Strengthen the Board of Directors

Oct 13, 2025 by windailys.com 107 views

The Influence of Good Corporate Governance on Financial Performance in Plantation Companies Listed on the Indonesia Stock Exchange

In today's highly competitive business environment, Good Corporate Governance (GCG) has become a crucial aspect that significantly affects a company's financial performance. This study aims to investigate the extent to which GCG can impact financial performance in plantation companies listed on the Indonesia Stock Exchange (IDX). The main focus of this study is on several GCG components, including the Board of Commissioners, Board of Directors, Nomination and Remuneration Committees, and the Risk Management Committee, while financial performance is measured using Return on Assets (ROA).

The Importance of Good Corporate Governance in Plantation Companies

The plantation industry is a sector that heavily relies on long-term investment and faces various risks, both in terms of production and markets. With the existence of an effective board of commissioners and directors, companies can make better decisions and manage risk more efficiently. The Board of Commissioners is responsible for overseeing management performance and ensuring that the decisions taken are in accordance with the interests of shareholders. Although this study found that the Board of Commissioners had no significant influence on financial performance, their supervisory function remains important in maintaining the integrity and transparency of the company.

The Role of the Board of Directors and Risk Management Committee

The active and responsive board of directors can contribute to strategic planning and implementing appropriate policies, which directly impact financial performance. Meanwhile, the Risk Management Committee helps the company to identify and evaluate the risks encountered, so that the decisions taken can minimize the losses that may occur. The Risk Management Committee plays a crucial role in ensuring that the company is prepared to face any potential risks and challenges that may arise in the future.

The Nomination and Remuneration Committee: A Key Factor in Motivating Management

The Nomination and Remuneration Committee is tasked with ensuring that the awards and payroll system implemented in the company supports good performance. A fair and transparent system can motivate management to achieve established financial and operational targets. This committee is essential in ensuring that the company's compensation system is aligned with its overall strategy and goals.

The Impact of Good Corporate Governance on Financial Performance

The results of this study showed that simultaneously, the Board of Commissioners had no significant influence on financial performance. However, the Board of Directors, the Nomination and Remuneration Committee, and the Risk Management Committee have proven to have a significant effect. When viewed partially, each GCG component, namely the Board of Commissioners, Board of Directors, Nomination and Remuneration Committees, and the Risk Management Committee, showed a significant impact on the company's financial performance.

Conclusion

This study confirms that the application of good corporate governance can encourage improvement in the company's financial performance. By optimizing the functions of the Board of Directors, the Risk Management Committee, and the Nomination and Remuneration Committee, plantation companies in Indonesia can achieve better and more sustainable performance. Strengthening GCG aspects should be a major concern for all industry players, especially in order to face dynamic market challenges.

Recommendations

Based on the findings of this study, the following recommendations are made:

Strengthen the Board of Directors: The board of directors should be active and responsive in contributing to strategic planning and implementing appropriate policies.
Establish an Effective Risk Management Committee: The Risk Management Committee should be responsible for identifying and evaluating risks, and developing strategies to mitigate them.
Implement a Fair and Transparent Compensation System: The Nomination and Remuneration Committee should ensure that the awards and payroll system implemented in the company supports good performance.
Monitor and Evaluate GCG Performance: Companies should regularly monitor and evaluate their GCG performance to ensure that it is aligned with their overall strategy and goals.

Limitations of the Study

This study has several limitations, including:

Sample Size: The sample size of this study is limited to plantation companies listed on the IDX in the period 2009 to 2012.
Data Availability: The data used in this study is limited to publicly available information, which may not be comprehensive or up-to-date.
Methodology: The methodology used in this study is quantitative, which may not capture the nuances of GCG in plantation companies.

Future Research Directions

Future research should focus on:

Investigating the Impact of GCG on Financial Performance in Other Industries: This study focused on plantation companies, but future research should investigate the impact of GCG on financial performance in other industries.
Developing a More Comprehensive GCG Framework: This study focused on several GCG components, but future research should develop a more comprehensive GCG framework that includes other aspects, such as corporate social responsibility and sustainability.
Investigating the Role of Stakeholders in GCG: This study focused on the role of the board of directors and other GCG components, but future research should investigate the role of stakeholders, including shareholders, employees, and customers, in GCG.
Frequently Asked Questions (FAQs) on Good Corporate Governance and Financial Performance in Plantation Companies

Q: What is Good Corporate Governance (GCG)?

