Indonesia’s Code of Good Corporate Governance

A. Purpose of the Code

The Code of Good Corporate Governance of Indonesia, hereinafter called the GCG Code, is a living instrument offering standards as well as guidance for companies to implement GCG with the purpose of:

  1. achieving sustainable growth of the company through a management system based on the principles of transparency, accountability, responsibility, inde­pendency and fairness.
  2. empowering the function and independency of each company organ, namely, the Board of Commissioners, the Board of Directors and the General Meeting of Shareholders.
  3. encouraging shareholders, members of the Board of Commissioners and the Board of Directors to take decisions and actions based on high moral values and compliance with the law and regulations.
  4. stimulating the company awareness of social responsibilities in particular the environmental and societal interests of the communities in which a company operates.
  5. optimizing the value of a company for its shareholders by also taking into consideration the interests of other stakeholders.

 
B. Organs of the Company

1. General Meeting of Shareholders

The General Meeting of Shareholders is a company’s organ that facilitates share­holders to make important decisions regarding their investment in a company, by observing provisions in the articles of association and the rules and regulations. De­cisions taken in the General Meeting of Shareholders must be based on the long term interest of a company.

Code Provisions

  1. Decision made in General Meeting of Shareholders must be conducted properly and transparently by considering matters necessary to safeguard the long term interest of a company, including but not limited to:
    1. Members of the Board of Commissioners and the Board of Directors ap­pointed in the General Meeting shall consist of individuals that are fit and proper for the company.
    2. Approval of report submitted by the Board of Commissioners and the Board of Directors shall consider the quality of the report that relates to GCG.
    3. Decisions regarding the appropriation of bonuses, gratification and dividends shall take into account the company’s financial condition.
  2.  

  3. For the purpose of the Shareholders :
    1. the shareholders shall have the opportunity to propose an agenda item for the General Meeting of Shareholders in accordance with laws and regulations.
    2. the notice of the Meeting shall include information regarding the agenda, date, time and venue of the meeting.
    3. the material of each agenda item included in the notice of the General Meet­ing shall be made available at the company’s premises from the day the notices for the Meeting are made until the day the General Meeting is held, to enable the shareholders to participate actively in the Meeting and cast a re­sponsible vote.
    4. other explanations regarding the agenda of the Meeting may be given before and or at the time of the Meeting.
    5. the minutes of the General Meeting shall be available at the company’s premises.

 
2. Board of Commissioners and Board of Directors

The management of a limited liability company in Indonesia is adopting a two board system, namely the Board of Commissioners and the Board of Directors, each of which has a clear authority and responsibility based on their respective functions as mandated by the articles of association and laws and regulations (fiduciary responsibility). Yet, they both have the responsibility to maintain the company sustainability in the long term.

3. Board of Commissioners

The Board of Commissioners as an organ of the company shall function and be re­sponsible collectively for overseeing and providing advices to the Board of Directors and ensuring that the Company implements the GCG. However, the Board of Commissioners is prohibited from participating in making any operational deci­sion. Each of the members of the Board of Commissioners, including the Chairman, has equal position.

  1. Composition, Appointment and Termination
    1. The composition of the Board of Commissioners may consist of Commissioners who are not originated from an affiliated party, known as Independent Commissioner, and affiliated Commissioners. Affiliated means having business and family relations with the controlling shareholders, members of the Board of Directors and other members of the Board of Commissioners, and with the company itself.
    2. The number of Independent Commissioners shall be such, so as to ensure that the control mechanism runs effectively and one of the Independent Commissioner shall have an accounting or finance background.
    3. Members of the Board of Commissioners are appointed and terminated by General Meeting of Shareholders through a transparent process.
  2.  

