Tony Silitonga

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Comments on
Ten Boardroom Challenges A Boardroom Guide
to The OECD Priciples on Corporate Governance

• Tony Silitonga
• Indonesian Institute for Corporate Directorship
  (IICD)

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Ten Boardroom Challenges

1. Board Mandate
2. Management Oversight Selecting, Supervising,
   Evaluating, Compensating, and Replacing
   Management
3. Corporate Strategy Risk Challenging
   management assumptions about opportunities
   Risks consensus about strategic direction
   monitoring achievement or strategic goals
4. Disclosure Overseeing audit processes,
   accounting policies and disclosure requirements
5. Corporate Values Establishing an appropriate
   tone at the top.
6. An Effective Governance System Developing and
   implementing a governance system that makes
   efficient and effective use of limited resources.
7. Independent-Minded Board Ensuring board
   objectivity.
8. Fiduciary Governance Understanding and meeting
   the expectations of shareholders and regulators.
9. Informing the Board Identifying the boards
   information needs and ensuring the board has
   access to that information.
10. Responding to Crises Responding quickly and
    responsibly to corporate problems.

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Background
Why
Ten Boardroom Challenges ?

• Half of the Fortune 500 companies in 1987 are not
  Fortune 500 companies today. Many of these
  companies have FAILED AND CLOSED THEIR DOORS
  FOREVER. Reasons cited are numerous (Failures of
  Vision, Identity Crisis, Anybody Out There,
  The Glue Sticks, and Sticks, Enemies Within).
• Escalating challenge of CEO survival (Within 2
  years, 57 of the largest 367 companies in USA
  REMOVED their CEOs )
• There are CHANGES in nature of the business,
  investment, and investors (3 most obvious ones
  Constituent Demands are Greater, Expectations are
  Higher, Competition is Tougher)

To influence the Boardroom guidelines and Best
Practices that build on OECD Principles
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The Importance of
Alignment
OperationalExcellence
NOT AVAILABLE / NOT CLEAR
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Framework for
Corporate Performance
GCG Principles
ECONOMIC
Based on OECD International Standard Code on GCG
Guidelines
LEGAL
POLITICAL
Industry Regulation
HR FIN OPM MKTG
VMO
ision ission bjectives

VALUE CHAIN
TECHNOLOGY
NATURAL RESOURCES
SOCIAL
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GCG Principles on Framework for
Corporate Performance
GCG Principles
Based on OECD International Standard Code on GCG
Guidelines
The rights of shareholders and key ownership
functions The equitable treatment of
shareholders The role of stakeholders in
corporate governance Disclosure and
transparency Board responsibilities
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McKINSEYS INTERNATIONAL INSTITUTIONAL
INVESTORS SURVEY CONFIRMS IMPORTANCE OF GOOD
CORPORATE GOVERNANCE IN INDONESIA
What
The Investors' Need ?

• In evaluating Asian companies for potential
  investment, how important is the quality of board
  practices relative to financial issues?

Source McKinsey survey of 250 institutional
investors with aggregate assets under management
of USD3.2 trillion
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IICD CG Scorecard Research..
Does CG Work? (Indonesian Practices)
High
Low Commitment/ Over Performers
High Commitment
Tobins Q
36.07
Expected Distribution
49.18
1.00
Low Commitment
High Commitment/ Under Performers
13.11
1.64
Low
67.37
Low
High
Corporate Governance Scorecard
Tobins Q Lowest 0.73 Highest 7.25
CG Score Lowest 52.04 Highest 82.83
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IICD CG Scorecard Research..
CG Scores in Highly Supervised Companies
High
FAC 77.78
FAC 22.22
Tobins Q
Banks 11.11
Banks 88.89
SOEs 100
1.00
Low
67.37
Low
High
Note SOEs 12 Banks 9 and Foreign
Affiliated Companies (FAC) 18 Multiple
response
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What are
The Real Boardroom Challenges ?
Four (4) interrelated CORE issues
C
ompetency
I
M
otivation
ntegrity Independency
C
ompensation
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TRUTHS about FRAUD

• Fraud is recognised as a significant threat
  facing businesses, big or small, all over the
  world.
• Some frauds arise because of too much trust being
  placed on one individual with no effective
  segregation of duties.
• Employees can commit fraud at any time and for
  whatever reason.
• ACRONYM FOR FRAUD F ALSE
• R EALITIES
• A PPEARING
• U NDER
• D ECEPTION

Tan Chen Leong CFE IICD-Marcus Evans Forum for
Directors 16-17 Jan. 2006 Mulia Hotel, Jakarta
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FRAUD RISK ???
How Big is

• Losses from fraud are likely to be grossly
  misleading because only a fraction of fraud is
  reported. Statistically
• One out of every four persons will steal whenever
  they can.
• Two out of four persons will steal when they
  think they can get away with it.
• In total, 75 of all persons are potential fraud
  perpetrators.

Tan Chen Leong CFE IICD-Marcus Evans Forum for
Directors 16-17 Jan. 2006 Mulia Hotel, Jakarta
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How to
To face the challenges ? Board needs the
right people, the right culture, the right
issues, the right information, the right
process and the right follow-through
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ForThe Board to Consider !!!
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Ten Boardroom Challenges

1. An Effective Governance System Developing and
   implementing a governance system that makes
   efficient and effective use of limited resources.
2. Board Mandate
3. Corporate Values Establishing an appropriate
   tone at the top.
4. Corporate Strategy Risk Challenging
   management assumptions about opportunities
   Risks consensus about strategic direction
   monitoring achievement or strategic goals
5. Disclosure Overseeing audit processes,
   accounting policies and disclosure requirements
6. Fiduciary Governance Understanding and meeting
   the expectations of shareholders and regulators.
7. mAnagement Oversight Selecting, Supervising,
   Evaluating, Compensating, and Replacing
   Management
8. Independent-Minded Board Ensuring board
   objectivity.
9. Informing the Board Identifying the boards
   information needs and ensuring the board has
   access to that information.
10. Responding to Crises Responding quickly and
    responsibly to corporate problems.

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Ten Boardroom Challenges
INPUTs

1. Implementation
2. Time Concern (2 X)?
3. Interdependent but Accountable
4. Advanced Training
5. Maximum Board Seat
6. Insurance

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Thanks ...
Are You a Competent Board Member ?
The Publicly Listed Companies Organization
Forum Nikko Hotel - 29 March 2006 - Jakarta