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THE 4TH PRINCIPLETHE ROLE OF STAKEHOLDERS IN CORPORATE GOVERNANCEMELINDA VERONICA (023121202)ORYZA ANGGREINI ISKANDAR (023121214)Maria Juanita Fransisca (023121289)Perspective of the Corporation

As reflected on the Corporate Governance definition itself, a corporation must balance the interests of their stakeholders, both internal and external: shareholders, employees, customers, suppliers, investors, communities in order to achieve long-term sustained value.

The Role of Stakeholders in Corporate Governance: Why Company Should Recognize the Interest of Stakeholder.Corporations should recognize that the contributions of stakeholders constitute a valuable resource for building competitive and profitable companies. It is, therefore, in the long-term interest of corporations to foster wealth-creating cooperation among stakeholders. Corporate governance is also concerned with finding ways to encourage the various stakeholders in the firm to undertake economically optimal levels of investment in firm-specific human and physical capital. To achieve the basic perspective of corporation as explained before, which is to balance the interests of company stakeholders, the rights of stakeholders should be established by law or through mutual agreements (between company and related stakeholders) to ensure that the stakeholders are able to claim their right and to encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

A. The rights of stakeholders that are established by law or through mutual agreements are to be respected.In all OECD countries, the rights of stakeholders are established by law or by contractual relations, where each parties might be regulated by different law or even . Even in areas where stakeholder interests are not legislated, many firms make additional commitments/ mutual agreements to stakeholders, and concern over corporate reputation and corporate performance often requires the recognition of broader interests.

A. The rights of stakeholders that are established by law or through mutual agreements are to be respected.Example :The Company recruits and retains high potential and experienced employees with determination to continuously develop and increase skills of employees as well as to encourage employees to be successful and feel secure in their profession. The Company treats every employee equally, provides employees with reasonable welfares and other benefits such as provident fund, health and life insurance, etc. In a juridical manner, Article 5 of the Act No. 13 of Year 2003 about Employment of Labor provide protection where every worker is entitled and had the same opportunity to have jobs and a viable livelihood without differentiating between the sexes, the tribe of, race, religious, and the flow of political in accordance with their interests and the ability of labor concerned, including equal treatment against the disabled. While Article 6 regulating the mandatory of business owner to provide the employee right and obligation laborers without differentiating between the sexes, the tribe of, race, religious, skin color, and political believes (Khakim, 2003). B. Where stakeholder interests are protected by law, stakeholders should have the opportunity to obtain effective redress for violation of their rights.The legal framework and process should be transparent and not impede the ability of stakeholders to communicate and to obtain redress for the violation of rights.

Talking about stakeholder law protection strongly related to the law enforcement in the country itself. We might ever hear a saying that says The law became blunter upward, sharply downward, we might agree to those sayings. This sayings also supported by Country Studies of Corporate Governance in Developing Economies (McGee, 2009).

B. Where stakeholder interests are protected by law, stakeholders should have the opportunity to obtain effective redress for violation of their rights.

C. Performance-enhancing mechanisms for employee participation should be permitted to develop

Performance enhancing mechanisms for participation may benefit directly and indirectly for companies in the context of corporate governance. The example of mechanisms for employee participation is like employee representation on boards and governance processes such as works councils that consider employee viewpoints in certain key decisions. With respect to performance enhancing mechanisms, employee stock ownership plans or other profit sharing mechanisms are to be found in many countries

C. Performance-enhancing mechanisms for employee participation should be permitted to develop

Example:Employee stock ownership plans or other profit sharing mechanisms are to be found in many countries. When the company take the outstanding ordinary share to treasury share so the company can sell it to their employees, PT Perusahaan Gas Negara PT Perusahaan Gas Negara Tbk (PGN) will implement treasury stock, as recorded in the financial statements of the company per September 30 2014 with a total of 1.85 million shares. That shares will be sold back to employees. So the employees is more loyal than before D. Where stakeholders participate in the corporate governance process, they should have access to relevant, sufficient and reliable information on a timely and regular basis.Where laws and practice of corporate governance systems provide for participation by stakeholders, it is important that stakeholders have access to information necessary to fulfil their responsibilities.

D. Where stakeholders participate in the corporate governance process, they should have access to relevant, sufficient and reliable information on a timely and regular basis.Example:In the current capital market there is still some principles that have not been implemented, among others, for example the provisions governing has not been differences of opinion with the Board of directors or Commissioners meeting which must be delivered in a treatise written in the meeting, clarify the sense of the special relationship transactions, rights of stakeholders to access company information, adequate disclosure to shareholders and the public, transparency and reliability of financial reporting

The obligation to disclose the financial information disclosure also apply to securities company as set forth in the regulations of Bapepam Number X.E. 1 about the obligation of delivery periodic reports by securities companies and rule number V.D.5 about MKBD Reports

E. Stakeholders, including individual employees and their representative bodies, should be able to freely communicate their concerns about illegal or unethical practices to the board and their rights should not be compromised for doing this. The company and its shareholders is responsible to establish procedures and safe-harbors for complaints by employees, either personally or through their representative bodies, and others outside the company, concerning illegal and unethical behavior. When there is an inadequate response to a complaint regarding contravention of the law, the OECD Guidelines for Multinational Enterprises encourage them to report their bona fide complaint to the competent public authorities. The company should refrain from discriminatory or disciplinary actions against such employees or bodies. E. Stakeholders, including individual employees and their representative bodies, should be able to freely communicate their concerns about illegal or unethical practices to the board and their rights should not be compromised for doing this. Example :Unlike other stakeholders, employees are stakeholders in the company. However, because the employee is responsible to the Board of Directors, to oversee the company's policies carried out by the Board of Directors, the company must provide a mechanism that ensures the implementation of the rights of employees in carrying out the oversight function.

Pertaining to the role of employees in supervision , the law no.13 year 2006 on the protection of witnesses and victims, so every rapporteur will get protection including their rights as employees .F. The corporate governance framework should be complemented by an effective, efficient insolvency framework and by effective enforcement of creditor rights.

Creditors are a key stakeholder and the terms, volume and type of credit extended to firms will depend importantly on their rights and on their enforceability. Companies with a good corporate governance record are often able to borrow larger sums and on more favorable terms than those with poor records or which operate in non- transparent markets. Insolvency procedures usually require efficient mechanisms for reconciling the interests of different classes of creditors. In many jurisdictions provision is made for special rights such as through debtor in possession financing which provides incentives/protection for new funds made available to the enterprise in bankruptcy. F. The corporate governance framework should be complemented by an effective, efficient insolvency framework and by effective enforcement of creditor rights.

Example:Generally, Bapepam has set the problem of protection of the rights of the creditors related to the problem of financial difficulty. The regulations essentially States that in the event of financial difficulties of a company, then the rights of creditors must be considered and given priority in comparison with shareholders.