2024 has lapsed with some troubling news for Indonesia’s business ecosystem. From massive layoffs to deflation, economists have predicted that 2025 seems not good for Indonesia. Moreover, some fraud cases suffered or caused by some start-ups exacerbate the scepticism for the economy. This is so frustrating since the Indonesian government has a high hope for start-ups. The government has been inviting them to international forums, collaborating on specific projects such as Magang Merdeka, and giving them involvement in shaping policies for their business environment. However, recent news shows that there is one important aspect that the government overlooks: building consumers’ trust in start-ups by creating a governance system.
Why Governance?
Governance is a process of determining a decision, which involves the participation of the company’s organs and personnel, including directors. Sir Adrian Cadbury defines corporate governance beautifully by saying that corporate governance is the system that directs and controls the company. Thus, governance is above the individuals, and this is very important. Sometimes, a start-up is defined by its founders’ profile, and it is completely fine. However, that company must establish a governance system to ensure that it operates effectively and safely. Unfortunately, a start-up company prioritizes profits over governance, making it harder to consider safety and risk management impact. A case in Investree shows how a start-up neglects risk management and safety policies.
Investree was one of the oldest peer-to-peer lending fintech companies in Indonesia. Its founder, Adrian Gunadi, was a well-known and respected person who advocated financial inclusion for Indonesian citizens. His company engaged in a creative business model by acting as an intermediary between lenders and borrowers. It provided an electronic application in which the lenders and borrowers would meet online, and lenders decided which proposals they would lend. However, allegations have been made by legal enforcers of Adrian Gunadi as he suspiciously gathered money from the public without a license. Moreover, the non-performing loan of Investree exceeded the minimum threshold. Therefore, the Indonesian enforcers have put Adrian Gunadi under red notice since he fled to Qatar. Investree is not the only company that experiences improper governance to guide all company organs and individuals herein. There are other Indonesian start-up companies that neglect governance systems and feel the detrimental effects from their actions. E-Fishery, a company that has been opening a wide opportunity for the fisheries business ecosystem to flourish and develop, also suffered from the alleged embezzlement by its investors, causing two of their founders to be replaced by the investors’ representatives. The governance issue between founders and investors deteriorates Investree’s brand reputation and trust from consumers’ perspective.
The above examples show that governance holds a key role in ensuring that a start-up company can operate and exist sustainably. Thus, the Indonesian government should consider creating regulations or policy frameworks to guide and help start-up companies to sustain themselves. Good governance will strengthen the company’s resilience over external and internal pressures. It also builds a consumer’s trust that the company is credible and well-managed.
The Governance on Consumer Protection
The very foundational relationship between governance and consumer trust lies in the process of redress. Start-up companies provide services or goods that benefit the consumers. Thus, it is important for start-up companies to provide a proper governance system that accommodates the redressal mechanism. According to Article 7 of Indonesian Consumer Law, the redressal mechanism becomes the responsibility of the goods/services providers. Moreover, providers shall provide it through the distribution of money, goods/services replacement, or health cost coverage. If providers do not redress their aggrieved consumers, then the redressal process will be taken by the consumer dispute settlement body or courts in which consumers reside. However, Indonesian consumer law stipulates that the redressal initiatives do not waive the possibility of penalty charges. Thus, Indonesian laws allow parallel processes that consumers can use, which are the consumer settlement body/civil courts and criminal court.
Start-ups should ensure that consumer redress is embedded into their corporate governance policies. In the fast-paced market condition, consumer protection acts as a shield breaker to the fortress built by the market that protects sellers, which are start-up companies, from responsibility to rectify or restore consumer damages due to the inability of consumers to estimate the risks of products. Therefore, the government should create policies and regulations that increase the awareness and goodwill of start-ups to apply consumer protections. Consumer protection governance through redressal mechanisms should be perfected by the risk management system applied to the companies.
Risk Management for Start-Ups
The other governance that start-ups must apply is a risk management system. In fact, risk management and consumer protection cooperate in supporting good corporate governance. Risk management is important to identify risks, determine risk owners, calculate risk levels, and find the risk treatment. Thus, risk management assists the decision-making process within companies. Any decision to expand the companies’ business should be properly calculated, and risk management helps to determine the cost and benefit of the plan. However, not all business sectors have addressed this important aspect.
In Indonesia, the financial sector is the most advanced sector to require all financial companies to conduct risk management. Furthermore, start-ups in financial sectors should also become subject to this obligation. Financial Authority Board Regulation on Peer-to-Peer lending stipulates the obligation for the start-up companies, in this sector, to create and implement risk management. It includes the supervision of directors and commissioners. However, this regulation may not sufficiently address any director’s misconduct that violates prevailing laws in the risk management system. Despite this, a good company should apply active supervision upon directors by enabling shareholder activism in a company. Shareholders actively supervise and ask directors about their management. This can be done through the question and answer in the general meeting of shareholders. Therefore, there are two supervisors in a company: commissioners and shareholders. Commissioners actively supervise daily, and shareholders engage in this role during the general meeting of shareholders.
Way Forward
Supporting start-ups is essential to enable innovation, competition, and economic growth. However, the government should not only provide the incentives aid but also guidance to build a consumer-oriented governance for start-ups. Thus, the government must create a policy that explains what consumer protection policies start-ups should have. Moreover, essential redressal mechanisms and risk management must be the ones that the government introduces to companies. Companies may collapse or struggle to operate, but redressing their consumers for any underperformed goods or services delivery should be kept applied by them. Hence, risk management policies back redressal mechanisms by encouraging shareholder activism as a part of supervisory measures for any directors’ actions. By applying this, we may see minimum start-up issues with consumers.
