IT AS AN ENABLER FOR GOOD CORPORATE GOVERNANCE PRACTICES As a leading player in the information technology business, we constantly utilize technology. In 2009, almost all points of our value chain were integrated in our information technology network. In addition to network operation of our production equipment infrastructure, all important aspects of our management, including Finance, Logistics, Human Resources, as well as services to Employees, Clients, Suppliers and other stakeholders, utilized our information technology network.
We believe that the proper implementation of cutting edge information technology has a direct impact on enhancing the implementation of Good Corporate Governance, as it supports transparency, accountability, responsibility, independence and fairness and facilitates the process of dissemination, supervision and enforcement.
The establishment of the IT General Control and Application Control through risk assessment contributes to the use of IT as a reliable support and enabler for our business, now and in the future.
At its 2009 e-Company Awards, bimonthly magazine Warta Ekonomi named us the Best of the Best in all categories. This was based on a survey of 102 companies in various categories, comprising:
IT Governance (20% weightage)
IT Leadership (15% weightage)
IT Innovation (30% weightage); and
Business Performance (35% weightage).
Paperless HR Management To address the problems caused by the breadth of coverage of internal services, the number of personnel and complexity of our business, we initiated the paperless office IT system. This has resulted in more effective and accountable management. In addition, the IT system can save up to 80% in term of storage and delivery costs while accelerating document delivery time from an average of two to four days to just 30 minutes.
Our internal portal system, known as Paperless Office Internal (“POINT”), is accessible by all of our employees with a personal electronic identity and password. Employees perform their task and function using POINT as it facilitates the execution of instructions and workloads, and task memos are distributed through the intranet.
All requests and instructions for business trips, database, information on business partners for projects as well as work descriptions may be accessed only through POINT. Services such as vacation rights, salaries, employee data, rewards and sanctions, individual assessments, as well as requirements for attendance and reading important documents are accessed through POINT. POINT also accommodates messages from the President Director, teleconferences and also certain trainings and tests, including training on good corporate governance.
With the extensive use of IT, paper usage has been significantly reduced while the usage of teleconferencing has been maximized. Through this program, we are also playing a part in contributing to a greener world where carbon emissions are reduced as a result of cutting down fewer trees for paper and cutting back on travel for face to face meetings.
Employee participation in orientation programs and tests on good corporate governance, fraud, gratuities and whistleblowing in 2009 was 94.75%. The results of the tests of employees’ understanding of these issues were as follows:
GCG 76.53%
Fraud 79.48%
Gratuities 98.30%
Whistleblower 94.95%
The questions used to assess knowledge were divided into two categories: for implementers (Bands 4 to 7), where all questions were of the multiple choice variety, and for executives (Bands 1 to 3) where some questions were in the form of case studies. Scores for tests of knowledge among employees at the implementer level was 78.33% on average, slightly higher than scores among executives, which was 78.13% on average.
Career Development, Organization and Succession We place great emphasis on the career development of our employees and have taken steps to formulate career development programs based on the principles of accountability, fairness and transparency. We established a Career Development unit. The key task of this unit is to ensure that there are opportunities to develop the competencies needed to fill executive (strategic) positions and develop talented employees in line with our human resource development strategy. The unit’s main activity is to prepare employees with potential to occupy strategic positions and who can contribute positively to our growth. In developing the careers of employees with such potential, this unit reports structurally to the Human Capital & General Affairs Director, but it otherwise enjoys full autonomy.
Personnel for key positions are sourced from a talent pool consisting of some 50 future leaders, all of whom have displayed considerable potential, performance and competence. As a guideline for the establishment of the pool, our management issued KR 136/PS000/COPB0011000/2009 dated March 13, 2009. The identification of employees for the talent pool is based on administrative selection and the employee’s track record and competence, while the channeling of talent pool members to certain positions in the company is based on the following criteria:
Employee performance
Competence with 360o measurement (higher, lower and pier positions) as well as suitability for the position to be filled
Preparation based on results from the Assessment Center; and
Other supporting data.
The final stage in the process is the Job Trial program, the decision making of which is regulated in the guidelines KD 06/PS180/COPB0011000/2009 dated March 13, 2009.This final stage is the only part of the process chain in which the decision is based on the subjective perception of all members of the Job Council, who are appointed ex-officio, while all other parts of the process are based on objective, transparent and fair mechanisms.
