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has also been issued Decree of Minister of State Enterprises no.103 Year 2002 on Establishment of Audit Committee. Capital
Market Supervisory Board No. through a circular.. SE- 03PM2000 has recommended that public companies to maintain audit
committees.
c. Basic Principles of Good Corporate Governance
Various rules and system as a regulator in management of company
’s need to be poured in form of principles that must be adhered to the concept of Good Corporate Governance. In
generally, there are 5 five basic principles KNKG, 2006,
namely: 1 Transparency
To maintain the objective of corporate must provide information, which is material and relevant in a way that is
easily accessible and understood by stakeholders. Companies should take the initiative to reveal not only the problem that
required by law, but also the importance for decision-making by shareholders, creditors and other stakeholders. Corporate must
provide the information timely, adequately, clearly, accurately, and all the important events that may affect the condition of
corporate.
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2 Accountability
Corporate must be accountable for their performance in a transparent and fair. It must be properly managed, scalable, and in
accordance with the interests of the company to remain stakeholder
’s interests. Specify details of duties and responsibilities of each organization and all employees.
Corporate must ensure that the organs of company and all employees have competent accordance with the duties,
responsibilities, and roles in implementing Good Corporate Governance. Corporate needs to ensure an effective system of
internal control to be manage in the company. 3 Responsibility
Corporate must comply with laws and regulations and carry out responsibilities for people and the environment. So, the
business can be maintained in the long run and gained recognition as the Good Corporate Governance. The organization must adhere
to the principle of prudence and ensure compliance with regulatory laws, statutes and regulations. Corporate should be carried out
social responsibility. Corporate has to be responsible in management to the principle of corporate, as well as existing of
some regulation.
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4 Independency
The corporate should be managed independently, so the individual companies do not dominate other organs and no
intervention by other parties. Each organ must avoid domination by any party, is not affected by particular interests, independent of
other interests, influence and pressure. Each organ shall carry out the functions and duties in accordance with the statutes and
regulations, and not dominate the other, or passing the buck between each other. Independency state whereas the corporate are
managed by professional without any conflict interest and pressure
from any side, which will be affected to the health of corporate.
To accelerate the implementation of Good Corporate Governance, the corporate should be managed independently, so
their organizations do not dominate to the other and no intervention other parties. Each organization of corporate has to
avoid the domination any party, not influenced by special interest, free from conflict and pressure, so the decision-making will be
done objectively. Each organ must perform its functions and duties in accordance with the statutes and regulations, do not
dominate others and passing the buck between each other to realize an effective internal control.
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5 Fairness
To carry out these activities, the company should pay attention to the interests of stakeholders based on the principle of
equality and fairness. Corporate provide equal treatment to all stakeholders. Corporate provides the opportunity for stakeholders
to give advice and opinion for company ’s performance and open
access of information in accordance with the principles of
transparency within the scope of the position.
Equality and fairness defined as fair and equal treatment in fulfilling the right of stakeholder arising under treaties and laws,
which have applied. Fairness also includes to fulfill the right of investors, legal system and enforcement of regulations, which
protect investors. Fairness is expected to make the entire of company
’s assets are well managed and prudent, also expect to protect all members. Corporate should provide the opportunity for
stakeholders to provide input and expression to the interests of companies and open access to information in accordance with
the principle of transparency in their respective positions.
d. The Purpose and Benefits of Good Corporate Governance The essence of corporate governance is improving the companys
performance through the supervision or monitoring of the performance management and accountability to the shareholder and management
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interests of other users, based on a framework of rules and regulations Gunarsih, 2003. In addition to these good corporate governance also
has its benefits, namely as follows: 1 Increase the company performance through the creation process
of a better decision making, improving the operational efficiency of the company and further improve service to stakeholders.
2 Facilitate getting a cheaper financing funds so that it can further improve the corporate value.
3 Reduce agency cost means that the cost that should be borne by the shareholder as a result of the delegation of authority to the
management. 4 Increase the value of shares of the company so as to enhance the
companys image to the wider public in the long run. 5 Restore investor confidence to infuse capital in Indonesia.
