME sector will not be achieved if it is done half-heartedly.

It must be acknowledged together that the backbone of the national economy today is the MSME sector.  The role of this sector is actually able to absorb millions of jobs, eradicate poverty, move the real sector, and become the main key to the revival of the national economy.

The role of the MSME sector in providing added value to the national economy is still not commensurate with its strategic role.  Facing this challenge, empowering the MSME sector is a non-negotiable national struggle.  This struggle requires all components of the nation to give their main attention to the revival of the MSME sector in Indonesia.

The revival of the MSME sector is not only supported by a stimulus for business actors to increase their business scale, strengthen their management skills or deepen the elements of innovation and technology to increase added value; or not enough with the government’s role in providing a conducive business climate.  The most important thing is how to build good business governance in managing the MSME sector.

To implement this, it is clear that commitment from top leaders is needed in government, corporations, and other stakeholders.

The nation’s components must be able to build a shared spirit to formulate norm-based GCG for the MSME sector so that the implementation of universal GCG can be grounded.

Therefore, it is the joint task of the stakeholders after building the aspect of their own values ​​of GCG for MSMEs to then enter the stage of building GCG Awareness.  With a strong MSME sector in philosophy, mechanism and structure, we will be able to provide a strong foundation in contributing to building an independent nation’s economy.

The consistent application of GCG in the MSME sector will be able to build a sustainable MSME sector, which will then create a solid Indonesian national economy that places the MSME sector as an irreplaceable backbone.

Latest Article
Govt Allocates More Subsidies for Electric Motorcycles
According to reporting from Antara News, Dadan Kusdian, Indonesia’s Secretary General of the Ministry...
Netherlands Consider Easier Visas for Indonesians
Citing Antara News, Tempo is reporting that Indonesia and the Netherlands discussed strengthening consular...
Ministry to Implement KRIS at 3,060 Hospitals by 2025
Indonesia’s Health Ministry is targeting to get more than 3,000 national hospitals to implement...
Hospital-based Specialist Doctor Program Launched
Speaking at the launch of a hospital-based specialist doctor program on Monday (6/5/24,) Indonesia’s...
Indonesia Anticipates Prabowo’s Cabinet
Prabowo Subianto and Gibran Rakabuming Raka will be sworn in as the country’s new president and vice...

Andrzej Barski

Director of Seven Stones Indonesia

Andrzej is Co-owner/ Founder and Director of Seven Stones Indonesia. He was born in the UK to Polish parents and has been living in Indonesia for more than 33-years. He is a skilled writer, trainer and marketer with a deep understanding of Indonesia and its many cultures after spending many years travelling across the archipelago from North Sumatra to Irian Jaya.

His experience covers Marketing, Branding, Advertising, Publishing, Real Estate and Training for 5-Star Hotels and Resorts in Bali and Jakarta, which has given him a passion for the customer experience. He’s a published author and a regular contributor to local and regional publications. His interests include conservation, eco-conscious initiatives, spirituality and motorcycles. Andrzej speaks English and Indonesian.

Terje H. Nilsen

Director of Seven Stones Indonesia

Terje is from Norway and has been living in Indonesia for over 20-years. He first came to Indonesia as a child and after earning his degree in Business Administration from the University of Agder in Norway, he moved to Indonesia in 1993, where he has worked in leading positions in education and the fitness/ wellness industries all over Indonesia including Jakarta, Banjarmasin, Medan and Bali.

He was Co-owner and CEO of the Paradise Property Group for 10-years and led the company to great success. He is now Co-owner/ Founder and Director of Seven Stones Indonesia offering market entry services for foreign investors, legal advice, sourcing of investments and in particular real estate investments. He has a soft spot for eco-friendly and socially sustainable projects and investments, while his personal business strengths are in property law, tourism trends, macroeconomics, Indonesian government and regulations. His personal interests are in sport, adventure, history and spiritual experiences.

Terje’s leadership, drive and knowledge are recognised across many industries and his unrivalled network of high level contacts in government and business spans the globe. He believes you do good and do well but always in that order. Terje speaks English, Indonesian and Norwegian.

Contact Our Consultants

[wpforms id=”43785″]

Ridwan Jasin Zachrie

CFO of Seven Stones Indonesia, Jakarta

Ridwan is one of Indonesia’s top executives with a long and illustrious career in the financial world. He holds several professional certifications including being a Certified Business Valuer (CBV) issued by the Australian Academy of Finance and Management; Broker-Dealer Representative (WPPE); and The Directorship Certification for Directors and Commissioners, issued by the Indonesian Institute of Commissioners and Directors.

His experience includes being the Managing Director at one of the top investment banking groups in the region, the Recapital Group, the CFO at State-owned enterprises in fishery industry and the CEO at Tanri Abeng & Son Holding. He’s also been an Independent Commissioner in several Financial Service companies and on the Audit and Risk Committee at Bank BTPN Tbk, Berau Coal Energy Tbk, Aetra Air Jakarta as well as working for Citibank, Bank Mandiri and HSBC. His last position was as CFO at PT Citra Putra Mandiri – OSO Group.

Ridwan has won a number of prestigious awards including the Best CFO Awards 2019 (Institute of Certified Management Accountant Australia-Indonesia); Asia Pacific Young Business Leader awarded by Asia 21 Network New York USA (Tokyo 2008); UK Alumni Business Awards 2008 awarded by the British Council; and The Most Inspiring Human Resources Practitioners’ version of Human Capital Magazine 2010.

He’s a member of the Board of Trustees of the Alumni Association of the Faculty of Law, Trisakti University, Co-Founder of the Paramadina Public Policy Institute and actively writes books, publications and articles in the mass media. He co-authored “Korupsi Mengorupsi Indonesia” in 2009, which helps those with an interest in understanding governance in Indonesia and the critical issue of corruption. Ridwan speaks Indonesian and English.

Per Fredrik Ecker

Managing Director of Seven Stones Indonesia, Jakarta

Per is the Managing Director of the Seven Stones Indonesia (SSI) Jakarta office and has more than 25-years’ experience in Indonesia, China, and Western Europe. He previously worked in senior management positions with Q-Free ASA, Siemens AG, and other companies in the telecom sector. Over the last six years, he has been the Chairman of the Indonesia-Norway Business Council (INBC) and recently become elected to be on the board of EuroCham Indonesia.

His most recent experience is within Intelligent Transport Solutions (ITS), Telecom, and other sectors within the Indonesian market. He is today through his position in SSI and by representing Norway Connect, promoting Nordic and European companies that would like to explore business opportunities in the Indonesian market. He’s also playing an active role to help create the Nordic House concept in Jakarta that will provide an excellent platform for Nordic companies entering Indonesia, where they’ll find a community that can offer support with trusted information and affordable services to enter this market.