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.
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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.