The Boardroom: A Guide to Effective Leadership and Good Corporate Governance in Southeast Asia

222 Pages·2022·2.522 MB·English

by  Peter Verhezen, Tanri Abeng

PeterVerhezen&TanriAbeng
TheBoardroom

Peter Verhezen & Tanri Abeng
The Boardroom
A Guide to Effective Leadership and
Good Corporate Governance in Southeast Asia
ISBN978-3-11-078751-1
e-ISBN(PDF)978-3-11-078763-4
e-ISBN(EPUB)978-3-11-078782-5
LibraryofCongressControlNumber:2022934649
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DedicatedtoLindaandmyclosefamilymembersandallthosewhohelp“tosteer”
meintherightdirection
PeterVerhezen
Dedicated to the “family of Indonesian state-owned enterprises”, in which leader-
shippartnershiphopefullysteerstheorganizationtosucceed
TanriAbeng

Foreword: Improving Board Functioning
Anyorganizationrequiresaboardtogovernandrepresentitsshareholderstosteer
it “away from threatening risks and to explore new business opportunities”. The
functioning of a board is often “taken for granted”. However, as any policy maker
or shareholder understands, some boards are much more effective than others. A
lot depends on the processes, procedures and defining of the specific duties of
board members. The additional unique structure of a two-board structure in Indo-
nesiawhichweinheritedfromtheDutchcolonizermaycomplicatethefunctioning
ofboards.
“TheBoardroom”–abookwrittenbymypredecessorDrTanriAbengandhisco-
authorProf.Dr.PeterVerhezenwhobothcombinepracticalexperienceandacademic
in-depthresearch–givesagoodoverviewofwhatcanandshouldbeexpectedfrom
aboard.Theauthorsdescribethegenericacceptedgovernanceprinciples,butright-
fully claim the need to translate them into specific rules and regulations thatmake
senseforIndonesianandotherAsiancompanies.Atourministry,Iseeadirectrela-
tionship betweenthe notionAkhlakand the governanceprinciplesand the board’s
fiduciary duties whichare well documented and described in this book. Akhlak re-
flects those principles of transparency, fairness, accountability, responsibility and
theboardmember’sdutiesofcare,loyaltyandprudence.Akhlakisalsoanacronym
thatstandsforAmanah(tofollowortoexecute),Kompeten(theabilityofskills,ex-
perience and intelligence), Harmonis (emphasizing the Asian culture of harmony),
Loyal (loyalty as an expression of integrity to organizational values and leaders),
Adaptif(thatisdirectlyrelatedtotheknowledgeofleadershiptoremainagileoren-
trepreneurialandinnovative),andKolaboratif(collaborationasawaytoformeffec-
tiveandcompetitiveteams).
Governanceisa fundamentaltool to help organizations to lookafter theinter-
ests of the firm in terms of economic prosperity, but it also encompasses the need
toembracea broadersocio-ecological andculturalcontextinwhich thefirmoper-
ates.Pursuingbothfinancialgoalsandoptimizingefficiencyisstillpartofthefidu-
ciarydutyofaboardanditsmanagement,butshouldnottakeplaceattheexpense
of environment or social harmony. It is also true that state-owned enterprises or
any corporation will need to adapt to an increasingly digital economy. Our econ-
omyhasshownsomeresiliencewiththislatestpandemiccrisis.Understandingand
implementing the message of “an effective boardroom” will prepare us at state-
owned enterprises – but equally true at any company – for a promising and pros-
perousfuture,startingwithgoodleadershipattheboardlevel.
ErickThohir,TheMinisterofState-OwnedEnterprisesoftheRepublicofIndonesia
July2022
https://doi.org/10.1515/9783110787634-202

Contents
Foreword:ImprovingBoardFunctioning VII
Prologue:WhyGoodCorporateGovernancePractices? XIII
Chapter1
ABriefJourneyofCorporateGovernance 1
1 TheAgencyDilemmaAcrossBordersandAcrossTime 1
1.1 EntrepreneurialCapitalism 2
1.2 Managerial&InstitutionalCapitalism 4
1.3 HowtoResolvethe“Traditional”AgencyProblem? 6
2 AWesternVersusAsianGovernanceContext 9
2.1 CorporateGovernanceAcrossBorders:TwoWorldsApart 10
2.2 HowtoResolvethe“Asian”CorporateGovernance
Challenge? 14
Chapter2
UniversalCorporateGovernancePracticesAcrossBorders? 22
1 “Good”CorporateGovernancePrinciples 23
1.1 TheFourGeneric(OECD)GovernancePrinciples 24
1.2 InternationalInvestorsPursuingGoodGovernancewhile
ReducingEntrenchment 26
2 ContextualizingthoseGovernancePrinciplesinanAsian
Context 32
2.1 GlobalCompetitionforInternationalFundsbasedonGood
CorporateGovernancePractices? 32
2.2 AnInstitutionalPerspectiveonCorporateGovernancein
Indonesia 35
Chapter3
CreatinganEffectiveBoardroom 43
1 FiduciaryDutiesofCare,LoyaltyandPrudence 44
1.1 SomeGenericDuties,MakingaBoardAccountabletoWhom? 45
1.2 FiduciaryDutyofCare 46
1.3 FiduciaryDutyofLoyalty 47
1.4 FiduciaryDutyofPrudence 48
2 ImprovingtheFunctioningofaBoardroom:Structures,Processes
andComposition 57
2.1 AssessingtheBoardroom 57
2.2 TheRightOversightandtheRightGuidance 60
2.3 FiduciaryDutiesinanIndonesianContext 73
X Contents
Chapter4
Two-TierBoardsVersusSingle-TierBoards 83
1 Single-TierBoardsVersusDouble-TierBoards 84
1.1 PrinciplesofOne-TierVersusDouble-TierBoards 86
1.2 AdvantagesandDisadvantagesofBothBoardStructures 91
2 HowtoInitiateDual-TierBoardstoCollaboratemoreClosely? 93
2.1 TheNationalCarrierGaruda:FrombeingsavedtoDoom
again 95
2.2 The“Telkom”CaseinIndonesia:AUnifiedBoardthatmakesthe
RightDecisions 97
2.3 PTPertaminainIndonesia:AnAttempttoReforminspiteof
Patronage 99
2.4 ConcludingRemarksontheDual-TierBoardStructure 107
Chapter5
AccountableandResponsibleLeadership 115
1 FromMaximizingShareholderValueto“Sharing”Created
Value 115
1.1 FirmsarebothaNexusofContractsandaNexusof
Relationships 116
1.2 Re-interpretingFiduciaryDutiesalignedwithEnlightened
Ownership 120
2 FromStock-holdingPrimacytoStake-holdingEngagement,
resultinginESGImpact 123
2.1 Stake-holderEngagement 124
2.2 ESG-ReportingandESG-Impact 125
Chapter6
IsYourBoardroomFuture-proof? 141
1 PreparingfortheFutureanditsRisks 142
1.1 OpennessforTechnological[digital]Innovationand
Implementation 142
1.2 EstablishingaClearPurposefulNarrative 145
1.3 ConsensusonTrustandThumosthatUnderpinanAppealing
Narrative 146
1.4 External[Technological]ForcesPuttingPressureonGovernance
Principles 148
1.5 DoFirmsLackaVisiontoInvestinPromisingProjects? 150
2 DevelopmentoftheNextLeadershipwiththeAimto“Innovateor
Die” 151
2.1 TheGlobalWarforTalent 152