1. Dr Rilla Gantino, SE., AK., MM
Corporate Governance
PERTEMUAN XIV-XV
Dr Rilla Gantino, SE., AK., MM
MAKSI-FEB

2. KEMAMPUAN AKHIR YANG DIHARAPKAN
Mahasiswa memamhmi konsep CG dan langkah-langkah untuk mencapai CG serta mampu menjelaskan hubungan Internal audit dengan CG dan Risk Management

3. What is Corporate Governance ?
Corporate Governance refers to the structures & processes for the efficient & proper direction & control of companies (both private and public) in the interest of all stakeholders.

4. What is Corporate Governance ?
- Is a concept; one size does not fit all, HOWEVER:
- Basic Principles of Corporate Governance:
Accountability Rights of Shareholders
Transparency Interests of Stakeholders
Fairness Good Faith Diligence
Integrity Trust Disclosure
Responsibility Controls Commitment

5. Corporate Governance Framework
Governance Principles
Legal / Regulatory
Codes of Best Practice
Stakeholder Relations
Self Regulation
Ethical Standards
Risk Management

6. Why Corporate Governance Matters
Enhances performance of companies
Enhances access to capital
Enhances long term prosperity.
Provides a barrier to corrupt dealings- limiting discretionary decision making, increasing oversight, introducing Codes of Ethics etc
Impacts on the society as a whole:
Better companies, Better societies.

7. Good Corporate Governance and Good Public Governance are complementary
“ The proper governance of companies will become as crucial to the world economy as the proper governing of countries”.
James Wolfensohn
President of WB, 1999

8. Corporate Governance- Channel of Growth & Development
Country level
Sector level
Individual firms

9. Corporate Governance- Channel of Growth & Development
Increases access to external financing leading to larger investment, high growth & creation of more jobs
Better allocation of resources
Better management creating wealth
Reduces the risk of financial crisis
Better relationship with all stakeholders

10. Corporate Governance- Principles for the Public Sector
Generally derived from the private sector
Ensures public accountability
Promotes responsive and accountable institutions
Good financial management of resources
Good stewardship –
Responsibility to protect the wealth of the state and its citizens
Maintain and safeguard it in the interest of the citizens

11. Good Corporate Governance, Good Government & Good Business go hand in hand
Good Governance by Host Country
Good Governance by Private Sector
Good Governance by Investment Promotion Agencies
Good Governance by Investors

12. Good Governance by Host Country
Transparent, stable and predictable investment climate:
Appropriate legislation to support investment
Anti corruption measures
Effective , speedy and transparent resolution of disputes
Forum for Investors
Capacity Building

13. Good Governance by Private Sector
Institutional Framework
Role of Board of Directors
Management
Risk factors
Transparency & Disclosure
Reputation

14. Good Governance by Investment Promotion Agencies
Self Regulation
Transparency & Disclosure
Accountability
Commitment
Sound and Clear Administrative Policies
Stakeholder engagement

15. Good Governance by Foreign Investor
Good faith
Business Integrity
Governance Policies
Human Capital
Corruption Practices

16. Recommendations
Continued advocacy on the benefits of Corporate Governance
Codes of Corporate Governance for countries
Capacity building
Sourcing of funds to support Corporate Governance development.
Every institution , every stakeholder should provide input into the corporate governance agenda

17. Contoh penerapan CG

18. Corporate Governance Best Practices: Implications for Commercial Underwriters
Dr. Gail S. Russ
Dr. Meredith Downes
Associate Professors of Management
Illinois State University

20. Corporate Governance
Core concern: How do we make sure that top managers are doing what they’re supposed to be doing?

21. The Agency Perspective
Separation of ownership & control
Principals & agents
Misalignment of interests
What’s good for the managers may not be what is good for the owners

22. The Agency Perspective
The Agency Problem:
The misalignment of agents & principals’ interests leads to agents (managers) pursuing strategies that are not in the best interests of the principals (stockholders).

23. The Agency Perspective
The Agency Problem:
The misalignment of agents & principals’ interests leads to agents (managers) pursuing strategies that are not in the best interests of the principals (stockholders).
Focus is on protecting shareholder rights

24. The Stakeholder Perspective
The board has broader responsibilities
Focus is on protecting key stakeholder rights
Shareholders
Employees
Vendors
Customers
Society as a whole

25. Best Practices The board of directors Executive compensation
Anti-takeover measures

26. The Board of Directors Role is to monitor & evaluate top management
But, is the board a complete solution?

27. Best Practices: Board of Directors
Separate CEO & Chairman of the Board
Role duality gives CEO too much power

28. Best Practices: Board of Directors
Separate CEO & Chairman of the Board
Role duality gives CEO too much power
Appointment of lead outside director

29. Best Practices: Board of Directors
Separate CEO & Chairman of the Board
Role duality gives CEO too much power
Appointment of lead outside director
Former CEO does not continue to sit on the board

30. Best Practices: Board of Directors
Active board members
Not a rubber-stamp board

31. Best Practices: Board of Directors
Active board members
Not a rubber-stamp board
Evidence that the directors are in contact with employees, vendors, & customers

32. Best Practices: Board of Directors
Active board members
Not a rubber-stamp board
Evidence that the directors are in contact with employees, vendors, & customers
Board composition
Size
Age
Diversity
Expertise

33. Best Practices: Board of Directors
Board composition
Insiders versus outsiders

34. Best Practices: Board of Directors
Board composition
Insiders versus outsiders
“Having a board monitor itself is like having the fox watch the henhouse.”

