Introducing
The KPMG
Indonesia Board
Governance
Toolkit
9 November 2015
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AGENDA
1. Global CG
Landscape
2. Indonesian CG
Landscape
5. Key Topics of the
Toolkit
4. Navigating the Board Governance Toolkit
3. Introducing the Board Governance Toolkit
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1. Global CG Landscape
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OECD CG Principles and Changes
I. Ensuring the Basis for an Effective Corporate Governance Framework
II. The Rights of Shareholders and Key Ownership Functions
III. The Equitable Treatment of Shareholders
IV. The Role of Stakeholders in Corporate Governance
V. Disclosure and Transparency
VI. The Responsibilities of the Board
I. Ensuring the Basis for an Effective Corporate Governance Framework
II. The Rights and Equitable Treatment of Shareholders and Key Ownership Functions
III. Institutional Investors, Stock Markets, and Other Intermediaries
IV. The Role of Stakeholders in Corporate Governance
V. Disclosure and Transparency
VI. The Responsibilities of the Board
2015 Moderate
Moderate
Significant
Minimal
Moderate
Significant
2004 2015
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CG Framework should promote transparent and fair markets and
efficient allocation of resources
Balance of legislation v “comply or explain”
Where appropriate, consider the size of the company (big v small)
Support effective supervision and enforcement (avoid conflicts of
interest in enforcement)
Stock market needs to actively support CG
Cross-border cooperation should be enhanced
Ensuring the
Basis for an
Effective CG
Framework
The Updated OECD Principles 2015
CG Framework should protect and facilitate the exercise of
shareholders’ rights
It should ensure the equitable treatment of all including minority
and foreign shareholders
All shareholders should have ability to obtain effective redress for
violation of their rights
Improved processes for shareholder voting rights (notices, location,
electronic voting)
Disclosures required for board members and key executives (and
remuneration policy) – “Say on Pay”
Disclosure and approval of related party transactions
Moderate
The Rights and
Equitable
Treatment of
Shareholders
and Key
Ownership
Functions
Moderate
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The Updated OECD Principles 2015 (Cont’d)
A new section in the 2015’s OECD
Provide sound incentives throughout the investment chain and
provide for the effective functioning of stock markets
Institutional investors to disclose voting policies and records
Votes should be cast by custodians or nominees in line with the
directions of the beneficial share owner
It highlights the role of market participants to minimize conflicts of
interest
New issue on cross-listings (criteria and procedure for primary
listing requirements)
Institutional
Investors, Stock
Markets and
Other
Intermediaries
The recognition of stakeholder rights and encouragement of active
cooperation between corporations and stakeholders
Stakeholders include investors, employees, creditors, customers,
suppliers and other stakeholders
Mechanisms for employee participation include employees on
boards, work councils to consider employee views
Stakeholders should be able to communicate their concerns freely to
the board and competent public authorities (protection by law of
those reporting concerns)
Role of
Stakeholders in
Corporate
Governance
Minimal
Significant
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The Board’s role in risk is greater – oversight of company’s risk
management (beyond risk policy). This involves oversight of the
accountabilities and responsibilities for managing risks. Should
cover financial, operational, compliance and risk management.
The Board’s role in determining sufficiency of tax payments (“tax
morality”)
Need to consider remuneration claw back provisions
Nomination Committee – identify potential candidates
Separation of Chairman and CEO positioned as generally good
practice (previously only cited as ‘maybe’ good practice)
Separate meetings of independent directors encouraged
Board should consider setting up specialized committees (e.g.
nomination, compensation, risk)
Board evaluations should be conducted
The
Responsibilities
of the Board
Material information is not just about omission but also as information
that a reasonable investor would consider important in investing or
voting
New issues for a stronger disclosure regime on non financial
information (e.g. social issues, human rights, political donations, staff
turnover etc), remuneration, related party transactions, etc.
