By Ridwan Zachrie, Edited by Nadhifah Khalishah Agusalim
This is the fifth and final blog of a series surrounding the importance of developing Good Corporate Governance (GCG) with Indonesian values for MSMEs in Indonesia.
In this post, we’ll be looking at the challenges both large corporations and MSME sized companies face, and the strategies they can take to reduce the friction between the system that they want to create and the people who run it. Acknowledging these challenges is an important starting point for building GCG awareness.
GCG Challenges In Large Corporations
As an initial step, and before trying to build the basic values of GCG for the MSME sector, it’s worth trying to understand some of the challenges faced by large corporations.
There are several questions to answer in efforts to promote GCG, which are closely related to human relations in corporations at any level. No matter how good the concept of GCG is, one of its successes will depend heavily on the individuals who run it. GCG systems will be difficult to run if the people do not have the desire and need to run it. In other words, the success of GCG must be built simultaneously between the system and the people who will run the system.
To start with, we need to first build “GCG awareness” which is critical for a successful GCG roll-out. To build awareness, we first have to understand some of the challenges that often occur in the initial efforts of a corporation and an MSME sized company to implement GCG.
These are the challenges that large corporations face related to implementing GCG:
Cultural barriers can sometimes create resistance when responding to new ideas. My friends have had several experiences implementing GCG in companies, and they say there are many issues around consistency, especially regarding the principles of transparency and accountability as this affects the power of creativity and innovation. They think that ‘business tricks’ that have been successful so far could be classed as “not GCG” so they can no longer run.
Conflict can occur in any organization, for example, when employees who compete with each other using the principle of information disclosure as a “weapon” to try and bring each other down.
Misinterpretation of GCG Implementation
GCG implementation usually involves supervisory committees, for example Audit Committees, Risk Monitoring Committees and the like, which are considered a burden by the top leaders of the company because they have to incur additional costs or agency costs to recruit professionals in these fields.
So How Do We Respond To These Challenges?
The first step is to conduct GCG Awareness so that everyone in the organization, at every level, is committed to the same cause. If GCG is part of everyday work activities, implementation runs much more smoothly.
The failure of GCG implementation is often due to the failure of the company’s top leadership in translating concepts into daily actions and work activities.
GCG awareness must be part of the organizational strategy focus so that GCG principles can be transferred and implemented and become part of the company’s operational strategy.
Some of the steps that we can try include:
First, the principles of GCG are translated into part of operational activities.
Second, every strategy related to the organization must be based on GCG.
Third, make GCG principles a daily necessity.
Fourth, implement GCG implementation as a continuous process.
Fifth, every step of strategic change that leads to GCG must start from the top leadership.
GCG Challenges In MSME Sized Companies
In principle, the challenges faced in MSME sized companies are the same as they are in larger corporations, albeit but with different characteristics. Below are the challenges that MSME sized companies face when trying to implement GCG systems.
First, there is often a lack of information that can be obtained by financial institutions or banks about trustworthy MSME companies.
Second, it’s difficult for MSME companies to provide company financial information needed by banks because of the lack of knowledge possessed by MSMEs. There are even MSME companies that don’t even have a balance sheet or don’t know how to make a good balance sheet.
Third, the characteristics of MSMEs whose company management is still relatively traditional and uses a simple financial and accounting system, not to mention the lack of facilities, managerial knowledge, placement of human resources that are not optimal as well as lack of market access. Associated with the implementation of GCG, these characteristics need to be addressed by MSME companies.
Combining Innovation And Awareness
Consider the case of one of the MSME companies, namely Nyonya Meneer in the 1980s. Bad business governance practices almost made Nyonya Meneer drown. The company was coloured with conflicts of interest in the company’s management system, which at that time was not built with good mechanisms. Shareholders are no different from the Board of Directors.
Therefore, we can be sure that every company, both large and small, has different characteristics, so the approach to implementing GCG success must be appropriate yet innovative.
