CORPORATE GOVERNANCE REPORT

CASE 4
BUMI PLC: A Clash of Dynasties

GROUP VII
Airin/ NIM. 00000005038
Alexander Dylan / NIM. 00000004962
Jennifer Luo/ NIM. 00000010672
Michelline Tan/ NIM. 00000009843
ACCOUNTING A

ACCOUNTING- BUSINESS SCHOOL

PELITA HARAPAN UNIVERSITY
TANGERANG
2016

TABLE OF CONTENT
INTRODUCTION..................................................................................3
EXECUTIVE SUMMARY........................................................................4
PROBLEM STATEMENT........................................................................5
Guanxi Business Model Affects GSKs corporate governance.........5
Factors and Board of Directors.......................................................7
GSK Response.................................................................................7
Expanding into New Markets Improve Their Governance of Foreign
Subsidiaries....................................................................................8
DATA ANALYSIS...................................................................................9
Issues..............................................................................................9
Stakeholders...................................................................................9
Constraints and Opportunities......................................................10
ALTERNATIVES..................................................................................11
RECOMMENDATION..........................................................................12
ACTION AND IMPLEMENTATION PLAN...............................................12

INTRODUCTION

Currently known as Asia Resource Minerals plc, through its subsidiaries, engages in
the exploration, mining, and production of thermal coal. It has three principal open cut coal
mining operations, including Lati, Binungan, and Sambarata that are located in an 118,400
hectare concession area in East Kalimantan. The company supplies coal to utility companies,
coal trading companies, and coal fired power plants in Indonesia, China, Hong Kong, India,
Japan, South Korea, Taiwan, the Philippines, and Thailand. The company was formerly
known as Bumi plc and changed its name to Asia Resource Minerals plc in December 2013.
Asia Resource Minerals plc was incorporated in 2010 and is based in London, the United
Kingdom.
In July 2010, he floated a 707m cash shell company Vallar plc on the London Stock
Exchange, promising shareholders that he would invest the IPO funds in emerging market
natural resource assets. Western-style corporate governance standards coupled with lucrative
mining resources that were in high demand in the worlds largest engines of growth appealed
to investors. By installing a strong board of directors and reputable managers, and adhering
strictly to corporate governance codes, the risk that usually afflicted emerging market assets
was greatly reduced. Investors responded favourably, oversubscribing the IPO at 10 per
share. Rothschild himself made a 100 million investment. Vallar decided to focus on
investments in mining of metals, coal, and iron ore in the Americas, Russia, Eastern Europe,
and Australia.

In November 2010, Vallar announced it was buying stakes for $3bn in two listed
Indonesia thermal coal (used for power stations) producers for a combination of cash and new
Vallar shares, with a view to combining them to create the largest exporter of thermal coal to
China, India, and the other emerging economies of Asia. The transaction closed as planned on
8 April 2011. In April 2011, Vallar plc was renamed Bumi plc.
The Vallar board was chaired by Sir Julian-Horn-Smith and Rothschild was a director.
Their search for targets did not take long. In October 2010, investment banker Ian Hannam
recommended Indonesian coal miner PT Bumi Resources (PT Bumi) to Rothschild as the
best deal he ever saw. PT Bumi was Indonesias largest coal producer and was under the
control of the wealthy and powerful Bakrie family10. Rothschild acted swiftly upon
Hannams advice. Within three weeks, he met up with Nirwan Bakrie to discuss a potential
deal. Three weeks after, on 16 November 2010, Vallar announced a massive US$3 billion
cash-and-share deal to acquire 25% in PT Bumi from the Bakries and 75% of PT Berau Coal
Energy (Berau) from businessman Rosan Roeslani. These percentages would swell up to
29.2% and 84.7% respectively through additional acquisitions and a mandatory cash offer for
Berau. The completion of the deal in June 2011 led the company to become one of the
worlds largest exporters of thermal coal and the company was rebranded as Bumi plc
(Bumi)
In September 2012 the company announced that it was looking into possible financial
irregularities at its Indonesian arms resulting in a 14% fall in its share price. Its much-delayed
financial results for 2012 showed a $200m black hole. It was reported that Rosan Roeslani, a
former CEO of the subsidiary, had stolen $173 million from the firm. The firm decided that if
Roeslani returned the money, no legal action would be taken.
On 17 December 2013, shareholders voted to change the companys name from Bumi
plc to Asia Resource Minerals plc (ARMS), and on 25 March 2014, the Bakrie family
officially severed ties with ARMS in a US$501 million separation deal64. On 7 May 2014, it
was revealed that former chairman Samin Tan and other investors had indicated a clear
wish for ARMS to be wound up, which would allow for a cash return of more than US$500
million to shareholders. On 19 May 2014, however, these plans for ARMS to be de-listed
from the London stock exchange were shelved, and instead an arrangement to return US$465
million to investors entered into.