Disclosure should include beneficial owners (not just major share
ownership and voting rights)
Disclose shareholdings of directors (including NEDs)
Role of the auditor (review of CG, independence, reporting lines to
AC or equivalent, fixed tenure for auditors)
On-going disclosure (periodic and continuous) disclosure
Disclosure and
Transparency
The Updated OECD Principles 2015 (Cont’d)
Significant
Moderate
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2. Indonesian CG Landscape
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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1998 1997 1996 1995
Law 8/1995
on Capital
Market
Law 13/2003
on Manpower
Law 40/2007 on Limited
Liability Company Law 21/2011 on
Financial Services
OJK Reg
No.17 &
No.18
Revised IDX Listing Rules
GCG
Launched GCG
Revised GCG Code
Revised
Good Public
Governance
Sharia
Business Good
Governance
GCG Code
Revised
Audit
Committee
Manual
Whistle
Blowing
Manual
Risk Management
Manual
Business Ethics
Manual
IFC CG
Manual
OJK Reg
No. 34
OJK Reg No. 8
OJK Reg
No. 33
OJK Reg
No. 35
OJK Reg
No. 32
BAPEPAM Reg
No. X.K.I
BAPEPAM
Reg No.
X.K.6
BAPEPAM Reg No. X.K.2
BAPEPAM Reg
No. X.M.I BAPEPAM Reg No. IX.I.7
BAPEPAM Reg
No. IX.I.6 BAPEPAM
Reg No.
IX.I.5
BAPEPAM Reg No. IX.E.1
BAPEPAM Reg No. IX.E.2
Indonesian CG Requirements
Laws General CG Codes Better Practice Guidelines Regulations
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PROTECTION OF
SHAREHOLDERS
ROLE OF
STAKEHOLDERS
TRANSPARENCY OF
INFORMATION
CORPORATE
GOVERNANCE
FRAMEWORK
ROLES AND
RESPONSIBILITIES OF
BOC AND BOD
Newly Issued OJK Regulations 2014-2015
GMS Planning and
Implementation for
Public Companies
Corporate Secretary
of Issuers and Public
Companies
Website of Issuers
and Public Companies
BoC and BoD of
Issuers and Public
Companies
Nomination and
Remuneration
Committee of
Issuers and Public
Companies
Indonesia’s CG
Code 2006
Indonesia CG
Roadmap 2013
OJK Roadmap – 33 Recommendations
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3. Introducing the Board Governance Toolkit
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The KPMG Indonesia Board Governance Toolkit
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KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved
Introducing the Board Governance Toolkit
One-stop shop, practical reference guide designed to capture
current and emerging governance requirements
and practices
- Real-time updates of evolving CG requirements
- Cutting through the complexity of the regulatory environment
- BoC and BoD of Issuers and Public Companies across all sectors
- CG practitioners
- Other key stakeholders
Incorporate into BoC/BoD/Committee
meetings and leverage key insights to enhance
oversight
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The KPMG Directors’ Toolkits Around the World
No one size fits all. Corporate governance requirements are unique to each country; its
implementation therefore requires a tailored approach and contextualized insights.
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3. Navigating the Board Governance Toolkit
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Navigating the Board Governance Toolkit
Easy topic
navigation
Click on chapter
title to take you
directly to a topic
of interest
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Navigating the Board Governance Toolkit (Cont’d)
Questions to
ask?
We have provided
for key boardroom
topics questions to
ask to prompt right
discussions
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Navigating the Board Governance Toolkit (Cont’d)
Red flags
Every chapter
includes a list of
warning signs of
potential issues of
concern for
company directors
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Navigating the Board Governance Toolkit (Cont’d)
Example better practice templates
Board committee
charter builder Induction Framework BoC and BoD charter
builder
Commissioners and
Directors Liabilities
Audit Committee
annual agendas
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Navigating the Board Governance Toolkit (Cont’d)
Real time updates
The Toolkit will be
updated to reflect the
changing CG
requirements and new
topics will be added
from time to time
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4. Key Topics of the Toolkit
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State of the World – Trust Deficit and Relentless Change
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BoC/BoD Roles and Responsibilities
Greater clarity of BoC/BoD’s duties and responsibility
• To act in good faith
• To act prudently
• To act with full responsibility
Duty of Care
• Conflict of interest
• Affiliated transactions
• Confidentiality of information Duty of Loyalty
Summary of Commissioner and Director
Potential Liabilities
Fiduciary Duties
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BoC/BoD Roles and Responsibilities (Cont’d)
Requirement to have a complete code of conduct that specifies the BoC/BoD’s fiduciary
duties.
