Indonesian Codes of Corporate Governance (Mei 2019)

THE INDONESIAN CODES OF
CORPORATE GOVERNANCE
By:
Formulation Team:
1. Kanaka Puradiredja (Chairman)
2. Mulyadi (Member)
3. LID da Lopez (Member)
4. Mohammad Mukhlis (Member)
5. Stefanus Murti Sri Sadana (Member)
6. Daniel F. Iskandar (Member)
7. Jeffrey Siregar (Secretary)
Steering Team:
1. Mas Achmad Daniri (Chairman)
2. Irwan M. Habsjah (Member)
Resource Persons:
1. Indra Safitri
2. Hari Setianto
3. Angela Simatupang
4. Rudy Arnanda
Jakarta, June 2019

Komite Nasional Kebijakan Governance 2
FOREWORD
CHAIRMAN OF NATIONAL COMMITTEE ON
GOVERNANCE
The application of good corporate governance may be driven from two sides, namely ethics
and regulations. Ethical encouragement comes from the awareness of individual business
people in carrying out business practices which prioritize corporate sustainability, the interests
of stakeholders, and avoid short term profits. On the other hand, regulatory driven "forces"
corporations to comply with applicable laws and regulations. Both of these approaches have
their own strengths and limitations and should complement each other to create a healthy
business environment.
The 2019 Indonesian Codes of Corporate Governance are published based on ethical
framework. These principles do not have legal consequences, however should be used as a
reference for authorities and corporations in implementing their respective corporate
governances. The principles explain steps that need to be taken to create a checks and balances
situation, encourage transparency and accountability, and create social responsibility in order
for the corporation to survive.
These Principles are refinements of the Guidelines published in 2006 and expected to be a
living document so this necessity at continuing review and revise inline with current
developments.
The refinement of the 2006 Guidelines includes aligning the contents of the Principles with the
2015 Organization for Economic Co-operation and Development Corporate Governance
(OECD CG) Principles and contains best practices in other countries. In general, these
Principles contain the rights of shareholders and their fulfillment, basic rules regarding
management, and supervision of corporate management in Indonesia. The ten principles
formulated in this guideline have been based on international standards and Law No. 40 of
2007 concerning Limited Liability Companies.
Formulation of these Codes is carried out by a Team formed by KNKG. The team formulates
the Codes to a final draft stage. The next step of the draft was discussed internally at the KNKG
plenary meeting. After obtaining approval at the plenary meeting, socialization meetings were
held with various related parties.
KNKG expressed its highest gratitude and appreciation to Kanaka Puradiredja as Team Leader
and all members ie., Mulyadi, LID da Lopez, Mohammad Mukhlis, Stefanus Murti Sri Sadana,
Daniel F. Iskandar and Jeffrey Siregar for their contribution in developing these Codes. In
addition, KNKG also expressed its gratitude and appreciation to the resource persons, namely
Indra Safitri, Hari Setianto, Angela Simatupang, and Rudy Arnanda, who provide valuable
inputs to the contents of the Codes.
KNKG also expressed its gratitude and appreciation to PricewaterhouseCoopers for its
contribution in reviewing the English version of the Codes.
Hopefully these Codes will contribute to the improvement of the Indonesian economy.
Jakarta, June 2019
National Committee on Governance

Chairman
Mas Achmad Daniri

CONTENTS
Preface ………………………………………………………………………………………...2
Contents …………………………………………………………………………………….…4
Chapter 1 Intruduction…………………………………………………………………….….6
Definition of Codes of Corporate Governance ………………………..……….…6
Basic Values Underlying The Indonesian Codes of

Corporate Governance……………………………………………………....7
The Purpose of Formulating The Indonesian Codes of

Corporate Governance ……………………………...……………………....7
The Content of The Indonesian Codes of Corporate

Governance..…………...............................................................................…8
A Brief Explanation of The Indonesian Principles of

Corporate Governance …….……………………………………………..…8
Applicability of The Indonesian Codes of Corporate Governance .........................8

Updating The Indonesian Codes of Corporate Governance …………….…....9
Chapter 2 Summary of The Principles of Corporate Governance ……………..……….…..10
Chapter 3 The Ten Indonesian Principles of Corporate Governance ….…………………...13
Principle 1 The Rights Of Shareholders, General Meeting Of Shareholders,

And The Rights Of Other Key Stakeholders....................................13
Principle 2 The Roles And Responsibilities Of Management Board And

Supervisory Board ……………………….…………….………….17
Principle 3 Composition and Remuneration of Management Board and

Supervisory Board............................................................................22
Principle 4 Cooperation Between Management Board And

Supervisory Board ...........................................................................24
Principle 5 Quality Improvement of The Management Board and

Supervisory Board Members............................................................25
Principle 6 Institutional Investors, Capital Markets,

And Other Intermediaries.................................................................25
Principle 7 Ethical Behavior ..............................................................................26
Principle 8 Governance, Risk and Compaliance ................................................27
Principle 9 Disclosure and Transparency ..........................................................28
Principle 10 Compliance With Applicable Legislation .......................................29

CHAPTER 1 INTRODUCTION
In 2001, the National Committee on Corporate Governance (KNKCG) issued General