35. Best Practices: Board of Directors
Board composition
Insiders versus outsiders
“Having a board monitor itself is like having the fox watch the henhouse.”
The majority should be independent

36. Best Practices: Board of Directors
Board composition
Insiders versus outsiders
“Having a board monitor itself is like having the fox watch the henhouse.”
The majority should be independent
Should have formal resolution requiring this AND a written definition of independence

37. Best Practices: Board of Directors
Board composition
What is meant by “independent”?
No material relationship with the company, either directly or as a partner, shareholder or officer of a firm that has a relationship with the company

38. Best Practices: Board of Directors
Board composition
What is meant by “independent”?
Five year “cooling off” period before can be considered independent:
Former employees of the firm
If formerly part of an interlocking directorate in which an executive of the firm sat on the compensation committee of the firm employing the director
Same applies to directors with immediate family members in the above categories

39. Best Practices: Board of Directors
Board members (insiders & outsiders)
Limits on number of other board memberships
Average director spends 176 hours a year for each board position

40. Best Practices: Board of Directors
Board members (insiders & outsiders)
Limits on number of other board memberships
Average director spends 176 hours a year for each board position
CEOs should not serve on each other’s boards (interlocking directorates)

41. Best Practices: Board of Directors
Board members (insiders & outsiders)
Limits on number of other board memberships
Average director spends 176 hours a year for each board position
CEOs should not serve on each other’s boards (interlocking directorates)
Directors & their firms barred from doing consulting, legal, or other work for the firm

42. Best Practices: Board of Directors
Board members (insiders & outsiders)
Limits on number of other board memberships
Average director spends 176 hours a year for each board position
CEOs should not serve on each other’s boards (interlocking directorates)
Directors & their firms barred from doing consulting, legal, or other work for the firm
Significant stock ownership of firm by directors

43. Best Practices: Board of Directors
Board committees
Key committees at least chaired by outsiders
Audit, compensation, corporate governance (nominating) committees

44. Best Practices: Board of Directors
Board committees
Key committees at least chaired by outsiders
Audit, compensation, corporate governance (nominating) committees
Preferred: Key committees composed entirely of independent directors

45. Best Practices: Board of Directors
Board committees
Compensation committee
Conduct formal evaluation of all company officers (including CEO) and set compensation

46. Best Practices: Board of Directors
Board committees
Corporate governance (nominating) committee
Create charter for board

47. Best Practices: Board of Directors
Board committees
Corporate governance (nominating) committee
Create charter for board
Conduct formal governance review using an external consultant

48. Best Practices: Board of Directors
Board committees
Corporate governance (nominating) committee
Create charter for board
Conduct formal governance review using an external consultant
Nominate board members

49. Best Practices: Board of Directors
Board committees
Corporate governance (nominating) committee
Create charter for board
Conduct formal governance review using an external consultant
Nominate board members
Board term limits

50. Best Practices: Board of Directors
Board committees
Corporate governance (nominating) committee
Create charter for board
Conduct formal governance review using an external consultant
Nominate board members
Board term limits
Elections
One class of directors
Each director stands for re-election each year

51. Best Practices: Board of Directors
Board committees
Audit committee
Select independent auditor
Not also employed for consulting work

52. Best Practices: Board of Directors
Board committees
Audit committee
Select independent auditor
Not also employed for consulting work
Do not seek SEC exemption to do so

53. Best Practices: Board of Directors
Board committees
Audit committee
Select independent auditor
Not also employed for consulting work
Do not seek SEC exemption to do so
Rotate auditors – at least rotate the lead auditor, if not the entire firm, every 5 years

54. Best Practices: Board of Directors
Board committees
Audit committee
Select independent auditor
Not also employed for consulting work
Do not seek SEC exemption to do so
Rotate auditors – at least rotate the lead auditor, if not the entire firm, every 5 years
CEO & CFO should not be former employees of the auditing firm

55. Best Practices: Board of Directors
Board meetings
Frequency of overall board & committee meetings

56. Best Practices: Board of Directors
Board meetings
Frequency of overall board & committee meetings
Attendance

57. Best Practices: Board of Directors
Board meetings
Frequency of overall board & committee meetings
Attendance
“Executive” sessions
Lead outside director with term limit

58. Best Practices: Board of Directors
Board meetings
Frequency of overall board & committee meetings
Attendance
“Executive” sessions
Lead outside director with term limits
Risk assessment function
Reports identifying risks & methods of addressing

59. Best Practices: Board of Directors
Board meetings
Frequency of overall board & committee meetings
Attendance
“Executive” sessions
Lead outside director with term limits
Risk assessment function
Reports identifying risks & methods of addressing
Access to internal information

60. Best Practices: Executive Compensation
CEO has substantial stock ownership

61. Best Practices: Executive Compensation
CEO has substantial stock ownership
Salary, bonuses, & stock options reward superior performance
not size of the company

62. Best Practices: Executive Compensation
CEO has substantial stock ownership
Salary, bonuses, & stock options reward superior performance
not size of the company
AND penalize poor performance

63. Best Practices: Executive Compensation
CEO has substantial stock ownership
Salary, bonuses, & stock options reward superior performance
not size of the company
AND penalize poor performance
No modification of performance goals
No re-pricing or swapping stock options

64. Best Practices: Executive Compensation
CEO has substantial stock ownership
Salary, bonuses, & stock options reward superior performance
not size of the company
AND penalize poor performance
No modification of performance goals
No re-pricing or swapping stock options
Expense stock options

65. Best Practices: Anti-takeover measures
Lack of provisions designed to thwart a hostile takeover
Golden parachutes

66. Best Practices: Anti-takeover measures
Lack of provisions designed to thwart a hostile takeover
Golden parachutes
Poison pill provisions

67. Best Practices: Anti-takeover measures
Lack of provisions designed to thwart a hostile takeover
Golden parachutes
Poison pill provisions
Greenmail