EXECUTIVE SUMMARY
Bumi PLC is a listed coal mining company founded by the Indonesian Bakrie family
and UK financier Nathaniel Rothschild. In 2012, an internal conflict between the Bakries and
Rothschild made the news. It was reported that the latter had written a letter to the Bakries
demanding a radical cleanup in the corporate governance of Bumi Resources. Later that
year, US$200 million worth of funds were discovered to be missing.
In July 2010, Rothschild floated a 707m cash shell company Vallar plc on the
London Stock Exchange, promising shareholders that he would invest the IPO funds in
emerging market natural resource assets. The Vallar board was chaired by Sir Julian-HornSmith and Rothschild was a director. Rothschild met up with Nirwan Bakrie to discuss a
potential deal. Three weeks after, on 16 November 2010, Vallar announced a massive US$3
billion cash-and-share deal to acquire 25% in PT Bumi from the Bakries and 75% of PT
Berau Coal Energy (Berau) from businessman Rosan Roeslani. These percentages would
swell up to 29.2% and 84.7% respectively through additional acquisitions and a mandatory
cash offer for Berau. The completion of the deal in June 2011 led the company to become one
of the worlds largest exporters of thermal coal and the company was rebranded as Bumi plc
(Bumi).
The injection of PT Bumi and Berau assets into Vallar was a reverse takeover. This,
along with the issue of nearly 16.1 million bonus shares to Rothschild. The reverse takeover
also significantly changed Bumis board composition. Indra Bakrie and Rothschild took over
as Co-Chairmen of the board. New executive directors were also appointed. PT Bumi
President Director Ari Hudaya became Chief Executive Officer (CEO) while PT Bumi Chief
Financial Officer (CFO) Andrew Beckham assumed the CFO role. Meanwhile, Roeslani
became a non-independent, nonexecutive director. The make-up of the board was heavily
influenced by the Bakries. On 16 June 2011, the Bakrie Group signed a relationship
agreement with Bumi. As long as they controlled 15% of voting rights, they would be entitled
to nominate the Chairman, CEO and the CFO of the Bumi board. Roeslanis PT Bukit
Mutiara had an identical agreement, except it could only appoint one non-executive director.
These relationship agreements would become a bone of contention in the ensuing debacle.

On 1 November 2011, a mining tycoon, Samin Tan, agreed to purchase half of the
Bakries 47.6% Bumi stake for US$1 billion through his company PT Borneo Lumbung
Energi and Metal (PT Borneo). He paid an average of 10.91 per share - a stunning 47%
premium to Bumis previous day close. The stake would not be divided, but rather jointly
held within Special Purpose Vehicles (SPVs). Investors welcomed the news and Bumis stock
spiked 27% over the next two weeks. Yet, Tans introduction would have far-reaching
implications for the companys future beyond anyones expectations.
A mere nine days after Samin Tans introduction, Rothschild unexpectedly took his
grievances public. He leaked a scathing letter addressed to Bumi CEO Ari Hudaya to the
Financial Times. The letter called for a clean-up of the corporate governance and balance
sheet at PT Bumi, suggesting that the company was over-leveraged because it had extended
too many loans out to connected parties. He questioned Hudayas dual role as CEO of Bumi
and PT Bumi, and also accused him of not responding to board queries.
Rothschilds dissatisfaction had probably been brewing for some time. First, PT Bumi
had had more than US$550 million in loan receivables that seemed unrelated to its coal
business, raising questions about the transactions and connected parties. Second, PT Bumi
had US$394 million in unspecified business development assets on its books. Third, prior to
refinancing, PT Bumi had maintained all these monetisable assets while paying an exorbitant
19% annual interest rate on US$600 million in debt to the China Investment Corporation
(CIC). Rothschild believed this imprudence was corporate governance-related. Bumis poor
share price performance probably compounded Rothschilds unhappiness. Even after Samin
Tans welcomed intervention, Bumi was still trading at 15.4% below IPO price on the date of
Rothschilds letter. Despite a good operating performance in the first half of the fiscal year,
the share price was overwhelmed by a maelstrom of worrying macroeconomic factors. These
included the Eurozone sovereign debt crisis, as well as the peaking and subsequent decline of
Indonesian coal prices.
Rothschilds letter caused irreparable damage to his relationship with the Bakries.
Though a new debt collection schedule was agreed, the Bakries and Tan actively sought to
remove Rothschild from the board. After they threatened to call an EGM, Rothschild
eventually agreed to step down as Co-Chairman on 27 March 2012. He remained as a nonexecutive director, while Samin Tan assumed Chairmanship. CEO Hudaya and CFO Andrew
Beckham were also axed and replaced by Nalin Rathod and Scott Merrillees respectively.
Not long after, on 11 October 2012, the Bakries boldly proposed to separate
themselves from Bumi by cancelling their shares and buying out the companys stakes in PT

