The Role of Internal Function of Organization for The Successful Implementation of Good Corporate Governance

Authors: Aries Susanty

Abstract:

The inability to implement the principles of good corporate governance (GCG) as demonstrated in the surveys is due to a number of constraints which can be classified into three; namely internal constraints, external constraints, and constraints coming from the structure of ownership. The issues in the internal constraints mentioned are related to the function of several elements of the company. As a business organization, corporation is unable to achieve its goal to successfully implement GCG principles since it is not support by its internal elements- functions. Two of several numbers of internal elements of a company are ethical work climate and leadership style of the top management. To prove the correlation between internal function of organization (in this case ethical work climate and transformational leadership) and the successful implementation of GCG principles, this study proposes two hypotheses to be empirically tested on thirty surveyed organizations; eleven of which are state-owned companies and nineteen are private companies. These thirty corporations are listed in the Jakarta Stock Exchange. All state-owned companies in the samples are those which have been privatized. The research showed that internal function of organization give support to the successful implementation of GCG principle. In this research we can prove that : (i) ethical work climate has positive significance of correlation with the successful implementation of social awareness principle (one of principles on GCG) and, (ii) only at the state-owned companies, transformational leadership have positive significance effect to forming the ethical work climate.

Keywords: Good Corporate Governance Principles, Ethical Work Climate, Transformational Leadership

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1059517

References:

[1] Alijoyo, F.A, "Corporate Code of Conduct", Forum Corporate Governance in Indonesia, 2002, http://www.fcgi.or.id.
[2] Black, B., Jang, H., and Kim, W., "Does Corporate Governance Affect Firm Value? Evidence from Korea", Research Paper Series,, KDI School of Public Policy and Management, vol. 05, no. 1, 2003.
[3] Chen, K.C.W, Chen, Z., and Wei, K.C.J., "Disclosure, Corporate Governance, and The Cost of Equity Capital in Emerging Markets", Working Paper Series, Social Science Research Network, 2003.
[4] Floyd, Y.R., "Organizational Behavior and its Effect on Sustainable Change Management: A Literature Review", Journal of Business and Public Policy, vol. 1, no. 4, pp. 1 - 11, 2007.
[5] Gill, A., "CG Watch : Corporate Governance in Emerging Markets", http:// www.clsa.com, 2002, 2003, 2005, 2007.
[6] Goleman, D., Abotyatzis, R., and McKee, A., "The New Leaders; Transforming the Art of Leadership into Science of Results", Little Brown, http://www.etgmr.com/gmrapr-jun3/art4.html, 2003.
[7] Guilford, J.P. "Psychometric Methods", McGrawHill, New York, 1979.
[8] Indaryanto, K.G., "Konsepsi Good Corporate Governance", in Komitmen Menengakkan Good corporate Governance, G. Suprayitno, K.G. Indaryanto,S. Yasni, D. Krismatono, L. Rita, and R.G. Rahayu, The Indonesian Institute for Corporate Governance, Jakarta, Indonesia,2004.
[9] Kullavanitiwat, S., "Transformational Leadership on Professional Nurses", Paper Presented in the 38th Biennial Convention-Leadership Sessions, Indianapolis, 2005.
[10] Lyons, S.T, Duxbury, L.E., and Higgins, C.A., "A Comparison of Values and Commitment of Private Sector, Public Sector and Parapublic Sector", Public Administration Review, vol. 66, no. 4, pp. 605 - 618, 2006.
[11] Maesschalck, J., "Ethics in The Public Sector: What Difference Does the Organization Make?", Proceedings of the American Society for Public Administration Conference, Portland Oregon, 32 p, 2004.
[12] Miller, A.R., "An Analysis of the Relationship Between the Perceived Organizational Climate and Professional Burnout in Libraries and Computing Centers in West Virginia Public Higher Education Institutions", Dissertation, Department of Leadership Studies, Marshall University, Huntington, West Virginia, 2003.
[13] Numkanisorn, N.P., "An Exploration of The Impact of Principal Leadership Behaviour on School Culture", Thesis, Australian Digital Theses Program, Australian Catholic University, http://dlibrary.acu.edu.au/ digitaltheses/public/adt-acuvp29082005.57, 2004.
[14] Redeker, Jr., "Code of Conduct as Corporate Culture", HRMagazine, vol. 35, no.17, pp. 83 - 86, 1990.
[15] Reynolds, C.P., "Corporate Code of Conduct", http://www.bcfm.com/financial_manager/MayJune04/corporate%20code.pdf, 2004.
[16] Spencer, B.F., Ph.D., "The Leadership Chain: McClelland and His Legacy", Spencer, Shenk, Capers & Associates, Inc, 2004.
[17] Stringer, R., "Leadership and Organizational Climate", Prentice Hall Series, New Jersey, 2001.
[18] Sulistyanto, S. and Wibisono, H., " Rekayasa Keuangan: Refleksi Sikap Oportunis Manajer?", Seri Kajian Ilmiah, 12, 1, http://artikel.us// hsulistyanto4.html, 2003.
[19] VanSandt, C.V., "An Examination of The Relationship Between Ethical Work Climate and Moral Awareness", Dissertation, Virginia Polytechnic Institute and State University, Blacksburg, Virginia, 2001.
[20] Zeffane, R, "Organizational Commitment and Perceived Management Style: The Public-Private Sector Contrast", Management Research News, vol. 18, no. 6,7, pp. 9 - 12, 1995.