Along with awareness, it will further strengthen the company’s commitment to implementing GCG and foster a sense of ownership from all levels. In the end, GCG implementation will be successful because of effective top-down communication.
Building The Basic Foundation Of GCG Based On Indonesian Values
In building the basic concept of GCG based on Indonesian values for MSMEs, there are three main exercises regarding the “Basic Foundations” that must be built together by all components of the nation who are concerned about empowering governance in MSMEs:
First, Building National Commitment.
National commitment is the basic foundation of the successful empowerment and implementation of GCG in the MSME sector.
Without a commitment from all stakeholders to the importance of successful governance in the MSME sector, the GCG campaign in MSMEs is just like holding up a wet thread or returning to mere jargon. This commitment must start from the Government together with other stakeholders in the MSME sector. This can be started by developing the GCG Vision and Mission for MSMEs. This Vision and Mission will underlie the spirit of implementing norm-based GCG in the MSME sector with the main objective of building the nation’s independence.
Second, Creating GCG Mechanisms And Structures For Msmes.
It is necessary to build a GCG mechanism for MSMEs, which is outlined in the form of laws and regulations such as the GCG Guidelines/ Policies for MSMEs and the Code of Conduct.
This mechanism is important as a means of controlling the rules of the game, so that in the future the implementation of GCG principles in MSMEs can be controlled effectively and efficiently. This mechanism needs to be supported by building a clear GCG structure in charge of the MSME sector so that it does not overlap with GCG empowerment activities in other sectors such as SOEs, corporations, and others.
In order to achieve maximum results, it is necessary to start separating sector GCG empowerment activities, which are supported by responsible infrastructure, with clear roles and functions, so that the round of GCG empowerment in MSMEs will go through one door.
This infrastructure must be handled by institutions at the Ministerial level. This means, even if it becomes the responsibility of the Ministry of MSMEs, the functions and duties of the MSME Minister must include the empowerment of GCG in the MSME sector, by forming a Special General Directorate to handle GCG Empowerment.
Third, Build GCG Monitoring/Monitoring For Msmes.
The measure of the success of GCG empowerment can be seen by the extent to which the principles of universal GCG or TARİF (Transparency, Accountability, Responsibility, Independence, and Fairness) have been grounded among MSMEs.
Here, an activity known as GCG Awareness will begin to be carried out in order to make the implementation of MSMEs a necessity and not just the fulfilment of applicable regulations. Therefore, it is necessary to develop tools that can be used as a monitoring function, such as GCG reports, and GCG ratings that can be used as benchmarks for the success of GCG empowerment in MSMEs.
The success of implementing GCG in the MSME sector will not be achieved if it is done half-heartedly.
It must be acknowledged together that the backbone of the national economy today is the MSME sector. The role of this sector is actually able to absorb millions of jobs, eradicate poverty, move the real sector, and become the main key to the revival of the national economy.
The role of the MSME sector in providing added value to the national economy is still not commensurate with its strategic role. Facing this challenge, empowering the MSME sector is a non-negotiable national struggle. This struggle requires all components of the nation to give their main attention to the revival of the MSME sector in Indonesia.
The revival of the MSME sector is not only supported by a stimulus for business actors to increase their business scale, strengthen their management skills or deepen the elements of innovation and technology to increase added value; or not enough with the government’s role in providing a conducive business climate. The most important thing is how to build good business governance in managing the MSME sector.
To implement this, it is clear that commitment from top leaders is needed in government, corporations, and other stakeholders.
The nation’s components must be able to build a shared spirit to formulate norm-based GCG for the MSME sector so that the implementation of universal GCG can be grounded.
Therefore, it is the joint task of the stakeholders after building the aspect of their own values of GCG for MSMEs to then enter the stage of building GCG Awareness. With a strong MSME sector in philosophy, mechanism and structure, we will be able to provide a strong foundation in contributing to building an independent nation’s economy.
The consistent application of GCG in the MSME sector will be able to build a sustainable MSME sector, which will then create a solid Indonesian national economy that places the MSME sector as an irreplaceable backbone.