Bumi and Berau in a deal worth 430 pence per share. The proposal was conditional on
Rothschild returning the 16.1 million bonus shares he had received. Rothschild resigned from
the board four days later. Rothschild publicly criticised the board, insisting that the proposal
had short-changed minority shareholders. He also alleged that Samin Tan had had a side-deal
with the Bakries to be reimbursed at his original buying price of 10.91 per share. Tans
lieutenant Alexander Ramlie did not deny these claims, arguing that Tan would not have
dissolved the jointly-held SPVs if he had not been compensated. Bumis independent
directors were put on the spot. Senior Independent Director Sir Julian Horn-Smith rebutted
Rothschilds accusations, labelling Rothschild an activist investor. Horn-Smith insisted that
the board was evaluating the proposal carefully and their priority was to remove the Bakries
from the company at a value adding price. The entire board seemed united over the need for a
separation from the Bakries. Eventually, the company rejected the Berau stake sale but
remained in discussions to exit PT Bumi.
December 2012 saw the exodus of several board members. Five days before the
Macfarlenes findings were due, Co-Chairman Indra Bakrie resigned, followed by CEO
Rathod. Samin Tan was left as sole board Chairman while Head of Investor Relations Nick
von Schirnding was appointed as new CEO. The Takeover Panel then released a significant
ruling on 19th December that the Bakrie Group Tans PT Borneo and Roeslanis PT Bukit
Mutiara were technically a concert party, reducing their collective voting rights from 43.3%
to 29.9%. This was welcomed news for Rothschild. Subsequently, Roeslani stepped down
from the board.
It looked like a dead heat. However, three days before the 21st February vote,
Rothschild was blindsided. Roeslani sold his entire 10% stake in Bumi to three separate
investors none deemed to be in concert with the Bakries or Samin Tan. This made it harder
for Rothschild to garner the majority votes he needed. The final verdict was resounding:
Rothschild had lost this battle. Nineteen of his 22 proposed resolutions were rejected. He only
managed to remove two directors and had also failed to be elected. The shareholders favoured
a clear split from the Bakries, but nobody could say for sure why. Perhaps they thought
Rothschild had done too much damage, or that Bumi just needed a fresh start. Or maybe after
fifteen months of losses, investigations, accusations and boardroom politics, they were just a
little tired of it all.

PROBLEM STATEMENT
Pros and cons of reverse takeovers for shareholders
A reverse merger (also known as a reverse takeover or reverse IPO) is a way
for private companies to go public, typically through a simpler, shorter, and less expensive
process. A conventional initial public offering (IPO) is more complicated and expensive, as
private companies hire an investment bank to underwrite and issue shares of the soon-to-be
public company. Aside from filing the regulatory paperwork - and helping authorities review
the deal - the bank also helps to establish interest in the stock and provide advice on
appropriate initial pricing. The traditional IPO necessarily combines the go-public process
with the capital raising function. We will go over how a reverse merger separates these two
functions, making it an attractive strategic option for managers and investors of private
companies.
Pros
Private companies, generally with $100 million to several hundred million in revenue,
are usually attracted to the prospect of being a publicly-traded company. The company's
securities become traded on an exchange, and thus enjoy greater liquidity. The original
investors gain the option of liquidating their investment, providing for convenient exit
alternatives. The company has greater access to the capital markets, as management now has
the option of issuing additional stock through secondary offerings. If stockholders
possess warrants where they have the right to purchase additional stock at a pre-determined
price the exercise of these options provides additional capital infusion into the company.
Public companies often trade at higher multiples than do private companies;
significantly increased liquidity means that both the general public and investing institutions
(and large operational companies) have access to the company's stock, which can drive up
price. Management also has more strategic options to pursue growth, including mergers and
acquisitions. As stewards of the acquiring company, they can use company stock as the
currency with which to acquire target companies. Finally, because public shares are more
liquid, management can use stock incentive plans in order to attract and retain employees.

