Niki Lukviarman

The Chinese Wall Theory

Niki Lukviarman — Tue, 07 Jul 2009 04:18:53 +0000

“The first and rather traditional source of concern regarding the role of central banks in banking supervision refers to the “Chinese wall” theory, according to which the same body cannot be in charge of monetary policy and banking supervision. Such a double function is acceptable if the central bank is not independent. But if the central bank has the ability of fixing interest rates, there are risks of conflicts of interests: so a central bank in charge of banking supervision could be inclined to lower interest rates in consideration of the critical situation of a creditworthy institution, even if inflationary expectations would justify the opposite behaviour”

Source; Patta (p. 3)

Professional Accountant

Niki Lukviarman — Tue, 07 Jul 2009 04:18:02 +0000

The domain of the professional accountant in business includes –among other things- the following activities:

1.Providing, analyzing and interpreting information to management for formulation of strategy, planning, decision-making and control

2.Measuring performance, recording financial transactions –tipycally under national or international generally accepted accounting principles- and communicating the results to board and stakeholders

3.Managing risk, and providing internal control and business assurance

4. Generating or creating value through the effective use of resources (financial or otherwise) through (a) understanding the drivers of value to stakeholders (which may include shareholders, customers, employees, suppliers, communities, and government), and (b) organizational innovation

Source; IFA (Evaluating and Improving Governance in Organizations, 2009, p. 5)

Stakeholder Value

Niki Lukviarman — Tue, 07 Jul 2009 04:16:59 +0000

Organizational value that is generated for stakeholders by creating, implementing, and managing effective strategies, processes, activities, assets, etc. Sustainable value creation for stakeholders occurs when the benefits to them are greater than the resources that are expended on a consistent and ongoing basis. Value is generally measured in financial terms (as in the case of shareholders), but can also be measured as social or environmental benefit or organizational reputation (as in the case of both shareholders and other stakeholders).

Source; IFA (Evaluating and Improving Governance in Organizations, 2009, p. 7)

Governance; Performance and Conformance

Niki Lukviarman — Tue, 07 Jul 2009 04:16:09 +0000

Governance; the set of responsibilities and practices exercised by the board and executive management (the governing body) with the goal of (a) providing strategic direction, (b) ensuring that objectives are achieved, (c) ascertaining that risks are managed appropriately, and (b) verifying that organization’s resources are used responsibly (this definition reflects both the performance and conformance aspects of governance).

Performance; policies and procedures that (a) focus on opportunities and risks, strategy, value creation, and resource utilization, and (b) guide an organization’s decision-making.

Conformance; compliance with laws and regulations, best practice governance codes, accountability, and the provision of assurances to stakeholders in general. The term can refer to (a) internal factors defined by the officers, shareholders, or constitution of an organization, as well as, (b) external forces such as consumer groups, clients and regulators

Source; IFA (Evaluating and Improving Governance in Organizations, 2009, pp. 6-7)

Governing Body

Niki Lukviarman — Tue, 07 Jul 2009 04:15:15 +0000

The governing body is the person(s) or organization(s) (e.g., a board of directors) with primary responsibility for overseeing (a) the strategic direction of the entity and (b) the accountability of the entity. This includes overseeing the financial reporting process. Governing bodies can be made up of independent and non-independent directors and can have various sub-committees, such as the audit committee, the renumeration committee, and the ethics committee. In some entities in some jurisdictions, the governing body may include management personnel, for example, executive members of a governance board of a private or public sector entity, or an owner-manager. In some cases the governing body is responsible for approving the entity’s financial statements ( in other cases management has this responsibility). In most large organizations, there can be multiple organizational levels, each with specific authority and responsibility for governance.

Source; IFA (Evaluating and Improving Governance in Organizations, 2009, p. 7)

Governance Framework

Niki Lukviarman — Tue, 07 Jul 2009 04:14:29 +0000

The governance framework is composed of two dimensions: the performance dimension and the conformance dimension, which together represent the entire value creation, resource utilization, and accountability framework of an organization.

