Evaluasi Pemilu Untuk PKS

Pemilu 9 April 2009 mungkin akan menjadi kenangan yang kurang mengenakkan bagi Partai Keadilan Sejahtera. Target perolehan suara yang membumbung tinggi hingga mencapai 20% hanya menjadi isapan jempol semata. Melalui perhitungan cepat, perolehan suara PKS bahkan tidak sampai setengahnya. Meski bertahan pada posisi 7-8%, hampir sama dengan perolehan suara pemilu 2004, perolehan suara kali ini sungguh sangat mengecewakan. DPP sangat percaya diri suara PKS bisa menembus 2 digit hingga angka 13%, namun hal ini dianggap sangat tidak realistis. Kedigdayaan Partai Demokrat yang melibas perolehan suara partai-partai besar lainnya harus dengan tangan terbuka diakui juga oleh PKS.

Partai Keadilah Sejahtera adalah sebuah Partai yang lahir dari rahim Jamaah Tarbiyah. Sebuah jamaah eksklusif yang menjadikan Ikhwanul Muslimin dibawah pimpinan Hasan Al Banna sebagai panutan dan Uswah. Partai Keadilan Sejahtera mengklaim sebagai sebuah partai dakwah. Partai dalam hal ini adalah ijtihad politik untuk memudahkan jalan dakwah. Keberadaan PKS adalah suatu fenomena, setidaknya ini diakui oleh pengamat politik Indonesia, Kevin Evans. PKS dianggap sebagai salah satu Partai Islam yang paling bersinar. Dari hanya memperoleh kurang dari 2% pada awal kemunculannya ditahun 1999 merangsek hingga mencapai 7,5%.

Melejitnya suara PKS hingga lebih dari 300 kali lipat menambah optimisme dan euforia para ponggawa partai ini untuk mentargekan 20% suara pada pemilu 2009. Dengan 20% suara, PKS akan mencalonkan presiden dari partainya sendiri. Jelas, strategi yang dilakukan adalah menjangkau masa mengambang diluar kadernya. Untuk hal itu, PKS yang awalnya tertutup merubah platform kampanye politiknya untuk menjadi lebih terbuka, menerima semua golongan dan bersedia membuka komunikasi politik dengan partai apapun dan golongan manapun. Miliaran rupiah uang kader digelontorkan untuk kampanye keterbukaan ini. PKS mulai menampilkan parade iklan yang lebih terbuka dan menggelitik bahkan terkadang kontroversial. Perubahan platform kampanye ini dipimpin langsung oleh sang Sekjen, Ust Anis Matta.

Pertanyaannya adalah” Apakah usaha ini berhasil?” Jika perhitungannya adalah penyampaian informasi, mungkin masyarakat mulai menyadari bahwa PKS tidak seekslusif itu. PKS bukanlah hanya diisi orang-orang berjenggot yang tidak bersalaman dengan wanita atau wanitanya yang berjubah rapat bak Ninja. Namun dalam alam demokrasi, informasi terkadang menjadi kurang penting jika efeknya tidak membuat pemilih terpengaruh untuk memilih partai tersebut. “Democracy is majority rule”. PKS gagal menambah perolehan suaranya. Alibi lain yang digunakan sang Sekjen untuk menutupi kegagalan ini adalah, DPT yang semrawut. Banyak pemilih PKS yang tidak terdaftar. Kalau ini alasannya, sandi mawon dengan partai lain. PKS tidak kuat menghadapi gempuran Partai Demokrat yang digawangi oleh incumbent, Presiden Susilo Bambang Yudhoyono.

Kurang berpengaruhnya suara PKS, jika tidak ingin mengatakan sebuah kegagalan, pada pemilu kali ini banyak mengundang suara-suara miring dikalangan para kader. Keberanian PKS untuk mengubah platformnya dalam berkampanye menuai protes cukup keras. PKS dianggap telah keluar dari platform politiknya. PKS bahkan dianggap telah keluar dari khittahnya sebagai partai dakwah. Animo untuk menaikkan rating elektabilitas melunturkan dan melenturkan tujuan semula, berdakwah. Isu yang berkembang PKS terpecah menjadi Faksi keadilan dan Faksi Kesejahteraan. Satu faksi menghendaki PKS bertahan seperti semula, kembali ke khittahnya sebagai partai dakwah eksklusif. Pihak lain menghendaki PKS lebih terbuka dan bersedia membuka komunikasi politik dengan partai manapun.

Ujicoba untuk menjadi terbuka nampaknya tidak berhasil. Ijtihad ini hanya berhasil mempertahankan suara para kader plus sedikit tambahan suara para simpatisan. Ijtihad ini pun membuat PKS tidak lagi menjadi unik. Sebagai suatu partai yang paling bersinar diantara partai Islam lainnya, PKS seharusnya mempertahankan keunikannya sebagai Partai Kader dan Partai Dakwah. Prosesnya mungkin akan menjadi lebih lama, karena ini adalah kompetisi demokrasi. Kompetisi dimana suara rakyat disamakan dengan suara Tuhan (Naudzubillah). Keunikan PKS yang khas dan berani berbeda adalah tampilan yang cukup menarik dalam kontes demokrasi. Setidak-tidaknya ini membedakan PKS dengan partai Islam lainnya. Keterbukaan yang dilontarkan seharusnya lebih focus pada penerimaan partai terhadap golongan lain bukan pada perubahan tampilan. Keterbukaan partai untuk menerima yang merah, jingga, kuning, hijau, biru, nila dan ungu seharusnya jangan sekali-kali dilakukan dengan merubah platform. Jelas sekali PKS menampilkan iklan-iklan wanita yang tidak berjilbab atau iklan-iklan yang justru sama sekali menghilangkan jati diri PKS. Luntur, lentur dan pragmatis.

Setidaknya ada hikmah besar pasca kegagalan ini. PKS harus berbenah diri. Pengalaman Partai politik Islam di Indonesia bak bunga yang layu sebelum benar-benar mekar. Akankah PKS seperti itu, wallahu A’lam bishawab. Namun begitulah dakwah, bagaimanapun caranya akan menemui bentuk dan jalannya sendiri. PKS boleh saja mengklaim sebagai Partai Dakwah tetapi Dakwah sama sekali bukan PKS.

MuqtiJurnal: Wadiah

MuqtiJurnal: Wadiah

Tata Cara Pendirian CV (Commanditaire Vennootschap)

Click here for english version.

CV atau Commandiatire Vennootschap atau biasa disebut sebagai Persekutuan Komanditaer diatur dalam Kitab Undang-undang Hukum Dagang pasal 119. KUHD menyatakan bahwa CV adalah kemitraan yang terdiri dari mitra pasif dan mitra aktif. CV dapat didefinisikan sebagai suatu perusahaan yang didirikan oleh satu atau beberapa orang secara tanggung-menanggung bertanggung jawab untuk seluruhnya atau bertanggung jawab secaraa solider, dengan satu orang atau lebih sebagai pelepas uang (geldshieter).

Pendirian

Proses pendirian CV relatif lebih mudah dibandingkan bentuk usaha lain semisal Perseroan Terbatas. Pendirian CV dapat dilakukan secara tertulis atau secara lisan, baik dengan akta otentik ataupun dibawah tangan. Namun untuk kekuatan hukum serta kepastian hukum untuk pihak ketiga sebaiknya pendirian CV dilakukan secara tertulis dengan Akta Otentik yang dibuat oleh Notaris. Meskipun tidak ada kewajiban untuk melakukan pengumuman didalam berita Negara Republik Indonesia, CV dapat didaftakan di Pengadilan Negeri Setempat. Untuk memperkuat legalitas CV, biasanya ada beberapa legalitas lainnya yang diperlukan yaitu mempunyai Surat Keterangan Domisili Perusahaan (SKDP), Nomor Pokok Wajib Pajak (NPWP) Surat Izin Usaha Perdagangan (SIUP) dan Surat Keanggotaan Kadin. Legalitas ini seringkali menjadi prasyarat apabila CV ingin ikut serta dalam tender-tender tertentu baik yang diselenggarakan oleh instansi pemerintah maupun swasta.