Cons
Managers must conduct appropriate diligence regarding the profile of the investors of
the public shell company. What are their motivations for the merger? Have they done their
homework to make sure the shell is clean and not tainted? Are there pending liabilities (such
as those stemming from litigation) or other "deal warts" hounding the public shell? If
so, shareholders of the public shell may merely be looking for a new owner to take
possession of these deal warts. Thus, appropriate due diligence should be conducted, and
transparent disclosure should be expected (from both parties).
If the public shell's investors sell significant portions of their holdings right after the
transaction, this can materially and negatively affect the stock price. To reduce or eliminate
the risk that the stock will be dumped, important clauses can be incorporated into a merger
agreement such as required holding periods. It is important to note that, as in all merger deals,
the risk goes both ways. Investors of the public shell should also conduct reasonable
diligence on the private company, including its management, investors, operations, financials
and possible pending liabilities (i.e., litigation, environmental problems, safety hazards, labor
issues).
After a private company executes a reverse merger, will its investors really obtain
sufficient liquidity? Smaller companies may not be ready to be a public company, including
lack of operational and financial scale. Thus, they may not attract analyst coverage from Wall
Street; after the reverse merger is consummated, the original investors may find out that there
is no demand for their shares. Reverse mergers do not replace sound fundamentals. For a
company's shares to be attractive to prospective investors, the company itself should be
attractive operationally and financially.
A potentially significant setback when a private company goes public is that managers
are often inexperienced in the additional regulatory and compliance requirements of being a
publicly-traded company. These burdens (and costs in terms of time and money) can prove
significant, and the initial effort to comply with additional regulations can result in a stagnant
and underperforming company if managers devote much more time to administrative
concerns than to running the business. To alleviate this risk, managers of the private company
can partner with investors of the public shell who have experience in being officers and
directors of a public company. The CEO can additionally hire employees (and outside

consultants) with relevant compliance experience. Managers should ensure that the company
has the administrative infrastructure, resources, road map and cultural discipline to meet these
new requirements after a reverse merger.

Rothschild is responsible for conducting due diligence on the two

Indonesian companies before the formation of Bumi
Rothschild is the middle party here and might be the party that suffers the most harm
in this case. However, as a part of board of directors, Rothschild should not have taken out
his anger and dissatisfaction to the public. Rothschild should had brought the issue internally
and solved it without bringing the issue in the spotlight of the public, causing harm to the
image of the company and the Bakries, his partners.
Rothschilds letter caused irreparable damage to his relationship with the Bakries as
well as other board of directors and the parties both involved and related. Others might had
thought that Rothschild wasnt a good team player where he should be acting the best interest
of the company. Later on, though a new debt collection schedule was agreed, the Bakries and
Tan actively sought to remove Rothschild from the board. After they threatened to call an
EGM, Rothschild eventually agreed to step down as Co-Chairman on 27 March 2012. He
remained as a non-executive director, while Samin Tan assumed Chairmanship. CEO Hudaya
and CFO Andrew Beckham were also axed and replaced by Nalin Rathod and Scott
Merrillees respectively.

Key corporate governance issues in a joint venture, Bumi plc

Corruption can emerges as one of the significant threats to Bumi Plc. It is a growing
concern for corporations since it not only directly affects their ability to grow and compete
but also creates issues for foreign partners. It has been seen if parties to a transaction do not
weigh ethical standards in a stringent manner and if there is lack of good internal control
systems, such issues may have ramifications (particularly for non-resident investors) in light
of the Foreign Corrupt Practices Act, 1977, the UK Bribery Act, 2010 or in many cases,
simply because of the internal polices of the non-resident investors. Given the significant
tangible and intangible consequences of corruption, it becomes vital for corporations to tackle
this phenomenon. Grave consequences are faced due to corrupt or unethical practices coming
into light, which are not only in the form of losing reputation, public and consumer faith but

also in the form of heavy civil, criminal and penal sanctions which could even wipe out a
business entirely.
Control considerations also plays an imporant role of the key corporate governance
that should be discussed before joint venture is created. The companies should discussed how
the share capital, dividends and bonus will be divided and assigned. Furthermore, voting
rights should be controlled and distributed fairly, according to what all the independent and
non executive directors have agreed on. No parties in the joint venture should hold an unsual
percentage of voting rights.

Ownership structures affect the boards independence and how effectively

they can govern

Ownership structures affect the boards independence greatly, accelerating to how well
the company can govern effectively. Ownership structures determines the voting rights of the
board. The higher percentage the ownership shares the company has, the more voting rights
assigned to the company and the higher chance and possibility that the result will be what the
company has desired. Therefore, it is important for all the companies not to gang up or build
as a team so that no parties will be left behind in the decision making process and the
company will always act to the best interest of the majority of the stakeholders not just the
big holders of the company shares. Also, we can determine that the more voting rights you

have can have a great impact to how you can govern the company as the company as a whole.
The higher percentage the company shares you have, the more rights they have to determine
who get to say and order commands affecting to how the company is governed. To avoid any
of this issues, the right board should be elected and voting rights should be distributed based
on the right agreement.