Guidelines for Good Corporate Governance (GCG), which was later revised by the National
Committee on Governance Policy (KNKG) in 2006. Since the publication of the guidelines,
various new regulations refering to GCG best practices have been published by various parties.
In 2007, the Government promulgated the Limited Liability Company Law (2007 Corporate
Law), which adopted the concept of GCG.
Along with the increasingly rapid development of the capital market and with increasing
awareness of the importance of good corporate governance, KNKG took the initiative to revise
the General Guidelines for GCG, with the objective that the Codes of Corporate Governance
are in line with the current GCG development.
Definition Of The Principles Corporate Governance
Corporate governance is a structure and process used by corporations to direct and supervise
their business activities. Included in corporate governance is the process of establishing mission
and vision of the corporation, its implementation and achievements. Basically, corporate
governance includes the relationship between corporate stakeholders and balancing their
respective interests. The main stakeholders in corporate governance are shareholders,
Management Board and the Supervisory Board. While other stakeholders are employees,
suppliers, customers, banks and other creditors, regulators, and community at large.
The term of governance relates to broader stakeholders, for example the rights of shareholders
which are one of the important principles in corporate governance, and which are outside the
scope of Management Board activities. Therefore, the term of tata kelola focuses more on
internal corporate management. Insofar it relates to the scope of Management Board activities,
the term of tata kelola can still be used.
In these Codes, defined as corporation is a legal entity established under 2007 Corporate Law.
The Law stipulates that there are three corporate functions, namely: ownership, management,
and oversight.
The General Meeting of Shareholders (GMS) is a corporate ownership function. As an

ownership function, the GMS is a collection of corporate shareholders who jointly implement
part of their rights. On the other hand, the GMS is used by The Management and Supervisory
Board as a forum to account for corporate management activities and supervisory activities,
which at the same time fulfill some of the rights of shareholders.
As mentioned above, the corporation is managed by two organs, namely: (1) the Management
Board, who act as a corporate management organ, and (2) the Supervisory Board, acting as an
oversight organ to oversee and supervise management activities carried out by the Management
Board. The Management Board is responsible for its management role and the Supervisory
Board is responsible for its oversight role to the shareholders through the GMS organ.
Basic Values Underlying The Indonesian Codes of Corporate Governance
The Indonesian Codes of Corporate Governance are prepared based on five basic values,
namely: transparency, accountability, responsibility, independence and fairness. Each basic
value is described as follows:
Transparency. The principle of corporate governance should ensure that all material
information regarding the corporation is disclosed accurately and timely, including financial
position and performance, as well as governance and ownership structures.
Accountability. The principle of corporate governance should ensure that the corporation has
a strategic business plan to achieve its mission and vision, effective monitoring by the
Management Board to its subordinates in implementing corporate strategic business plan,
effective oversight by Supervisory Board, and accountability of Management and Supervisory
Board to corporation and shareholders.
Responsibility. The principle of corporate governance should recognize the rights of

shareholders and other stakeholders as stipulated in the applicable laws and regulations,
encourage the corporation to cooperate with all stakeholders in creating wealth and job creation
and ensuring the sustainability of the corporation.
Independence. The principle of corporate governance requires that the corporation is managed
independently, in which the Management and Supervisory Board and the management team do
not dominate each other and cannot be intervened by any other party which may influence their
objectivity and professionalism.
Fairness. The principle of corporate governance should protect the rights of shareholders and
ensure equal treatment to all shareholders, including minority and foreign shareholders. All
shareholders who lose their rights should have the opportunity to regain their rights. This
principle also requires corporations to treat other stakeholders fairly and equally.
The Purpose Of Formulating The Indonesian Codes of Corporate Governance
The Indonesian Codes of Corporate Governance are formulated with three objectives, namely:
(1) to provide easy-to-understand information about the principles of governance adopted in
Indonesia, (2) to build the trust of international and national investors, customers, suppliers,
employees and public in general on corporate governance principles adopted in Indonesia; and
(3) to provide guidance for various authorities and corporations in implementing corporate
governance. The ultimate goal of formulating the Indonesian Codes of Corporate Governance
is to build a culture of good corporate governance.
The Content of The Indonesian Codes of Corporate Governance
The Indonesian Codes of Corporate Governance contain shareholders' rights and their
fulfillment, basic rules with respect to corporate management, and its supervision in Indonesia.
The Principles formulated here are based on international standards and the 2007 Corporate
Law.
A Brief Explanation About The Indonesian Codes of Corporate Governance
The Codes consist of ten principles which are divided into two groups: (1) a group of principles
governing shareholder rights and their fulfillment and the body who organizes corporate
governance processes, and (2) a group of principles governing outputs produced by the
abovementioned organizers.
The principles are divided into two: these are the main principles and supporting principles.
The main principles consist of key principles and are further supported by the supporting
principles. The main principles are included in bold and italic text, while supporting principles
are in plain texts.
Furthermore, throughout the Coded the words "should", "may" or neither are used.
Principles using "should" mean that the corporation should adhere to those principles.
However, should the corporation not comply with or adhere to these principles, the corporation
is obliged to disclose this in its annual report and explain the reasons for non-adherence. This
would allow corporations operating in various fields that have certain specific requirements to
reflect these in their articles of association. Principles using the word of "may"means that the
corporation is only suggested to adopt this. In case the corporation does not adopt the principles,
it is not obliged to disclose this fact in its annual report. Principles who neither use the words
"should" nor "may" means that these principles have been partially or fully regulated by the
2007 Corporate Law and therefore it is mandatory to comply with. The Management Board is
obliged to make a statement in its annual report that it has complied with all provisions in the
applicable laws and regulations relating to its business activities.
Applicability of The Indonesian Codes of Corporate Governance
The Indonesian Codes of Corporate Governance apply to all corporations in Indonesia,

including their subsidiaries in a group of corporation, public corporations, state-owned
corporations, regional state-owned corporations, corporations that raise and manage public
funds, corporations whose products or services are used by the public, and corporations whose
business activities have a broad impact on environmental sustainability.
The Codes, taking into consideration the respective prevailing laws, should also be applied to
cooperatives and foundations, should their activities raising and managing public funds, their
products or services are used by the public, and their activities have a broad impact on
environmental sustainability.
Updating The Indonesian Codes of Corporate Governance
The National Committee On Governance Policy (KNKG) or an organization equivalent to

