Liabilities
6.7 Qualifications
6.7 Qualifications
Under the ICL: Any individual capable of performing legal actions may be a commissioner, except for those who in the five years before their appointment have been:150
1. Declared bankrupt
2. Member of a BoC or BoD that was declared to be at fault in causing a company to become bankrupt
3. Convicted of a crime that caused financial loss to the state and/or which was related to the financial sector
Under the company’s AoA: The company’s AoA may also set out additional criteria and conditions which a commissioner must satisfy, provided that such requirements do not violate basic shareholder rights.
Other requirements: Commissioners of companies in which industry-specific regulations apply, such as banks, insurance, or securities companies, may be subject to stricter requirements. It would be prudent for such companies to investigate their industry’s requirements carefully while selecting commissioners.
For banks, any proposals to the GMS for the replacement and/or appointment of BoC members must take into account recommendations of the remuneration and nomination committee.151
Additional requirements apply to BoC candidates in issuers and public companies. These include requirements that such candidates:152
1. Be of good character and moral standing 2. Be legally competent
3. Have never been:
• Declared bankrupt
• Member of a BoC or BoD that was held responsible for causing a company to go bankrupt
• Convicted of a crime that caused financial loss to the state and/or a crime related to the financial sector
150 ICL, Article 110(1).
151 OJK Regulation No. 55/POJK.03/2016, Article 27.
152 OJK Regulation No. 33/POJK.04/2014, Article 4.
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• Member of a BoC or BoD which during their service:
1. Failed to hold an annual GMS
2. Failed to provide an accountability report to the GMS, or provided a report that the GMS rejected, or
3. Was responsible for a company’s failure to meet its
obligation to submit annual reports and/or financial reports to OJK within five previous years before appointment 4. Comply with laws and regulations
5. Possess knowledge and/or expertise needed in the field of business of the company
Best Practice
The GMS should be responsible for determining the conditions necessary for commissioners to be elected to the BoC, taking into consideration the nature of the company’s activities and its purposes.
Every BoC member must fulfill all the conditions required by law, corporate governance regulations, and any applicable internal company documents from the beginning of his/her term on the BoC.
To avoid conflicts of interest, individuals should not be elected to the company’s BoC when they are a commissioner, director, manager, or employee of a competing company.
Nominees for the BoC should also not be related to suppliers, affiliated persons, or employees of the independent external auditor.
The CG Code states that BoC members:153
• Must possess the capability and integrity necessary to ensure that the BoC properly carries out its oversight and advisory functions
153 Indonesia’s Code of Good Corporate Governance, 14
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• Must not use the company to pursue his/her personal, family, business group, or other parties’ interests
• BoC members must understand and comply with the AoA as well as laws and regulations that govern their duties and responsibilities
• Must understand and implement the CG Code
Personal Characteristics Competencies
• Leadership
• Integrity
• Accountability
• Maturity
• Work Ethic
• Industry Experience
• Business Judgement
• Special Skills, for example:
• Finance and Accounting
• Risk Management and Internal Control
• Strategic Management
Indonesian law does not impose specific legal requirements on the personal qualifications that commissioners must hold. As a result, such criteria must be specified elsewhere. For example, companies may find it useful to include required qualifications for commissioners in their internal company documents, such as their AoA, internal regulations, or other company policies.
Notwithstanding the above, BoC candidates for companies subject to industry-specific regulations, such as banks, insurance companies, or
securities companies, must meet additional requirements with respect to their qualifications. For instance, in addition to the requirements set out above, such companies must consider the rules regarding dominant positions stipulated under Indonesia’s antitrust and competition laws and policies, in particular Law No. 5 of 1999 on the Prohibition of Monopoly Practice and Unfair Competition (Article 26). Companies are advised to examine their industry’s particular requirements carefully when selecting commissioners.
Figure Recommended Characteristics and Competencies for Board Members
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Best Practice
The AoA should set forth the qualification criteria of BoC members. Commissioners should typically possess:
• The trust of shareholders (reflected in their supporting votes for the commissioner), other BoC members, directors, managers, and other company employees
• Ability to relate to the interests of all stakeholders and make well-reasoned decisions
• Professional expertise and education needed to be effective
• International business experience, knowledge of national issues and trends, knowledge of the market, products, and competitors
• Ability to translate knowledge and experience into solutions It may, however, be difficult for the company to determine whether a potential commissioner possesses these qualifications. Moreover, a brief description of such qualifications in the company’s AoA may lead to ambiguity and thus be of little use. To improve clarity, companies may wish to set out their criteria in greater detail under internal regulations or other internal documents.
Shareholders should be informed of the commissioners’
qualifications, and the list of candidates for the BoC should indicate whether, at the time of election, the candidate is or will be:
• An officer or employee of the company
• Able to meet the qualifications of an independent commissioner
Companies should also screen potential BoC candidates for a criminal record or significant offenses to determine whether such candidates meet the requirements set out in the ICL, relevant regulations, and the company’s AoA.
The BoC should be comprised of members who collectively
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have the knowledge, capability, and professional experience necessary to promote the company’s success. At least one member needs to have knowledge and experience in finance or accounting.