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Bulletin of Indonesian Economic Studies
ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20
Is Corporate Governance Relevant? How Good
Corporate Governance Practices Affect Indonesian
Organizations
Harun Harun
To cite this article: Harun Harun (2013) Is Corporate Governance Relevant? How Good Corporate Governance Practices Affect Indonesian Organizations, Bulletin of Indonesian Economic Studies, 49:2, 246-247, DOI: 10.1080/00074918.2013.809848
To link to this article: http://dx.doi.org/10.1080/00074918.2013.809848
Published online: 26 Jul 2013.
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246 Book reviews
Peter Verhezen, Erry Riyana Hardjapamekas and Pri Notowidigdo (eds) (2012)
Is Corporate Governance Relevant? How Good Corporate Governance Practices Affect Indonesian Organizations, University of Indonesia Center for the Study of Gov-ernance, University of Indonesia Press, Jakarta, pp. xxi + 311. Paper: Rp 57,800.
This book, a collection of theoretical and practical articles on good corporate gov-ernance (GCG), proposes that large Indonesian organisations (whether public or private) could improve their global reputations by adopting GCG practices. It also reveals that governance issues are complex and under-explored, particularly in Indonesia.
In the irst of three loosely deined thematic categories, authors emphasise the role of GCG practices in eradicating corruption and improving corporate perfor-mance. For example, Sri Mulyani’s prologue states that ‘[GCG] practices limit the ability of private sector companies to participate in corruption, establish an envi-ronment when companies ind it more dificult to engage in questionable behav -ior, help [corporate] board members exercise better judgment [and help] investors receive timely and relevant information (p. xix)’. In a similar fashion, the book’s editors, in chapter 1, believe that the widespread adoption of GCG practices by business organisations would help repair the image of Indonesia as one of the world’s most corrupt nations in the eyes of global investors. They also implicitly stress that to support a genuine and systematic adoption of GCG practices, the Indonesian government must take strategic measures aimed at avoiding ‘creative, complex and confusing accounting principles’ (p. 13) and improving managerial practices within the public sector (p. 12).
In the second category, authors attempt to discuss GCG practices in relation to the historical and cultural contexts of corrupt bureaucracies in Indonesia and a murky lesson regarding bad governance practices from the West. In this vein, Howard Dick provides an insightful perspective of widely practised corruption within the Dutch East India Company, which, as many pundits have claimed, then spread through successive governments in Indonesia. But the colonial era was not totally corrupt: under their Ethical Policy, from 1901 to Japanese occupa-tion, the Dutch set up a professional bureaucracy ‘who were set high standards, given high status and [were] well remunerated’ (p. 26). The public service then expanded under Sukarno, but high levels of inlation soon eroded the real salary of civil servants and saw the bureaucracy drawing ‘what income [it] could from salary, perquisites, bribes and rations while topping up from secondary jobs else-where. The notion of integrity was almost meaningless’ (p. 28). Dick also notes that the nature of Indonesia’s bureaucracy did not improve during, or after, Soe-harto’s presidency.
With respect to the murky lesson from the West, Arif Havas Oegroseno, in his introductory chapter, offers an explanation that may inspire business and political leaders in Indonesia. He argues that GCG practices should be not only seen as a source of legitimacy but genuinely adopted by organisations. He also claims that the economic failings of several European countries owe much to bad governance practices, such as the manipulation of inancial data, in Greece, and that corrup -tion constitutes 20%–25% of government procurement contracts in the European Union (p. 3).
Book reviews 247
In the book’s inal category, authors discuss the institutionalisation of GCG practices by the government and by private- and state-owned commercial corporations in Indonesia. Peter Verhezen and Natalia Soebagio, in chapter 4, emphasise that good governance in a country’s public sector inluences GCG practices in its private sector. This has yet to occur in Indonesia, however, owing to a very limited amount of publicly available inancial information and a lack of leadership in ighting corruption. In chapter 6, Arief T. Surawidjojo suggests that conlicts of interest breed corruption in Indonesia’s public and private sec -tors, while Kemal Stamboel (chapter 5) reminds readers that although numer-ous strategies have been developed to improve corporate governance practices in state-owned corporations, shifting ‘the culture of state management from what was previously authoritarian to one that is based on principles of transparency is admittedly dificult’ (p. 128).
Other contributions ensure that the book’s inal category gives readers a broad view of GCG practices. Manggi Habir (p. 145), for example, praises Indonesia’s banks for their organisational restructuring following the 1997–98 inancial crisis, which increased their resilience to the 2008 crisis; Piers Gillespie (chapter 8) and Noke Kiroyan (chapter 9) suggest that the oil-palm and mining industries need to connect their corporate social responsibilities (such as protecting the environ-ment) with their GCG practices, as a means of protecting their long-term interest; and Verhezen and Notowidigdo argue that Indonesia would beneit from using a balance of short- and long-term performance indicators in compensating but not overpaying top corporate oficials. Finally, in chapter 11, Verhezen discusses the prevalence of networking (guanxi) among many listed companies in Indonesia. He argues that family-controlled entities often lack external oversight control and therefore disclose limited accounting information, which allows them to shelter from public scrutiny (p. 247) and avoid implementing GCG practices.
This insightful book not only enriches our understanding of GCG in Indonesia but also illustrates how it interacts with the country’s economic, political and his-torical contexts. Some potential readers may interpret the book’s title as relating only to proit-seeking organisations, but it is clear that the public sector also has much to gain from implementing GCG practices.
Harun Harun
University of Canberra
© 2013 Harun Harun
http://dx.doi.org/10.1080/00074918.2013.809848
Shaun Breslin (ed.) (2012) East Asia and the Global Crisis, Routledge, Abingdon, pp. v + 114. Cloth: £85.00.
This book replicates a special 2011 issue (17 (2)) of Contemporary Politics on political responses to crises, including the 1997–98 Asian crisis and the 2008 global inan -cial crisis. Several of its chapters emphasise that policy responses often relate to the ‘developmental state’ or similar concepts. As an economist, I want to empha-sise that inancial crises often relate to well-known causes of market failure.