KNKG is obliged and committed to review the Principles every year noticing any developments
in international governance parties and update the Codes when it is considered necessary.
CHAPTER 2 SUMMARY OF INDONESIAN CODES OF

The Indonesian Codes of Corporate Governance consist of ten items which are divided into
two groups: (a) principles governing organizers of corporate governance, and (b) principles
governing outputs produced by the abovementioned organizers. The first group is presented in
principles 1 through 6. The second is presented in principles 7 through 10.
The ten Indonesian principles of corporate governance comprise the following:
1. The rights of shareholders, general meeting of shareholders, and the rights of other key
stakeholders;
2. The roles and responsibilities of The Management and Supervisory Board;
3. Composition and remuneration of The Management and Supervisory Board;
4. Cooperation between The Management and Supervisory Board;
5. Improving the quality of The Management and Supervisory Board members;
6. Institutional investors, capital markets, and other intermediaries;
7. Ethical behavior;
8. Governance, risk and compliance;
9. Disclosure and transparency;
10. Compliance with applicable laws and regulations.
Principle 1: Rights Of Shareholders, General Meeting of Shareholders, and The Rights

of Other Key Stakeholder
Principle 1 describes the basic rights of shareholders, active collaboration between corporations
and shareholders and other key stakeholders as well as implementation of shareholders' rights
through a GMS.
Principle 2: Roles And Responsibilities of The Management And Supervisory Board
Principle 2 relates to the roles and responsibilities of The Management Board in managing the
corporation’s activities and the roles and responsibilities of the Supervisory Board is
supervising the Management Board. In addition, it regulates the handling of conflicts of interest
involving members of The Management and Supervisory Board and disclosure which
considered appropriate in sight of existing laws and regulations.
Principle 3: Composition and Remuneration of The Management and Supervisory

Board
Principle 3 requires the selection and appointment of The Management and Supervisory Board
members to be carried out in such a way that The Management and Supervisory Boards have a
composition of members with the knowledge, abilities and expertise commensurate to their
respective roles. Furthermore, this Principle requires disclosure of remuneration received by
The Management and Supervisory Board.
Principle 4: Cooperation Between The Management and Supervisory Board
Principle 4 regulates the area that requires close cooperation between The Management and
Supervisory Boards in managing and overseeing the operation of the corporation.
Principle 5: Quality Improvement of Members of The Management and Supervisory

Boards
Principle 5 requires that the corporation has a selection, orientation, training and continuous
education process, as well as a competitive remuneration structure in order to obtain high
quality members for The Management and Supervisory Board.
Principle 6: Institutional Investors, Capital Markets, And Other Intermediaries
Principle 6 is intended to create healthy economic incentives along the investment chain,
especially focusing on institutional investors, such as pension funds, mutual society and other
similar institutions, which play a role as parties trusted by the public to manage their funds.
Principle 7: Ethical Behavior
Principle 7 requires corporations to state their commitments not only will comply with
applicable laws and regulations, but also a commitment to act ethically and responsibly.
Principle 8: Governance, Risk And Compliance
Principle 8 requires The Management Board to implement a coordinated strategy in managing

integrated issues regarding governance, risk management, and corporate compliance with
regulatory requirements.
Principle 9: Disclosure And Transparency
Principle 9 requires corporations to have a governance framework that is able to provide

accurate and timely disclosures of all material aspects about the corporation, including financial
conditions and performance, ownership of the corporation, and corporate governance.
Principle 10: Compliance With Prevailing Laws And Regulations
Principle 10 requires corporations to become good corporate citizens by complying to

prevailing laws and regulations and to be updated with any changes thereof respective to their
business in particular and regulations in general.
The details of each principles consisting of the main and supporting principles are presented in
in the following chapters.
CHAPTER 3 THE TEN INDONESIAN PRINCIPLES OF

Principle 1 Rights Of Shareholders, General Meeting Of Shareholders, And The Rights

of Other Key Stakeholder
Principle 1 covers three main areas. These are:
Principle 1.1: Shareholder Rights
Principle 1.2: General Meeting of Shareholders
Principle 1.3: Other Key Stakeholder Rights
1.1 Shareholder Rights
Shareholders, including minority and foreign shareholders, should be treated

equally. They possess basic rights that should be protected and facilitated by
the corporation.
1.1.1 The basic rights of shareholders should include the right to: (a) be recorded
in the corporation’s shareholder register; (b) grant or transfer their shares,
(c) receive relevant material information about the corporation regularly
and timely; (d) to participate and vote in the GMS; (e) appoint and dismiss
members to The Management and Supervisory Boards; and (f) receive
dividends. The rights listed in points (e) and (f) above are implemented
through the GMS.
1.1.2 Shareholders should be provided with sufficient information for, and have
the right to approve or reject as well as participate in, making decisions
with respect to fundamental changes such as: (a) amendments to the
corporation’s Articles of Association; (b) changes in the capital structure;
and (c) implementation of extraordinary transactions, such as mergers,
business combinations, liquidations, including the transfer of all or most
of the assets which ultimately result in the sale of the corporation.
1.1.3 Shareholders should have the opportunity to participate effectively in and

vote at the GMS, and should have the right to obtain information regarding
rules of the GMS, including voting procedures.
1.1.3.1 Shareholders should be provided with sufficient and timely