Status Hukum

Menurut ketentuan Perundag-undangan Indonesia, CV bukanlah suatu badan Hukum. Meskipun begitu kekayaan/aset yang dimiliki oleh CV terpisah dengan kekayaan/aset yang dimiliki oleh para mitranya baik mitra pasif atau mitra aktif.

Perbedaan PT dengan CV

Apabila ada keinginan untuk mendirikan CV sebagai suatu badan usaha, ada baiknya memperhatikan perbedaan CV dengan PT.

1. Pengurus CV bertanggung jawab penuh, sedankan Pengurus PT bertanggun jawab terbatas pada sahamnya;
2. Bila anggota CV meninggal dunia maka CV bubar, hal ini tidak berlaku pada PT meskipun terjadi pergantian kepengurusan;
3. Pengurus CV bertindak selama perseroan berjalan sedangkan pada PT tidak berjalan seperti itu;
4. CV terbagi atas saham yang mempunyai komisaris namun tetap komanditaer, sedangkan dalam PT selalu ada komisaris
5. Pada CV ada sekutu pasif dan aktif sedangkan dalam PT tidak dikenal istilah demikian. Pemegang saham bertanggung jawab sebatas kepemilikan modalnya yang tertuang dalam saham-saham.

Examples of Deed (Contoh Akta-akta Pendirian)

Having seen the practical condition of the establishment of legal entity or form of organization in Indonesia, I thought it is essential to provide copy of the standard of deed of establishment used by Public Notary for various legal entity like PT, CV, Association etc. The Deeds are in Bahasa Indonesia while for English translation will be further posted.

For the Deed of Local PT please click here

For the Deed of Foreign Investment company or PT PMA click here

For the Deed of CV please click here

For the Deed of Association please click here

However, the standard of these deeds can be amended depending on the need of the founder. The laws and regulations should be taken into account once the founder wants to change these standard draft.

Can Foreigner Own Apartment in Indonesia

In late 90s, Indonesia Laws regarding land has been amended. New laws are now permitted the foreigners to purchase apartments in Indonesia if the building has a strata title status. oreover, the foreigners can not hold the strata title of ownership of the apartment. The foreigners only can hold the right of use of the apartment.

Government Regulation 41 of 1996 regarding Ownership of Residences by Foreign Persons Domiciled in Indonesia (“Law 41/96”) clearly stipulate that the foreigner can hold the right of use of apartment with certain conditions e.g. the said foreigner is given benefit to Indonesia. Moreover, the right of use is only given for 25 years and can be extended for other 25 years.

There are two (2) ways for foreigners to have property in Indonesia. The following scenarios are e.g.:

First, CONVERTIBLE LEASE AGREEEMENT: There is a way for foreigners to purchase property in Indonesia by signing the convertible lease agreement with the developer company. This agreement entails that the foreigner may purchase apartment, but the title is still held in the name of the developer. This lease agreement is for a definite period.The transfer provision: This Convertible Lease Agreement states that the Lessee will obtain the right of ownership of the apartment automatically when the law and regulations regarding the land and apartment change. Then both lessee and lessor will enter into Sale and Purchase agreement. And the title of ownership shall be transferred to the lessee.The current practice in Indonesia that the developer company usually uses the standard contract in selling strata title to the customers. The standard contract is one sided contract. The content of the contract are made by the developer not the by both parties. It is can be called ‘take it or leave it contract’. There is no freedom of contract.Promissory Note: Besides, the convertible lease agreement, the lessee shall enter separate agreement with developer (“Promissory Note”). The said Promissory Note states that the lessee may re-sell the apartment to other parties chosen by him/her. Moreover, it shall be stated also that if the developer transfer its rights and obligation to third party under the lease agreement, the said promissory note shall be valid and forced to the third party.

Second, NOMINEE ARRANGEMENT: The foreigners may have an Indonesian person that they can trust so that the property under the Indonesian name.Then, the foreigner and Indonesian person will enter into an agreement that this Indonesian person has debt to the foreigner and pledge the said apartment.

-Mary Osmond-

Can Foreigner Establish a Foundation in Indonesia

Individual foreigner or foeigner along with local indonesian and/or foreign legal entity can establish a foundation under Indonesian Law. This is regulated under law number 16/2001 as amended by law number 28/2004. it's also governed in the government regulation number 63/2008.

Requirement needed for the establishment of foundation by foreigner are as follow:

• The foreig founders should separated their wealthy at least in the amount of IDR 100.000.000,- as an initial foundation's wealthy
• Stating that said wealthy comes from legal wealthy
• Stating that the activities of the foundation will not hampering society and the state of the Republic of Indonesia
• one of the Executive Board should be hold by Indonesian
• The Executive member must have a legal domicile in Indonesia
• The foreign Executive member should hold any of permit of conducting activities in Indonesia and hold Limited Stay Permit.
• The member of advisory board and supervisory board, if they have legal domicile in Indonesia, must hold a permit or license to carry out activities or business in Indonesia and hold Limited Stay permit.

The process of the establishment is as the same as the establishment for local people. Please see here for further detail.

Establishment of Foundation in Indonesia

Definition

Foundation or "stichting" is defined by law number 16/2001 as a legal entity which comprises of separated wealthy and is established to reach certain goals in the field of social, humanity and religious. From the mentioned definition can be concluded that foundation can not generate profits. The goals of the Foundation establishment are limited to social, humanity and profit.

Legal Basis

Foundation is governed under the law number 16/2001 as amended by law number 28/2004. There also an implementation regulation for Foundation under Government Regulation Number 63 year 2008.

Initial Foundation's Wealthy

The foundation's wealthy established by local individual is in the amount of IDR 10.000.000,- and for foreign individual and/or along with local individual in the amount of IDR 100.000.000,-Fundation that established by local and or foreign legal entity should owned an initial wealthy at least in the amount of IDR 100.000.000,-. The wealthy should be separated from the private founder wealthy.

Establishment Process

Foundation can be established by one person or more either Indonesian or foreigners. The process of establishment of foundation is carried out by making a deed of establishment made in Bahasa Indonesia before the public Notary. The process of establishment can be also made by proxy.

After the deed of establishment is made then the founder or its proxy apply for a legalization to the Ministry of Law and Human Rights through the Notary. Required document needed for the legalization process are as follow.

• Copy of the Deed of Establishment
• Copy of Tax Identity Number legalized by the Notary
• Statement Letter regarding Domicile Letter of Foundation signed by the Board of Foundation and known by local Head of Sub district (Lurah/Kepala desa)
• Receipt from the bank or statement Letter from the Bank or statement Letter from the Founders stating the value of the Foundation's property separated from the initial property to establish the foundation
• Statement Letter from founder stating the validity of the property mentioned
• receipt of the paid cost for the legalization and announcement of foundation

The application should be submitted not later than 1o days after the deed of establishment is signed. The legalization will be obtained not later than 30 days after the submission of the application with complete document. The foundation will automatically obtain its legal status once the legalization is approved.

Organ

Foundation has three organ comprises of Board of Advisor, Board of Executive and Board of Supervisor.

