Indonesia adopts a two-tier board system comprising the board of directors (BOD) and the board of commissioners (BOC). The implementation of the two-tier board system in Indonesia is mandatory under the Company Law (Law No. 40 of 2007 regarding Limited Liability Companies, as last amended by the provisions of the Job Creation Law), meaning that every Indonesian company is required to have an active BOD and BOC functioning in the operation of the company.
Furthermore, based on Article 92, paragraph 3 of the Company Law, the BOD may consist of at least one or more members. However, Article 92, paragraph 4 of the Company Law mandates that companies engaged in activities related to the collection and/or management of public funds, companies issuing debt instruments to the public, and publicly listed companies must have at least two members on the BOD. This indicates that the Company Law only stipulates the minimum number of BOD members and does not impose a maximum limit on the number of BOD members.
Similarly, Article 108, paragraphs 2 and 5 of the Company Law states that the BOC must consist of at least one member, except for companies engaged in activities related to the collection and/or management of public funds, companies issuing debt instruments to the public, or publicly listed companies, which are required to have at least two members on the BOC.
It should be noted that the Company Law does not require that any member of the BOD or BOC be appointed as President Director or President Commissioner. However, the general meeting of shareholders (GMS) may choose to make such appointments. Moreover, for the BOD, it is common for the GMS to determine the titles and authorities of each appointed member of the BOD, such as appointing one member of the BOD as the Director of Finance or Director of Operations.
Roles of Board Members
In general, the Company Law stipulates that the role of the BOD is to carry out the management of the company in compliance with applicable laws and regulations, as well as the company’s articles of association.
The Company Law does not differentiate the roles of different BOD members. However, in cases where there are two or more directors, the allocation of authorities and tasks among the BOD members may be determined by a resolution of the GMS. In the absence of such a resolution, the BOD may decide on this matter themselves.
While the GMS may elect a specific member of the BOC to serve as President Commissioner, it is crucial to recognize that no member of the BOC can independently carry out the duties of the BOC. According to the Company Law, this prevents variations in the roles of individual BOC members. Therefore, even if there is a President Commissioner, no decision by the BOC can be unilaterally made by the President Commissioner. Instead, decisions must be made collectively by the BOC in accordance with the provisions stipulated in the company’s articles of association.
Excerpted from the Corporate Governance 2024 Chambers Global Practice Guide, published by Chambers and Partners.
Find Corporate Governance: Indonesia here.