(CGC Code for Issuers and Public Companies 2015)
Overall BoC/BoD Responsibilities
BoC/BoD charter builder
Board of Commissioners
• Oversight and supervision
• Advisory
Board of Directors
• Day-to-day management
• Risk management and internal controls
• Public relations
• Social responsibility
coming
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BoC/BoD Diversity
88.40%
11.60%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
Men Women
Pe
rce
nta
ge
of D
ire
cto
rs
Gender diversity in IDX-listed companies
Board Diversity
Source: NUS Business School – Indonesia Boardroom Diversity Report 2012
Female Footprints in IDX-listed Companies
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BoC/BoD Diversity (Cont’d)
Women were better
represented in the Board
of Directors at 13.1%, as
compared to the Board
of Commissioners
(9.9%).
The Toolkit provides
OECD recommendation
to improve Board
composition and
effectiveness.
Issuers and Public Companies are required to develop a diversity and anti-discrimination
policy for members of the BoC/BoD.
(CGC Code for Issuers and Public Companies 2015)
Although Indonesia leads
the way in boardroom
gender diversity in Asia,
there’s no regulation that
governs diversity issues in
BoC/BoD.
Board Diversity
Source: NUS Business School – Indonesia Boardroom Diversity Report 2012 Female Footprints
in IDX-listed Companies
coming
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BoC Committees
BoC Committee charter builder
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BoC Committees – Audit Committee
The 2014 Global Audit Committee Survey:
<50%
to oversee major risks
[cyber risk and IT, risk management processes, and global compliance]
in addition to implementing the committee’s core responsibilities.
Source: KPMG’s Audit Committee Institute – 2014 Global Audit Committee’s Survey
The Toolkit provides insights into the critical role of the AC, which is mandatory for Issuers and
Public Companies. It elaborates on AC size and composition, appointment and dismissal, duties
and responsibilities, as well as meetings.
“increasingly difficult”
of AC members indicate that it is
Sample AC Annual Agenda
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BoC Committees – Nomination and Remuneration Committee
NOMINATION
- Provide recommendations regarding Board structure, size and composition; as well as the nomination process and performance evaluation for members of the BoC and the BoD
- Assess the independence of Commissioners and Directors
REMUNERATION
- Provide recommendations regarding remuneration structure and policy for members of the BoC and the BoD
A new requirement
mandated by OJK
No.34/POJK.O4/2014
Only 25% of Issuers and Public
Companies have an NRC and
disclosed it in their 2012 Annual
Reports. Source: Indonesia Corporate
Governance Roadmap, OJK, 2013
The NRC should comprise at
least three members
and be chaired by an
independent
commissioner
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General Meeting of Shareholders
Areas that will be further strengthened:
Issuers and Public Companies are required to submit AGMS agenda to the OJK within five
business days prior to its announcement and in detailed and complete manner. They are
also required to publish the GMS results on the company’s website. (December 2014)
Key Issues
Protecting the rights of minority
shareholders
Encouraging shareholders
participation in the GMS
Voting procedure
to accommodate
the one share-
one vote
principle Dividend
payments
period
Share ownership
disclosure up to
individual
shareholder Disclosure of
Independent
Commissioner
criteria
new
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Governing Instruments and Internal Regulations
Critical to ensure alignment and consistency across these instruments
Internal Regulations
Company Codes of CG
Delegation of Authority
BoC and BoD Charters
Code of Ethics/Conduct
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Performance and Value Add
Diversity Independence
BoC and BoD Composition and Performance
Pillars of Board Effectiveness
of Issuers and Public Companies disclosed the relationship between performance and remuneration of the BoD in their annual reports. Source: Indonesia Corporate Governance Roadmap, OJK, 2013 75%
OJK issued a regulation
governing the BoC and the BoD of
Issuers and Public Companies
(December 2014)
1. Procedures for nomination of
BoC/BoD members
2. Requirements for BoC/BoD
candidates
3. BoC/BoD meeting requirements
4. Concurrent positions
5. Limitation of tenure for
Independent Commissioner
6. Requirement to establish Board
charters and Code of Ethics
However, there is no regulatory provision requiring the
BoC/BoD to conduct regular performance evaluation and its
disclosure in the annual report.
