Corporate leadershipi Board structure and practices
Limited liability companies in Indonesia use a two-tier management structure. The executive functions are managed by the board of directors, which is supervised by the board of commissioners. The board of commissioners does not have an executive function or authority, except in the absence of all members of the board of directors or if all members of the board of directors have conflicting interests with the company. Companies with a shariah-related business activity should have a shariah supervisory board.
The board of directors or the board of commissioners may consist of one or more members. If the board of directors consists of two or more members, the liability is joint and several for each member. A company must have at least two members on the board of directors and two members on the board of commissioners if the company is a public company or if it is collecting or managing public funds or issuing acknowledgements of indebtedness to the public.
If the board of directors consists of more than one member, any member of the board of directors has the authority to act for and on behalf of the board of directors and to represent the company unless the company's articles of association specify otherwise. In practice, there are a variety of structures used by shareholders and inserted into the articles of association to limit the authority of the members of the board of directors to represent the company, including the following:
- the articles of association require two directors to act for and on behalf of the board of directors and the company;
- the articles of association require the president director together with one other director to act for and on behalf of the board of directors and the company;
- the articles of association require that in the absence of the president director, one other director may only act for and on behalf of the company if he or she has first received a written appointment from the president director; and
- the articles of association require the board of directors to obtain approval from the board of commissioners or the general shareholders' meeting before proceeding with a corporate action.
The above depend on the how the shareholders want a company to run its daily activities.
If a director is a party to a court dispute with the company or has a conflict of interest with the company, that director cannot represent the company. In this case, the company must be represented by any of the following:
- another director or other directors who do not have a conflict of interest with the company;
- the board of commissioners in the event that all members of the board of directors have conflicts of interests with the company; and
- another party appointed by a general shareholders' meeting if all members of the board of directors and the board of commissioners have conflicts of interests with the company.
Unlike the board of directors, if the board of commissioners has more than one member, no member may act alone in representing the board of commissioners unless it is based on resolutions of the board of commissioners.
The board of directors must act only in the best interests of the company and in accordance with the company's purpose and objectives. Every director is obligated to fulfil his or her tasks in good faith and with full responsibility. Each director will be personally liable if he or she is wilfully negligent and does not execute his or her tasks as mentioned above unless the director can prove all of the following (as relevant):
- the bankruptcy of the company was not caused by his or her fault or negligence;
- he or she has conducted the management of the company in good faith and with prudence;
- he or she does not have a personal interest, directly or indirectly, in the management act that caused the bankruptcy; and
- he or she has taken steps to prevent the bankruptcy from occurring.
Under the Company Law, similar to the board of directors, each member of the board of commissioners must undertake his or her duties in good faith and with full responsibility in the interests of the company, in accordance with the purposes and objectives of the company. The main duties of the members of the board of commissioners are to supervise the board of directors's management policy and to give it advice. The members of the board of commissioners are obliged to fulfil their tasks in good faith and with full responsibility in the company's interests.
The distribution of the tasks and authorities of the board of directors is determined by a general shareholders' meeting, or by the board of directors itself if the general shareholders' meeting does not do so. No law restricts a director from delegating certain responsibilities to other parties, but the director shall continue to be liable for all actions taken by the delegate.ii Directors
The Company Law does not recognise chair or CEO positions: it only acknowledges the position of members of the board of directors (or board of commissioners in the absence of a board of directors) who may act for and on behalf of the company. In practice, some companies include persons in senior positions, such as a chair or CEO, as members of the board of directors, who are appointed through a general shareholders' meeting, with the following reasons under the Company Law: only the board of directors can act for and on behalf of a company; and only members of the board of directors have rights to attend and vote in board of directors meetings. Therefore, if a CEO or chair is not a member of board of directors, they cannot act for and on behalf of the company (e.g., represent the company and sign any agreements or documents on behalf of the company) unless they are given the authority to act by the board of directors under powers of attorney. Further, a CEO or chair who are not members of the board of directors also do not have rights to attend and vote in board of directors meetings, and the employment relationship between the CEO or chair and the company would merely be an employee–employer relationship.
Under the Company Law, the remuneration of directors is usually determined by the shareholders (unless such determination is delegated to the board of commissioners) through a general shareholders' meeting, and the remuneration of the commissioners is determined by the shareholders through a general shareholders' meeting. Further, the Company Law does not stipulate the remuneration of senior management who are not members of the board of directors. Therefore, the senior management would likely be treated as employees of the company, and their remuneration would be determined by the board of directors or the remuneration policy that has been implemented in the company.iii Takeover
Takeovers and acquisitions are legal actions taken by a legal entity or an individual to acquire shares in a company that result in a change of control in the company. Although there is no clear definition of control under the Company Law, the common view is that a transfer or acquisition that results in the acquirer holding a majority of the shares or more than 50 per cent of the shares in a company is a takeover that results in a change of control. Another trigger for a change of control is an action that results in the ability to nominate directors and commissioners, and to stipulate management policies shifting to the acquiring entity, but this is more relevant to the takeover of a public company.
The Company Law requires several actions to be conducted by the boards of directors of the acquiring and target companies in relation to protecting any party having interests in the target company: for example, creditors and employees of the target company.
The boards of directors of the acquiring and target companies should announce the abridged acquisition plan in one national newspaper, and in writing to the employees of the target company, at the latest 30 days before the calling of the general shareholders' meeting. The newspaper announcement must include a notice that interested parties can obtain copies of the acquisition plan from the companies' offices from the date of the newspaper announcement until the date of the general shareholders' meeting. The creditors of the target company have 14 days after the date of the announcement to file their objections to the plan of the acquisition. If no creditors' objections are filed within this period, the creditors will be deemed to have approved the acquisition. If objections are filed by creditors, the board of directors of the target company must first settle the objections. If any objections remain unsettled on the date of the general shareholders' meeting, these objections must be presented at the general shareholders' meeting to be settled. If any objections remain unsettled after the general shareholders' meeting, the acquisition cannot be continued.
In addition to the above, the board of directors of the target company should also announce the change of ownership due to the acquisition to its employees in accordance with Law No. 13 of 2003 on Labour (Labour Law). The target company's employees may choose to not continue their employment and be paid with the applicable termination payments for the change of ownership in the target company under the Labour Law).