The Role of Corporate Governance Codes in Enhancing Accountability for Effective Disclosure in Indonesia
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THE ROLE OF CORPORATE GOVERNANCE CODES IN ENHANCING ACCOUNTABILITY FOR EFFECTIVE DISCLOSURE IN INDONESIA By Jeannie Connie Rotinsulu Thesis submitted in fulfilment of the requirements for the degree of Doctor of Philosophy College of Law and Justice Victoria University Melbourne Australia JULY 2016 Abstract Indonesia’s performance in implementing corporate governance based on formal law has been poor because of weaknesses in its formal legal system. This thesis examines possible alternative approaches to the regulation of disclosure to achieve a better standard of corporate governance including the Indonesian Good Corporate Governance Code. The study considers the regulatory space corporate governance codes can occupy as an alternative regulatory strategy in the Indonesian context. Specifically, it evaluates the ways in which they can improve accountability for disclosure and corporate governance and also strengthen formal law and regulation. Different sources of data from the literature and media data bases and the interviews are used to be triangulated. It first explores the ideas and models in the literatures reviewed on disclosure, voluntary self-regulatory codes, alternative regulatory theories, the relationship between formal and informal law concepts, and comparative law on legal transplants. It examines how Indonesia’s corporate governance codes accommodate these ideas, and in which areas their use may play a more significant role in strengthening formal law and regulation so that regulation becomes more effective, responsive, flexible, legitimate and transparent. It identifies relevant issues in political, social and business cultures which produced problems for formal law and regulation and the way in which the code as a form of alternative regulation may remedy such problems. And then these reviews are triangulated with business media data bases and empirical, semi-structured interviews. The findings suggest that informal law represented by the code fails to serve its functions to be used as the alternative regulatory strategy and that it plays insignificant role in strengthening formal law and regulation and corporate governance especially in enhancing accountability for effective disclosure. Indonesia’s context demonstrates inconsistency of the alternative regulatory theories. The thesis provides an understanding on why the capacity of alternative regulatory model such Code fails. It also displays the need of significant changes to address the failure. Changes in political and economic ideologies; structural and habitual executive, legislative and judiciary; legal and business culture; especially eradication of corruption are attributed toward the effective capacity of not only informal law but also formal law. i Student Declaration “I, Jeannie Connie Rotinsulu, declare that the PhD thesis entitled ‘The Role of Corporate Governance Codes in Enhancing Accountability for Effective Disclosure in Indonesia’ is no more than 100,000 words in length including quotes and exclusive tables, figures, appendices, bibliography, references and footnotes. This thesis contains no material that has been submitted previously, in whole or in part, for the award of any other academic degree or diploma. Except where otherwise indicated, this thesis is my own work”. Signature Date 5/7/2016 ii Acknowledgement First and foremost, I praise and give thanks to Almighty God for His abundant blessings that enable me to complete this thesis. The completion of this thesis has been a very long journey. I would like to thank Indonesian Directorate General of Higher Education (DIKTI) for giving me with the opportunity to study in Australia by providing financial support for three and half years. I would also like to thank Sam Ratulangi University of Manado especially Faculty of Law, where I work, for supporting and allowing me to undertake this PhD. I would not have been able to undertake this thesis without this support. I would like to give very special thanks to my principle supervisor, Professor Neil Andrews, for his kind acceptance in supervising my research. My deepest gratitude is for his priceless assistance and invaluable supervision that helped me through the completion of the thesis. I am grateful for and appreciate all his contributions of patience, energy and time in helping to clarify issues, shape ideas and reading so many earlier drafts of my thesis. His continous support, insightful comments and advice made my PhD experience productive and stimulating. At the end of the journey, I am so thankful for his enormous help to finalize the thesis and pushing me through to complete it. Without his prolong patience and support, this thesis would not have been able to be completed. I also thank Professor Andrew Clarke for accepting the role of co-supervisor. My gratitude is also due to Oaklin Charlesworth for proofreading the entire thesis. I would also like to thank the Reseach Office and staff at Victoria University for choosing my candidature application as an example of best practice in 2009, providing the opportunity to participate in the Three Minutes Thesis (3MT) competitions and for administrative support during my PhD journey. The 3MT competitions gave me fascinating experiences and the opportunity to develop my professional skill in public speaking in English and also valuable prizes as runner up in the Faculty of Business and Law heat and the grand final in 2010, the winner and people’s choice award in the faculty heat as well as runner up in the grand final in 2011. I am grateful to an outstanding research officer, Tina Jeggo, who is so friendly and provided excellent administrative support during my study iii through my Master of Laws and in my PhD research. My thanks also are due to Sian Ellet and also Andree Ruggeri who has recently been responsible for PhD students in the discipline of law. I also thank to some fellow PhD students for their friendship, especially fellow Indonesian students who shared their skills and useful information in helping with technical matters in formatting the text of the thesis. I also thank my work collegues and alumni of the Faculty of Law and Postgraduate Law Study Program of Sam Ratulangi University of Manado and my high school, SMA Negeri I Manado, for assisting with introductions to potential participants during my field research in Indonesia. My thanks are also due to my dear friends in Indonesia and Melbourne for their recognition and friendship that made me able to have some refreshing breaks during my PhD journey. Last but not least, my deep gratitude goes to my family for all their love, prayers, encouragement and support. For my supportive and encouraging husband, Michael, who pushed me with his faithful support and belief to finish my study is much appreciated. I thank him for his understanding, patience and encouragement during the process of writing my PhD thesis. He dedicated considerable time and care looking after our very active son Alex helping me to concentrate on writing the thesis. The journey undertaken through this research would not have been possible without the support of my loving families, especially my children, sisters and brothers in Manado. I appreciate the close family members who also come to visit me in Melbourne. They motivated me in their own way by asking one constant and repetitive question: “when will you finish your study?”. My special thanks and gratitude go to my most loving mother in Manado for her constant prayers for me and my family. I wish the completion of this thesis fulfil her intense longing to hear the news that i have finished my study and make her and my family happy and proud. I dedicate this thesis to my father in heaven and my mother who sacrificed and devoted her whole life to raising five children in Manado by herself without any financial support and pension. This thesis is a special gift to them. iv Table of Contents Abstract .................................................................................................................................... i Student Declaration ................................................................................................................ ii Acknowledgement ................................................................................................................. iii Table of Contents ................................................................................................................... v List of Tables ......................................................................................................................... xi List of Abbreviations and Acronyms .................................................................................. xiii List of Appendices ................................................................................................................ xx Chapter 1 : Introduction .......................................................................................................... 1 1.1. Background of the research .......................................................................................... 1 1.1.1. A brief overview of Indonesia ............................................................................... 2 1.1.2. The 1997 financial crisis and its impact ................................................................ 4 1.1.3. Changes and challenges ......................................................................................... 5 1.1.4. Evidence of poor corporate governance disclosure ............................................