Corporate Governance in Indonesia – Board Size and Composition

In Indonesia, the size, composition and procedures for the appointment, replacement and dismissal of the board of directors (BOD) and board of commissioners (BOC) are determined in the articles of association (AOA) of the company. Law No. 40 of 2007 regarding Limited Liability Companies (the Company Law) only stipulates a minimum number of BOD and BOC members, which, generally, is a single director and single commissioner.

Specifically for companies that are responsible for the mobilization of public funds or the issuance of debt instruments, or public companies, the minimum is two BOD members and two BOC members.

Generally, individual directors must possess the capacity to conduct legal actions, and within five years prior to his or her appointment, they must not have been declared bankrupt, been a member of a BOD or BOC that has been held liable for the bankruptcy of a company or been sentenced for a financial crime or a crime that caused financial losses to the state (article 93(1) of the Company Law).

For public companies, aside from the above, the requirements that must be satisfied by the members of the boards are that they must:

• have good character, morality and integrity;
• be legally competent;
• within five years before their appointment and during their term of service, have never been a member of a BOD or BOC, or both:

• • that failed to hold an annual GMS;
  • whose accountability as a board member was rejected by the GMS or failed to provide accountability as a member of the BOD or BOC, or both, to the GMS; and
  • that caused a company that had obtained a license, approval or registration from the Financial Services Authority (OJK) to fail to fulfil the obligation to submit annual reports or financial reports to the OJK;
• be committed to abide by the laws and regulations; and
• have knowledge and expertise in the field needed by the issuer or public company.

General commercial banks must have a minimum of three commissioners, at least 50 per cent of which must be independent. The BOD must comprise three directors, including the president director, who also acts as an independent director, and one compliance director. Insurance companies must have a minimum of three commissioners, at least 50 per cent of which must be independent, and three directors. Guarantee institutions are also obliged to have a minimum of two directors and two commissioners.

Board Leadership

The Company Law does not formally recognize the position of the CEO, although the position exists in practice. However, employment law recognizes the position, in Ministry of Manpower and Transmigration Decree No. 40 of 2012, which uses the working definition of a head of office responsible for the management of administrative and human resource issues. This makes the position distinct from the board chair, who is responsible for managerial decisions. Nothing in the law regulates that these two functions must be either joint or separated.

This first appeared in the Lexology GTDT Corporate Governance 2020 global guide. 

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