Why It’s Important To Develop Good Corporate Governance With Indonesian Values For MSMEs – Part One

Why It’s Important To Develop Good Corporate Governance With Indonesian Values For MSMEs – Part One
Photo by Devi Puspita Amartha Yahya on Unsplash.

By Ridwan Zachrie

The economic concepts that prioritize the interests of regular working people in the context of achieving an independent nation’s economy are extremely relevant to Indonesia’s current situation; especially as we face a variety of problems that have come about as a result of the current global economic crisis.

Micro, Small and Medium Enterprises (MSMEs) are the backbone of Indonesia’s national economy today, and they’re totally intertwined with our national economic independence.  MSMEs create millions and millions of jobs and contribute to poverty alleviation efforts and as such, they’re s considered key in the dynamics of Indonesia’s national economic development.

Unfortunately, this role of MSMEs is still not being taken seriously as strategic, and MSMEs are often marginalized in the national economic arena.

Robert I. Tricker, The Independent Director is credited with saying that “times are always changing: if the 19th century is the century of the entrepreneur, and the 20th century is known as the century of management, then the 21st century will be the century of governance”

An important focus in realizing the growth and independence of our national economy is to pay special attention to the empowerment of Good Corporate Governance (GCC) in the MSME sector.  I often hear that GCG is too theoretical and academic to implement at this level and the question is whether the application of good business governance or GCG should even be applied to the MSME sector.

The initial concept of GCG was born from the experience of the United States, which had to restructure its corporate environment after the Wall Street Crash in 1929 and since then GCG has come a long way.

Several thoughts on the concept of GCG were highlighted through the ideas of Adolf Augustus Berle and Gardiner C. Means in their work entitled The Modern Corporation and Private Property (1932, Macmillan).  Several scientific journals have also written extensively on one of the concepts of GCG that is quite important in influencing the development of GCG theory. One of these is the work of Eugene Fama and Michael Jense in The Separation of Ownership and Control (Journal of Law and Economics, 1983), which discusses their Principal Agency Theory. This has since undergone various adjustments and has been applied in many companies of various sizes.

In an Indonesian context, some of the criteria for SMEs are based on Law No. 9/1995 concerning Small Businesses, which states that SMEs include companies with net assets of IDR 200-million to IDR 1-billion (excluding land and building assets), which are owned by individual Indonesian citizens and are independent, meaning they’re not branches or subsidiaries or larger entities.

Considering the relatively small scale of MSMEs, the question arises should MSMEs with simple management structures follow in the footsteps of large companies, capital market issuers or state-owned companies in implementing GCG?  I say “definitely, yes!” because the implementation of good business governance will make a strong and highly competitive company grow sustainably.

It’s worth noting here, that GCG is not merely a matter of formalizing a company or changing its organizational structure.  For MSMEs, GCG issues generally revolve around the following:

 

  • how to create professional company management by implementing accounting and financial systems that meet acceptable standards
  • how management is equipped with information technology systems that support company operations
  • how to improve managerial knowledge and efficient placement of human resources.

 

This will eventually lead to the formation of a reliable, professional, transparent, and responsible image as the main goal of implementing GCG.  The implementation of GCG will further open access to loans, either through local or foreign banks, as well as through the capital markets.  In addition, MSMEs will also have wider access to national and international markets.

The next question is, what kind of GCG empowerment should be implemented at the MSME level. It’s my belief that Indonesia must build its own values around GCG, because that’s the only way we will be able to provide a strong foundation for their empowerment.

Stay tuned for Part 2, where I’ll be looking at the failure of western values in implementing GCG.

 

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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.

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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.