Lessons to be drawn from the case about governance issues in companies

with controlling shareholders and multiple substantial shareholders
A reverse merger is an attractive strategic option for managers of private companies to
gain public company status. It is a less time-consuming and less costly alternative than the
conventional IPO. As a public company, management can enjoy greater flexibility in terms of
financing alternatives, and the company's investors can also enjoy greater liquidity.
Managers, however, should be cognizant of the additional compliance burdens faced by
public companies, and ensure that sufficient time and energy continues to be devoted to
running and growing the business. It is after all a strong company, with robust prospects, that
will attract sufficient analyst coverage as well as prospective investor interest. Attracting
these elements can increase the value of the stock and its liquidity for shareholders.
The second lesson is the differences in the role of the governing board. Because the
role of the board of directors of a public company is not directly analogous to the role of the
governing board of a joint venture, various safeguards that are widely used by public
companies may not be necessary in the joint venture context. Other than voting for directors,
stockholders of a public company generally do not directly participate in managing the
company. Instead, the board of directors acts on behalf of a disaggregated body of
stockholders. As such, a public company board has the principal responsibility for overseeing
the development of the companys business strategy and the implementation of this strategy
by company management. Independent directors, board committees and codes of conduct are
vital tools that help ensure informed and efficient decision-making. They also protect the
public stockholders from self-dealing by insiders. In a joint venture, by contrast, the
governing board members typically represent a small number of partners. The venture
partners generally have representatives on the board, and the board develops and implements
the ventures business strategy based on direct input from the owners. The principal
governance problem most ventures face is the need to mediate disputes among the owners
and help them to reach appropriate compromises as necessary. The governing board typically
serves that purpose. Independent directors, committees and codes of conduct can also be

helpful tools in this context, but they should be used in a way that takes into account the
specific needs of the venture.
The third lesson is the use of technical committees. Joint ventures, particularly
technology and manufacturing ventures, are increasingly using special committees to focus
on technical issues and resolve related disputes. Delegating responsibility for resolving
disputes over technical matters to, or seeking guidance from, a committee whose members
have specialized knowledge may promote efficient resolution of the disputes and ensure that
technical issues receive appropriate attention. The technical committee can also be used to
give individual partners a greater voice on matters in which they have particular interest. If
the dispute is not resolved in a timely manner, the joint venture agreement may provide for
resolution by the same method as other disputes arising among the parties, e.g., by directing
senior executives of each partner to seek to resolve the dispute and, absent resolution, then
resorting to arbitration. Technical committees can also be used to coordinate communication
between the venturers respective technical staffs or oversee technical projects of the venture.
Members of a technical committee generally include representatives of each venture partner,
and may also include independent members with subject matter expertise. Venture parties can
tailor the committees schedule and structure to best serve the ventures needs, e.g., by
requiring regular meetings or only meeting as necessary.
The fourth lesson is the differences in conflict of interest problems. A principal
challenge faced by public companies is preventing directors, management and other
fiduciaries from taking advantage of public company stockholders and diverting corporate
opportunities from the public company for the benefit of the fiduciaries. Public companies
use independent directors and committees and codes of conduct as mechanisms to prevent
such self-dealing. Venture parties may also be concerned about breaches of duties by
fiduciaries, and conclude that the standard governance tools developed by public companies
are an appropriate way to tackle these problems. But as indicated above, venture parties
principal concern is likely to be balancing the goals of the joint venture company and the
individual goals of the venture partners, and not stopping self-dealing. Again, although public
company governance tools such as codes of conduct can be used to address this problem, they
must be tailored to fit the circumstances.

