THE INTERNAL CORPORATE
C. Company Codes of Corporate Governance
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The Internal Corporate Documents Company Codes of Corporate Governance
A company-level corporate governance code is a principle-based statement on the company’s corporate governance practices. It is intended to make the company’s
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The Internal Corporate Documents Company Codes of Corporate Governance
Company codes and guidelines may cover a vast number of topics including :
• General Issues of Corporate Governance
• Goals and objectives of the company
• Relationship between the shareholders and the Board of Directors
• Relationship between the Board of Commissioners and the Board of Directors
• Relationship between controlling and minority shareholders.
• Good Board Practices
• Composition, including the number of Directors and independent Commissioners
• Number and structure of committees
• General working procedures
• Remuneration of non-executive Directors.
• Good Board of Directors Practices
• Director remuneration
• Interaction and relationship with the Board of Directors.
• Good Board of Commissioners Practices
• Composition, including the qualifications of the Board of Commissioners members
• Responsibilities and working procedures of the Board of Commissioners
• Relationship between the Board of Commissioners and the Board of Directors, the GMS and shareholders
• Mechanism to ensure the independence of the Board of Commissioners when conducting its responsibilities
• Remuneration of the Board of Commissioners members.
• Shareholder Rights
• Proposing to convene a GMS
• Minority shareholder protection
• Disclosure of related party transactions
• The company’s dividend policy.
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The Internal Corporate Documents Company Codes of Corporate Governance
• Disclosure and Transparency Issues:
• Internal control function, including risk management
• Policy on the use of audit and consulting services and External Auditor rotation
• Accounting policies and standards
• Disclosure of financial reports and important information about the company
• Accountability of the Company to Stakeholders:
• Communications and relations with investors and other parties that have an interest in a company
Topics to be covered will depend upon the issues of greatest relevance to the company.
As a rule, company codes are approved by the Board of Directors, communicated to shareholders and investors, and published on the company’s website. Company codes or guidelines must be consistent with legislation, as well as the AoA, and should generally follow the provisions of the relevant corporate governance code. They cannot, however, replace the AoA.
Codes of corporate governance are important sources for corporate governance in many economies ranging from advanced to transitional economies. The framework for corporate governance in Indonesia is already in a quite advanced stage of development, both for companies in general as well as for listed companies.
The first Indonesia Code of Good Corporate Governance was developed in 1999 by The National Committee on Corporate Governance (NCCG) which was established by Decree of the Coordinating Minister for Economy, Finance and Industry Number:
KEP/31/M.EKUIN/08/1999. The committee was then replaced to be The National Committee for Governance (NCG) by Decree of the Coordinating Minister for Economic Affairs Number: KEP/49/M.EKON/11/2004 consisting of Public Sub- Committee and Corporate Sub-Committee as the Government has become more aware
2. Indonesian Company Code of Corporate Governance
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The Internal Corporate Documents Company Codes of Corporate Governance
that for CG Code to be successfully implemented, it needs to have the public support and the existence of good public governance.
The Code has been revised several times and the latest being the 2006 Code.
The CG Code is published on the basis of ethics-based approach. As a Code it does not have legal binding but providing reference for business community in implementing the CG Code.
The CG Code describes steps to be taken in creating checks and balances process, enforcing transparency and accountability, as well as promoting corporate social responsibility toward the company long-term survivability.
The CG Code, hereinafter called the CG Code, is a living instrument offering standards as well as guidance for companies to implement CG with the purpose of:
• achieving sustainable growth of the company through a management system based on the principles of transparency, accountability, responsibility, inde-pendency and fairness.
• empowering the function and independency of each companyorgan, namely, the Board of Commissioners, the Board of Directors and the General Meeting of Shareholders
• encouraging shareholders, members of the Board of Commissioners and members of the Board of Directors to take decisions and actions based on high moral values and compliance with the law and regulations.
• stimulating the company awareness of social responsibilities in particular the environmental and societal interests of the communities in which a company operates.
• optimizing the value of a company for its shareholders by also taking into consideration the interests of other stakeholders.
• enhancing the competitiveness of a company, both nationally and internationally, in order to enhance market confidence which may promote investment flow and a sustainable national economic growth.
The CG Code constitutes the references points for all companies in Indonesia including companies operating on the basis of sharia. The CG Code which encompasses the basic principles and provisions on the implementation of CG Code is a minimum standard that will be further elaborated in sectoral code of the respective sectors of industry to be issued by NCG. The code can be adapted to the specific circumstances of the individual companies into a more detailed manual for its operations.
Publicly listed companies, state-owned enterprises, province and region-owned company, companies that raise and manage public funds, companies of which products or services are widely used by public, and companies with extensive influence on environment,
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are expected to become the pioneer in implementing the CG Code. Regulator/policy makers are also expected to use the CG Code as a reference for developing related regulations and applicable sanctions.19
Using the national code as its reference, an individual company is encouraged to develop their own corporate governance code and must cover at least the following:
• Order and procedures for convening and voting at shareholders’ meetings
• Order and procedures for nominating, standing for election, electing and dismissing Directors
• Order and procedures for holding Board of Directors meetings
• Order and procedures for co-ordination between the Board of Commissioners and the Board of Directors
• Rules on assessing activities, rewarding and disciplining members of the Board of Commissioners and the Board of Directors.
A listed company must announce information on its corporate governance status at the annual shareholders’ meeting and in annual reports of the company. Such information must at least consist of:20
• Members and structure of the Board of Commissioners and the Board of Directors
• Activities of the Board of Commissioners and the Board of Directors
• Activities of Independent Commissioners
• Activities of Board Committees
• A plan to increase the efficiency of the company’s activities
• Remuneration and expenses for the Commissioners and Directors
• Information about transactions of the company’s shares by the Commissioners, Directors and major shareholders; and about other transactions by the
Commissioners and Directors and their affiliated persons
• The number of the Commissioners and Directors attending training courses on corporate governance
• Actions not yet undertaken, but required by the corporate governance code, the reasons and proposed solutions.
19 CG Code, Preamble 20 Rules No. X.K.6
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The Internal Corporate Documents Company Code of Ethics
A code of Ethics (also referred to as a Code of Conduct, or Ethics or Responsibility Statement) is a basic guide of conduct that imposes duties and responsibilities on a company’s officers and employees towards its stakeholders, including colleagues, customers and clients, business partners (e.g. suppliers), government and society.
A Code of Ethics:
• Enhances the company’s reputation/image: A company’s reputation and image constitutes an integral, if intangible, part of its assets. Establishing a Code of Ethics is an effective way to communicate the value a company places on good business practices.
• Improves risk and crisis management: A Code of Ethics can bring potential problems to management’s and Directors’ attention before a full-blown crisis occurs, as it sensitizes and encourages employees to react to ethical dilemmas.
• Develops a corporate culture and brings corporate values to the forefront: A Code of Ethics developed by and widely distributed to the company’s officersand employees can help build a cohesive corporate culture, based on a shared setof values, that helps guide employees in their daily work.
• Advances stakeholder communications: A Code of Ethics also has a strong demonstration effect towards the company’s stakeholders during times of crisis, communicating the company’s commitment to ethical behavior and underlining that possible transgressions are exceptions rather than the rule.
• Avoids litigation: A Code of Ethics, in combination with an effective ethics program, can help minimize litigation risks resulting from fraud, conflict of interest, corruption and bribery, and insider trading.