new
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BoC and BoD Composition and Performance (Cont’d)
General attributes
Leadership
Strategic assessment, development and execution
skills
People skills
Crisis response
Communication skills
Technical skills
Risk Management and Assurance
Industry experience
Financial Literacy
Human Resources
Major Transactions
Major Projects
Legal/ IP
Behavior attributes
Time Commitment and professionalism
Making an impact and accountability
Performance Assessment Criteria for Commissioners and Directors
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The Corporate Secretary
“There is increasing recognition of the need to elevate the position
and function of company secretaries to allow them to take on a
stronger role in promoting governance within companies.”
Source: Suruhanjaya Sekuriti, 2011 as published in Indonesia Corporate Governance Roadmap
71% of Issuers and Public Companies have disclosed
the corporate secretary’s job description in their
annual reports. Source: Indonesia Corporate Governance Roadmap, OJK, 2013
OJK issued a regulation strengthening the qualifications, functions, authorities and
responsibilities of Corporate Secretary for Issuers and Public Companies.
(December 2014)
The Toolkit provides insight into productive meeting protocols (e.g. agenda, attendance,
frequency and duration).
new
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Insightful Strategy
In what areas has the Board’s involvement in strategy increased
over the past 2 to 3 years?
Formulation of strategy alternatives/consideration of
strategic alternatives
Monitoring execution
Recalibrating strategy
Devoting more time to technology issues, including cyber risk
Testing the ongoing validity of assumptions
GLOBAL INDONESIA
53%
35%
47%
33%
24%
41%
72%
25%
13%
9% Source: ACI Global Pulse Survey: Indonesia Edition – 2015
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of Indonesian respondents said the
board has deepened its involvement over the
past two to three years – particularly in
monitoring the execution of strategy.
Boards need to devote more time to:
Formulating strategic alternatives
Considering technology issues, such
as cyber security
Source: ACI Global Pulse Survey: Indonesia Edition – 2015
Insightful Strategy (Cont’d)
%
72
The Toolkit provides insight on how to utilize the balanced
scorecard to get a more accurate picture of the business
from different perspectives.
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of Issuers and Public Companies
have had and disclosed their
whistle-blowing systems.
Source: Indonesia Corporate Governance Roadmap, OJK, 2013
Ethical Culture
29%
The OJK Roadmap: Existing provisions need to be strengthened to require Issuers and
Public Companies to have whistle-blowing systems, anti-corruption policy and disclosure,
and financial crime policy.
(CGC Code for Issuers and Public Companies 2015)
O
N
L
Y
The Toolkit provides insight on how to establish and implement Code of Ethics/Conduct.