Failure of the imposition of Western standards of corporate governance

into Bumi plc
Communication challenges came out as one of the top factors that caused company
synergies to fail. Communicating with employees, empowering them and creating a culture
for them to thrive are all fundamental parts to integration. When mergers and acquisitions
occur, employees and management are generally left in the dark. Fear and lack of answers
deter top management from providing the information that employees need to redirect their
actions in the merged company. Rumors fill mystery and vacuums, and employees are left
asking questions like: Why is the organisation merging?; How will the merger affect my
work?; and What support will I receive during the merging process? This lack of
communication creates distrust and uncertainty in the workplace, leading to lower employee
engagement levels. Communicating is a skill that should come naturally, however it can be
the hardest skill to learn. When managing any key project, such as mergers and acquisitions,
its important to keep the employees from both parties informed at all times. Inform the
employees of the progress of the integration through different communication channels
(emails, intranet, etc). Being aware of the questions, concerns and fears that employees might
have, and, proactively communicating answers, will build transparency and trust, and lead to
a successful merger.
A transparent and timely communication between those who are involved in decision
making process must be the first tool that can prevent cases of failure. The link between
information and fraud prevention must go beyond the particular mode of corporate
governance chosen, organizational structure and control mechanisms applied. People are
more important than processes, so one of the main goals is to encourage the diffusion of
advanced practices, which lead not only to defend the interests of investors but also to ensure
social stability, improving the quality of human capital and promoting authentic values.
Financial crises detached from economic crises about we heard last years can head us on two
ways, namely, accounting fraud can be attributed to excessive control or lack of control,
external standards provided by the company or by internal regulations. Highlight the close
links between fraud and corporate governance is relevant again. These items mentioned are
really important, in idea that the regulations remain ineffective if there is not a tandem with
organizational culture, supported by strong ethical principles, to point out the priorities,

transparency of accounting information and efficiency of exercised control. Removing

conflicts of interest is the safest way to ensure the correct functioning of control systems.
As possible ways to avoid future cases of collapse may be the following:

Separation of powers of the Chairman and CEO. Each has to activate on its

own pathway, otherwise we could reach a situation of excessive concentration of power and
control capabilities of the supervisory board to be diluted.

Integrity and missing of conflict of interest between managers, that should not

target capital gains from the position they occupy, rather than wage remuneration they
deserve.

The existence of a strict flow of information so that decision-makers, have to

receive timely and adequate information to perform their duties.

Drawing concrete tasks and functions, especially in management teams, where

decisions require a sustained effort and a great responsibility.

Finally we have to ask a question, that have to be answered by everyone interested in
this field of activity, What is the value of corporate governance principles declared by the
companies?. Although here have been treated just a few of the many cases of corporative
governance failure, we attend to believe that we managed to emphasize the main ideas, which
are the interpretation and point of view of the authors, and as a solution to eliminate or at
least to reduce the differences between the three main types of corporate governance, we
would see a set of standards and requirements that include features of all types of governance
factors, namely an attempt to globalize the management techniques.

Challenges regulators face in overseeing companies like Bumi plc, where

major shareholders, management and operations are based overseas
One of the difficult challenges the Board will have to come to grips with in the
coming year is balancing the advantages of working with our non-U.S. counterparts to
conduct joint inspections against the need to assure U.S. investors that we are timely in
fulfilling our responsibilities under the Sarbanes-Oxley Act. The Board will continue to work
with auditor oversight bodies in other countries. However, the requirements of our statutory

mandate may mean that we will also seek to perform some first inspections of foreign firms
independently of the home country regulator, if that regulator is not ready to participate in a
joint inspection. And, for legal or other reasons, in a few cases neither joint inspections nor
independent inspections may be possible under the schedule required by Board rules.
Therefore, we will need to give serious thought to what kind of disclosure or other
protections U.S. investors should get regarding the work of uninspected foreign firms during
the period before their first inspection occurs.
The second challenge is ensuring appropriate information disclosure and transparency.
Companies should appropriately make information disclosure in compliance with the relevant
laws and regulations, but should also strive to actively provide information beyond that
required by law. This includes both financial information, such as financial standing and
operating results, and non-financial information, such as business strategies and business
issues, risk, and governance. The board should recognize that disclosed information will
serve as the basis for constructive dialogue with shareholders, and therefore ensure that such
information, particularly non-financial information, is accurate, clear and useful.

The role of Nathaniel Rothschild play in the corporate governance of a

company in acting for the interest of the company and minority
shareholders
Nathaniel Rothschild might not think throughly the effects of taking his grievances
publicly. He leaked a scathing letter addressed to Bumi CEO Ari Hudaya to the Financial
Times. The letter called for a clean-up of the corporate governance and balance sheet at PT
Bumi, suggesting that the company was over-leveraged because it had extended too many
loans out to connected parties. Another possibility was he might have thought that by leaking
the letter to the public might help the company and the minority shareholders.
However, we believe that Rothschild was doing the best he could to save the company
from all the wrongdoings done by the board as he had suspected missing cash and an unsual
transaction that happened several times. First, PT Bumi had had more than US$550 million in
loan receivables that seemed unrelated to its coal business, raising questions about the
transactions and connected parties. Second, PT Bumi had US$394 million in unspecified
business development assets on its books. Third, prior to refinancing, PT Bumi had
maintained all these monetisable assets while paying an exorbitant 19% annual interest rate

on US$600 million in debt to the China Investment Corporation (CIC). Rothschild believed
this imprudence was corporate governance-related.