information regarding the date, venue and agenda of the GMS.
1.1.3.2 The processes and procedures for GMS should allow equal
treatment of all shareholders. The GMS procedures should not
make it undully difficult or expensive to cast votes.
1.1.3.3 Shareholders should have the opportunity, subject to reasonable

limitations, to: (a) ask questions in GMS, including questions
relating to the annual external audit results, (b) place items on the
agenda of the GMS, and (c) to propose resolutions.
1.1.3.4 Effective shareholder participation in key corporate governance

decisions, such as the nomination and election of board members,
including their remuneration should be facilitated. The equity
component of compensation schemes for board members and
employees should be subject to shareholder approval. Shareholders
should be able to make their views known at the GMS.
1.1.3.5 Shareholders should have the opportunity to participate effectively

and to vote, in person or in absentia, at the GMS, with the same
rights, regardless of their physical presence.
1.1.3.6 Impediments to cross border voting should be eliminated.
1.1.4 Shareholders, including institutional shareholders, should be allowed to

consult with each other on issues concerning their basic shareholder rights
as defined in the Principles, subject to exceptions to prevent abuse.
1.1.5 All shareholders of the same series in one class of stock should be treated
equally. Capital structures and arrangements that allow certain
shareholders to influence or control which is not proportional to the level
of equity ownership should be disclosed.
1.1.5.1 All series of shares in one class of stock should have the same
rights. Investors should be able to obtain information about the
rights inherent in all series and stock classes before they buy them.
Any changes in the economic value of shares or voting rights
should be approved by a class of shares that is negatively affected.
1.1.5.2 Capital structures and control arrangements should be disclosed.
1.1.6 Related-party transactions should be realistic and conducted in a manner

that ensures proper management of conflicts of interest and protects the
interest of the corporation and its shareholders.
1.1.6.1 Conflicts of interest inherent in related-party transactions should

be addressed.
1.1.6.2 Members of The Management and Supervisory Boards should be

required to disclose to the boards whether they, directly, indirectly
or on behalf of third parties, have a material interest in any
transaction or matter
1.1.7 Minority shareholders and the interest of corporation should be protected

from abusive actions by, or in the interest of, controlling shareholders
acting either directly or indirectly. Abusive actions by controlling
shareholders should be avoided.
1.1.8 Parent entity should form a policy of corporate governance to be used as

a guideline for its subsidiaries and all entities under common control by
observing the prevailing laws and regulations.
1.1.9 The capital market as one of the institutions that control corporations
should be functioning in an efficient and transparent manner.
1.1.9.1 The rules and procedures governing the acquisition of corporate

control in the capital market, and extraordinary transactions such
as mergers, and sales of substantial portions of corporate assets,
should be clearly articulated and disclosed so that investors
understand their rights and recourse. Transactions should occur at
transparent prices and under fair conditions that protect the rights
of all shareholders according to their class.
1.1.9.2 The Management and Supervisory Board should be responsible in

the implementation of anti-take-over devices.
1.2 General Meeting of Shareholders
The General Meeting of Shareholders is a corporate organ which is a forum

where shareholders exercise some of their rights, and for the Management
Board to account its activities in managing the corporation, and for the
Supervisory Board to account its oversight of the Management Board.
1.2.1 The Management Board presents the Corporate Annual Report to the
GMS. The GMS resolves on the utilization of corporate net income and
discharge of the acts of the Management Board and the Supervisory Board.
In addition, through the GMS, shareholders should have the right to
appoint external auditors.
1.2.2 When new shares are issued, the old shareholders in principle should have
the right to order in advance, according to the proportion of their
ownership in the equity capital.
1.2.3 Every shareholder has the right to participate in the GMS, in discussing
the matters listed in the meeting agenda as well as asking relevant
questions and proposals.
1.2.4 GMS should be held by the Management Board at least once a year by
providing details of the meeting agenda. A certain quorum of shareholders
have the right to request another GMS in addition to the annual meeting
and the expansion of the meeting agenda. The implementation of GMS,
together with all related reports and documents, i.e the Annual Report and
voting results including the agenda of the meeting, should be available on
the official corporate website or digital communications media.
1.3 Other Main Stakeholder Rights
The corporate governance framework should recognise the rights of stakeholders

established by law or through mutual agreements and encourage active co-
operation between corporations and stakeholders in creating wealth, jobs, and
the sustainability of financially sound enterprises.
1.3.1 Stakeholder rights determined by legislation or based on collective

agreements should be respected.
1.3.2 If the interests of stakeholders are protected by legislation, stakeholders

should have the opportunity to obtain compensation for losses resulting
from violations of their rights.
1.3.3 Mechanisms for employee participation in the process of corporate

governance should be permitted to develop.
1.3.4 Where stakeholders participate in the corporate governance process, they

should have access to relevant, sufficient and reliable information in a
timely and regular manner.
1.3.5 Stakeholders, including individual employees and their representative

bodies, should be able to freely communicate their concerns about illegal
or unethical practices to the Management and/or the Supervisory Boards,
and to the respective public authorities and their right to do so should be
facilitated.
1.3.6 The corporate governance framework should be complemented by an

effective and efficient insolvency framework to protect the rights of
creditors.
1.3.7 The corporate governance framework should facilitate the rights of

bondholders to hold Bond General Meetings.
Principle 2: The Roles And Responsibilities Of The Management and Supervisory