Whereas the purpose of good corporate governance is as follows: 1 Protecting the rights and interests of the shareholders.
2 Protecting the rights and interests of the members of stakeholders. 3 Increase the value of the company and its shareholders.
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4 Improve the efficiency and effectiveness of work of the Board of Directors and management of the company.
5
Improve the quality of the relationship the Board of Directors with senior management of the company.
3. Board of Directors
The board of directors is a party to a corporate entity tasked with carrying out the operation and management of the company. Members of
the Board of Directors appointed by the Annual General Meeting AGM. According to the limited liability company act, which can be appointed as
a board member is an individual who is able to carry out legal action and not been declared bankrupt or become a member of the directors or
commissioners who were found guilty of causing the company to go bankrupt, or a person who never convicted of committing adverse financial
criminal state within five years prior to appointment. The boards of directors are fully responsible for all operations and
management of the company in order to carry out the interests in achieving corporate goals. The board of directors is responsible for the affairs of the
company with external parties such as suppliers, customers, regulators and legal parties. With such a large role in the management of the company,
directors basically have a significant controlling interest in resource management companies and funds from investors. Functions, powers, and
responsibilities of directors is expressly stipulated in Law no. 40 of 2007
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on Limited Liability Company. In this law, the board has the task, among others:
1 Leading publishing company with corporate policies. 2 Choose, assign, and supervise duties of the employee and the manager.
3 Approve the annual budget of the company. 4 Delivering a report to shareholders for the performance of the
company. According to the general guidelines of good corporate governance
Indonesia, the number of board members must be tailored to the complexity of the company with regard to its effectiveness in decision
making. In a company, the amount of both the board of directors and board of commissioners vary. A large number of councils that can provide gains
or losses in the company.
4. Ownership Structure
The ownership structure is the shareholding in the company, particularly the number of majority either individually or together will
determine the extent and intensity control to management. Ownership structure is the percentage of shares held by the insider and the outsider
shareholder. Insider party i.e. shareholders who are aligned as a directors and commissioners. Outsider party i.e. shareholders that have by the
institutions, individuals and other outside the company. Company
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ownership can be seen from the point of the concept of corporate governance, as the owner of an external mechanism, which is strongly
associated with the commissioners and directors Hadiprajitno, 2013. Agency problem is problems arising from the parties involved have
different interests with each other. The ownership structure is a mechanism to reduce the conflict between management and shareholders Faisal,
2004. So the agency problem can be mitigated by the presence of the ownership structure, due to the presence of structured ownership structure,
believed to have the ability to influence the future course of the company that may affect the agency costs incurred by the company.
Ownership structure can be individual investors, government, and private institutions. The ownership structure is divided into several
categories. Specifically ownership structure category includes ownership by institutional ownership and managerial ownership.
a. Institutional Ownership Institutional ownership is ownership of shares owned by domestic
institutions, foreign institutions, government institutions such as insurance companies, banks, investment companies and other.
Institutional ownership may indicate the presence of institutional investors that strong corporate governance mechanisms which can be
used to monitor the management of the company Tarjo, 2008. Ownership structure of public companies in Indonesia is concentrated
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in institutions. Institutions which mean the owner of a public company in the form of institutions, not on behalf of the owner of individual
private Sekaredi, 2011. The majority of institutions is a Limited Liability Company.
Ownership by institutional investors is likely to encourage more optimal monitoring the management performance, since share
ownership represents a source of power that can be used to support or otherwise of the management performance. Jensen and Meckling
1976 suggest that institutional ownership has a very important role in minimizing agency conflicts that occur between managers and
shareholders. According Barnae and Rubin 2005, institutional shareholders
with a large stake have an incentive to monitor corporate decision- making. The greater the institutional ownership will make sound
power and boost the institution to oversee the management and consequently will give greater impetus to optimize the value of the
company. In addition, ongoing surveillance of both managers and reduce agency costs.
The existences of institutional investors are considered capable of being an effective monitoring mechanism in any decision made by the
manager. This is due to the institutional investors involved in strategic decision-making is not easy to believe the earnings manipulation.