Both objective processes (excluding the Job Trial program) and the intervention of the Directors have been applied in the succession of our Directors. While our majority shareholders request a list of candidates for the Board of Directors, it is this unit that has responsibility for proposing the list of candidates directly to the Office of the State Minister for State Owned Enterprises.
e-Procurement The implementation of logistics functions is based on good corporate governance, in particular, transparency, accountability, and equality. We have established a one-gate policy for procurement, although the physical process can take place in the regions. Since 2004, our procurement tenders have been held electronically through the e-auction system, which uses the “Jalintrade” software.
Jalintrade organizes the tender and negotiation process using computers. The tender committee will determine certain requirements and selection criteria at the administration and technical phases and enter them into the system. The suppliers that meet the criteria are then selected by computer. All candidates participate in competitive negotiations. The system selects the winner based on a weighting method or the lowest price.
The main benefit of the e-auction system is the acceleration of the tender process from a matter of weeks to less than one hour. Suppliers benefit from the accelerated delivery of goods or services, a fair price, and the absence of unnecessary tender costs, as the process is free from any intervention.
The e-auction system helps us to obtain a fair market price while minimizing procurement costs, while retaining full control over compliance with the rules and provisions on tenders.
In 2009, we held 1,321 e-auctions for the procurement of goods and services.
MANAGEMENT TRANSFORMATION As mandated in our Long-Term Plan and documented in the Corporate Strategic Scenario, we are committed to implementing 10 strategic initiatives in a consistent, managed, prudent and programmed manner, with a high level of certainty and in a way that can be properly monitored. In 2009, 165 important actions were taken, as follows:
25 actions in the Legacy business
18 actions in Wireless
20 actions in Broadband
20 actions in Enterprises
14 actions in New Generation Networks
11 actions in Information Technologies Services
18 actions in Media and Edutainment
14 actions in Streamlining
17 actions in Business Alignment; and
8 actions in Transformation Culture.
To accelerate the transformation process, we established a task force called the “TELKOM Transformation Team”, by Decree of the Board of Directors No.SK 633/2008, with members from all Directorates. The team was assigned to map all the action programs by accountability and capability, coordination and control as well as reward and compensation aspects. Based on the results of the mapping exercise, the team decided that, of the total of 165 action programs, 56 should be implemented in 2009. The team is assisted by the “Transformer” application, a computer application program specially designed to accommodate the online transformation process. The Transformer Application will display online the transformation status of each action program and each initiative, and the combined status of all transformation projects as a percentage.
Each action program has both a task unit and a Director who will act as a “champion” of the program. The Transformer Application will process all the action programs in a transparent, measurable and accountable manner based on the following criteria:
High likelihood, i.e. the action program has a high degree of certainty:
Critical Impact on the company; and
High urgency.
The Transformer Application will rate and map all action programs it monitors and the five top rated programs will be given the highest priority and placed under the direct supervision of the Directors.
RISK MANAGEMENT As an integral part of good corporate governance and to ensure the achievement of the our goals, we have, since 2006, used a risk management process.
In implementing risk management, we have established a vision of instilling risk management as a culture in our operational business processes. To bring this vision into reality, we are focusing on our mission of making risk management a trusted friend of each business unit.
In order to achieve this vision and mission, we have established milestones for the implementation of risk management in five phases, as follows: Phase I – 2006 : Mapping policies and business processes Phase II – 2007 : Policies available in all business processes Phase III – 2008 : Making risk management essential in each process Phase IV – 2009 : Ensuring disciplined risk management; and Phase V – 2010 : Making risk management part of our culture.
To implement our vision and mission in the action program, corporate programs and policies on risk management are built on the following key initiatives:
Risk assessment and mitigation
Business process elimination
Policy enhancement
In 2009, in line with the milestone, programs were aimed at making risk management disciplined.
Risk Assessment and Risk Mitigation There are two main objectives in implementing risk assessment: assessment of risks in financial reporting and the assessment of corporate risks.
Assessing financial reporting risks involves a risk assessment aimed at establishing key controls to determine the area/scope of the audit, as required in PCAOB Auditing Standard No.5.
The assessment of corporate risks is intended to ensure that risks related to ensuring the achievement of our objectives are mitigated. There are four categories of corporate risk: Strategic Risk, Operational Risk, Financial Risk and Market Risk. Strategic risks are risks caused by external factors (e.g. regulation, technological change, political) or risks in the strategic initiatives taken by the company (such as a business transformation or mergers and acquisitions).
Operational risks are risks that arise from internal processes or the resilience of the means of production against external factors, such as the risk of failure of production equipment, risks in infrastructure development or risks related to revenue leakage.