Boards
Principle 2 covers the following three main areas:
Principle 2.1: Roles and Responsibilities of The Management and Supervisory Boards
Principle 2.2: Roles and Responsibilities of The Management Board
Principle 2.3: Roles and Responsibilities of The Supervisory Board
2.1 Roles And Responsibilities Of The Management and Supervisory Board
The corporation determines the roles and responsibilities of The Management

and Supervisory Boards and monitors and evaluates the performance of the two
organs corresponding with their respective roles and responsibilities.
The Management and Supervisory Boards work closely for the benefit of the
corporation.
The Management and Supervisory Board account for their respective roles and
responsibilities to the General Meeting of Shareholders.
2.2 Roles and Responsibilities of The Management Board
The Management Board is a management organ whose strategic role is directing

and leading the corporation to achieve its goals.
2.2.1 Roles and Responsibilities
2.2.1.1 The Management Board is responsible for independently

managing the corporation in the interest of the corporation, thus
taking into account the interests of shareholders, its employees and
other stakeholders, with the objective of sustainable creation of
value.
2.2.1.2 The Management Board should formulate corporate mission and

vision and select strategies to achieve the mission and vision.
Additionally, the Management Board should translate the
corporate mission, vision and strategy into a long-term profit plan
and spell it out into a short-term profit plan. The Management
Board leads the implementation of both long-term and short-term
profit plans.
2.2.1.3 The Management Board ensures that all provisions of law and the
corporation’s internal rules are complied with.
2.2.1.4 The Management Board should ensure appropriate risk

management in the corporation.
2.2.1.5 When filling in managerial positions in the corporation, the

Management Board should take diversity into consideration and
give equal opportunities to all candidates regardless of ethnicity,
religion, race, groups and gender.
2.2.2 Status Of Member Of Management Board
2.2.2.1 The Management Board consists of one person or more. In case the
Management Board consists of more than one person, one of them
should serve as President Director. The division of roles amongst
Board members individually may be arranged by a Board decision
letter. The responsibility of the Management Board as a whole, and
decision-making requirements, whether through consensus or
majority voting, should be regulated in the Articles of Association
or Management Board Charter.
2.2.3 Internal Control
2.2.3.1 The Management Board should design and implement a reliable

internal control system to mitigate identified risks.
2.2.3.2 Public, state-owned, regional-owned corporations and corporations

which collect and manage public funds, whose products or services
are used by the public, and whose business activities have a broad
impact on environmental preservation, should establish an internal
audit function.
2.2.4 Communication Function
2.2.4.1 The Management Board should ensure the smooth communications

within the corporation and stakeholders through the empowerment
of the Corporate Secretary function.
2.2.4.2 The Management Board should ensure the smooth communication

between the corporation and stakeholders through the empowerment
of the Corporate Secretary function.
2.2.5 Social Responsibility
2.2.5.1 In order to maintain sustainability of the corporation, Management

Board should ensure that the corporate social responsibilities are
fulfilled;
2.2.5.2 Management Board should have a definite strategic plan to carry out
the corporate social responsibility activities.
2.2.6 Conflict Of Interest
2.2.6.1 While holding the position of member of Corporate Management

Board, he/she should not be a member of Management Board in a
competing corporation.
2.2.6.2 Members of the Management Board and employees should not, in

connection with their work, demand nor accept from third parties
payments or other advantages for themselves or for any other person
nor grant third parties unlawful advantages.
2.2.6.3 Members of the Management Board should act in the best interests
of the corporation. No member of the Management Board may
pursue personal interests in their decisions or use business
opportunities intended for the corporation for themselves.
2.2.6.4 All members of the Management Board should immediately disclose

potential conflicts of interest to the Supervisory Board and other
members of the Management Board. All transactions between the
corporations and members of the Management Board and/or their
family members should comply with provisions that are generally
accepted in the relevant industrial sector. Material transactions that
contain conflicts of interest should get approval from the
Supervisory Board.
2.2.6.5 Members of the Management Board shall take on sideline activities,

full-time as well as part-time, only with the approval of the
Supervisory Board.
2.3 Roles And Responsibilities Of The Supervisory Board
The Supervisory Board is an oversight organ which provides advice and

supervision as well as certain decision-makings.
2.3.1 Roles And Responsibilities
2.3.1.1 The role of the Supervisory Board is to advise and supervise the
Management Board in their management of the corporation
regularly. The Supervisory Board should be involved in certain
corporate strategic decision making.
2.3.1.2 The Supervisory Board should review and approve the corporate
mission, vision and strategy formulated by the Management Board.
The Supervisory Board should also review and approve the

corporate long-term as well as short-term profit plans. The
Supervisory Board should provide advice and supervision to the
Management Board regarding its implementation.
2.3.1.3 The Supervisory Board should propose to, and to be resolved by,
GMS appointment and/or dismissal members of the Management
Board and the Supervisory Board. In proposing the above, the
Supervisory Board should take into consideration the non-
discriminatory elements and should provide equal opportunities to
candidates regardless their ethnicity, religion, race, groups and
gender. In addition, the Supervisory Board is authorized to
temporarily dismiss members of the Management Board, in
accordance with the prevailing laws and regulations. Together with
the Management Board, the Supervisory Board should ensure the
existence of long-term planning for future members of the
Management Board and Supervisory Board.
2.3.1.4 The Supervisory Board should oversee corporate governance

policies and their implementation.
2.3.1.5 The Supervisory Board should approve the developed corporate

risk appetite and monitor corporate risk profiles periodically.
2.3.1.6 The Supervisory Board should oversee internal control policies

and their implementation.
2.3.1.7 The Supervisory Board should recommend the appointment of

external auditor for the approval of GMS.
2.3.1.8 The Supervisory Board should ensure the independence of the

internal audit function and external auditors.
2.3.1.9 The Supervisory Board should review and approve the Corporate
Annual Report and ensure its integrity.
2.3.1.10 The Supervisory Board should develop a Supervisory Board