DATA ANALYSIS
The Reasons The Issues Arise
Rothschild floated a $707m cash shell company, Vallar plc, on the London Stock
Exchange, promising shareholders that he would invest the IPO funds in emerging market
natural resource assets. With this, investors responded favourably, oversubscribing the IPO at
$10 per share and made himself $100 million investments. Rothschild then agreed to invest in
Indonesian coal miner, PT Bumi Resources. The injection of PT Bumi and Bereau assets into
Vallar was a reverse takeover, resulting in new shareholding structures and substantial
shareholders. This reverse takover left Rothschild with 11.7% voting rights while Bakries
earn 29.9% voting power with his partner, Roeslani earning 13.3%.
Following this, Samin Tan entered the fray by purchasing half of the Bakries shares,
angering Rothschild. Feeling betrayed, Rothschild leaked a scathing letter addressed to Bumi
CEO Ari Hudaya to Financial Times. The letter called for a clean-up of the corporate
governance and balance sheet at PT Bumi, suggesting that the company was over leveraged
because it had extended too many loans out to connected parties.
Rothschild also felt betrayed and a deep dissatisfaction due to several reasons. First,
PT Bumi had had more than US$550 million in loan receivables that seemed unrelated to its
coal business, raising questions about the transactions and connected parties. Second, PT
Bumi had US$394 million in unspecified business development assets on its books. Third,
prior to refinancing, PT Bumi had maintained all these monetisable assets while paying an
exorbitant 19% annual interest rate on US$600 million in debt to the China Investment
Corporation (CIC). Rothschild believed this imprudence was corporate governance-related.

Parties Affected By The Issue

Roeslani sold his entire 10% stake in Bumi to three separate investors none deemed
to be in concert with the Bakries or Samin Tan. This made it harder for Rothschild to garner
the majority votes he needed. Rothschild had lost this battle. Nineteen of his 22 proposed
resolutions were rejected. He only managed to remove two directors and had also failed to be
elected. The shareholders favoured a clear split from the Bakries, but nobody could say for
sure why. Perhaps they thought Rothschild had done too much damage, or that Bumi just
needed a fresh start. Or maybe after fifteen months of losses, investigations, accusations and
boardroom politics, they were just a little tired of it all.
On 17 December 2013, shareholders voted to change the companys name from Bumi
plc to Asia Resource Minerals plc (ARMS), and on 25 March 2014, the Bakrie family
officially severed ties with ARMS in a US$501 million separation deal. On 7 May 2014, it
was revealed that former chairman Samin Tan and other investors had indicated a clear
wish for ARMS to be wound up, which would allow for a cash return of more than US$500
million to shareholders. On 19 May 2014, however, these plans for ARMS to be de-listed
from the London stock exchange were shelved, and instead an arrangement to return US$465
million to investors entered into.

Constraints
PT. Bumi was in tatters, ravaged by depressed commodity prices, murky financial
wrongdoing and boardroom feuds that had became all too public. Following this problem,
Bakries choose not to admit defeat resulting in major loss for all the related parties
involved.There are 3 biggest problem that appear during this. First, PT Bumi had had more
than US$550 million in loan receivables that seemed unrelated to its coal business, raising
questions about the transactions and connected parties. Second, PT Bumi had US$394 million
in unspecified business development assets on its books. Third, prior to refinancing, PT Bumi
had maintained all these monetisable assets while paying an exorbitant 19% annual interest
rate on US$600 million in debt to the China Investment Corporation (CIC). Rothschild
believed this imprudence was corporate governance-related.
Bumis poor share price

performance probably compounded

Rothschilds

unhappiness. Even after Samin Tans welcomed intervention, Bumi was still trading at 15.4%
below IPO price on the date of Rothschilds letter. Despite a good operating performance in

the first half of the fiscal year, the share price was overwhelmed by a maelstrom of worrying
macroeconomic factors. These included the Eurozone sovereign debt crisis, as well as the
peaking and subsequent decline of Indonesian coal prices. In August 2011, Bumi wrote off all
US$390 million of PT Bumis exploration assets.
The challenge here is to define who is responsible to pay the debt as the same
companies keep lending to each other to cover each others debts. Furthermore, PT Bumi has
to be able to appoint the right board of directors to run the company knowing that the head of
the company has ill intentions to reap the profit for themselves.