A: Good Corporate Governance (GCG) refers to the practices and processes that a company follows to ensure that it is managed in a responsible and transparent manner. GCG involves the implementation of policies, procedures, and practices that promote accountability, fairness, and transparency in the company's decision-making processes.

Q: Why is GCG important for plantation companies?

A: GCG is important for plantation companies because it helps to ensure that the company is managed in a responsible and transparent manner. This can lead to improved financial performance, increased investor confidence, and better relationships with stakeholders.

Q: What are the key components of GCG?

A: The key components of GCG include:

Board of Directors: The board of directors is responsible for overseeing the company's management and ensuring that the company is managed in a responsible and transparent manner.
Risk Management Committee: The risk management committee is responsible for identifying and evaluating risks, and developing strategies to mitigate them.
Nomination and Remuneration Committee: The nomination and remuneration committee is responsible for ensuring that the company's compensation system is fair and transparent.
Audit Committee: The audit committee is responsible for ensuring that the company's financial statements are accurate and reliable.

Q: How does GCG impact financial performance?

A: GCG can have a positive impact on financial performance by:

Improving decision-making: GCG helps to ensure that the company's decision-making processes are transparent and accountable.
Reducing risk: GCG helps to identify and mitigate risks, which can lead to improved financial performance.
Increasing investor confidence: GCG helps to ensure that the company is managed in a responsible and transparent manner, which can lead to increased investor confidence.
Improving relationships with stakeholders: GCG helps to ensure that the company is managed in a responsible and transparent manner, which can lead to improved relationships with stakeholders.

Q: What are the benefits of implementing GCG in plantation companies?

A: The benefits of implementing GCG in plantation companies include:

Improved financial performance: GCG can lead to improved financial performance by reducing risk and improving decision-making.
Increased investor confidence: GCG can lead to increased investor confidence by ensuring that the company is managed in a responsible and transparent manner.
Improved relationships with stakeholders: GCG can lead to improved relationships with stakeholders by ensuring that the company is managed in a responsible and transparent manner.
Enhanced reputation: GCG can lead to an enhanced reputation for the company by demonstrating a commitment to responsible and transparent management practices.

Q: What are the challenges of implementing GCG in plantation companies?

A: The challenges of implementing GCG in plantation companies include:

Cultural and organizational changes: Implementing GCG may require cultural and organizational changes, which can be challenging.
Resource constraints: Implementing GCG may require significant resources, which can be a challenge for small or medium-sized companies.
Stakeholder resistance: Implementing GCG may require changes to existing practices and processes, which can be resisted by stakeholders.
Regulatory requirements: Implementing GCG may require compliance with regulatory requirements, which can be challenging.

Q: How can plantation companies implement GCG?

A: Plantation companies can implement GCG by:

Establishing a board of directors: The board of directors should be responsible for overseeing the company's management and ensuring that the company is managed in a responsible and transparent manner.
Establishing a risk management committee: The risk management committee should be responsible for identifying and evaluating risks, and developing strategies to mitigate them.
Establishing a nomination and remuneration committee: The nomination and remuneration committee should be responsible for ensuring that the company's compensation system is fair and transparent.
Establishing an audit committee: The audit committee should be responsible for ensuring that the company's financial statements are accurate and reliable.

Q: What are the next steps for plantation companies to implement GCG?

A: The next steps for plantation companies to implement GCG include:

Conducting a GCG assessment: The company should conduct a GCG assessment to identify areas for improvement.
Developing a GCG plan: The company should develop a GCG plan that outlines the steps to be taken to implement GCG.
Implementing GCG practices: The company should implement GCG practices, such as establishing a board of directors, risk management committee, nomination and remuneration committee, and audit committee.
Monitoring and evaluating GCG performance: The company should monitor and evaluate GCG performance to ensure that it is aligned with its overall strategy and goals.