Charter detailing their roles and responsibilities.
2.3.2 Status Of Members Of The Supervisory Board
2.3.2.1 In case the Supervisory Board consists of more than one member,
one of them should be appointed as the Chairman of Supervisory
Board. Members of the Supervisory Board have equal voting right,

including the Chairman.
2.3.2.2 The Chairman of Supervisory Board should distribute and

coordinate the supervisory activities among the members, chair the
meetings and represents the Supervisory Board externally.
2.3.3 Formation Of Committees
2.3.3.1 Depending on the specifics of the corporation activities and the

number of members of the Supervisory Board, the Board may form
committees consisting of members who possess the necessary
expertise. These committees assist in improving the performance of
the Board and in dealing with complex issues. The committee is
chaired by a member of the Board. Members of the committee may
originate from members of the Board or from parties outside the
corporation. The committee chairman reports to the Board
periodically.
2.3.3.2 For public, state-owned, regional-owned corporations and

corporations that collect and manage public funds whose products
or services are used by the public, and whose business activities have
a broad impact on environmental sustainability, the Supervisory
Board should establish an Audit Committee which specifically
handles various issues of accounting, risk management and
compliance, ensures the independence of external auditors, and
recommend the appointment of external auditors to the Supervisory
Board.
2.3.3.3 Every member of the Supervisory Board should take care that they
has sufficient time to perform their roles. A member of the
Supervisory Board may concurrently serve as member of
Management Board and/or Supervisory Board of other corporations.
However, they should consider the availability of sufficient time to
carry out their roles and responsibilities.
2.3.4 Conflict Of Interest
2.3.4.1 All members of the Supervisory Board should act in the best
interests of the corporation. Therefore, all members of the
Supervisory Board should avoid any act pursuing personal interests
in making any decision or taking advantage of corporate business
opportunities for their own personal interests.
2.3.4.2 Each member of the Supervisory Board should inform the

Supervisory Board and the Management Board if there is a potential
conflict of interest, especially as a result of their position as a

consultant or director of customers, suppliers, creditors, or other
business partners.
2.3.4.3 In its report, the Supervisory Board should inform the GMS in case
there is a material conflict of interest and its treatment. Material
conflicts of interest involving a Board member which is not merely
temporary may result in termination of the member.
2.3.4.4 Advisory and other services agreements and contracts of work

between a member of the Supervisory Board and the corporation
should be approved by the Supervisory Board.
2.3.5 Evaluation Of Supervisory Board' Performance
2.3.5.1 The Supervisory Board should evaluate its performance regularly.
Principle 3 Composition and Remuneration of the Management and Supervisory

Boards
Members of the Management and members of the Supervisory Boards should

be selected and appointed in such a way that the composition of Management
Board as a management organ and composition of Supervisory Board as an
oversight organ both consist of members who possess knowledge, ability and
expertise necessary to properly fulfill the respective management and
oversight roles effectively and efficiently.
Principle 3 covers the following two main areas:
Principle 3.1: Composition and Remuneration of the Management Board
Principle 3.2: Composition and Remuneration of the Supervisory Board
3.1 Composition and Remuneration of The Management Board
3.1.1 The composition of the Management Board should be in such a way that the
members have the knowledge, abilities and expertise required to fulfill their
roles and responsibilities.
3.1.2 Based on recommendations from the Supervisory Board, which can be

preceded by a proposal from the Nomination and Remuneration Committees,
the GMS determines the remuneration of the Management Board. The
Supervisory Board periodically reviews the system and remuneration of the

Management Board.
3.1.3 Remuneration for members of the Management Board may consist of salary,
housing allowances, vehicle allowances, tax allowances, and other benefits
such as post-service benefits, including bonuses related to the performance
of Management Board.
3.1.4 Remuneration received by members of the Board should be disclosed.
3.2 Composition And Remuneration Of Supervisory Board
3.2.1 The composition of the Supervisory Board should be in such a way that the
members have the knowledge, abilities and expertise required to fulfill their
role of the Supervisory Board appropriately.
3.2.2 To enable the Supervisory Board to provide advice and supervision

independently to the Management Board, the Supervisory Board should be
composed of a sufficient number of independent members. Members are
deemed to be independent if the individual does not have any business or
personal relationships with the corporation or with members of Management
Board which results in a conflict of interest. Members of the Supervisory
Board should avoid accepting members of the management board or acting
similar to a member of management board or acts as an advisor in an
important competing corporation.
3.2.3 Remuneration of Supervisory Board should be proposed by the Board, can

be preceded by a proposal from the Nomination and Remuneration
Committee, to be determined by GMS. The amount of proposed remuneration
is determined by considering the roles of respective members and the
economic conditions and performance of the corporation. In addition, it
should also consider their respective positions such as Chairman of the Board
and Chairman and/or membership in oversight committees.
Principle 4 Cooperation between The Management and Supervisory Boards
The Management and Supervisory Boards work closely for the best interests of
the corporation.
4.1 The Management Board should cooperate with the Supervisory Board in
formulating the corporate mission, vision and strategy and regularly discuss its
implementation.
4.2 For transactions requiring Supervisory Board approval based on the Articles of
Association, they should be carried out after obtaining such approval. This
includes decisions or plans that fundamentally change the condition of assets,

finance, or corporate profits.
4.3 Provision of sufficient information for the Supervisory Board should be the
responsibility of the Management Board and Supervisory Board.
4.4 Good corporate governance requires an open discussions between the