Audit Committee

A. Concept and Audit Committee Definition

One of the aforementioned committees, the audit committee, has separate tasks in term of supervising and assisting the BoC in fulfilling its oversight responsibilities. For instance, the Audit Committee has the power to conduct or authorize investigation into matters within the committee's scope of responsibilities. The Institute of Internal Auditors (IIA) recommends that every public company have an audit committee organized as a standing committee . The Institute also encourages the establishment of audit committees in other organizations including not for profit and governmental bodies. The audit committee should consist solely of outside commissioners, independent of management. The primary responsibilities of the audit committee should be assisting the BoC in carrying out their responsibilities as they relate to the organization's accounting policies, internal control and financial reporting practices. (The Institute of Internal Auditors, Internal Auditing and The Audit Committee: Working Together Toward Common Goals)

The existence of Audit Committee in the frame of Good Corporate Governance implementation can be seen from the regulations as follo :
1. Circular Letter of Bapepam Chairman No. Se-03/PM regarding Audit Committee
2. Decree of PT ursa Efek Jakarta Directors Number Kep-305/BEJ/07/-2004 regarding regulation No. I-A regarding stock listing and equity security otherthan stock issued by listed company applied since July 19, 2004.
3. Minister of SOEs Decree Number Kep-133/M-BUMN/1999 regarding formation of Audit Committee for SOEs
4. Professional Public Accountant Standard issued by Indonesian Accountant Association. Audit standard statement determined such requirements for auditor that certain problems in respect to the audit implementation is comunicated to supervisory in charge person in the financial report. The party mentioned herein as information receiver is audit committee.

In addition, Indonesian Audit Committee Association, an independent organization which has the same vision with GCG has issued an audit committee manual in which referred as a practical guideline to all audit committee members to understand its function, task and responsibility.

A. Function and Audit Committee Role

In general, audit committee exercises responsibility in three areas, namely:
a. Financial Reporting.
b. Corporate Governance.
c. Corporate Control.

1. Financial Reporting

The responsibility of the Audit Committee in the area of financial reporting is to provide assurance that financial disclosures made by management reasonably portray the company's:
a. Financial Condition.
b. Results of Operations.
c. Plans and Long Term commitments.

The specific steps involved in carrying out this responsibility include:
1. Recommending the independent accountants.
2. Overseeing the external audit coverage, including:
¨ Auditor engagement letter
¨ Estimated fees
¨ Timing of auditors' visits
¨ Coordination with internal audit
¨ Monitoring audit results
¨ Review of auditors performance.
3. Reviewing accounting policies and policy decisions.
4. Examining the financial statements, including:
¨ Interim financial statements
¨ Annual financial statements
¨ Auditor's opinion and Management Letters.
With respect to the review of accounting policies and policy decisions, a useful approach would be to require from the chief accounting officer a concise summary of all significant accounting policies underlying the financial statements. This summary should be updated as necessary and reviewed by both the independent accounting and the internal auditors.

2. Corporate Governance

The responsibility of the Audit Committee in the area of corporate governance is to provide assurance that the corporation is in reasonable compliance with pertaining laws and regulation, is conducting its affairs ethically, and is maintaining effective controls against employee conflict of interest and fraud.

The specific steps involved in carrying out this responsibility, include:
Reviewing corporate policies relating to compliance with laws and regulations, ethics, conflict of interest and the investigation of misconduct and fraud;
b. Reviewing current/pending litigation or regulatory proceedings bearing on corporate governance in which the corporation is a party;
c. Reviewing significant cases of employee conflict of interest, misconduct and fraud;
d. Requiring the internal auditor to report the scope of reviews of corporate governance and any significant finding.

3. Corporate Control

The responsibility of audit committees for corporate control includes an understanding of the company's key financial reporting, risks areas and system of internal control. The committee should monitor the control process through internal auditing, as the scope of the internal audit should encompass the examination and evaluation of the adequacy and effectiveness of the organization's system of internal control and the quality of performance in carrying out assigned responsibilities.

In addition, the new definition of internal auditing states that internal auditing is an independent objective assurance and consulting activity designed to add value and improve an organization's operations and it helps an organization accomplish its objectives by bringing a systematic, discipline approach to evaluate and improve the effectiveness of risk management, control and governance processes. (The Institute of Internal Auditors, Internal Auditing and The Audit Committee)
B. Membership

Moreover, further criteria and remarks concerning the audit committee are:
1. at least one audit committee member should have sound financial and accounting knowledge
2. chair of the audit committee should be present at Annual General Meeting to answer shareholder queries
3. the audit committee should invite such executives as it considers appropriate (and particularly the head of the finance function) to be present at the meetings of the committee but on occasions it may also meet without the presence of any executives of the company. Finance director and head of internal audit and, when required, a representative of the external auditor should be present as invitees for the meetings of the audit committee
4. the Company Secretary should act as the secretary to the committee
5. powers of the audit committee should include the following:
i. to investigate any activity within its terms of reference
ii. to seek information from any employee
iii. to obtain outside legal or other professional advice
iv. to secure attendance of outsiders with relevant experience, if it considers necessary
(Pratip Kar, 2000)



C. The Audit Committee Charter

The tone of a company's control environment is set at the top, by the board of commissioners in general and the audit committee in particular. The rest of the board often relies on the audit committee to notice and question any unusual business practice, aggressive accounting methods or violations of the company's code of business conduct. But at many companies audit committee members may not have the expertise in matters of internal control, and some people serving on audit committees have very little accounting or financial background at all. Accordingly, audit committee members need a reference guide to their responsibilities. That is the function of an audit committee charter.

A comprehensive charter enhances the effectiveness of the audit committee, serving as a road map for committee members. A well-thought-out charter also should describe the committee's composition and specify access to appropriate resources, for instance, the charter should authorize the audit committee:
a. Funding to retain outside legal counsel without approval from management;
b. Funding to retain an independent accounting firm if a second opinion is called for;
c. Ready access to all books, records and employees of the corporation;
d. Power to conduct any investigation appropriate to fulfilling its responsibility.
In addition, while auditors may find it difficult to detect fraud when management misrepresents the facts, they should take the control environment into account when planning audits - which means auditors should be looking at their clients' audit committee charter in order to set up the financial reporting that will be provided to the shareholders. (James W. Bean, 1999)

The responsibilities of the audit committee should be stated in a formal, written charter or equivalent document that is approved by the full board or governing body of the entity or institution. The charter should articulate the authority, responsibility and structure of the audit committee. The responsibilities, at a minimum, should address financial and other reporting practices, internal control and compliance with laws, regulations and ethics. The charter should also state that the audit committee will meet periodically and may call additional or special meetings as needed, if possible, the authority, responsibilities and structure of the audit committee should be provided in the governing law of the affected entity.

The audit committee charter should also clearly state that:
¨ The primary responsibility for financial and other reporting, internal controls and compliance with laws, regulations and ethics within the entity rests with executive management;
¨ The governing board or chief executive has oversight responsibilities in these areas, and the audit committee assists the governing board or chief executive in fulfilling these responsibilities. The audit committee must have unrestricted access to all information, including documents and personnel, and have adequate resource in order to fulfill its oversight responsibilities;
¨ It is important to have an impartial and objective assessment of the entity's management;
¨ The chief executive and the governing body must support and endorse an audit committee which operates independently of management and is free of organizational impairments;
¨ The audit committee and the internal auditors should maintain a degree of professional independence when assessing management's performance of its responsibilities. However, this does not mean that an adversarial role is necessary or desirable because the internal auditors and management should have common goals;
¨ To ensure the independence of the internal auditing function and that appropriate action is taken on audit findings, the Audit Committee should promote and enhance the mutual cooperation among the committee, internal auditors and executive management.
(The Institute of Internal Auditors, The Audit Committee in the Public Sector)

D. Audit Committee Structure
The Audit Committee should be made up of individuals who are independent of the day to day management of the entity and who have the necessary program and/or management expertise to perform their review function effectively. One of the primary reasons for this independence is to ensure an unbiased perspective on reports and recommendations brought to the committee. Independent individuals would be more apt to be impartial and objective in such matter.