Financial risks are risks related to changes or volatility in the Rupiah exchange rates, interest rates or liquidity. Market risks are risks related to the failure of product launches or risks that arise as a result of tariff reductions or global market dynamics.
We monitor our progress towards mitigating all these risks with the work units concerned. Risks of a certain level of significance are discussed at meetings of the BoD or the Executive Committees. The Directorate of Compliance & Risk Management also regularly reports on risk management to the Risk Monitoring and Evaluation Committee.
Eliminating Inefficient Business Processes The implementation of risk management demands a robust risk assessment and an efficient business processes.
Annually, we conduct a business remediation review. Business remediation is done to capture input and findings from the field, including action on the findings of the previous year’s audit.
Policy enhancement After focusing on compliance risk in 2007 and 2008, we modified our risk management policies in 2009 to concentrate on accelerating decision making, business initiatives, relationships with third parties (union representatives) and managing non organic business.
These policies are aimed at enabling the growth of the business, both of our Business Units and through non organic business initiatives, while upholding prudential principles through the application of the “six eyes” principle.
BUSINESS CONTINUITY MANAGEMENT We formulated a Disaster Recovery Plan System to ensure the continued operation of the communications and IT networks needed for management, so that continuity of operations and management may be sustained in the event of a disaster. In 2009, we engaged several areas (Padang, Jakarta) in disaster management simulations for natural disasters and floods.
Revenue Assurance Ensuring a constant revenue stream is part of our business process. There are several factors, both external and internal, that can threaten business transactions and income. One such threat to income is leakage in the processes that take place from the time of the transaction until the income is recorded. To manage this threat, we implemented a revenue assurance program by issuing KD.08/HK.290/COP-D0031000/2009 dated March 25, 2009 regarding Revenue Assurance Policy. This covers revenue leakage risk management by managing revenue streams derived from different sectors, including product development, presales/sales, ordering provisioning, network, mediation, rating/billing, collection and accounting.
FRAUD MANAGEMENT To avoid the risk of financial fraud, we conduct annually an assessment of our ICOFR, including an assessment of the risk of fraud. Our BoD issued a Decree on Anti Fraud Policy (KD 70/2006), which was updated by KD 43/2008. The Directors also issued guidelines on the Fraud Risk Assessment process through KR 03/2007. Those were issued alongside other Decrees of the BoD such as those on Business Ethics (KD 05/2005 and 43/2006), good corporate governance (KD 29/2007), the Prohibition of Gratuities (KD 67/2006), the BoD Charter (KD 22/2007) and Whistleblowers (KD 48/2006). To anticipate further fraud risks, we also issued guidelines on the Investigation Committee (KD 22/2008) and on the Enforcement of Discipline (KD 41/2008).
Since 2007 we have conducted, annually, a Fraud Risk Assessment. This includes Financial Reporting, the Procurement Cycle and Fixed Assets and the Non POTS Income and ITSL Income Cycles in 2007. It was repeated in 2008 and 2009.
TELKOM’ BUSINESS ETHICS Our Business Ethics program has developed from internal sources. The identification of ethical principles began in 1989 as the “321” principle and was further developed to become the “Patriot 135” principle. It is currently based on Decree of our BoD KD.05/PR180/CTG00/2005 dated January 31, 2005 and subsequently amended by KD43/PR.180/SDM30/2006 dated July 27, 2006.
All employees are required to read the business ethics document. Every year since 2007, we have required all employees to sign a statement of their willingness to implement business ethics as a means of refreshing the concept. Meanwhile, a knowledge test has been given every year since 2006. The objectives of this annual activity are:
To remind employees about our Business Ethics as a guideline for standards of behavior
To regularly monitor employees’ readiness to comply with the Business Ethics policy, which is mandatory for all employees; and
To monitor levels of knowledge on the Business Ethics policy and other related policies.
The implementation of the Business Ethics policy in 2009 involved 22,357 employees, 97.45% of our total workforce.
INTEGRITY PACT Through the Integrity Pact policy, which was stipulated as Policy of our BoD No. 36 Year 2009, we acted to further strengthen the implementation of good governance to ensure sustainable growth, particularly with regard to efforts to prevent self-dealing (acts committed to enrich oneself or others) that have a detrimental effect on our finances, and collusion and nepotism in areas related to procurement and partnership that involve other parties.
However, the Integrity Pact is not restricted to issues linked to procurement and partnership, but is aimed more at enabling related process that have already been established, by strengthening the following:
Business ethics, including the code of integrity
Measures to prevent conflicts of interest
Prohibitions on gratuities
Prohibitions on insider trading
Measures to ensure the confidentiality of information; and
Efforts to ensure Service Integrity.