The conformance dimension tends to take a historic view, whilde the performance dimension is more forward-looking view, organizations can also address many of the risks associated with non-conformance and help ensure that effective measures are in place.

Conformance responsibilities focus on providing assurances to stakeholders:

- Concerning the effectiveness of the identification, prioritization, management, control, mitigation, and reporting of strategic, tactical and operational risks

- That the organization is working effectively and efficiently to achieve its strategic and operational goals

- That the systems generating financial and non-financial information are working within prescribed standards of accuracy and reliability, and that such information reflects the true performance of the organization

- That management’s fiduciary responsibility responsibilities are being met

- That the organization is able to prevent and detect criminal activities such as fraud, money laundering, theft, and misappropriation

- That the organization complies with all (other) relevant rules and regulations

Performance responsibilities focus on strategy, value creation, and resource utilization, and include:

- Establishment of a robust decision-making process, including the determination of risk apetite. Oversight of strategy implementation and evaluation of the strategy’s ongoing relevance and success

- Alignment of business operations and resource utilization with strategic direction and the organization’s levels of risk apetite

- Identification of the critical points at which an organization needs to make decisions in response to changing conditions

Performance and conformance dimensions enhance each other and the organization as a whole.

Source; IFA (Evaluating and Improving Governance in Organizations, 2009, pp. 8-9)

Organizational Values: the Private Sector

Niki Lukviarman — Tue, 07 Jul 2009 04:13:05 +0000

In the private sector, the fundamental values/principles can be defined as:

- Integrity: steadfast adherence to a strict moral or ethical code. Governing bodies should foster integrity in their organization through their leadership, strategy, policies, information, and culture

- Accountability: responsibility to stakeholders

- Transparency (openness): disclosure of information is seen as the basis for the confidence that needs to exist between a business and its stakeholders

- Other examples of organizational values/principles are: ethical and responsible decision making, due care, truth and trust

Source; IFA (Evaluating and Improving Governance in Organizations, 2009, p. 20)

Organizational Values: the Public Sector

Niki Lukviarman — Tue, 07 Jul 2009 04:12:05 +0000

In the public sector, the fundamental values/principles can be defined as:

- Integrity: comprises both straightforward dealing and completeness. It is based on (a) honesty and objectivity, and (b) high standards of property and probity in the stewardship of public funds and resources, and management of an entity’s affairs. It depends on the effectiveness and the control framework, and on the personal standards and professionalism of the individuals within the entity. It is reflected both in the entity’s decision-making procedures, and in the quality of its financial and performance reporting

- Accountability: the process whereby public sector entities, and the individuals within them (a) are responsible for their decisions and actions, including their stewardship of public funds and all aspects of performance, and (b) submit themselves to appropriate external scrutiny. It is achieved with a clear understanding by all parties of those responsibilities, and with clearky defined roles through a robust structure. In effect, accountability is the obligation to answer for a responsibility

- Transparency (opennes): is required to ensure that stakeholders can have confidence in (a) the decision-making processes and actions of public sector entities, (b) the management of their activities, and (c) the individuals within them. Opennes through meaningful consultation with stakeholders and communication of full, accurate, and clear information leads to effective and timely action, and stands up to necessary scrutiny.

Source; IFA (Evaluating and Improving Governance in Organizations, 2009, p. 20)

The Diversity of Governance Structures

Niki Lukviarman — Tue, 07 Jul 2009 04:11:20 +0000

Governance structures vary by jurisdiction and by the entity, reflecting influences such as different cultural and legal backgrounds, and size and ownership characteristics. For example:

- In some jurisdictions, a supervisory (wholly or mainly non-executive) board exist that is legally separate from an executive (management) board (a “two-tier board” structure). In other jursdictions, both the supervisory and executive functions are the legal responsibility of a single, or unitary, board (a “one-tier board” structure)

- In some entitiesm the governing body includes positions that are an integral part of the entity’s legal structure, for example, company directors. In others, for example some government entities, a body that is not part of the entity is charged with governance

- In some cases, some or all of the members of the governing body are involved in managing the entity. In others, the governing body and management have diferent membership

In most entities, governance is the collective responsibility of the governing body. In some smaller entities, however, one person may be charged with governance, for example, the owner-manager where there are no other owners, or a sole trustee. When governance is a collective responsibility, a subgroup such as an audit committee (or even an individual) may be charged with specific tasks to assist the governing body in meeting its responsibilities. Alternatively, a subgroup or individual may have specific, legally identified responsibilities that differ from those of the governing body.

