Indonesia: Recent Corporate Governance Reform In Indonesia

Last Updated: 19 February 2016
Article by Miles Young and Diana Kusumasari

Indonesia is taking significant steps toward improving corporate governance. The lessons learnt from the Asian financial crisis of 1997-98 and the global financial crisis of 2007 were critical in initiating these reforms while the desire to establish a strong corporate governance environment in the country in time for the planned launch of the ASEAN Economic Community by 2015 is sustaining momentum.

The reforms are articulated in the Indonesian Corporate Governance Roadmap ("Roadmap") which was launched in early 2014 by the Indonesia Financial Services Authority (Otoritas Jasa Keuangan / "OJK" previously the Capital Market Supervisory Board / Badan Pengawas Pasar Modal – "Bapepam") with the support of the World Bank's International Finance Corporation (IFC).

The broad outcomes which the Roadmap seeks to achieve are the strengthened supervisory role of company boards, the improved quality of disclosure by companies / increased company transparency, and greater protections for shareholders and stakeholders.

The following regulations are some of the recently enacted regulations as part of the reform program:

  1. OJK Regulation No. 33/ POJK.04/2014 on the Board of Directors ("BOD") and Board of Commissioners ("BOC") of the Issuer or Publicly Listed Company ("Reg 33/2014") which replaces the Decision of the Head of Bapepam No. Kep-45/ PM/2004 ("Rule IX.I.6");
  2. Regulation No. 34/POJK.04/2014 on the Nomination and Remuneration Committee of the Issuer or Publicly Listed Company ("Reg 34/2014") which is a new regulation; and
  3. OJK Regulation No. 35/ POJK.04/2014 on the Corporate Secretary of the Issuer or Publicly Listed Company ("Reg 35/2014") which replaces the Decision of the Head of Bapepam No. Kep- 63/PM/1996 ("Rule IX.I.4").

Below are the noteworthy provisions.


1. Requirements for the BOD and BOC

Reg 33/2014 sets additional requirements for BOD and BOC relative to Rule IX.I.6.

The additional requirements are:

  1. In the five (5) years prior to their appointment and during their tenure, the members of the BOD and BOC must not have been a member of a BOD and/or BOC which:

    1. failed to hold an annual General Meeting of Shareholders ("GMS");
    2. had an accountability report rejected by GMS or failed to submit an accountability report to GMS; and
    3. caused a company with a license, approval, or registration from OJK, to fail to submit its annual report and/or financial report to OJK.
  2. Each member of the BOD and BOC has a commitment to comply with the laws and has the knowledge and/or ability in the needed field of the Issuer or Public Company.

2. Numbers of the BOD and BOC

The minimum number of each BOD and BOC is two (2) persons – one (1) member of the BOD must be appointed as the President Director, and one (1) member of the BOC must be appointed as an Independent Commissioner.

If the BOC consists of more than two (2) members, the Independent Commissioner must be at least thirty percent (30%) of the BOC's total members, and one (1) of them is to be appointed as President Commissioner.

3. Independent Commissioner

An Independent Commissioner:

  1. must not have worked or had an authority and responsibility to plan, lead, control or supervise the Issuer and Public Company in the six (6) months prior, unless it was for the reappointment as Independent Commissioner of the Issuer or Public Company for the next period;
  2. must not hold a share, directly or indirectly, in such Issuer or Public Company;
  3. must not have an affiliation relationship with the Issuer or Public Company, the BOD, BOC, or principal Shareholders of such Issuer or Public Company; and
  4. must not have a direct or indirect business relationship which is related to the business activity of the Issuer or Public Company.

An Independent Commissioner who has been appointed for two periods may be re-appointed for the next period to the extent that he/she declares to the GMS that he/she is still independent.

4. Number of Permitted BOD and BOC Positions

A BOD member may be a member of one (1) other BOD, a member of three (3) BOC and/or a member of five (5) committees in other Issuers or Public Companies.

A BOC member may be a member of the BOD and/or BOC in two (2) other Issuers or Public Companies.

5. BOD and BOC meetings

The minutes of BOD meetings must be signed by all attending board members and must be delivered to all board members. This requirement also applies to BOC members in relation to BOC meetings.

Should the BOD and BOC hold joint meetings, the minutes must be signed by all attending members of the two boards and must be delivered to all members of both boards.

6. Resignation of BOD and BOC Members

Resignation of BOD and BOC members must be resolved through the GMS within ninety (90) days after the Issuer or Public Company receives the request of resignation.

7. Guidelines and Ethic Codes

Reg 33/2014 provides new obligations for the BOD and BOC to prepare guidelines and ethic codes which bind every member of the boards.

The guidelines and ethics codes are to cover, among others, the legal basis, job description, value, working hours, principle of implementation of the work, and the professional attitude of the members of the BOD and BOC, employees or supporting organs of the Issuer and Public Company.

