By Ridwan Zachrie. Edited by Nadhifah Khalishah Agusalim
This is the fourth part of a series of blogs surrounding the importance of developing Good Corporate Governance in Indonesia.
In the previous blog, we were looking at how to build your own GCG values. In this post, we will be looking at how different principles and practices polarised the view of how to do business in Asian countries for Western partners and the importance of having qualified experts in the high position of government institutions to help build a better-suited GCG.
Numerous conflicts surface when we talk about business practices between Asia and their counterparts in Western countries, especially when the two sides began to recognize their differences.
Western Capital Flows for Asian Company Expansion
We’re living in a time when a business is good, people will know. There’s an increase of interest in your company or the industry if your business is going well. One of the things that can be measured is the rate of capital flow. With the increasing amount of Western capital used for the expansion of Asian companies, another conflict emerges.
When Asian companies receive Western capital to expand their business, it’s very natural for those Western investors or creditors to require Asian companies to follow the principles that are commonly applied in the West; principles that Western business actors know well.
However, the Western economic system, which is considered to be well managed, is in fact fragile. It’s important to recognize that the Western economic system is not the only system available. Western companies that wish to enter the Asian market will have to make compromises on issues related to GCG. In this case, compromises are the way to go.
Entrepreneurs Are Smarter Than Regulators
Regulators within government bodies have an important relationship with entrepreneurs. They assist entrepreneurs through regulation imposition and easing, support for business development, setting economic policy and planning for infrastructure development.
The next conflict is entrepreneurs outsmarting regulators or entrepreneurs who are smarter than regulators. This phenomenon has long been recognized and resolved in the Western world, particularly in the US and UK. Both the US and the UK tackled this challenge by taking the best graduates in every field from the best universities to sit in charge of government institutions or regulatory bodies there.
They’re placed in offices such as the Prosecutor’s Office, Capital Markets Supervisory Board, the Central Bank, Treasury, or other agencies. In the US and UK, these offices are usually led by experts in law, finance, management, economics, and others. All are graduates from top universities or former professionals in the private sector.
In developing countries such as Indonesia, the knowledge, ingenuity, experience, and influence of national entrepreneurs who have successfully built their businesses are viewed as experts and are well respected in society. National entrepreneurs who have successfully built their empires will certainly be difficult to be matched by regulators if the government does not consciously place the best people in these strategic positions.
The Indonesian economy has never been as good and healthy as it is now. Similarly, Asia has never received this amount of attention from global business players, especially from the Western hemisphere.
If the world dreams of a more cooperative and collaborative global economy full of added value between the East and the West, a new balance is needed in regulating and monitoring business growth.
This means that the concept of GCG best practice that has been used as a reference must be adjusted to incorporate the values commonly adopted in Asia.
We call this collaboration or new balance in governance principles The Next Practice of GCG — borrowing a term introduced by Prof. CK Prahalad of Michigan University.
The conclusion is that the risk premium (the higher rate of return) will continue to be related to perceptions and be applied “arbitrarily” to the Asian market. If the issues of GCG remain unresolved and viewed as obstacles when assessing the business practices of Asian companies, shareholders will then face issues.
GCG for MSMEs Based on Personal Values
Facing all the challenges above, empowering MSMEs through empowering GCG is a non-negotiable struggle. It is an inevitable part of the process. All components of the nation must pay attention to the rise of MSMEs and this must start from the commitment of their leaders who no longer use the term as jargon, but it becomes a national mission in realizing an independent sovereign economy. This is a collective effort that can benefit us all.
I am of the view that to make it easier to build the basic values of GCG for MSMEs, we must first start with an approach to understanding the fundamentals of GCG at every level in the company, in accordance with the GCG values that apply in Indonesia.
As I said in the last post, the principles of GCG are universal, however, the basic norms for their application can be adapted to the characteristics of a nation.
It is undeniable that the characteristics of corporations in Asia, including Indonesia, are different from those in Western countries. Therefore, establishing GCG norms and adapting to Indonesian characteristics would be the wiser and easier choice. When GCG norms with Indonesian characterises are available, businesses can grow.
To build the value of Indonesia, it must begin with a shared commitment to building the basic values of your own understanding of GCG. You need to build the foundations before you start the construction of the main lobby and the floors above it. This is what I call building a basic norm or norms based on GCG.
Stay tuned to Part 5, where will be looking at GCG Challenges in Corporations and MSMEs.