Every limited liability company in Indonesia must establish a BoC.125 The ICL defines the scope of the BoC’s authority.126 The law stipulates that the BoC is responsible for supervising management policies, overseeing management of both the company and the company’s business operations, and advising the BoD on its management duties. However, the BoC’s primary role is to supervise rather than manage. The AoA may also assign additional powers to the BoC to meet the company’s needs.
The AoA of a limited liability company will typically stipulate the general duties of the BoC, as follows:
• Supervise the company’s management (the BoD).
• Perform any duty specifically provided for by the AoA, prevailing laws and regulations, or GMS resolutions.
• Perform its duties, authority, and responsibilities in accordance with the company’s AoA and GMS resolutions.
• Act in the interests of the company and be accountable to the GMS.
• Supervise, review, and approve the implementation of the
company’s work plan and annual budget prepared and submitted by the BoD.
• Assess the BoD’s periodic report and, at any time, provide a response on the performance of the company and report the implementation of its duties to shareholders in a timely manner.
• Follow the development of the company’s activities. In the event of corporate distress, the BoC must report to the GMS as soon as possible and provide advice on steps that may be taken for recovery.
• Propose candidates for appointment as the external auditor to the GMS.
125 ICL, Article 1(2).
126 ICL, Article 108(1).
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• Examine, review, and sign the annual report prepared by the BoD.
The ICL (Article 116-118) also requires the BoC to:
• Take minutes of BoC meetings and keep copies of these minutes.
• Report shareholdings held by BoC members or their families in the company or other companies.
• Report to the GMS on the performance of its supervisory duties during each financial year.
• Approve or assist the BoD in performing certain legal actions as conferred to the BoC by the AoA (the BoC may only act within the scope of authority provided under the AoA).
• Perform management activities in specific situations as provided in the ICL for a specified time, when the AoA or a GMS resolution confers authority to do so.
As a rule, the BoC has the authority to decide on all issues that do not fall under the authority of the GMS and/or other corporate bodies. To avoid ambiguity over the division of powers between the GMS, BoC, and BoD, any additional responsibilities the AoA grants to the BoC should correspond with the typical function of the BoC.
Disclosure and Transparency Review and sign annual financial reports before submission to the GMS Propose the adoption of financial reports, managing reports,
Strategy, Oversight, and Control
Supervise the BoD Establish BoC committees
Approve annual work plan
Shareholder Rights
GMS
Organize the GMS Obtain written opinions to facilitate the GMS in passing decisions
Figure Authority of the Board of Commissioners
Board of Commissioners Disclosure and
Transparency Shareholder
Rights Strategy,
Oversight, and Control
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auditor reports (and corporate governance reports for listed companies) to the GMS
Approve investment plans/projects within its authority
Formulate company policies (and corporate governance code for listed companies) Approve and review risk management and internal control framework
Dividends
Recommend to the GMS the dividend to be paid, as well as the time-limit and procedures for payment of dividend
Conflict Resolution Approve related party transactions valued at 50 percent or as referred to in the AoA Resolve corporate conflicts
Best Practice
Good corporate governance principles also suggest:
• The president director and BoD members should seek the approval of the BoC for transactions that fall outside the scope of the company’s regular financial and business plan (non-standard operations).
• The BoC should be given the right to veto decisions of the BoD to implement non-standard operations, provided that the BoC can provide adequate justification.
• The company’s internal regulations should determine the rights and duties of its executive bodies.
The BoD normally reports to the BoC. In many companies, the shareholders, particularly minority shareholders, will not be in a position to effectively supervise management. It is for this reason that the BoC assumes responsibility to oversee the BoD on behalf of all shareholders.
Companies must maintain an appropriate balance between providing oversight over the BoD and allowing the BoD sufficient autonomy to conduct corporate affairs. The dangers of weak board oversight, including fraud and mismanagement, are well
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known. There are, on the other hand, dangers associated with excessive oversight. These include micro-management and the politicization of managerial decision-making. Both weak and excessive oversight can lead to economic inefficiencies and legal problems. Consequently, the company’s AoA, internal regulations, and other corporate policy documents should be developed with a view towards dividing responsibilities among its governing bodies.
Managerial tasks should, clearly, be left to professional managers.
Oversight tasks should be carried out by oversight bodies, such as the the BoC.
Key issues every BoC should closely monitor include the following:
• The company’s overall performance, especially in comparison to its competitors and industry peers
• The BoD’s compliance with law and internal procedures, including on corporate governance, risk management and internal control, and ethics
• The BoD’s performance, both at the team and individual levels
• Implementation of the company’s strategy
• Relations with key stakeholders, including the company’s shareholders, as well as employees, suppliers, and customers
The BoC typically also has the authority to approve internal documents related to the following:
• Dividend policy
• Information policy
• Ethical standards
• Control and supervision of the BoD and company management
• Risk management
• Audits of the financial and business activity of the company
• Policy on corporate secretary
Listed companies in Indonesia must make public disclosure of the company’s corporate governance practices at the annual GMS. The BoC should prepare the corporate governance report and submit this to the annual GMS. The corporate governance report should detail all essential elements of the company’s
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corporate governance policies and practices. The BoC must disclose the extent to which the company complies with the CG Code and explain any discrepancy from these requirements. Finally, the BoC should also use the corporate
governance report to make suggestions for improving the company’s corporate governance practices.
Best Practice
Risk management is one of the BoC’s most important functions.
The BoC should ensure the company maintains systems which enable it to assess and mitigate risks. Among other things, the BoC should:
• Approve risk management procedures and monitor the company’s compliance with these procedures (the procedures should require the company and its employees to notify the BoC promptly of any substantial deficiency in risk management mechanisms)
• Set the company’s risk appetite in the pursuit of its strategic objectives
• Review and evaluate the effectiveness of risk management and internal controls on a regular basis
• Develop adequate incentives for the executive bodies, departments, and employees to apply internal control systems
• Establish a risk management committee if necessary
• Ensure the company complies with laws and regulations as well as its AoA
The AoA of a limited liability company sets out the scope of the BoC’s authority, which typically includes the following:
• BoC members, whether collectively or individually, have the right to enter any building, office, or premise used by the Company during business hours and to examine accounts, letters, and other evidence to review the company’s finances and other matters. The
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BoC is also authorized to obtain information relevant to the BoD’s activities.
• The BoC has the right to request explanation from the BoD on any matters relating to the company, and each member of the BoD is obliged to provide information as requested.
• If necessary, the BoC has the right to request professional
assistance in order to perform its duties for a limited period, and to form an audit committee, at the company’s expense.