8. Prohibitions on BOD and BOC

Previously, BOD and BOC members could not disclose untrue statements on material facts and were required to disclose material facts which could avoid misleading conditions of the Issuer or Public Company.

Reg 33/2014 replaces this with a provision stating that BOD and BOC members are prohibited from making any personal gains directly or indirectly from the activities of the relevant Issuer or Public Company, except for income which has been approved by the GMS.


Reg 34/2012 requires the Issuer and Public Company to have a nomination and remuneration function which is to be performed by the BOC through a Nomination and Remuneration Committee ("Committee").

1. Nomination Function

In relation to its nomination function, the Committee has the following duties and responsibilities:

  1. provide recommendations to the BOC on the composition and members of the BOD, policies and criteria for the nomination process, and the policies on performance evaluation for BOD and/or BOC members;
  2. assist the BOC to evaluate the performance of BOD and/or BOC members;
  3. provide recommendations to the BOC on the capacity development program for BOD and/BOC members;
  4. provide recommendations to the BOC on candidates who meet the requirement to become a member of BOD and/or BOC and can be submitted to the GMS.

2. Remuneration Function

The duties and responsibilities of the Committee for the remuneration function are as follows:

  1. provide recommendations to the BOC regarding the remuneration structure, remuneration policies, and the amount of the remuneration;
  2. assist the BOC to evaluate the performance of BOD and/or BOC members according to the remuneration received by the members.

3. Membership

The minimum number of Committee members is three (3) persons. One of them must be the chair who must also be an Independent Commissioner, while the others can be:

  1. a BOC member;
  2. a person outside of the relevant Issuer and Public Company; or
  3. a person who holds a managerial position under the Director of human resources.

The members of the Committee are appointed and discharged based on the resolution of the BOC's meeting.

The tenure of the members of the Committee must not be longer than the BOC's tenure, as stipulated under the company's articles of association.

4. The Committee's Meeting

The Committee's meeting is held at least once every four (4) months, and must be attended by the majority of its members. One of the members present must be the chair.

5. Other Obligations for the Committee

Other obligations of the Committee include:

  1. to record the result of the Committee's meeting in minutes which must be documented by the Issuer or Public Company;
  2. to prepare binding guidelines for the Committee, which will be approved by the BOC, regarding the Committee's duty and responsibility, composition and membership, procedure, meeting, report, member replacement, and period of membership;
  3. to report the implementation of the Committee's duty, responsibility, and the nomination and remuneration's procedure to the BOC.

6. Prohibition for the Committee

The Committee is prohibited from making any personal gains directly or indirectly from activities of the relevant Issuer or Public Company, except for legal income.

Corporate Secretary

1. Corporate Secretary's duties

Reg 35/2014 provides new duties for a Corporate Secretary, i.e. he/she has to assist the BOD and BOC to implement good corporate governance, including the disclosure of information to the public, submission of report to the OJK in a punctual manner and etc.

2. Corporate Secretary's Requirements

The Corporate Secretary must fulfill the following requirements while holding the position:

  1. competent to conduct legal action;
  2. have knowledge and comprehension in the fields of legal, finance and good corporate governance;
  3. good communication skills;
  4. domiciled in Indonesia.

3. Appointment and Discharge of the Corporate Secretary

The Corporate Secretary function is performed by a person or work unit that is appointed and discharged by the BOD's resolution.

4. Number of Double Positions of the Corporate Secretary

The Corporate Secretary can be a Director as well. However, the Corporate Secretary is prohibited to hold any other position in another Issuer or Public Company.

5. Absence of the Corporate Secretary

In the absence of the Corporate Secretary, a Director or other person appointed as the temporary Corporate Secretary holds the Corporate Secretary's function without prejudice to the Corporate Secretary's requirements.

The Issuer or Public Company must appoint a replacement within sixty (60) calendar days after the Corporate Secretary's position becomes vacant.

6. Other Provisions

  1. Reg 35/2014 adds new obligations in relation to publication on the Issuer and Public Company's website, such as, the availability of information on the website, and the publication on the website of the appointment or resignation of the Corporate Secretary.
  2. The Corporate Secretary must participate in education or training to improve his/her knowledge and comprehension.
  3. The Corporate Secretary must maintain the documents, data and information confidentially unless otherwise required by laws.
  4. Information which is provided by the Corporate Secretary to be made public is official information from the relevant Issuer or Public Company.

Sanction from the OJK

Sanctions will be imposed for those who violate these OJK Regulations (Reg 33/2014, Reg 34/2014 and Reg 35/2015). The sanctions include:

  1. warning letter;
  2. fines,
  3. limitation of business activities;
  4. freezing of business activities;
  5. revocation of business licenses;
  6. cancellation of approval; and
  7. cancellation of registration.

Enforcement of the OJK Regulations

An Issuer and Public Company must comply and adjust its existing conditions in accordance with Reg 33/2014 and Reg 34/2014 within a year after its enactment. While for Reg 35/2014, the Issuer and Public Company must comply within six (6) months after its enactment.

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.

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