The number of members on the Audit Committee should be determined by the size of the organization. Three to five members, however, is usually ideal. The audit committee will normally find it necessary to meet three to four times annually in order to fulfill its financial reporting responsibilities. (The Institute of Internal Auditors, Internal Auditing and The Audit Committee)

E. Conclusion

Good governance promotes relationship of accountability among the primary corporate organs (the BoC, the BoD, and the Shareholders) to enhance corporate performance. It holds management accountable to the BoC and the BoC accountable to shareholders. In this paradigm, the BoC is in place to ensure that management is working in the best interests of the corporation and its shareholders - by working to enhance corporate economic value. Furthermore, the BoC plays a critical role in directing corporate strategy and ensuring that managers are promoting corporate performance in furtherance of the corporate objectives. Essential to this role is independence of the commissioners meaning that the BoC:
· has the ability to discuss issues outside the presence of management
· is provided with sufficient information to take its decisions, and
· actively participates in agenda-setting and strategy.
This requires individuals with impeccable personal qualities, diverse backgrounds, core competencies and serious understanding of the company and the business.

Furthermore, the BoC in carrying out oversight function should work with the management in a non-confrontational way to achieve corporate legal and ethical compliance. This oversight function is typically delegated by the full board of Commissioners to the audit committee, which such oversight includes ensuring that quality accounting policies, internal controls, and independent and objective outside auditors are in place to deter fraud. Briefly, this oversight function is addressed to anticipate financial risks and to promote accurate, high quality and timely disclosure of financial and other material information to the board, to the public markets, and to shareholders.

In sum, an active, sophisticated, skilled, diverse and -importantly- independent BoC that follows effective board processes is best positioned to ensure that the corporation's assets are being put to their most productive use.

Independent Commissioner

a. FCGI Proposal for the Independence of Commissioners

FCGI proposed that there should be a clear definition regarding "outside" or "independent" member of the BoC. The FCGI proposed to use internationally accepted definitions of "outside" or "independent" that could be used in the Code of Conduct. The criteria of the Independent Commissioners were taken by the FCGI from the criteria of the Australian stock exchange authority on the Outside Directors. The criteria for Outside Directors in that one tier system were translated into criteria for Independent Commissioners in the position paper of FCGI. Hence the paper notices the example of the criteria of Independent Commissioner respectively:

1. The Commissioner is not a member of management;
2. The Commissioner is not substantial shareholder of the company or an officer of or otherwise associated directly or indirectly with substantial shareholders of the company;
3. The Commissioner has not within the last three years been employed in an executive capacity by the company/another group member or been a commissioner after ceasing to hold any such employment;
4. The Commissioner is not a principal of a professional adviser to the company or another group member;
5. The Commissioner is not a significant supplier or customer of the company or another group member or an officer of or otherwise associated directly or indirectly with a significant supplier or customer;
6. The Commissioner has no significant contractual relationship with the company or another group member other than as a commissioners of the company;
7. The Commissioner is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Commissioner's ability to act in the best interest of the company. (Forum for Corporate Governance in Indonesia, 2000: p. 6)
   

Independency in this matter does not show that the commissioner is not independent because all commissioner basically are independent. The term “independent” here is a concern to the independency of commissioner as the representative of independent shareholders (minority) and representation of investor interest.

b. Independence Principle Terminology

There are two forms of terminology of "Independence" according to Sawyer's Internal Auditing written by Lawrence B. Sawyer. First, Practitioner Independence focusing on the structural form, relates to the commitment of the organization towards functional capacities in the organization. Setting the supervising function on the higher level within the company's organ is very appropriate since there is a psychological obstacle if the lower level within the company's organ is having a supervising function to correct the policies of the higher position.


Second, Professional Independence is a form of mental behavior which is difficult to be controlled, as it is closely related to one's integrity. Applying the "fit and proper test " towards the candidates assigned to certain positions in the company is one of the efforts to determine professional independence. However, one's independence and integrity is more determined on what one does in fact rather than on what one performs in appearance. (The Indonesian Institute of Corporate Governance (IICG), 2000: p. 6)

In addition to conducting a fit and proper test, the creation of equal opportunity to everybody to apply for the position will lead to the selection of more qualified candidates.


C. Independent Commissioner Pursuant to Laws and Regulation

The term and existence of Independent Commissioners legally known after the issuing of Decree Jakarta Stock Exchange Decree Number Kep. 315/BEJ/06-2000 Circular Letter by Listed Stock regulation Number 339/BEJ/07-2001 dated 21 July 2001 .It remarks that listed companies are obliged to have Independent Commissioners proportionally equal to the shares owned by the non-controlling shareholders. In this rule the minimum requirement for the Independent Commissioners is 30 % of the BoC.

The company law has also accommodated the existence of Independent Commissioner. Article 120 stating that Deed of Establishment may govern 1 (one) or more Independent Commissioner and 1(one) Messenger Commissioner. Independent Commissioner appointed pursuant to general meeting shareholder resolution from not affiliated parties and major shareholder, other members of director and/or member of commissioner

Some criteria for the Independent Commissioners are as follows:

1. The Independent Commissioner has no affiliation relationship with the controlling shareowner of the company;
2. The Independent Commissioner has no affiliation relationship with the director and or other commissioners of the company;
3. The Independent Commissioner has no double position as the director in other companies affiliated to the related company;
4. The Independent Commissioner should understand capital market laws and regulations;
5. The Independent Commissioner is proposed and appointed by the non-controlling shareholders (minority shareholders) through the General Meeting of Shareholders. This provision is then annulled with the Jakarta Stock Exchange Decree Number 339 dated 20 July 2001 stating that proposal and appointment of Independent Commissioner can also involving majority shareholders.
   

D. The Board of Commissioners and Committees

It is generally recognized that for the BoC to operate efficiently in a complex business environment, it must delegate some of its functions to board committees. Board committees provide a useful structure for performing detailed Board work by focusing on specific areas of the corporation's business or governance. Most commonly used committees are the executive compensation (or remuneration) committee, the nominating/governance committee, and the audit committee. Most internationally recognised guidance on the subject recommends that board committees be staffed wholly or primarily with independent members .

While board committees may not yet be commonplace in many parts of the world, they are likely to become more widespread as companies grow, become more complex, and face a broader range of issues. A board should consider adopting a commissioner and committee chair rotation policy to ensure that each commissioner has the opportunity to participate in a variety of ways and as a way of ensuring fresh viewpoints.

There are three Board Committees that have important roles in corporate governance:

a. Compensation/Remuneration Committee
Makes executive compensation decisions and determines compensation policies, including the relationship of corporate performance and the CEO's compensation.

b. Nominating Committee
Oversees the process by which commissioners are nominated, selects the candidates to be nominated, and recommends policies and procedures regarding board structure and process.

c. Audit Committee
Provides oversight of the company's accounting, financial reporting and disclosure practices, its system of internal controls, and its independent auditors.

Regulatory Framework of GCG Implementation Indonesia

Law is an essential factor as an instrument in the frame of GCG implementation in Indonesia. GCG enforcement was realized as a strategic action towards Indonesia’s economic healing after a great economic recession in 1998. Nowadays, GCG implementation is a mandatory which should be conducted by companies in Indonesia as a form of awareness towards global market competition In this respect, Law plays an important role to the effectivenes of implementing GCG. Therefore, whether in the practical level or technical laws and regulations, the prevailing regulation shall be responsive to ensure legal certainty to all stakeholders especially for business society which urgently needs to implement GCG to increase its competitiveness and professionalism.

