The Second Asian Roundtable on The Second Asian Roundtable on Corporate GovernanceCorporate Governance

Island Shangri-La Hotel, Hong Kong, ChinaIsland Shangri-La Hotel, Hong Kong, ChinaMay 31, 2000May 31, 2000

Copyright, 2000 © FRS & Associates, Inc.

The Role of Disclosure The Role of Disclosure in Strengthening in Strengthening Corporate Governance and Corporate Governance and AccountabilityAccountability

Shareholder Meetings Shareholder Meetings and Communications and Communications

at Shareholder at Shareholder MeetingsMeetings

Copyright, 2000 © FRS & Associates, Inc.

Presentation by:Mr. Herwidayatmo

Chairman of the Indonesian Capital Market Supervisory Agency - BAPEPAM

Two-tier Board Two-tier Board SystemSystem

consists of Commissioners and consists of Commissioners and Directors;Directors;

Commissioners supervise and advise Commissioners supervise and advise Directors in running the companyDirectors in running the company

Directors have responsibility for Directors have responsibility for management of the company and to management of the company and to represent the company in and out of represent the company in and out of courtcourt

Commissioners, Directors, and Shareholder Meetings

Directors & Commissioners are elected by Shareholders

Powers of Directors are limited only by the Articles of Association

Duties and remuneration of Directors are determined by Shareholder Meetings

Approval from Shareholder Meetings is a must for transferring and pledging the assets of the company

Commissioners may temporarily remove a Director, but the final decision must be made by the Shareholder Meeting

Legal ObstaclesLegal Obstacles

The Company Law does not conform to the The Company Law does not conform to the model of a supervisory board as described in model of a supervisory board as described in most Guidelines most Guidelines

TBS is not consistent with the model of TBS is not consistent with the model of accountability and independence in most accountability and independence in most Guidelines Guidelines

Company Law would need to be revisedCompany Law would need to be revised

OUR PRIORITIES:OUR PRIORITIES:

Increasing the quality of transparency and Increasing the quality of transparency and disclosure disclosure

Improving rules and regulations by revising and Improving rules and regulations by revising and issuing new rules issuing new rules

Promoting the application of “good corporate Promoting the application of “good corporate governance”governance”

Strengthening market institutions Strengthening market institutions Establishing a fully independent regulatory Establishing a fully independent regulatory

bodybody

Shareholder Meetings Shareholder Meetings

Must be held annuallyMust be held annually Directors must compile a report, especially Directors must compile a report, especially

an annual financial report and annual an annual financial report and annual reportreport

For Public Companies, the financial report For Public Companies, the financial report must be audited and published in 2 daily must be audited and published in 2 daily newspapernewspaper

Announcement ofAnnouncement ofShareholder MeetingsShareholder Meetings

Must be called by the directors with at least Must be called by the directors with at least 14 days prior notice by registered letter14 days prior notice by registered letter

For public companies, by publication in 2 For public companies, by publication in 2 daily newspapers at least 28 days prior to daily newspapers at least 28 days prior to the meetingthe meeting

The meeting must include the time, place The meeting must include the time, place and agenda for the meetingand agenda for the meeting

THE QUORUMTHE QUORUM

For the general shareholder meeting:For the general shareholder meeting: One-half of the voting shares at the first meetingOne-half of the voting shares at the first meeting One-third of the voting shares at the second One-third of the voting shares at the second

meetingmeeting

Certain transactions requires the presence of Certain transactions requires the presence of three-fourth shareholders with voting right three-fourth shareholders with voting right

Decision is valid only if three-fourth of those who Decision is valid only if three-fourth of those who present is in favor of the transactionpresent is in favor of the transaction

Shareholder Meetings Shareholder Meetings under Bapepam Rulesunder Bapepam Rules

to make changes in a company’s to make changes in a company’s article of associationarticle of association

to approve “Conflict of Interest” to approve “Conflict of Interest” transactionstransactions

to approve “Material Transaction” and to approve “Material Transaction” and Changing in Public Company Changing in Public Company Business ActivityBusiness Activity

Conflict of InterestConflict of Interest

Defined as a difference between the economic Defined as a difference between the economic interest of a Company and the personal interest of a Company and the personal economic interest of a director, commissioner, or economic interest of a director, commissioner, or substantial shareholder of the companysubstantial shareholder of the company

Disclosure requirements:Disclosure requirements: description of the transactiondescription of the transaction summary report from independent personsummary report from independent person date, time and location of shareholder meetingdate, time and location of shareholder meeting justification and reason of the transactionjustification and reason of the transaction company plan, data, and other related infocompany plan, data, and other related info

Shareholder Meetings for Shareholder Meetings for Conflict of Interest TransactionsConflict of Interest Transactions

Quorum on the General Meeting:Quorum on the General Meeting: at least 50% of independent shareholders must attend the at least 50% of independent shareholders must attend the

meeting meeting at least 50% of them at least 50% of them representing more than 50% of total representing more than 50% of total

shares owned by independent shareholders shares owned by independent shareholders approve the approve the transactiontransaction

if not, a second meeting may be heldif not, a second meeting may be held

Quorum on the Second Meeting:Quorum on the Second Meeting: at least 50% of independent shareholders must attend the at least 50% of independent shareholders must attend the

meeting meeting at least 50% of them at least 50% of them who attend who attend approve the transactionapprove the transaction if not, a third meeting may be heldif not, a third meeting may be held

The Third Meeting for The Third Meeting for Conflict of Interest Conflict of Interest

TransactionsTransactions Conducted after having approval from Conducted after having approval from

BapepamBapepam More than 50% of independent More than 50% of independent

shareholders who attend the Meeting must shareholders who attend the Meeting must favor the transactionfavor the transaction

Material TransactionMaterial Transaction

Any acquisition or disposal of assets in an Any acquisition or disposal of assets in an amount that is greater than:amount that is greater than: 10% of the revenues10% of the revenues 20% of the equity20% of the equity

Change in the line of businessChange in the line of business

Procedures & Requirements Procedures & Requirements for for Material TransactionsMaterial Transactions

Designation of an independent appraisalDesignation of an independent appraisal Publication in 1 daily newspaper at least 28 days Publication in 1 daily newspaper at least 28 days

prior to the meetingprior to the meeting Additional info for changing the line of business:Additional info for changing the line of business:

Reasons and justificationReasons and justification Summary report of feasibility studySummary report of feasibility study Company expertise to make the changeCompany expertise to make the change

FactsFacts

The legal requirements are consistent with The legal requirements are consistent with norms of corporate governancenorms of corporate governance

Problems:Problems: Public investors not mature yetPublic investors not mature yet Most public companies are controlled by Most public companies are controlled by

economic groupseconomic groups Corporate cultureCorporate culture

Essential IssuesEssential Issues

Improve the quality of disclosureImprove the quality of disclosure Change the corporate culture, enhance the Change the corporate culture, enhance the

functions of corporate secretary, and promote functions of corporate secretary, and promote the implementation of electronic dissemination the implementation of electronic dissemination of informationof information

Coordination with SROs in defining corporate Coordination with SROs in defining corporate governance obligationsgovernance obligations

Take effective enforcement measuresTake effective enforcement measures

Copyright, 2000 © FRS & Associates, Inc.

Mr. HerwidayatmoChairman of the Indonesian Capital Market Supervisory Agency - BAPEPAM