It is important (a) that all functions covered by the expression “governance” exercised by an appropriate person or body, (b) that there is clarity on governance matters for all in the organization and its stakeholders, and (c) that undue concentrations of influence are avioded.

Source; IFA (Evaluating and Improving Governance in Organizations, 2009, p. 24)

The Rise of Enterprise Governance (1)

Niki Lukviarman — Tue, 07 Jul 2009 04:10:02 +0000

Krisis yang terjadi di awal abad ke 21, khususnya yang melanda korporasi besar di berbagai negara maju (seperti US dan UK) menimbulkan pertanyaan; apakah mekanisme governance tidak mampu bekerja optimal di dalam “menjaga” perusahaan dari dampak krisis tersebut? Beberapa pihak memberikan argumentasi bahwa kesalahan bukan terdapat pada governance (lihat Lees, 2005), karena kegagalan korporasi tersebut didominasi oleh masalah kecurangan manajemen (fraud). Terlepas dari hal tersebut, beberapa ahli lainnya sepakat bahwa “kegagalan governance sebagai suatu sistem harus dipandang sebagai sesuatu hal yang kritikal dan memerlukan solusi yang tepat (governance failure needs to be adressed properly). Lebih lanjut, pandangan ini juga memberikan argumentasi bahwa terdapat risiko riil yang terkandung dalam konsepsi governance, jika perhatian tidak diberikan secara cukup terhadap keharusan perusahaan untuk menciptakan nilai jangka panjang dan berkelanjutan (long-term and sustainable value) sebagai dampak positif dari implementasi governance.

Berdasarkan latar belakang tersebut, para ahli governance di negara US dan UK bekerjasama dengan the International Federation of Accountants (IFAC) berusaha untuk menemukan solusi untuk meningkatkan kehandalan governance melalui suatu proyek penelitian yang komprehensif. Proyek tersebut didukung penuh oleh institusi profesional Chartered Institute of Management Accountants (CIMA) yang berbasis di UK dan Institute of Management Accountant (IMA) yang berbasis di US. Tujuan dan fokus utama dari mega proyek tersebut adalah untuk menjawab pertanyaan; mengapa corporate governance sering mengalami kegagalan setelah diadopsi oleh korporasi? dan, yang lebih penting; hal apa saja yang harus dilakukan di dalam memaksimalkan tingkat kesuksesan implementasi Corporate Governance di setiap korporasi?

Proyek tersebut telah menghasilkan rekomendasi penting dalam sejarah perkembangan governance dan disajikan dalam suatu bentuk rekomendasi dengan judul laporan; Enterprise Governance-Getting the Balance Right. Secara umum laporan hasil kajian dari proyek tersebut menyebutkan bahwa Enterprise Governance merupakan suatu kerangka yang bersifat inklusif yang ditujukan untuk memberikan solusi terhadap kegagalan corporate governance pada berbagai korporasi. Namun demikian, rekomendasi dari proyek (enterprise governance) ini tetap mempertahankan konsepsi corporate governance serta lebih jauh mengembangkan konsepsi ini dengan menambahkan berbagai aspek manajemen bisnis dari organisasi korporasi. Berdasarkan hal tersebut, kata kunci yang menjadi tonggak penting dari kegiatan ini adalah “the need to balance between conformance and performance aspect of governance”.

Sumber; Lees (2005) setelah diolah dari berbagai sumber lainnya

…..to be continued