Laws and regulations related to GCG implementation are be applied in line with GCG principles and is applicable based upon international best practices, therefore all stakeholders will benefit in carrying out the principles and provisions of standard of governance, corporate governance and corporate social responsibility.

The law which is described in the laws and regulation needs the role of the public institution as the front line of GCG implementation. In the framework of the national law, the public institution is the executor and regulator for legal enforcement to carry out the GCG principles consistently such as the Court, National Capital Market Supervisory Agency-Financial Institution, Bank Indonesia, Tax Office, Police Department and all other public institutions . These public institutions play an important role in providing legal protection. The effectiveness of the implementation of GCG by these public institutions will directly affect the compliance of GCG principle, which finally delivers a positive contribution to all stakeholders.

a. Indonesia’s Code for Good Corporate Governance

To promote and recommend national policies on good corporate governance as part of a voluntary movement for the private sector in Indonesia, the National Committee for Corporate Governance was founded through the Decree of the Coordinating Minister for Economy, Finance and Industry No. Kep–10/M.EKUIN/08/1999. The name of the committee has since been changed to the National Committee for Governance (Komite Nasional Kebijakan Governance/KNKG) to reflect its broader governance concerns such as for state-owned enterprises.

Since 1999, KNCKG which further became KNKG issued the first GCG guideline. The guideline has been several times revised among others in 2001. In addition, based on same reason, at the earlier 2004 KNKG issued GCG guideline for banking sector in Indonesia and GCG for insurance sector in 2006. Further, in the same year, KNKG issued GCG guideline for corporation. This guideline is issued to be a guideline for implementing GCG to all companies in Indonesia including companies operating based on Sharia principle.

• The guideline for implementation of GCG includes basic principle and basic guideline of GCG implementation which consistently in line with OECD principles, including[1]:
• maximizing corporate and shareholder value by enhancing transparency, accountability, reliability, responsibility, and fairness, in order to strengthen the company’s competitive position both domestically and internationally, and to create a sound environment to support investment;
• encouraging the management of the company to behave in a professional, transparent, and efficient manner, as well as optimizing and enhancing the independence of the Board of Commissioners, the Board of Directors, and the General Meeting of Shareholders; and
• encouraging shareholders and members of the Board to make decisions and to act with a strict sense of morality, in compliance with the prevailing regulations, having the force of law, and in accordance with their environmental and social responsibility towards the various stakeholders.
  

As this guideline comes into effect, all institutions whether public or private are urged to implement GCG consequently and effectively. The consistent implementation of GCG will finally deliver a positive impact to all stakeholders in Indonesia. This guideline is expected to be a guideline for the drafting of laws and regulation, therefore the GCG implementation will be supported by a strong and responsive regulatory framework.

b. GCG Principles in the Company Law

Prior to the enactment of Law Number 40 year 2007 concerning company law, which was previously regulated in law number 1 year 1995. This new law defines a limited liability company as a legal entity which constitutes capital alliance, is established on the basis of agreement, undertakes business activity by authorized capital divided into shares and fulfills the requirements stipulated in this law as well as its technical rules.

C. Company's Organ

General Meeting of Shareholders (“GMOS”)
The General Meeting of Shareholders represents the owner and has the highest authority in a company.[2] The GMOS has the power to:

• approve or reject fundamental transactions such as consolidation, merger, acquisition, bankrupcy, dissolution of the company;
• appoint and dismiss members of the Board of Commissioners and the Board of Directors; and
• access to all company information.
  

The Board of Commissioners (“BoC”)

The Board of Commissioner’s role is to supervise and to give advice on the management activities undertaken by the Board of Directors. The BoC has the authority to:

• suspend directors and convene a GMOS to consider removal of directors;
• demand and receive information from the Board of Directors about its management of the company;
• enter the premises of the company and inspect its records;
• approve or assist in certain transactions as listed in the company’s articles of association; and
• together with the Board of Directors, sign the annual report for approval by the GMOS.
  
  

The BoC also has the duties to:

• provide opinions and suggestions to the GMOS regarding annual work plan and budget;
• keep up to date with the developments in the business of the company; and
• report immediately to the GMOS if the BoC notices a decline in the performance of the company.
  

The Board of Directors (“BoD”)

The Board of Directors is responsible for managing the company in the best interest of the GMOS. The BoD has the duties to:

• represent the Company both in and outside the court of law;
• administer the company’s books of accounts;
• prepare and sign the company’s annual report for approval from GMOS; and
• establish and maintain a Register of Shareholders and Minutes of the GMOS.
  

Indonesia’s two tier board structure is similar to the two tier board structure used in Holland, Germany and France. Although theoretically a strong structure, the two tiered board has not lived up to expectations, particularly in Germany and France where it is under critical pressure for two reasons. First, the disinterestedness of the supervisory board can be compromised easily if each ‘independent’ board member is really a representative of interlocked shareholders and bankers, which is often the case. Second, it is easy for both boards to descend into party politics at regional or national level, or into the micro politics of the organisation and its personalities. There is then a tendency to exclude the other board, in which case both boards lose sight of working towards a common end.[3]

In Indonesian companies where family-based shareholders have held dominant positions, the BOC’s have generally been ineffective in safeguarding the interests of minority shareholders. The ownership of listed companies is highly concentrated and the percentage of Directors belonging to the controlling group is very high. Checks and balances, such as representation of third party interests through independent commissioners is lacking. Transparency could be strengthened via disclosure practices

D. Implementation of GCG Principle in the Laws and Regulations applicable to State Owned Enterprises (“SOEs”)

State Owned Enterprises (SOEs) in accordance to law number 19 year 2003 is a legal entity which all or major part of its capital is owned by the state through direct participation which comes from separated state’s property. SOEs based on this law consist of perusahaan perseroan and perusahaan umum.

The establishment of SoEs is aimed to contribute to the national development and increasing national revenue. Ironically, the mismanagement of SOEs plays a significant role towards both financial and monetary crisis. Based on this point, the government imposes regulations regarding SOEs especially related to GCG.

In relation to the reformation effort on the SOEs governance, Ministry of SEOs issued Decree Number Kep-117/M-MBU/2002 which obliges SOEs to use and obey special requirements from GCG principles. Other decree has also been issued by the SOEs Ministry especially in respect to Audit Committee. Long term planning arrangement, annual plan and budget and candidate assessment for members of board of director which completing decree Kep-117.

To support the implementation of GCG in the SOEs surrounding, some of technical regulations have been issued either by President and Ministry of SOEs namely:


1. Presidential Decree Number 122 Year 2001 regarding Privatization Policy team in State Owned Enterprises

This Presidential Decree is concerning the establishment of State Owned Enterprises Privatization Policy Team which responsible to set up policy relating to privatization issues and also to responsible for the smoothness of privatization process. This Presidential Decree also stated that one of the reasons to carry out SOE privatization is to increase SOE performance and create an added value to the company based on good corporate governance principle. This decree is also regulating about the organization of this team.

2. Decree of Minister of States Owned Enterprises No. Kep-103/Mbu/2002 Regarding Establishment of Audit Committee for State Owned Enterprises.

This Ministerial Decree is regulating the establishment of Audit Committee for SOE which have functioned to help Board of Commissioner, Audit Committee is independent and directly responsible to the Board of Commissioner. In order carry out his function, Audit Committee has several tasks such as evaluating the audit process and the result of the audit done by Internal Audit or External Audit after that Audit Committee directly report to the Board of Commissioner. This decree is also regulating about the organization of this committee as also the requirement to become member of this committee.