coming
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Risk Management
1. The Board of Directors shall establish and implement a
sound risk management within the company
covering all aspects of the company’s activities
2. Each strategic decision taken, including the
creation of new products or services, shall carefully
consider its risk exposures, ensuring appropriate
balance between the benefit and risk
3. To ensure proper implementation of the risk management,
the company shall have a work unit or a person in
charge for such function 1
1 CG Code Part IV.D.3.2
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Internal Control
1. The Board of Directors shall establish and maintain a sound
internal control system to safeguard company’s assets
and performance and its compliance with laws and regulations;
2. Shall have an internal control function or unit
3. The internal control function or unit shall to assist the Board of
Directors in ensuring the attainment of objectives and business
sustainability by:
(i) evaluating the implementation of the company’s program;
(ii) providing recommendations to improve the effectiveness of the
risk management process;
(iii) evaluating the company’s compliance with company’s
regulations, implementation of GCG and the laws and regulations;
and
(iv) facilitating sound coordination with external auditor;
4. The internal control unit or the head of an internal control function
shall be responsible to the President Director or to the Director in
charge for the internal control function. The internal control unit has
a functional relation with the Board of Commissioners through the
Audit Committee 2
1 Applicable to publicly listed companies, state-owned enterprises, province and region-owned companies, 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 2 CG Code Part IV.D.3.3
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Review and Disclosure of
Risk Management and Internal Control
Audit Committee
(i) financial reports are
presented appropriately in
accordance with the
generally accepted
accounting principles;
(ii) internal control
structure is
adequate and
effective (iii) internal and external audits
are conducted in accordance
with applicable audit
standards
(iv) audit findings are followed up
by the management
(v) review candidates for
external auditors including
remuneration1
Risk Policy
Committee
(i) assist the Board of
Commissioners in
reviewing the risk
management
system established by
the Board of Directors and
evaluating the
company’s risk
tolerance 2
1 CG Code Part IV 4.1.a. and 4.1.b 2 CG Code Part IV 4.3 and CG Regulations, Article 15.1
Listed companies are required to provide:
– Appropriate information disclosure and
transparency, as well as an effective system of
risk management and internal
control.
– Board of Director’s report, which shall include a
statement on the effectiveness of the
internal control system including risk
management, control system and internal audit.
Review Disclosure
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Risk Management and Internal Control
What would most improve the company’s risk-related decision making?
Source: ACI Global Pulse Survey: Indonesia Edition – 2015
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41
Risk Management and Internal Control (Cont’d)
KPMG Board Assurance Framework
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Receiving Assurance
Adequacy vs. Effectiveness
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Reporting and Disclosures
• Summary of financial highlights
• Report of the BoC
• Report of the BoD
• Company profile
• Management analysis and discussion
• Corporate governance implementation
• Corporate social responsibility
• Audited financial statements
• Statement of responsibility by the BoC and the BoD
Annual Report disclosures:
Accurate
Relevant
Timely
Complete
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Other Governance Requirements
Given the number and mandates of regulators, it is no longer enough to adopt a
reactive approach to compliance. Companies must take an integrated approach
rather than reacting to a specific regulation in isolation.
USA
Australia
UK
India
Japan China
Korea
Singapore
The Toolkit provides an overview of governance requirements covering
major markets around the world.
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Stakeholder Engagement
A good reputation is a prized corporate asset. Companies that can
mobilise their stakeholder base are able to present a positive public
image and reap the rewards that follow.
Plan • Profile and map stakeholders
• Conduct risk assessment and set priorities
• Set roles and accountabilities
• Establish monitoring indicators
• Prepare training where appropriate
Engage • Initiate contact with board-
level stakeholders
• Focus on the issues that matter
• Proactive not reactive
• Drive mutual relationships and outcomes
Review • Monitor and respond to risk
on an ongoing basis
• Evaluate performance
• Report progress through a formal annual report statement
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Private Equity
Private equity (PE) dealings attract regulatory scrutiny
Plan
• Pre-emptively discuss the board’s plan for PE approaches, establishing the response process for future dealings
Evaluate
• Rigorously evaluate any PE approaches, conducting thorough due diligence activities and utilising independent advice as necessary
Communicate & Respond
• Continue to comply with continuous disclosure requirements and respond in the best interests of the shareholders
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KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved
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48 © 2015 KPMG Siddharta Advisory, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with
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© 2015 KPMG Siddharta Advisory, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG
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© 2015 KPMG Siddharta Advisory, an Indonesian limited liability
company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved.