Rio Lassatrio participates in the IR Global Guide – International Governance: The Risks You Face as a Global Director
Foreward by Andrew Chilvers
As companies continue to look for opportunities in global markets, directors from diverse jurisdictions are hired to serve on the boards of foreign businesses as well as domestic ones that have operations and assets in other countries.
Enterprises across the world look for directors from other jurisdictions for any number of reasons. Hiring board directors from other countries can help to build investor confidence, for example. Likewise, an enterprise that is headquartered in a different jurisdiction but with a subsidiary in the US or Europe could seek directors to gain expertise and credibility. The director may have valuable international or local geographic expertise regarding business objectives, strategy, operations and risk management.
Nevertheless, serving as a director on the board of a global enterprise can bring major challenges. It’s true that during the past few years corporate governance laws and regulations have started to converge across regions, but there remain critical international differences regarding the responsibilities and liabilities of directors.
With recent data protection legislation across different jurisdictions, companies are now being held to account regarding their use of personal data. Will this result in a more litigious culture for companies and what does this mean for boards?
The Indonesian Company Law adopts a two-tier board system, which means the board of directors (BoD) performs managerial or day-to-day operational responsibilities, while the board of commissioners (BoC) has a supervisory function over the activities of BoD. The BoC and BoD are responsible to the general meeting of shareholders.
In terms of personal liability for BoD, the Company Law provides that the BoD can be held personally liable for any company losses, if he/she is found at fault or negligent in carrying out his or her duties in accordance with the purposes and objectives of the company. If there are two or more directors, the liability will be joint.
With personal liability at stake, the needs for BoD to be familiar or aware about personal data protection in Indonesia and in other jurisdictions where an extra-territorial provision could be imposed is significant. Under the Indonesian Laws, violation of personal data protection may lead to administrative and criminal sanctions. In addition, the injured party may also file a civil lawsuit against the company/BoD on the basis of unlawful act and demand for material/ immaterial loses due to the breach of personal data protection.
Prior consent from the data owner is required for the use of any personal data. The consent must be in writing (meaning an express consent), whether manually or electronically, and in the Indonesian language (although there is no prohibition of a dual language format). Further, the consent is only effective after a complete explanation on the intended use of the personal data.
As for cross-border transfer of personal data, the prevailing regulation states that such transfer must:
- be in coordination with MOCI or the official or institution being authorized for such purpose; and
- implementing the laws and regulations regarding the trans-boundary exchange of personal data.
With global directors now increasingly in demand, how important is it for boards and directors to understand the different expectations of directors and different cultures of governance?
The members of BoD nowadays face increased scrutiny on how equipped they are with industry knowledge, skills, and transformation experience. BoD will also need to be vigilant on their duties, responsibilities, and restrictions, as the failure to properly address those matters may lead to possible sanctions under the prevailing laws (either administrative, civil, or criminal).
It should be recognised that directors’ duties may vary from one jurisdiction to others. In terms of fiduciary duty, the Indonesian Company law provides that the BoD manages the company in the best interests of the company and in accordance with its purposes and objectives. In performing their management duties, BoD members can jointly and severally represent the company in its external relations unless specifically restricted by the articles of association of the company.
The BoD is accountable to the general meeting of shareholders and its work is supervised or overseen by the BoC. The Company Law and the company’s articles of association regulate the authority of the board of directors, and the election and dismissal of its members.
The Indonesian Company Law provides the duties and responsibilities of BoD as part of performing its fiduciary duty, such as:
- compiling the register of shareholders, the special register, the minutes of the general meeting of shareholders, and the minutes of meetings of the BoD;
- preparing the annual reports of the company.
iii. maintaining and keeping all the company’s lists, minutes, and financial documents and other company documents e.g. company’s permits and licenses.
- reporting to the Ministry of Law and Human Rights on any change of shares ownership, composition of members of BoD or BoC.
In addition, awareness from the BoD to certain obligations/restrictions as regulated by the prevailing laws is pivotal in the implementation of corporate governance.
How important is an effective board that follows core principles of international corporate governance? Does this give boards a shield against litigation and other issues such as bankruptcy and bribery?
An effective member of BoD that follows core principles of international corporate governance is important.
Implementation of risk management is pivotal to good business management. Ability to identify and exploit key risks and opportunities for the business by the members of BoD may only be carried out if the company has a risk management policy in place. It is also prudent for the BoD to review any laws and regulations which may be applicable to the company’s line of business, and comply with such laws and regulations.
To date, Indonesia has not yet enacted a statutory corporate governance code. However, there is a code of good corporate governance that was issued in 2001 and revised in 2006 by the National Committee on Governance. The code of good corporate governance is a set of non-binding principles and benchmarks for all companies in Indonesia (private and public). Although the code itself is non-binding, but the general principles of corporate governance have been reflected in the Company Law and further implemented by the Indonesia Financial Services Authority (Otoritas Jasa Keuangan – OJK) for banks and financial services companies.
Where it encounters what seems to be some inconsistency or ambiguity of different regulation, the BoD should try to clarify such an inconsistency or ambiguity, either by engaging the company’s in-house legal department, internal compliance department, advice from the company’s external legal counsel and clarification from law enforcement agencies or law-making agencies, to achieve full compliance with the law and best corporate governance practice.
At the end of the day, the BoD cannot be held liable for any corporate decision adopted in good faith, therefore affording greater protection to the parties involved.