3. Decree of Minister of State Owned Enterprises Number Kep-104/Mbu/2002 Tahun 2002 regarding Assessment for Candidate of Board of Director of State Owned Enterprise

This Ministerial Decree is regulating the formal and material requirement to become SOE director candidates. And also the establishment of Evaluating Committee for evaluates SOE director candidates this decree also stated that each Board of Director candidates before they acknowledge as a Board of Director is obligatory to sign statement letter to carry out and build good corporate governance principle in company management.


4. Circular Letter of Minister of State Owned Enterprises Number Se-01/Mbu/2004 year 2004 regarding provision for Board of Director, commissioner and Board of Supervisory and employee of SoEs as well which become the member of political Party and/or candidate of law maker, DPD, provincial/Regency Law maker (Law Maker Candidate.

This Ministerial Letter is stated that pursuant to good corporate governance principle and to prevent misuse company facility which can damaged the company therefore Minister of SOE issued regulations about Board of Director, Board of Commissioner, Advisory Board and SOE employee who become member of political party and/or legislation candidates. So based on this letter none of the Board of Director, Board of Commissioner, Advisory Board and SOE employee can also holds as a member of political party and/or legislation candidates, they have to choose whether to stay as SOE family or will be discharge from SOE family.

E. Implementation of GCG in Laws and Regulations applicable to Public Listed Companies

The Indonesian Capital Market Supervisory Agency-Financial Institution, or “BAPEPAM-LK”, regulates publicly listed companies in the Jakarta Stock Exchange and Surabaya Stock Exchange. Capital Market Law Law No. 8/1995 defines a public company as one whose shares are held by at least 300 persons and has a paid-in capital of Rp. 3 billion.

The Capital Market Law aims to ensure that the capital market processes proceed in an orderly and fair manner, and that public investors are protected from harmful and illegal practices. BAPEPAM is authorized to administer and enforce the law, as well as to conduct investigations under the Indonesian Criminal Code.

In addition to the Capital Market Law, below are some other key regulations issued by BAPEPAM and the Jakarta Stock Exchange:

1. Kep-45/PM/2004, Regulation No. IX.1.6 - regarding Directors and Commissioners of Public Companies. This regulation states the requirements that should be satisfied by candidates for members of the Boards;
2. Kep-29/PM/2004, Regulation No. IX.1.5 - regarding the establishment and guidelines of the Audit Committee practices;
3. Kep-63/PM/1996, Regulation No. IX.1.4 - regarding the establishment of a Corporate Secretary;
4. Kep-38/PM/1996, Regulation No. VIII.G.2 – regarding the Annual Report.
5. Kep-305/BEJ/07-2004, Regulation No. I-A - Listing of Equity Stocks and Securities Ownership Except Stocks Issued by the Company and Attachment II regarding Independent Commissioners, Audit Committees, and Corporate Secretaries.

There are many more regulations issued by BAPEPAM, such as regulations related to transparency, accountability of the Boards, decision-making process of the Boards, and public protection, which can be found in BAPEPAM’s website www.bapepam-lk.go.id.


F. Implementation of GCG Principles in the Laws and Regulation applicable for Banking.

Banking as an intermediary institution becomes an essential attention in Indonesian Economic development. The need to apply the principles of GCG is an important part of prudential banking principles in all banking transactions. Bank Indonesia as the banking institution regulator has issued many regulations which is directly related to the effort of GCG implementation. In 2006 Bank Indonesia issued Regulation Number 8/4/PBI/2006 dated 30 January 2006 on the implementation of GCG by Commercial Banks and further amended with regulation number 8/14/2006 regarding the Implementation of GCG Implementation by Commercial Banks.

To ensure the implementation of the GCG regulation, Bank Indonesia has also issued a circular letter Number 9/12/DPNP to all commercial banks to apply GCG. This circular letter concerns among others on the formality and requirements for the candidates of board of directors and commissioners of the bank.; the formulation of an Audit Committee; formulation of a risk supervisory committee, renumeration committee, and nomination committee.

The circular letter mandates that all banks should report their GCG implementation in the respective banks. The report can be integrated in the banks annual report or as a separate report from the annual report.

Other regulation which are related to the effort of GCG implementation in the banking sector are regulations related to risk management. The regulation are as follow:

1. Bank Indonesia Regulation Number 5/8/PBI/2003 concerning the implementation of Risk Management for Commercial Banks
2. Circular Letter Number 8/9/Pbi/2006 regarding the Implementation of Risk management for Commercial Banks
3. Bank Indonesia Regulation Number 8/9/Pbi/2006 regarding amendment of Bank Indonesia Regulation number 7/25/Pbi/2005 on the certification of Risk Management for the Members and Official of Commercial Banks
4. Bank Indonesia Regulation Number 9/15/Pbi/2007 Regarding the implementation of Risk Management in the Use of Information Technology by Commercial Banks.
   

The implementation of risk management is expectedly to increase shareholder values; and providing a clear description to the bank management in respect to the possibility of bank losses in the future; increase both methods and process of systematic decision making which is based on the complete information. Risk management can also be used as accurate measurement basis in respect to banking performance.

[1] National Committee on Governance, Code for Corporate Governance, Ref 4.0, preamble.
[2] Company Law, Article 1.3 and 63.
[3] Garratt, Bob, The Fish Rots from the Head; The Crisis in our Boardrooms: Developing the crucial skills of the Competent Director. Longond: HarperCollingsBusinesscompetent director, 1996.

Introduction to Corporate Governance

A. Agency Theory

The central issue of corporate governance stems from the separation of ownership and control.
Most organizations, whether in public sector, business or non-profit entities, have boards of directors and/or commissioners which oversee the performance of the organization and serve as an intermediary to the owners or other stakeholders.

Boards are in a delicate position of translating expectations of the owners into organisational performance, and in larger organisations, are not involved in the day-to-day management of the organisation. Boards are authorised to make decisions on high-level policies and transactions of a company, and yet must delegate authority to implement policy without jeopardizing accountability.
The common issues boards face in overseeing management were first comprehensively discussed in the Agency Theory[1].

The Agency Theory explains how to best organize relationships in which one party (the principal/ the owners) determines the work, which another party (the agent or board) undertakes. The theory argues that under conditions of incomplete information and uncertainty, which characterize most organisational settings, two agency problems arise: adverse selection and moral hazard. Adverse selection is the condition under which the principal cannot ascertain if the agent accurately represents the work he is being paid to do.

Adverse selection may lead to a lack of transparency in the use of funds or improper balancing of the interests of, for instance, shareholders and managers and of controlling and minority shareholders. Moral hazard is the condition under which the agents may seek to maximize their own self-interest at the expense of the principal.
Developing good regulations and practices on governance involves aligning the interests and controlling actions of Principal and Agent to avoid moral hazzard and adverse selection.

B. Corporate Governance Principles

The term of "Corporate Governance" is subject to many varying definitions. Broadly viewed, the FCGI defines Corporate Governance as "a set of rules that defines the relationship between shareholders, managers, creditors, the government employees and other internal and external stakeholders in respect to their rights and responsibilities, or the system by which companies are directed and controlled." (taken from Cadbury Committee of United Kingdom) In addition, FCGI also a points out that the objective of Corporate Governance is "to create added value to the stakeholders." More narrowly, the terms of Corporate Governance can be used to describe just the role and practices of the board of executives/the board of directors, the board of commissioners, managers, and shareholders.

