By Ridwan Zachrie
This is the second part of a series of blogs around the importance of developing Good Corporate Governance (GCG) with Indonesian values for MSMEs in Indonesia.
In this post we’re going to look at how important it is to be aware of cultural differences when implementing GCG and how western values can often fall short if they don’t take this on board.
This might sting a bit, but we don’t always need to look at western concepts and treat them as absolute truths, especially when it comes to somewhere as culturally diverse as Asia. A western-style democratic system, for example, was exported around the world but actually turned out to be ineffective in many cases and often led to chaos because of the lack of cultural understanding and differences in perception.
In my humble opinion, different countries have to adapt and develop concepts arriving from different countries to best suit their own unique cultural identities. With regard to GCG, Indonesian culture leans towards being mainly focused on the MSME sector.
When Asian countries implement ‘democracy’ in their own way, there’s a tendency for western observers to accuse them of not being fully democratic. Why? Because if it’s not rolled out in the same ‘Western Way’ it’s not considered to be intellectually right; it’s certainly not considered to be efficient and it’s definitely just not the best way to do it.
This point isn’t limited to the concept of democracy – it can also apply to GCG, so let’s have a look at some Western failures around GCG.
When global financial corporate giants like Bear Stearns collapsed, the big question was why did this happen? Bear Stearns was created in 1923 and grew to be one of the world’s most important financial institutions before it folded in the global financial crisis of 2008.
Vanity Fair magazine went in to some detail around the fall of Bear Stearns, who focused on bond trading and were very experienced in developing various investment products that suited specific market profiles and desires. Nevertheless, the company, which had a legion of high-profile professionals with USD 8-billion in cash reserves had to fight desperately to stay afloat, even requiring a bailout from the United States government of more than USD 30-billion in just a few weeks.
So, what went wrong?
Was it just a matter of careless management or was it because the global economic situation was entering gloomy times? Could it be true that the financial crisis was caused by the world’s financial industry being complacent and not anticipating the signs of an impending crisis or because laws and regulations were being manipulated?
How should global markets have responded to this? It’s important here to acknowledge that we must be able to use this sort of momentum to learn from events that occurred and reflect on them by changing bad habits when conducting our own business activities.
Where to start? As a first step, although we are still waiting for the results of the investigation related to the crisis in the United States, what is actually more important is for us to look within, because as a nation, Indonesia was complacent in its response to the Southeast Asian financial crisis in 1997, as well as other major issues such as the fall of business giants such as Enron, WorldCom, and Arthur Andersen.
Valuable lessons can be learnt when we make mistakes and in understanding those lessons we should be able to grow and be better and become part of a good corporate society (ie. become good corporate citizens) as well as develop skills and understanding to be vigilant and anticipate problem areas in the future.
So far, Indonesia has taken for granted the fact that globalization means open competition involving the entire world business community, which then leads us to an increasingly complex business environment, when a crisis can occur at any time and impact everybody. The Southeast Asian financial crisis, as well as the cases of Enron and Arthur Andersen, for example, should serve as warnings reminding us of the important role and benefits of implementing GCG correctly.
Unfortunately, many companies still do not see GCG as something they need to be worried about, despite many past events clearly showing what can happen if this is ignored or not given the importance it should. Most still use GCG more as a means of public relations or a promotional tool to claim that their company already has, and implements, good corporate governance; it’s more for show than substance, like compiling beautiful GCG Implementation Reports, to give the impression that they’re also implementing GCG correctly.
The benefits of implementing GCG can be summarized as follows:
First, GCG can assist corporations to build habits to seriously encourage the development of the company while maintaining the soundness of the company and to realize the importance of understanding market situation and the environment in which the company operates properly. In addition, GCG also encourages us to understand and uphold the interests of employees and shareholders.
Second, GCG helps CEOs and professionals to understand challenges and creatively turn challenges into opportunities.
Third, GCG helps company executives to naturally form a strong culture of discipline and to be careful and sustainable in planning.
Some time ago, when the international media reported on the difficult conditions faced by one of the giant automotive companies in America to be able to save themselves from the impact of the financial crisis, the Japanese automotive giant Toyota, as reported by the Asian Wall Street Journal, actually recorded a profit increase of 17-percent. While many companies were struggling to survive due to higher production costs, Toyota was busy calculating profits from its sales revenue.
Many financial experts believe that the main factor underlying Toyota’s success was its long-term commitment to seeing GCG implementation as a discovery process, which it then carried out for profit. Long before the GCG trend was voiced by politicians or financial experts, Toyota had started it as a core value written on every employee’s wall.
It would be a shame if the bad experiences that happened to Enron, Worldcom, Arthur Andersen, and Bear Stearns were not enough to make us more aware to immediately review the seriousness of implementing GCG. If we’re still thinking about the right time to implement GCG or even planning to postpone it, perhaps an even bigger crisis is needed to wake us up.
Stay tuned to Part 3, which will be looking at building and developing your own GCG values.