Good Corporate Governance: The Case of Century Bank & Antaboga Corporations
A challenge to its own promise
The general principles of Good Corporate Governance (GCG) include transparency, accountability, responsibility, independence, and fairness (National Committee on Governance (NCG) 2006, p.5). Bank Century explicitly stated that “the Bank should always refer to the five main principles of GCG in conducting business activities” (Bank Century (BC) 2007, p.26). Following is my review describes how each principle supposed to be implemented by the executives:
(1) Transparency principle within the following key aspects:
- Finance – BC discloses its financial performance in an Annual Report, however, one of the significant observation was that the report did not clearly mentioned the risk of its assets particularly its placement in USD marketable securities. It reported that the “management intention to focus the placements to more liquid and profitable productive assets” (BC 2007, p.19), but in contrary, Bank Indonesia (BI) indicated this type of asset is high risk of IDR 2T unrated, long tenor, low interest rate, and hard to be sold (non-liquid) since 2003 by Bank CIC prior to merger with Bank Danpac and Bank Pikko to form BC. BI already instructed to sell these since then, but it was not realized until it faced issue that US$56m securities could not be liquidated in Oct/Nov 2008 (Infobank News 2009). As a corrective action, BC should be performing Asset Recovery task force team to analyze and provide recommendation to the management with objective to recover troubled assets particularly the USD securities. It is important to be made successful to guarantee the payment of overdue trade financing as part of the strategic major asset restructuration by the new management.
- Banking operation – In the case related to PT Antaboga Deltasekuritas (ADS), BC obviously failed to inform clearly for the risks of the discretionary fund products offered to their existing deposit customers. It was promised by the BC’s marketing officers that the account will have higher interest rate of > 11% and it has government’s permit from BI. However, in fact there was misuse of the investment account by ADS. Also the relation between BC and ADS was not clearly informed to the customers; hence they thought it was another kind of BC’s products that can be trusted. As result, ADS was defaulting its obligation to neither pay the interest nor the whole estimated IDR1.5T fund in Nov 2008 (Infobank News 2009). As a corrective action, BC should be discontinuing of selling similar product if still any, as it obviously has conflict of interest between BC and ADS related to their ownership. Robert Tantular is an ADS shareholder as well as a controlling shareholder of BC. Furthermore, instead of investing it to the specified instruments like equities, financial market, etc. as per the investment regulation, the collected fund that is about US$136m – collected from BC’s branches all over Indonesia (Dewi 2008), unfortunately was misused by the shareholders by purportedly committed fraud or embezzlement. The challenge is that how the customers’ loss in ADS can be reduced or recovered since BC and ADS shall refer to two different related regulations i.e. Banking (Indonesian Banking Act 1992) and Capital Market law (Indonesian Capital Market Act 1995).
- Labor – In the case of ADS and BC, apparently some BC staff were also be a victim of the ADS (Dewi 2008). Neither there was unclear nor could adequate information about the mutual fund products risks provided to the BC employees, consequently some amount of significant funds not be liquidated. The management team should be forming an investigative team and report it to Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) if possible to recovery the funds and report progress.
Breaking the principle of accountability
(2) Accountability principle within the following key aspects:
- Labor – BC acknowledged that each component of the organization should have competency according to their responsibilities, but in reality the shareholders did not pass the fit and proper test during the merger as per specified by regulation (Dewi 2008). This apparently impacted future business conduct with relate to ADS cases. Although it relate to the controlling shareholders, the internal audit function should be performing investigative audit to the ADS operations in BC’s premises and report the result to Audit Committee and further Board of Commissioners to take necessary actions.
- Banking operation – BC agreed to ensure check and balances is always implemented in managing the Bank. However, some transactions particularly related to foreign exchange account alleged as embezzlement done by the BC’s officer (Badan Pemeriksa Keuangan (BPK) 2011, p.2). Apparently the check and balances did not implemented effectively by the management, hence the operational process and systems, roles and responsibilities, and enforcement of stringent policies with relate to individual staff performance should had been performed.
(3) Responsibility principle within the following key aspects:
- Compliance – BC acknowledged to always refer to prudent banking practices and complies with existing regulations; however the ADS’ discretionary fund product is marketed in the BC’s office and can only deposited through a BC’s account. Apparently BC did not perform legality check to the ADS entity and its business operation beforehand; in fact the company did not comply with the regulatory requirement from the authority. The marketing of ADS product through BC should be discontinued immediately and requested the ADS status to the authority (Bapepam-LK) for the management to take action.
- Social Responsibility – BC has several Corporate Social Responsibility (CSR) activities, however in the case of ADS apparently BC has lack of educating society to improve their understanding to distinguish between banking and investment business particularly related to risk and the guarantee limitation. The management can support such educational campaign not only to society but also to internal employees.
(4) Independency principle within the following key aspects:
- Organization – BC acknowledged to always avoids a supremacy of certain stakeholders and be free from conflict of interest (BC 2007). However, in the case of ADS, the influence of its shareholder which was also the shareholder of BC is dominant so that the management could not provide necessary control to the misconduct as this obviously has conflict of interest. The issue when ADS could not liquidate the funds was hampering BC as the sole agent and put the reputation at stake among other financial problems. This issue should had been taking further to the board of commission and further RUPS (Rapat Umum Pemegang Saham) to make decision.
(5) Fairness principle within the following key aspects:
- Stakeholder Management – BC acknowledged always considers the need of each stakeholder based on equal treatment principle and the stakeholders should also have easy access to the information of the Bank. (BC 2007). However, in the case of ADS, customers have difficulty to obtain clarity to their own investments usage either to BC and ADS. BC apparently washed its hand to the ADS product they are selling when it comes to default. The new management of BC should provide timely, detailed, and clear information for the transaction details and their usage. BC should also ensure the operational detail of the entity like ADS before marketing it to customers. The practice by luring existing deposits customer to invest in a higher interest rate instrument without explaining the risks was considered unethical and did not comply with regulation.
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