There are four essential elements of Corporate Governance elaborated by the OECD (Organization for Economic Co-operation and Development). The elements are:

1. Fairness. Ensuring the protection of shareholder rights, including the rights of minority and foreign shareholders, and ensuring the enforceability of contracts with resource providers.
2. Transparency. Requiring timely disclosure of adequate, clear and comparable information concerning corporate financial performance, corporate governance, and corporate ownership.
3. Accountability. Clarifying governance roles and responsibilities, and supporting voluntary efforts to ensure the alignment of managerial and shareholder interests, as monitored by the boards of directors (or board of commissioners in Two Tiers System, FCGI)
4. Responsibility. Ensuring corporate compliance with other laws and regulations that reflect the respective society's value.
   (OECD Business Sector Advisory Group on Corporate Governance, 1998)
   

A corporate governance system specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the Board of Directors and/or Commissioners, shareholders and other internal and external stakeholders (employees, creditors, government) and spells out the rules and procedures for making decisions on corporate affairs[2]. By doing this, a structure for objective setting and monitoring performance is determined.

Recent high profile scandals in the private sector in various countries and more wide-spread financial crises have focused attention on the role of corporate boards in providing direction and oversight, and on the need for robust governance practices and regulations. There are however significant differences in countries’ legal and regulatory frameworks that shape corporate governance systems.

While governance systems differ around the globe, it does not necessarily mean that the companies under the different governance systems perform better or worse. Instead, the returns are disproportionately channeled to insiders, accompanied with expensive expansion into unrelated business, high leverage and risky financial structures[3].

For example, Low corporate transparency, such as non compliance with disclosure requirements and shareholder equality, contributed to extensive group structures and diversification, and risky financial structures[4].

Consequently, many jurisdictions including Indonesia, new regulations are evolving to increase disclosure of corporate information, in an effort to increase transparency and accountability among publicly listed companies[5].

C.The Benefits of Corporate Governance

Two recent academic studies further demonstrate the significant positive financial implication good corporate governance has for companies.

A study of 1500 public companies in the United States in the 1990s found that those who received a higher governance rating and stronger shareholder rights also had:

• higher firm valuations
• higher profits
• higher sales growth
• lower capital expenditures[6]
  

In a study of debt markets, which analysed 2002 governance data from companies registered with the US Securities and Exchange Commission, found that a hypothetical medium size firm with $934 million of outstanding debt could potentially create savings of USD $74 million (8%) per year, depending on the spread between investment grade and speculative grade on 10-year bonds. At the time of the study, the spread was about 800 basis points.
The study identified the following variables that significantly influenced credit ratings:

• majority of shareholders own less than 5% of the company;
• more transparency in financial disclosure;
• a higher percentage of board directors are deemed to be independent;
• less CEO power on the Board;
• more stock ownership among directors; and
• greater director experience and expertise as measured by the number of appointments to other Boards[7].
  

Policy makers are also increasingly aware of the contribution good corporate governance makes to financial market stability and efficiency, investment and economic growth. Good corporate governance can contribute to economic development in that it provides efficient intermediation and allocation between an economy’s savings and productive uses of these resources in the corporate sector. Corporate governance rules also ensure that these resources are properly monitored.

To guide countries in the process of developing stronger governance structures, the Organisation for Economic Cooperation and Development (OECD) in 1999 published The OECD Principles of Corporate Governance, which have become the internationally accepted principles for governments to evaluate and improve the legal, institutional and regulatory framework for corporate governance, and provide guidance and suggestions for stock exchanges, investors, corporations and other parties. An updated version was issued in 2004 to reflect further governance developments in OECD countries. The OECD principles have served as a basis for national level governance codes in many countries, including Indonesia.

The latest 2004 revision of the OECD Corporate Principles of Corporate Governance[8]
Ensuring the basis for an effective corporate governance framework
The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities.

The rights of shareholder and key ownership function
The corporate governance framework should protect and facilitate the exercise of shareholders’ rights.

The Equitable Treatment of Shareholders
The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.

The Role of Stakeholders in Corporate Governance
The corporate governance framework should recognise the rights of stakeholders established by law or through mutual agreements and encourage active cooperation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

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 governance of the company.

The Responsibilities of the Board
The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.


The corporate governance movement is currently developing international government principles that are concerned at the highest and broadest level with holding the balance between economic and social goals and ensuring accountability for the stewardship of those resources.[9]

[1] Eisenhardt, K. “Control: Organisational and Economic Approached.” ”, (Management Science, vol. 31, no. 2. (., February 1985). pp. 134 – 149.

[2] Definition derived from the Cadbury Committee of the United Kingdom. The Cadbury Committee was set up by the Bank of England and the London Stock Exchange and was chaired by Sir Adrian Cadbury in 1991.
[3] Claessens, Stijn and Joseph Fan. “Corporate Governance in Asia: A Survey.” University of Amsterdam Working Paper. (2003).

[4] Claessens, Djankov and Lang. “Who Controls East Asian Corporations?” World Bank Working Paper. (1999).
[5] Utama, Siddharta. “Corporate Governance, disclosure and its evidence in Indonesia.” Usahawan, No. 5 XXXII. (2003).

[6] Gompers, Paul, Joy Iishi, and Andrew Metrick. “Corporate Governance and Equity Prices.” Quarterly Journal of Economics. 118 (1). (2003), pp. 107-155.

[7] Ashbaugh, Hollis and Daniel Collins and Ryan La Fond. “The Effects of Corporate Governance on Firms’ Credit Ratings.” Journal of Accounting & Economics. (2003).
[8]OECD website: http://www.oecd.org/dataoecd/32/18/31557724.pdf

[9] Speech by Sir Adrian Cadbury and Ira Millstein at the 10th Annual International Corporate Governance Network July 8, 2005.

Piercing the Corporate Veil

Piercing the Corporate Veil is the judicial act of imposing personal liability on otherwise immune corporate officers, directors, and shareholders for the corporation’s wrongful act.[1] Piercing Corporate Veil shows that the Limited Liability Company (“Company”) often cannot be separated from the parties’ interest such as the Shareholders of that Company. In this context, the Shareholders’ interest is the Company’s interest. Piercing Corporate Veil Concept stipulates that when “the separation condition” of Company with the Shareholders does not exist then the limited liability responsibility of the Shareholders should be absent. Therefore the Shareholders must be liable personally upon the loss of the Company.

Piercing Corporate Veil also applies to the corporate officers such as director and/or commissioner if it shows that loss of company because of the corporate officers’ wrongful act. Therefore director/commissioner of company must be liable to Company upon the loss of the company. In case of insolvency, they must be liable to the Creditors. This article will only discuss the Piercing Corporate Veil by the Shareholders. Piercing corporate veil by the shareholders The purpose of establishment of Company is to conduct the business activities that the respective founders (Shareholders) are not liable personally besides the assets that they put in the Company. In order to have a limited liability status, the Company must fulfill the formal requirements based on the prevailing laws and regulations. The founders must fulfill the requirements from pre-establishment to post-establishment of company. If the founders do not conduct their duty related to the fulfillment of legal status of the Company, the founders clearly do not want to have limited liability from the Company. With regard to the limited liability of Company, the Company owns at least the minimum required capital so that the Company can operate.

As a legal entity, the Company must be rendered the sufficient capital to conduct its activities. Moreover, the respesctive capital must be used based on the purpose of the Company and the Company’s interest. The misuse of the Company assets is not allowed by law. The purpose of the Company’s assets that were separated by the Shareholders, is to ensure only the respective separated assets will be liable, not all the assets of the Shareholders. The intermingling of assets of the Company and of the shareholders shows that it is difficult to separate the liability from the existing assets. As a consequence, the characteristic of limited liability of Company is absent because of law. In general the Company is established in order to have profits. That profit will be distributed among the Shareholders unless otherwise stipulated. The dividen given to the Shareholders every year is mandatory. If dividen is not given to the Shareholders every year, it shows that there is misuse of company for the Shareholders’ interest particularly the majority Shareholders.