WHISTLEBLOWER The Whistleblower mechanism helps guarantee the security of employees who submit complaints or reports on rule violations. Reports are received by the Audit Committee, which investigates further if necessary, while evaluation is handled by the Executive Committee on Investigation. If further investigation into an employee’s report is necessary, Internal Audit will become involved as part of its internal audit task. The function and the role of these units is described in KD 48/HK260/RIC-33/2006 dated September 6, 2006 and KD 13/HK000/COP-D0051000/2009 dated April 20, 2009.
The Audit Committee is chaired by Arif Arryman while the Executive Committee on Investigation is Chaired by Teguh Wahyono with Tjatur Purwadi as a member. The Chairman of Internal Audit is the Secretary of the Executive Committee on Investigation.
RELATION WITH STAKEHOLDER Our commitment to maintain good relationships with our stakeholders was recognized when we received the award “Best of the Best” 2009 by magazine Warta Ekonomi on December 7, 2009. This award was based on a survey of 986 respondents. Overall, we were voted the best company in terms of salary and benefits for our employees. We were also deemed the best company in the industry with a reputation as a large, renowned company with good management.
Relationship with Employees We regularly conduct employee satisfaction surveys in order to get direct feedback from the employees that can be used as an input for service improvement.
Relationship with Suppliers Apart from customers and employees, we also consider our suppliers as one of our important stakeholders. As such, we place a high priority on maintaining and improving a healthy relationship with our vendors. We extend a commitment to our suppliers to develop a mutually beneficial working relationship. With no less than Rp41,993 billion of operating costs originating from outside personnel and capital expenditure amounting to Rp19,161 billion in 2009, we need qualified and reliable suppliers.
In April 2009, a survey of our suppliers was conducted. The survey’s objectives were:
To ascertain the level of partnership and performance of our partnerships
To ascertain suppliers’ expectations
To ascertain the commitment of the partners to our partnering performance; and
To formulate materials to determine partnering measures with the partners.
The partner satisfaction survey reached 125 respondents, of which 49 were our suppliers. The survey was targeted at identifying the gap between expected performance and actual performance, while the coverage of the survey included:
Quality, with indicators on product specification, human resources and quality control
Cost, with indicators on price and payment
Delivery, with process and information update indicators
Flexibility, with indicators on information disclosure and flexibility towards the process; and
Responsiveness, with indicators on supplier demand and the availability of contact persons.
The analysis of the survey results is as follows: The researchers found that, for the suppliers, the five variables of Quality, Cost, Delivery, Flexibility and Responsiveness were of most interest. The suppliers rated most of the variables as fairly satisfactory except for cost, which was regarded as not very satisfactory. The suppliers felt that the lowest cost criteria in our procurement process should not be the dominant factor.
The researchers came to a number of key conclusions about the procurement process.
We should prioritize information disclosure and reconsider the pricing aspect of the procurement process
We should strengthen relationships with our suppliers, by applying different policies for all managerial as well as functional levels
We should upgrade our performance on the delivery variable, particularly for the information update indicator; and
We should constantly update information about our suppliers and implement an integrated system that would deliver information on procurement, including on the contact persons in each of the supplier companies.
Supplier Performance Report Following the letter of the VP Supply Planning and Control No.Tel.101/LG 000/COP E0022000/2009 dated April 28, 2009, we began evaluating our suppliers. This centralized evaluation process standardizes the criteria and evaluation methods for suppliers. The program is aimed at strengthening partnerships with suppliers and enhancing their quality, as well as facilitating the timely completion of projects, accelerating logistic functions and enhancing professionalism and transparency in the selection of suppliers.
The evaluation is based on suppliers’ quality, cost, delivery & services (QCDS) record during the process of procurement, construction and post construction. The evaluation is conducted in real time on actual and planning (S Curve), complaints and the completion of a questionnaire.
ASSESSMENT CENTER Each candidate for leadership must complete the Assessment Center process. This involves a simulation of a maximum work load, to help experts evaluate a candidate’s leadership talent and adequacy. The simulation of work conditions is tailor made to the required job specifications.
We believe that this is a proven system, given that several institutions such as ITB, Merpati and others have all successfully used the Assessment Center process for their leadership selection processes
Posted on June 01, 2010 Source: TELKOM 2009 Annual Report (filed to Bapepam-LK on April 08, 2010)
