Liabilities
6.4 BoC Committees
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committees according to their needs.
OJK mandates issuers and public companies to establish an audit committee as well as a nomination and remuneration committee. Table 12 sets out the most common types of BoC committees with proposed function and composition, and specifying whether these bodies are mandatory or recommended.
Audit Committee142
• Mandatory for issuers and public companies (OJK)
• Recommended for other companies (OJK CG Guidelines) Function
The audit committee should assist the BoC to ensure that:
• Financial reports are presented appropriately in accordance with generally accepted accounting principles
• The internal control structure is adequate and effective
• Internal and external audits are conducted in accordance with applicable audit standards
• Management follows up on audit findings
In addition, the audit committee will assist the BoC with the appointment, re-appointment, and removal of the external auditors, including approving the remuneration and terms of engagement of the external auditors , as well as assessing the quality of their work.
Composition
The audit committee should consist of at least three members, comprising an independent commissioner as well as parties from outside the company. One member should have knowledge and/or expertise in finance and accounting.
The audit committee should be chaired by an independent commissioner.
142 OJK Regulation No. 55/POJK.04/2015, Article 2.
Table12 Board of Commissioners Committees
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Nomination and Remuneration Committee143
• Mandatory for issuers and public companies (OJK)
• Recommended for other companies (OJK CG Guidelines) Function
The nomination and remuneration committee is responsible for the following:
• Make recommendations to the BoC on the composition of the BoC and BoD, including required policies and criteria for board nomination and performance evaluation
• Make recommendations to the BoC on training programs to develop the capacities of the BoC and BoD
• Propose to the BoC any candidate who might qualify as a member of the BoC or BoD, to be submitted to the GMS
• Make recommendations to the BoC on remuneration structure, remuneration policy, and amount of remuneration
Composition OJK requires the nomination and remuneration committee to have at least three members, who must fulfill these requirements:
• The chairman of the committee must be an independent commissioner
• Other members of the committee may be:
1. Members of the BoC 2. Persons from outside the
company who:
• Have no affiliated relationship with that company, any members of its BoC or BoD, or with any principal shareholders
• Have experience related to nomination and remuneration
• Not hold any position in any other committees of the company
3. Persons who hold a managerial position in human resources under the authority of the BoD (should not be the majority members of the committee)
143 OJK Regulation No. 34/POJK.04/2014, Article 2.
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Risk Policy Committee
Recommended for all companies (OJK CG Guidelines) Function
The risk policy committee should assist the BoC in:
• Setting the risk governance structure, determining levels of risk tolerance, and monitoring key risk indicators and results regularly
• Reviewing the adequacy and effectiveness of risk management and internal control systems
Composition
Members of the risk policy committee need experience in the industry in which the company is active. However, the committee will likely benefit from having members with other areas of expertise such as risk management, finance, and operations.
The committee should consist primarily of BoC members but the company may appoint professionals from outside of the company if needed.
Corporate Governance Committee
Recommended for all companies (OJK CG Guidelines) Function
The corporate governance
committee typically has the following responsibilities:
• Assist the BoC in developing the company’s corporate governance policies
• Monitoring and reviewing the effectiveness of the company’s corporate governance practices, including those related to environmental and social aspects.
Composition Members of the committee should meet high integrity standards, enjoy the trust of all shareholders, and be knowledgeable on legal and ethical standards.
The committee should consist primarily of BoC members, but the company may appoint professionals from outside of the company if needed.
The corporate governance committee may be combined with the nomination and remuneration committee.
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The BoC is a collective body in which:
• All members have equal rights and responsibilities
• All members bear joint and several liabilities
• Members act together as a body according to specific decision-making procedures
Although BoC members act collectively, the committee system allows the BoC to delegate specific functions or issues to facilitate more efficient decision-making.
A BoC committee may make decisions by passing a resolution on matters that fall within the scope of its responsibility. However, for a committee resolution to be valid and enforceable, the majority of committee members who are present and vote on that resolution must also be BoC members.
The BoC will determine the appropriate number of commissioners to serve on a committee. At least one committee member must be a member of the BoC and meet the criteria required of an independent commissioner. Where a committee has more than one member, the BoC must appoint a committee chairman. Other parties, most notably managers, who are not members of the committee, may be invited to participate and provide input; however, they will only have observer status and are precluded from conferring or deciding on particular issues.
Best Practice
BoC members should be experienced and knowledgeable. The BoC needs to have a sufficient number of members to accomplish the work at hand. However, the BoC should not be so large as to be unwieldy. Since the duties of BoC committees may involve time-consuming reviews, individual commissioners should be restricted from participating in multiple committees unless they have sufficient time and capacity to meet these demands.
Many stock exchanges further recommend that board committees—whether formed by the board of directors (in a unitary board system) or the BoC (in a two-tier board system such as Indonesia)—be primarily composed of and/or chaired by independent members. The listing requirements of some stock exchanges, for example the New York Stock Exchange, go further
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by requiring the majority of board members to be independent and for the audit and human resources committees to be composed solely of independent members.
The committee chairman is responsible to ensure the committee’s effectiveness, regardless of his/her other duties. The chairman plays a key role in organizing committee operations. Best practice recommends that the chairman should be an independent commissioner, particularly for the audit and nomination/
remuneration committees. The chairman should keep the president
commissioner informed about the committee’s work. In addition, the chairman should be present at the GMS to respond to shareholders’ questions.
A committee chairman should:
• Inform the BoC on all relevant issues at least on a quarterly basis
• Respond to all requests for information from the BoC without delay
• Take necessary measures to ensure the committee performs its tasks