In this scenario, the Piercing Corporate Veil can be applied. If the Shareholders transfer the assets of the Company to each Shareholder improperly, then the Piercing Corporate Veil can be conducted in this case. Theory of Piercing Corporate Veil With regard to the piercing corporate veil, there are five (5) theories e.g. agency, fraud, sham or façade, group enterprise and unfairness/justice. In the Agent theory, the Company is agent of the Shareholders. It shows that as an agent, the Company is not liable upon the acts that were conducted by itself based on the purpose of the Shareholders. Therefore there is no limited liability that applies to the Shareholders. In the Fraud theory, the particular action is conducted by the Company in order to avoid the personal liability. For example: the Shareholders treats the assets of the Company as their own personal assets, the respective Shareholders use the Company’s assets for his personal interest, and the Shareholders’ act emerges the transfer of Company’s assets to each Shareholders improperly. Furthermore, a ‘sham’ or façade will be applied as piercing the corporate veil if the corporate form was incorporated or used as a mask to hide the real purpose of the corporate controller. While a façade will be used as a category of illusory reference to express the court’s disapproval of the use of the corporate form to evade obligations, although the court has failed to identify clear test based on pragmatic consideration such as undercapitalization or domination.[2]

The purpose of the Shareholders to establish a company is only to avoid the limited liability; however they do not fulfill their obligations. For example: the intermingling of assets of the Company and Shareholder. Furthermore, the group enterprises theory will be applied as piercing the corporate veil because a corporate group is operating in such a manner as to make each individual entity indistinguishable, and therefore it is proper to pierce the corporate veil to treat the parent company as liable for the acts of the subsidiary. For example: the Board of Director (“BoD”) can not take any action without considering the regulations of Parent Company with regard to the Company. In this case, BoD will take action only for the interest of the Parent Company as the Company’s shareholders. The Shareholder in a Company may also seek to pierce corporate veil to get the underlying reality of the situation, in order to avoid an unfair outcome. In that condition, the unfairness/justice theory can be applied for the piercing corporate veil.

For example: The majority shareholder also involves in making decision for the Company. Because of his respective action, the party that has legal relationship with the Company gets unfair outcome. If the respective party files a suit against the Company, his claim to Company will make the Company’s loss bigger. In this case, it would make it possible for the direct claim to the majority of shareholders to be made. Piercing the corporate veil based on Indonesia company law Company Shareholders are not personally liable for agreements entered into on behalf of the Company and are not liable for Company losses exceeding the nominal value of the shares individually subscribed.[3] The condition above will not apply if: The requirements for [a Company’s existence as]a legal entity have not been or are not fulfilled; Shareholder, either directly or indirectly, in bad faith, uses the Company solely for personal purposes; A shareholder is involved in unlawful acts committed by the Company; or A shareholder, either directly or indirectly, unlawfully uses the Company’s assets, which causes the Company assets to be inadequate to settle the Company’s debts. Point (1), it is clear that the Shareholders are not serious to obtain the status of limited liability.

This status can only be obtained after the Company has gained the Ministry of Laws and Human Rights (“MoLHR”) approval. If the Shareholders neglect the formal procedure of the establishment of the Company, it can be interpreted that the Shareholders do not really want to establish a limited liability company. The request to obtain MoLHR legalization must be submitted to the Ministry at the latest of 60 (sixty) days after the Deed of Establishment (“DoE”) is signed, together with the information about the supporting documents.[4] If the request to obtain the Ministry’s legalization is not submitted within this period, the Article of Association becomes void as from the passage of that period and the Company that has not obtained the legal entity status is dissolved by law and its settlement shall be carried out by the founders.

The Company cannot obtain the legal status not only because the Company has no MoLHR’s approval but also for other reasons such as the founders have not placed the capital as agreed before, founders do not give their authority to the Company’s officers to conduct the Company’s activities because the founders wishto conduct activities on behalf of the Company, etc. Point (2), the Shareholders in bad faith uses the Company for their own interest. The Company implements only the purposes and objectives of the Shareholders. This is in line with the Agent Theory. Therefore, the Shareholders in bad faith can not be protected by law. Piercing Corporate Veil can be applied in this case. Point (3 ) shows that a shareholder is involved in unlawful acts committed by the Company based on the Fraud theory. Anyone who causes loss to others, must be liable upon that loss. As an artificial person, the Company does not have objectives. In the event that the objective of Company is the same as the Shareholders’, the Shareholders will become liable. Point (4) related to the use of the Company’s assets illegally, in the event the Shareholders use the Company’s assets and losses exceeding the Company’s assets, which cause the Company can not settle its debts to Creditors, then the piercing corporate veil can apply to this case. Parties that are being protected by the principle of the piercing of corporate veil Article 3 (2) Law 40/07 does not explain explicitly the parties that are being protected by the Principle of the Piercing of Corporate Veil.

However, Article 3 (2) Law 40/07 may give protection to the Creditors of the Company. Moreover, Article 61 and Article 62 Law 40/07 may give protection to the Minority Shareholders. Article 61 and 62 Law 40/07 stipulate the followings: Each shareholder is entitled to file a lawsuit against the Company in the District Court, if [that Shareholder] suffers losses by the Company’s actions which are considered unfair and without reasonable ground as a result of a resolution of the General Meeting of Shareholders (“GMS”), BoD and/or Board of Commissioners (“BoC”). The lawsuit shall be filled in the District Court whose jurisdiction covers the Company’s seat. Each shareholder is entitled to demand the Company to purchase his shares at a reasonable price, if that shareholders does not approve of the Company’s action which is detrimental to the shareholder or the Company, namely:

a. An amendment to the Article of Association;

b. A transfer, or a change of the Company’s assets that have a value of more than 50% (fifty percents) of the Company’s net assets; or

c. A Merger, a Consolidation, an Acquisition or a Separation.

Where the shares requested to be purchased in the abovementioned condition exceed the limit for the provision regarding share repurchase by a Company, the Company must make an effort that the remaining shares be purchased by a third party. Those Articles show that the Shareholders only have rights to sue the Company, if the respective actions/or acts of the Company are taken based on the prevailing mechanism, and/or have been ratified by the Company based on the prevailing laws and regulations.

Case Example: We may see the Bank Summa’ case on 1992. Whether Mr. Edward Soeryadjaya as a shareholder as well as the Corporate officer of Summa Bank must responsible for Summa Bank’s debts. Summa Bank had loss and could not pay its debts to its Creditor. Mr.Edward’s father, Mr. William Soeryadjaya (“Om William”) acted as a personal guarantor of Summa Bank. Bank Indonesia gave warnings to Bank Summa because they could not fulfill their obligation. Bank of Indonesia has stipulated the period time for Bank Summa to pay its debts. When the time was lapsed, Mr. Edward Soeryadjaya could not pay its debts.

Because of this, Om William had to sell his shares in PT Astra International to pay Summa Bank’s debts that managed by his son. In this case, the Shareholders may loss its immunity upon the limited liability subsequently the Shareholder will be personally liable. Also the limited liability principle may be absent when the Corporate Officers (“Board of Directors or Board of Commissioners”) are at fault or negligent in carrying out their duties according to the principle of good faith (Article 97 (3) Law 40/07).

-Mary Osmond-

[1] Blacklaw dictionary

[2] Widjaja,Gunawan, Risiko Hukum sebagai Direksi, Komisaris & Pemilik PT, Forum Sahabat, 2008, page 31.

[3] Art.3(1) Law No. 40 of 2007 regarding Limited Liability Company (August 17, 2007) (“Law 40/07”)

[4] Art.10 (1) Law 40/07