Opportunities
The opportunity here is for the remaining shareholders to rebuild the clashed dynasty.
They should use the opportunity of a changed name to Asia Resource Minerals plc (ARMS)
on 17 December 2013 will be the turning point of the companys fate. Also, the fact that on
25 March 2014, the Bakrie family officially severed ties with ARMS in a US$501 million
separation deal should motivate the remaining shareholders to work better since the
troublemakers have already left the company. In the end of the day, ARMS is still listed on
London stock exchange. The remaining shareholders should make full use of this opportunity
to bring back the good image of the company.

ALTERNATIVES
In this report and after analyzing the case of Mizuho Bank and the case of the Yakuza,
we would like to give alternatives for the company for the future to avoid the cases of the
problem again. Our alternatives are:
Change the board of directors or add external directors.
Overcome communication challenges, increase transparency and open culture,
therefore increase coordination
Hire consulting firms to give suggestions

RECOMMENDATION
We recommend the second alternatives which is to overcome communication
challenges, increase transparency and open culture and increase coordination.
Transparency
With new businesses sprouting up every day, the lifespan of many start-ups is
extremely short. Transparency and free flow of information enables many organizations to
evade the competitive start-up battle and become successful. Sharing data with employees,
customers and other stakeholders helps organizations build their reputations and increases
peoples interest in the organization. Transparency in companies is important for building
trust with customers and other stakeholders. Investors often appreciate transparency, as
it helps them understand the progress made by companies. An open and transparent culture
sends a strong message to the workforce, telling them that theyre trusted and valued
members of the team, all working toward a common goal. This helps in instilling the core
values of the company in employees, and promotes collaboration amongst employees. Startups that adopt transparency with employees see more productivity and higher positive
decision-making capabilities, due to information being freely available to the employees.
Open Culture
Culture plays an important part in talent acquisition and growth strategy. Sharing
information can yield benefits in a variety of ways. Some initiatives that companies can take
to build an open and transparent culture are:
Open Board Meetings- Employees should be given the freedom to join board
meetings and listen to the proceedings, and the opportunity to ask questions to the members
present. Permitting employees to be present at board meetings makes a great impact on
company morale, culture, and employee trust.
Encouragement to provide feedback- Encourage employees to provide feedback,
and discuss their feedback at meetings to ensure that there are no surprises, and that the
employees feel that they are heard and their feedback is taken into consideration. This will
help employees feel valued and like a part of the company.
Flat and open office setting- Employees sitting across from each other promotes
collaboration. This helps establish a culture of being open and sharing. Having no closed
offices, and the entire leadership team, right from the CEO, sitting with the employees on the

floor helps build a feeling of togetherness and honesty. By this, employees also feel
encouraged to approach to the senior-most leaders of the company, in case of concerns.
ESOPs- Start-ups have now started to provide stock options to all employees, across
all regions and functions. Offering stock ownership fosters employee morale and helps in
attracting and retaining talented employees. Employees also feel a stronger sense of
ownership and responsibility towards the organization.

ACTION AND IMPLEMENTATION PLAN

Mizuhos plan is to implement transparency and open culture.
1. Institute a Transparent Workplace
A common mistake management teams make is not sharing information across the
organization. This demonstrates a lack of confidence and can lead to distrust. The best way to
prevent this is to practice open, transparent communication.
According to Michael Wolfe of Point Nine Capital, company leaders should share as
much information with their teams as they can, including meeting notes, customer feedback,
key data on financials, targets, fundraising, and new hires. (Some companies even share
salaries and stock options.)
Be discerning about the information you share, but dont worry about overwhelming
your teams. The people you want to hire at a startup are those who are smart and ambitious
enough to want this information and will use it to make the company better.
2. Get Rid of Us vs. Them
According to a 2012 Salesforce.comCRM -0.40% study, 86% of executives blame
workplace failures on a lack of collaboration and poor communication. This secretive us vs.
them mentality can lead to interdepartmental friction.
When employees arent communicating across departments, leaders need to build
practices that strengthen relationships between different teams. At my company, we have a
strong culture of open feedback and communication, but this is something weve built over
time by establishing genuine human connections. For instance, we bring together our globally
distributed team for a daily video call to celebrate recent successes and gather support for
challenges.

Always look for ways to build connections between people especially when theres
a lack of common work goals and interests. Open office layouts, group lunches, team outings,
and retreats can encourage collaboration and sharing.
3. Make Your OKRs Public
According to the same Salesforce.com study, 97% of employees and executives
surveyed believe a lack of alignment within a team directly impacts the outcome of a task or
project. Employees who have clear roles, responsibilities, and deadlines are more likely to be
held accountable.
To keep everyone aligned and focused on a set outcome, establish quarterly objectives
and key results (OKRs). Always frame these within larger company goals to show people
how their efforts support big-picture company objectives, and make all OKRs public
throughout the organization.
4. Ask Specific Questions