Management and Supervisory Boards as well as among the members within the
Management and the Supervisory Board. However, comprehensive observance of
confidentiality is of paramount importance.
4.5 In the event of a corporate takeover offer, the corporate Management and
Supervisory Boards should cooperate in making disclosures of relevant
information as a basis for decision making for all corporate shareholders,
especially for minority shareholders.
4.6 The Management and Supervisory Boards should act with due care and prudence
and for the benefit of the corporation. Should they not pay attention to this, the
Management and/or the Supervisory Boards may be held liable for losses to the
corporation. The Management and/or Supervisory Boards should not be held
liable in their business decisions which have been based on sufficient information
and for the best interests of the corporation.
4.7 Extending loans from the corporation to members of the Management and
Supervisory Boards or their relatives requires the approval of the Supervisory
Board.
4.8 The Management and Supervisory Boards should report annually on the
implementation of corporate governance in the Corporate Annual Report. This
report should include an explanation of non-compliance with principles other than
those stipulated in these Codes, stating the reasons thereof.
Principle 5: Quality Improvement of The Management and Supervisory Board Members
To appoint qualified members to the Management and Supervisory Boards,

corporations should provide competitive remuneration packages and implement
an effective selection and orientation process for new members as well as
continuing training and education.
5.1 To ensure the quality of candidates who will be appointed as members of the
Management and Supervisory Boards, the corporation should implement an
effective selection program.
5.2 The corporation should implement an appropriate orientation program for new
members to the Management and Supervisory Boards.
5.3 Continuous education and training programs should be conducted regularly for all
members.
5.4 The corporation should have a competitive remuneration package for all
members.
Principle 6 Institutional Investors, Capital Markets, and Other Intermediaries
The corporate governance framework should provide sound incentives

throughout the investment chain and provide for stock markets to function in a
way that contributes to good corporate governance.
6.1 Institutional investors acting in a fiduciary capacity should disclose their

corporate governance and voting policies relating to their investments, including
the procedures used in deciding the exercise of their voting rights.
6.2 Votes should be cast by custodians or nominees in line with the directions of the
beneficial owner of the shares.
6.3 Institutional investors acting in a fiduciary capacity should disclose how they
manage material conflicts of interest that may affect the exercise of key ownership
rights regarding their investments.
6.4 The corporate governance framework should require that proxy advisors,
analysts, brokers, rating agencies and others that provide analytical and advisory
relevant to investor decisions, disclose and minimize conflicts of interest that
might compromize the integrity of their analysis and/or advice.
6.5 Insider trading and market manipulation should be prohibited and applicable laws
and regulations enforced.
6.6 For corporations which are listed in a jurisdictional capital markets other than
their jurisdiction of incorporation, the applicable corporate governance laws and
regulations should be clearly disclosed. In the case of cross listings, the criteria
and procedures for cross listing for recognizing the listing requirements of the
primary listing should be transparent and documented.
6.7 Stock markets should provide fair and efficient price discovery as a means to help
promote effective corporate governance.
Principle 7 Ethical Behavior
Statement about corporate commitment not only to comply with applicable laws
and regulations, but also a commitment to act ethically and responsibly.
7.1 This statement is set forth in corporate Code of Conduct and Business Ethics which
should clearly express the corporate expectations that each member of
Management and Supervisory Board, as well as all employees will:
a. Act in the best interests of the corporation;
b. Act honestly and with high standard of integrity;
c. Comply with the laws and regulations that apply to the corporation and its
operations;
d. Avoid illegal actions or unethical actions based on corporate ethics guidelines;
e. Not enter into any arrangement or participate in any activity that would conflict
with the corporation’s best interests or that would be likely to negatively affect
the corporation’s reputation
f. Not take advantage of property or information of the corporation or its

customers for personal gain or to causes losses to the corporation and its
customers;
g. Not take advantage of their position or the opportunities arising therefrom for
personal gain.
7.2 The corporation should maintain a system for preventing the offering or
acceptance of bribes and other unlawful or unethical payments or inducements.
7,3 Corporations should maintain a system for handling conflicts of interest, both
potential and those that have occurred.
Principle 8 Governance, Risk And Compliance
Management Board should implement governance, risk management and

compliance in an integrated manner.
8.1. Management Board should develop an integrated system of governance, risk

management and compliance (GRC), by handling various uncertainties in an
integrated manner and with high integrity, to ensure that the corporation can
achieve its objectives.
8.2 Management Board should ensure coordination and improvement of capabilities

among the main GRC systems which include the governance system, strategic
management, performance management, risk management, compliance

management, and internal audit systems so that the corporation remains on track
to achieve its objectives.
8.3 The Management Board should regularly review the appropriateness of the design
and operational effectiveness of the governance system, risk management, and
corporate compliance and report its findings and recommendations for
improvement to shareholders through the Corporate Annual Report.
8.4 Periodic reviews conducted by the Management Board should specifically

consider:
8.4.1 There has been a change since the latest periodic review regarding the
nature and scope of significant risks and the ability of the corporation to
respond to changes in its business and external environment;
8.4.2 The scope and quality of current monitoring of risks and internal control
systems, the role of internal audit functions and other assurance providers;
8.4.3 The scope and frequency of communications regarding the

abovementioned monitoring results to the Supervisory Board (or Audit
Committee) which will enable the Supervisory Board to thoroughly assess
the status of internal control and its effectiveness in risk management;
8.4.4 Failures or deficiencies in internal controls found during the period under
review and to the extent of the contingencies impact that has, can, or may
occur in the future, which has a material impact on the corporate condition
or corporate financial performance; and
8.4.5 Effectiveness of internal controls relating to financial reporting and

compliance with regulatory authorities’ requirements.
8.5 Corporations should maintain guidelines for encouraging the reporting of

unlawful or unethical behavior, which includes a guideline on how the corporation
protects whistleblowers who report violations in a good faith.
Principle 9 Disclosure And Transparency
The corporate governance framework should ensure that timely and accurate
disclosure is made on all material matters regarding the corporation, including
the financial situation, performance, ownership, and corporate governance.
9.1 Disclosures should include, but not limited to, material information about:
a. Results of corporate operations and finance;

b. Corporate financial objectives and non-financial information;
c. Major share ownership, including the beneficial owners, and voting rights;
d. Remuneration received by the Management and Supervisory Boards;
e. Information about the members of the Management and the Supervisory

