Young Indonesian executives fight a business culture of corruption

By Donald Greenlees, International Herald Tribune

WEDNESDAY, NOVEMBER 9, 2005


JAKARTA Take a money-losing newspaper, an organ of conservative Islam, and put it in the hands of Erick Tohir, a 35-year-old entrepreneur in a hurry to create a media empire.

The result is an impressive business revival. Within five years, sales of the newspaper, Republika, rose by 70 percent in a highly competitive media market. Ranked by circulation, it leaped to third place from ninth among Indonesian national dailies. From a loss of $1.2 million a year in 2000, it returned to modest profit by 2005.

Tohir is one of a new generation of young Indonesian business executives winning plaudits for acumen in a environment better known for monopolies and corruption than entrepreneurial flair.

Since buying Republika from an Islamic foundation, Tohir and his three business partners have built a company spanning newspapers, magazines, television, radio, advertising and film.

But it is not just sudden business success that makes Tohir stand out. It is his claim to be fighting the corrupt excesses of the Indonesian business world. He is not alone. A new breed of young executives, many the children of Indonesia's old business elite, has returned home in recent years from studies in the United States and Europe espousing a new business-school morality and promising to make changes to a predatory corporate culture.

In fliers plastered to the bathroom walls of Tohir's editorial office, employees are reminded of the importance of practicing "integrity" and "honesty" in their jobs.

Tohir, who obtained a master's degree in business administration from National University in San Diego, said he led by example. He attributed Republika's circulation success to a combination of a new moderate editorial line that appeals to mainstream Muslims and a tough anticorruption stance that resonates with the public. He said he had warned his business partners that the newspaper would not spare them if they were caught doing anything unlawful.

"I cannot hide that kind of thing," Tohir said. "If other newspapers write it, why should my newspaper not write it? Since the beginning, I told my partners or other shareholders that the media business is not only a business. You also have to have public responsibility."

The new business morality has some interesting advocates. Ilham Habibie said he wanted his private holding company - with investments in mining and energy, aerospace, manufacturing, and financial services - to be a "model" enterprise. His father, Bacharuddin Jusuf Habibie, was the third president of Indonesia and part of the inner circle of Suharto during his rule from 1966 to 1998, a time of widespread corruption.

"Through this company, we want to set an example of how business should be done," said Ilham Habibie, 42, who holds a doctorate in aeronautical engineering from the Technical University of Munich and a master's degree in business administration from the University of Chicago. "All the companies that I manage or supervise should work to the highest standard of professionalism."

There are good reasons for the business-school generation to be seen to advocate better corporate governance as they establish their own business reputations and seek the confidence of investors and bankers.

Since the economic crisis of 1997, investors and lenders have been slow to return to many parts of Asia, especially Indonesia. International corruption-monitoring groups, like Transparency International, consistently rate Indonesia as one of the most corrupt countries, an image that further dents the enthusiasm of potential investors.

Michael Backman, a business consultant and author of "Asian Eclipse: Exposing the Dark Side of Business in Asia," said that outside Japan, fund managers still allocated a tiny part of their investment portfolios to Asia and that when they did, they often preferred a few relatively safe spots. Among the reasons for investor wariness is the poor attitude of companies toward corporate governance and weak government regulation.

"As growth has returned to Asia, the desire for reform, and certainly its imperative, has slowed," Backman said.

He added that the generation of young Western-educated business people that has emerged since the economic crisis was making a difference by applying more of a textbook approach to management and investing in new industries. But while this generation shifts out of the textile factories of their parents and into new technology and services businesses, Backman cautioned that the business culture of Asia was likely to be slow to change.

"There will be some new business groups out of these new guys which are very rational and very worthy and demanding of investors' money," he said. "And there will be others who simply use their new skills to raise more capital" outside Indonesia. "It basically equips them to get money and look more presentable to get money, and then to take the money back to Indonesia and follow the practices of the old school."

For Indonesia's future business leaders, the image makeover will not be easy. Anindya Bakrie, 31, who heads Bakrie Telecom and the national television network ANTV, two divisions of Bakrie Group, has to try harder than most. His father, Aburizal, is also coordinating minister for economic affairs. This is the kind of connection that in the old days would have been a license to print money.

In an era of anticorruption drives, Aburizal, who stepped down from the family business when he went into politics, insisted that he was "not going to do any favors for anybody." Likewise, his son, who recently signed up the News Corp. subsidiary STAR TV as an investor in the family television network, said he was annoyed at suggestions that the political connection aids his business.

"It forces me to work harder, work much more carefully, work more diligently, because even if you are doing the right thing, people are going to say you are doing the wrong thing," he said.

Bakrie studied industrial engineering at Northwestern University in Illinois before pursuing a master's degree in business administration at Stanford University in California. Later, he worked as a junior financial analyst at Salomon Smith Barney in New York. His time there ended under a cloud after the U.S. Securities and Exchange Commission filed an insider trading complaint against him in 1998. He returned to Indonesia and, according to SEC documents, was fined $40,000.

Bakrie now says eliminating corruption in Indonesia is vital for the health of the economy and the creation of a competitive business culture. Acknowledging that "there will always be a level of corruption imposed on anybody doing business in Indonesia," he said he had pragmatic reasons for opposing it.

"Corruption to us is a cost to do business," he said. "Just like any other cost, the lesser the better."

Others like Ayu Hakim, 30, who attended Boston College and studied most of her life in the United States, had the high ideals she acquired in her years abroad tested when her father died last year and she returned to Indonesia to help run the family business. The array of family investments includes manufacturing, property and oil trading.

"Trying to stay clean here is absolutely a full-time job," she said.
_________________________
Jawawa.net: Indonesian Business and Investment News Aggregator