Corporate Governance And Directors’ Duties In Indonesia: Overview – Shareholders

The Q&A gives a high-level overview of corporate governance
trends; the main forms of corporate entity used; the corporate
governance legal framework; corporate social responsibility and
reporting; board composition and restrictions; directors’
remuneration; management rules and authority; directors’ duties
and liabilities; transactions with directors and conflicts;
disclosure of information; shareholders’ rights, company
meetings, and minority shareholder action; and internal controls,
accounts and audits.

Corporate Governance Trends

1. What are the main recent corporate governance trends and
reform proposals in your jurisdiction?

Indonesia is taking significant steps towards improving
corporate governance. The lessons learned from the Asian financial
crisis of 1997 to 1998 and the global financial crisis of 2007 were
critical in initiating these reforms.

The reforms are articulated in the Indonesian Corporate
Governance Roadmap (road map), which was launched in early 2014 by
the Indonesia Financial Services Authority (FSA) with the support
of the World Bank’s International Finance Corporation. The road
map broadly seeks to achieve the following:

• Improved good governance practices and comprehensive
  regulations for companies.




• Strengthened supervisory role of company boards.




• Improved quality of disclosure by companies (increased company
  transparency).




• Greater protections for shareholders and stakeholders

The recommendations in the roadmap can be summarised as
follows:

• Corporate governance framework: the enforcement of a code of
  good corporate governance through a “comply or explain”
  regime and the implementation of a code of conduct for stakeholders
  (The “comply or explain” regime allows for more
  flexibility than a legally binding code.




• Protection of shareholders: through transparent preparation,
  organisation, and disclosure of the results of the general meeting
  of shareholders (SGM) and clearly defined dividend and voting
  rights including for non-controlling shareholders.




• Role of stakeholders (such as employees, vendors, and others):
  implementing anti-corruption and procurement policies and long-term
  incentives for employees such as employee stock ownership plans
  (ESOPs); improving the roles and qualifications of corporate
  secretaries and implementing whistleblower policies.




• Transparency and disclosure: disclosure of ultimate beneficial
  ownership and of independence criteria for commissioners, as well
  as ensuring the availability of financial and non-financial
  information on companies’ websites in Indonesian and English
  for potential investors to take this into account during their
  decision-making process.




• Role of boards: clarifying the nomination and remuneration
  process of commissioners and directors; ensuring disclosure of
  qualifications of board members and providing instruction for board
  members on their fiduciary duties. Other board aspects dealt with
  in the roadmap are the:
  

  • tenure of commissioners;

  
  

  • promotion of board diversity;

  
  

  • evaluation of board performance; and

  
  

  • implementation of succession planning policies.

By 2022, the road map had only been partially implemented for
certain types of companies under the FSA.

The Indonesia Corporate Governance Manual (produced by World
Bank’s International Finance Corporation in cooperation with
the Indonesia FSA) complements the road map. It provides practical
guidance for Indonesian companies on how to implement sound
governance practices.

Click here to view full review.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.