  3. Role and Function
    1. The Board of Commissioners is prohibited from participating in any opera­tional decision making. The authority of the Board of Commissioners shall be carried out within their supervisory and advisory function.
    2. In circumstances where it is deemed necessary in the interest of the company, the Board of Commissioners may impose sanction on members of the Board of Directors in the form of a suspension, subject to further determination by General Meeting of Shareholders.
    3. In circumstances where a vacancy occurs in the Board of Directors or in a situation as stipulated by laws and regulations and the articles of association, the Board of Commissioners may carry out the function of the Board of Direc­tors on a temporary basis.
    4. The Board of Commissioners shall have rules and guidelines set out in a char­ter to ensure that its duties can be executed in an objective and effective manner.
    5. The Board of Commissioners shall submit an accountability report for overseeing the conduct of the management by the Board of Directors.
    6. In carrying out its duty, the Board of Commissioners may form following committees:
      1. Audit Committee
      2. Nomination and Remuneration Committee
      3. Risk Policy Committee
      4. Corporate Governance Committee

 
4. Board of Directors

The Board of Directors as a company organ shall function and be responsible for the management of the company. Each member of the Board of Directors can carry out its duty and take decisions in accordance with their respective assignments and authorities. However, the execution of tasks by each member of the Board of Directors remains to be a collective responsibility. The position of each respective member of the Board of Directors including President Director is equal. The Board of Directors shall prepare a report on its management accountability which contains, inter alia, a financial report, report on company’s activities, and report on the implementation of GCG.

Code Provisions

(A). Composition, Appointment and Termination

  1. The composition of the Board of Directors shall be of sufficient size that suits the complexity of the business of the company by taking into account the effectiveness in decision making.
  2. Members of the Board of Directors are appointed and terminated by the General Meeting of Shareholders through a transparent process.
  3. All members of the Board of Directors shall be domiciled in Indonesia, at a place that allows the execution of the daily management function.

 
(B).Role and Function

The duties of the Board of Directors shall cover 5 (five) main tasks, namely –

  1. Management: The Board of Directors shall –
    1. formulate the vision, mission, and values of the company.
    2. be able to manage resources of the com­pany effectively and efficiently.
    3. consider the interest of the stakeholders prop­erly.
    4. delegate certain authority to the committee es­tablished in support of the execution of its duty or to an employee of the company to carry out a certain duty.
  2. Risk Management: The Board of Directors shall –
    1. establish and implement a sound risk manage­ment within the company.
    2. ensure proper implementation of the risk management.
  3. Internal Control:
    1. The Board of Directors shall establish and maintain a sound internal control system to safeguard company’s assets and performance.
    2. The internal control function or unit shall to assist the Board of Directors in ensuring the attainment of objectives and business sustainability by:
      1. evaluating the implementation of the company’s program.
      2. providing recommendations to improve the effectiveness of the risk management process.
      3. facilitating sound coordination with external auditor.
  4. Public Relations:
    1. The Board of Directors shall ensure the existence of a sound communication between the company and its stakeholders by empowering the function of a Corporate Secretary.
    2. Function of the Corporate Secretary is to ensure:
      1. a sound communication between the company and its stakeholders; and
      2. the availability of in­formation that is accessible to stakeholders in accordance with the proper need of stakeholders.
    3. In the event that the company does not have a separate compliance work unit to ensure the compliance with laws and regulations, such function shall be carried out by the Corporate Secretary.
  5. Social Responsibility:
    1. In preserving the company’s sustainability, the Board of Directors shall be able to ensure the fulfillment of the company’s social responsibility.
    2. The Board of Directors shall have a clear and focused written planning in meeting the company’s social responsibility.

 
C. Conclusion

Good corporate governance (GCG) is necessary to enhance the creation of an efficient and transparent market that is consistent with the laws. Indonesian companies are following a two board system, namely the Board of Commissioners and the Board of Directors which creates healthy, efficient and more transparent business climate. GCG is an important pillar of market economy as it relates to the investors’ confidence both in the companies as well as in the overall business envi­ronment. Implementation of GCG encourages fair competition and conducive business climate leading to sustainable economic growth and stability.
 

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