The principal bodies and functions involved in the governance and management of Indonesian companies under the Company Law are the General Meeting of Shareholders (GMS), Board of Directors (BOD) and Board of Commissioners (BOC).
The BOD constitutes the company’s management. The members of the BOD are the day-to-day operating officers of the company. By contrast, the BOC supervises certain BOD activities and decisions, without interfering in the BOD’s day-to-day management of the company. The GMS is the highest authority for a company.
Article 1 paragraph (5) of the Company Law stipulates that the BOD is the company organ with full authority and responsibility for the management of the company in the interest of the company and in accordance with the company’s purposes and objectives. The BOD also represents the company in and out of court in accordance with the provisions of the company’s Articles of Association (AOA). The Indonesian Corporate Governance Manual divides the BOD’s recommended duties into five areas, namely management, risk management, internal control, public relations and social responsibility. It recommends that the BOD:
- develop the company’s vision, mission and values (it is responsible for the company’s strategic direction, and formulates short- and long-term plans to be approved by the BOC or GMS, in accordance with the AOA);
- manage the use of the company’s resources efficiently and effectively;
- ensure that stakeholders’ interests are properly considered;
- delegate specific tasks to a committee that is established to support the BOD in the execution of its duties, or to a company employee (with ultimate responsibility remaining with the BOD); and
- set out its working procedures, regulations and guidelines in a charter to facilitate the objective and effective execution of its duties (this charter may also serve as a tool for the appraisal of the performance of the BOD and individual directors).
Although, in principle, the BOD is fully responsible for managing the company, its actions are supervised by the BOC, which is authorised to give recommendations to the BOD for the management of the company in the interest of the company and in accordance with the company’s purposes and objectives.
This first appeared in Chambers Corporate Governance 2019, published by Chambers and Partners. You can find the full chapter here.
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