Boards, including their qualifications, selection process, other corporation
members of management or supervisory boards, and whether they are
considered independent from the perspective of the corporation Boards;
f. Related party transactions;
g. Foreseeable risk factors;
h. Issues regarding employees and other stakeholders;
i. Governance structures and policies, including the content of any corporate

governance code or policy and the process by which it is implemented;
j. Risk factors that can be predicted in the future;
h. Various issues relating to employees and other stakeholders;
i. Governance structures and policies, including the contents of any corporate

governance code or policies and the process by which it is implemented;
9.2 Information should be prepared and disclosed in accordance with high-quality

financial accounting and non-financial reporting standards;
9.3 An annual audit of financial statements should be carried out by an independent,

competent, and qualified external auditors, in accordance with auditing standards
issued by the Indonesian Institute of Certified Public Accountants in order to
provide an external and objective assurance to that the corporate financial
statements has been presented fairly, in all material respects, the financial position
and results of the operation of the corporation;
9.4 The external auditor should be accountable to the corporate shareholders and owe
a duty to the corporation to exercise due professional care in the conduct of the
audit;
9.5 Channels for disseminating information should provide for equal, timely and cost-
efficient access to users of financial statements.
Principle 10 Compliance with Applicable Legislation
Compliance with various applicable laws and regulations is a prerequisite for

being a good corporate citizen. Therefore, the corporation should always
follow the changes in various laws and regulations relating to its business in
particular and the legislation in general.
10.1 The Corporation should make a statement in its annual report that it has
complied with all provisions in the prevailing laws and regulations relating to
its respective business activities.
10.2 The Corporation should have a function that contributes to continual compliance
with various applicable laws and regulations relating to its business in particular
and the prevailing laws and regulations in general, and has a system for ensuring
corporate compliance with prevailing laws and regulations.

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THE INDONESIAN CODES OF

Jakarta, June 2019

Jakarta, June 2019

National Committee on Governance

Mas Achmad Daniri

Definition of Codes of Corporate Governance ………………………..……….…6

Basic Values Underlying The Indonesian Codes of

The Purpose of Formulating The Indonesian Codes of

The Content of The Indonesian Codes of Corporate

A Brief Explanation of The Indonesian Principles of

Applicability of The Indonesian Codes of Corporate Governance .........................8

Chapter 2 Summary of The Principles of Corporate Governance ……………..……….…..10

Chapter 3 The Ten Indonesian Principles of Corporate Governance ….…………………...13

Principle 1 The Rights Of Shareholders, General Meeting Of Shareholders,

Principle 2 The Roles And Responsibilities Of Management Board And

Principle 3 Composition and Remuneration of Management Board and

Principle 4 Cooperation Between Management Board And

Principle 5 Quality Improvement of The Management Board and

Principle 6 Institutional Investors, Capital Markets,

And Other Intermediaries.................................................................25

Principle 7 Ethical Behavior ..............................................................................26

Principle 8 Governance, Risk and Compaliance ................................................27

Principle 9 Disclosure and Transparency ..........................................................28

Principle 10 Compliance With Applicable Legislation .......................................29

In 2001, the National Committee on Corporate Governance (KNKCG) issued General

Definition Of The Principles Corporate Governance

The General Meeting of Shareholders (GMS) is a corporate ownership function. As an

Basic Values Underlying The Indonesian Codes of Corporate Governance

Responsibility. The principle of corporate governance should recognize the rights of

The Purpose Of Formulating The Indonesian Codes of Corporate Governance

The Content of The Indonesian Codes of Corporate Governance

A Brief Explanation About The Indonesian Codes of Corporate Governance

Applicability of The Indonesian Codes of Corporate Governance

The Indonesian Codes of Corporate Governance apply to all corporations in Indonesia,

Updating The Indonesian Codes of Corporate Governance

The National Committee On Governance Policy (KNKG) or an organization equivalent to

CHAPTER 2 SUMMARY OF INDONESIAN CODES OF

The ten Indonesian principles of corporate governance comprise the following:

2. The roles and responsibilities of The Management and Supervisory Board;

3. Composition and remuneration of The Management and Supervisory Board;

4. Cooperation between The Management and Supervisory Board;

5. Improving the quality of The Management and Supervisory Board members;

6. Institutional investors, capital markets, and other intermediaries;

8. Governance, risk and compliance;

9. Disclosure and transparency;

10. Compliance with applicable laws and regulations.

Principle 1: Rights Of Shareholders, General Meeting of Shareholders, and The Rights

Principle 2: Roles And Responsibilities of The Management And Supervisory Board

Principle 3: Composition and Remuneration of The Management and Supervisory

Principle 4: Cooperation Between The Management and Supervisory Board

Principle 5: Quality Improvement of Members of The Management and Supervisory

Principle 6: Institutional Investors, Capital Markets, And Other Intermediaries

Principle 7: Ethical Behavior

Principle 8: Governance, Risk And Compliance

Principle 8 requires The Management Board to implement a coordinated strategy in managing

Principle 9: Disclosure And Transparency

Principle 9 requires corporations to have a governance framework that is able to provide

Principle 10: Compliance With Prevailing Laws And Regulations