Tony Silitonga Indonesian Institute for Corporate Directorship IICD

Tony Silitonga Indonesian Institute for Corporate Directorship (IICD)

Ten Boardroom Challenges 1. Board Mandate 2. Management Oversight – Selecting, Supervising, Evaluating, Compensating, and Replacing Management 3. Corporate Strategy & Risk – Challenging management assumptions about opportunities & Risks; consensus about strategic direction; monitoring achievement or strategic goals 4. Disclosure – Overseeing audit processes, accounting policies and disclosure requirements 5. Corporate Values – Establishing an appropriate “tone at the top”. 6. An Effective Governance System – Developing and implementing a governance system that makes efficient and effective use of limited resources. 7. Independent-Minded Board – Ensuring board objectivity. 8. Fiduciary Governance – Understanding and meeting the expectations of shareholders and regulators. 9. Informing the Board – Identifying the board’s information needs and ensuring the board has access to that information. Tony Silitonga 10. Responding to Crises – Responding quickly and 2006 responsibly to corporate problems.

ØHalf of the Fortune 500 companies in 1987 are not Fortune 500 companies today. Many of these companies have FAILED AND CLOSED THEIR DOORS FOREVER. Reasons cited are numerous (“Failures of Vision”, “Identity Crisis”, “Anybody Out There”, “The Glue Sticks, and Sticks”, “Enemies Within”). ØEscalating challenge of CEO survival (Within 2 years, 57% of the largest 367 companies in USA REMOVED their CEOs ) ØThere are CHANGES in nature of the business, investment, and investors (3 most obvious ones: Constituent Demands are Greater, Expectations are Higher, Competition is Tougher) To influence the Boardroom guidelines and Best Practices that build on OECD Principles Tony Silitonga 2006

Operation al. Excellen ce NOT AVAILABLE / NOT CLEAR Tony Silitonga 2006

IC L A C M ECONO LE ITI L O P G NEW ENTRANTS SUPPLIER NA RE TU SO RA UR L CE S AL RIVALRY BUYER SUBSTITUTE L O N Y G O H C E T SOCIAL Tony Silitonga 2006

Tony Silitonga 2006

Mc. KINSEY’S INTERNATIONAL INSTITUTIONAL INVESTORS’ SURVEY CONFIRMS IMPORTANCE OF GOOD CORPORATE GOVERNANCE IN INDONESIA • “In evaluating Asian companies for potential investment, how important is the quality of board practices relative to financial issues? ” Source: Mc. Kinsey survey of 250 institutional investors with aggregate assets under management of USD 3. 2 trillion Tony Silitonga 2006

High Tobin’s Q Low Commitment/ 1. 00 Over Performers High Commitment 36. 07% Low Commitment d te on c pe uti x E trib s Di 13. 11% 49. 18% High Commitment/ Under Performers Low 1. 64% Low 67. 37 Corporate Governance Scorecard High Tobin’s Q: Lowest = 0. 73; Highest =CG Score: Lowest = 52. 04; Highest = 7. 25 82. 83 Tony Silitonga 2006

Tobin’s Q High 1. 00 Low 67. 37 High Tony Silitonga 2006

Tony Silitonga 2006

TRUTHS about FRAUD • Fraud is recognised as a significant threat facing businesses, big or small, all over the world. • Some frauds arise because of too much trust being placed on one individual with no effective segregation of duties. • Employees can commit fraud at any time and for whatever reason. ACRONYM FOR FRAUD : F ALSE R EALITIES A PPEARING U NDER D ECEPTION Tan Chen Leong CFE IICD-Marcus Evans Forum for Directors 16 -17 Jan. 2006 – Mulia Hotel, Jakarta Tony Silitonga 2006

FRAUD RISK ? ? ? • • • Losses from fraud are likely to be grossly misleading because only a fraction of fraud is reported. Statistically: One out of every four persons will steal whenever they can. Two out of four persons will steal when they think they can get away with it. In total, 75% of all persons are potential fraud perpetrators. Tan Chen Leong CFE IICD-Marcus Evans Forum for Directors 16 -17 Jan. 2006 – Mulia Hotel, Jakarta Tony Silitonga 2006

To face the challenges ? Board needs the right people, the right culture, the right issues, the right information, the right process and the right follow-through Tony Silitonga 2006

For The Board to Consider !!! Tony Silitonga 2006

Ten Boardroom Challenges 1. An Effective Governance System – Developing and 2. 3. 4. 5. implementing a governance system that makes efficient and effective use of limited resources. Board Mandate Corporate Values – Establishing an appropriate “tone at the top”. Corporate Strategy & Risk – Challenging management assumptions about opportunities & Risks; consensus about strategic direction; monitoring achievement or strategic goals Disclosure – Overseeing audit processes, accounting policies and disclosure requirements 6. Fiduciary Governance – Understanding and meeting the expectations of shareholders and regulators. 7. m. Anagement Oversight – Selecting, Supervising, Evaluating, Compensating, and Replacing Management 8. Independent-Minded Board – Ensuring board objectivity. 9. Informing the Board – Identifying the board’s information Tony Silitonga needs and ensuring the board has access 2006 to that

Ten Boardroom Challenges 1. Implementation 2. Time Concern (2 X)? 3. Interdependent but Accountable 4. Advanced Training 5. Maximum Board Seat 6. Insurance Tony Silitonga 2006