Introducing The KPMG Indonesia Board Governance Toolkit. 9 November 2015

Transcription

1 Introducing The KPMG Indonesia Board Governance Toolkit 9 November 2015

2 AGENDA 1. Global CG Landscape 2. Indonesian CG Landscape 3. Introducing the Board Governance Toolkit 4. Navigating the Board Governance Toolkit 5. Key Topics of the Toolkit 1

3 1. Global CG Landscape 2

4 OECD CG Principles and Changes I. Ensuring the Basis for an Effective Corporate Governance Framework Moderate I. Ensuring the Basis for an Effective Corporate Governance Framework 2015 II. The Rights of Shareholders and Key Ownership Functions Moderate II. The Rights and Equitable Treatment of Shareholders and Key Ownership Functions III. The Equitable Treatment of Shareholders Significant III. Institutional Investors, Stock Markets, and Other Intermediaries IV. The Role of Stakeholders in Corporate Governance Minimal IV. The Role of Stakeholders in Corporate Governance V. Disclosure and Transparency Moderate V. Disclosure and Transparency VI. The Responsibilities of the Board Significant VI. The Responsibilities of the Board 3

5 The Updated OECD Principles 2015 Ensuring the Basis for an Effective CG Framework Moderate CG Framework should promote transparent and fair markets and efficient allocation of resources Balance of legislation v comply or explain Where appropriate, consider the size of the company (big v small) Support effective supervision and enforcement (avoid conflicts of interest in enforcement) Stock market needs to actively support CG Cross-border cooperation should be enhanced The Rights and Equitable Treatment of Shareholders and Key Ownership Functions Moderate CG Framework should protect and facilitate the exercise of shareholders rights It should ensure the equitable treatment of all including minority and foreign shareholders All shareholders should have ability to obtain effective redress for violation of their rights Improved processes for shareholder voting rights (notices, location, electronic voting) Disclosures required for board members and key executives (and remuneration policy) Say on Pay Disclosure and approval of related party transactions 4

6 The Updated OECD Principles 2015 (Cont d) Institutional Investors, Stock Markets and Other Intermediaries Significant A new section in the 2015 s OECD Provide sound incentives throughout the investment chain and provide for the effective functioning of stock markets Institutional investors to disclose voting policies and records Votes should be cast by custodians or nominees in line with the directions of the beneficial share owner It highlights the role of market participants to minimize conflicts of interest New issue on cross-listings (criteria and procedure for primary listing requirements) Role of Stakeholders in Corporate Governance Minimal The recognition of stakeholder rights and encouragement of active cooperation between corporations and stakeholders Stakeholders include investors, employees, creditors, customers, suppliers and other stakeholders Mechanisms for employee participation include employees on boards, work councils to consider employee views Stakeholders should be able to communicate their concerns freely to the board and competent public authorities (protection by law of those reporting concerns) 5

7 The Updated OECD Principles 2015 (Cont d) Disclosure and Transparency Moderate Material information is not just about omission but also as information that a reasonable investor would consider important in investing or voting New issues for a stronger disclosure regime on non financial information (e.g. social issues, human rights, political donations, staff turnover etc), remuneration, related party transactions, etc. Disclosure should include beneficial owners (not just major share ownership and voting rights) Disclose shareholdings of directors (including NEDs) Role of the auditor (review of CG, independence, reporting lines to AC or equivalent, fixed tenure for auditors) On-going disclosure (periodic and continuous) disclosure The Responsibilities of the Board Significant The Board s role in risk is greater oversight of company s risk management (beyond risk policy). This involves oversight of the accountabilities and responsibilities for managing risks. Should cover financial, operational, compliance and risk management. The Board s role in determining sufficiency of tax payments ( tax morality ) Need to consider remuneration claw back provisions Nomination Committee identify potential candidates Separation of Chairman and CEO positioned as generally good practice (previously only cited as maybe good practice) Separate meetings of independent directors encouraged Board should consider setting up specialized committees (e.g. nomination, compensation, risk) Board evaluations should be conducted 6

8 2. Indonesian CG Landscape 7

9 Indonesian CG Requirements Law 8/1995 on Capital Market Law 13/2003 on Manpower Law 40/2007 on Limited Liability Company Law 21/2011 on Financial Services Audit Committee Manual Whistle Blowing Manual Risk Management Manual Business Ethics Manual IFC CG Manual GCG Launched GCG Revised GCG Code Revised Good Public Governance Sharia Business Good Governance GCG Code Revised BAPEPAM Reg No. X.K.I BAPEPAM Reg No. X.M.I BAPEPAM Reg No. IX.I.6 BAPEPAM Reg No. X.K.2 OJK Reg No. 8 Revised IDX Listing Rules BAPEPAM Reg No. IX.E.1 BAPEPAM BAPEPAM Reg No. IX.I.7 Reg No. IX.I.5 BAPEPAM Reg No. IX.E.2 BAPEPAM Reg No. X.K.6 OJK Reg No.17 & No.18 OJK Reg No. 32 OJK Reg No. 33 OJK Reg No. 34 OJK Reg No Laws Better Practice Guidelines General CG Codes Regulations 8

10 OJK Roadmap 33 Recommendations Indonesia s CG Code 2006 Indonesia CG Roadmap 2013 CORPORATE GOVERNANCE FRAMEWORK PROTECTION OF SHAREHOLDERS ROLE OF STAKEHOLDERS TRANSPARENCY OF INFORMATION ROLES AND RESPONSIBILITIES OF BOC AND BOD Newly Issued OJK Regulations GMS Planning and Implementation for Public Companies Corporate Secretary of Issuers and Public Companies Website of Issuers and Public Companies BoC and BoD of Issuers and Public Companies Nomination and Remuneration Committee of Issuers and Public Companies 9

11 3. Introducing the Board Governance Toolkit 10

12 The KPMG Indonesia Board Governance Toolkit 11

13 Introducing the Board Governance Toolkit One-stop shop, practical reference guide designed to capture current and emerging governance requirements and practices - BoC and BoD of Issuers and Public Companies across all sectors - CG practitioners - Other key stakeholders - Real-time updates of evolving CG requirements - Cutting through the complexity of the regulatory environment Incorporate into BoC/BoD/Committee meetings and leverage key insights to enhance oversight 12

14 The KPMG Directors Toolkits Around the World No one size fits all. Corporate governance requirements are unique to each country; its implementation therefore requires a tailored approach and contextualized insights. 13

15 3. Navigating the Board Governance Toolkit 14

16 Navigating the Board Governance Toolkit Easy topic navigation Click on chapter title to take you directly to a topic of interest 15

17 Navigating the Board Governance Toolkit (Cont d) Questions to ask? We have provided for key boardroom topics questions to ask to prompt right discussions 16

18 Navigating the Board Governance Toolkit (Cont d) Red flags Every chapter includes a list of warning signs of potential issues of concern for company directors 17

19 Navigating the Board Governance Toolkit (Cont d) Example better practice templates Board committee charter builder Induction Framework BoC and BoD charter builder Commissioners and Directors Liabilities Audit Committee annual agendas 18

20 Navigating the Board Governance Toolkit (Cont d) Real time updates The Toolkit will be updated to reflect the changing CG requirements and new topics will be added from time to time 19

21 4. Key Topics of the Toolkit 20

22 State of the World Trust Deficit and Relentless Change 21

23 BoC/BoD Roles and Responsibilities Greater clarity of BoC/BoD s duties and responsibility Fiduciary Duties Duty of Care To act in good faith To act prudently To act with full responsibility Duty of Loyalty Conflict of interest Affiliated transactions Confidentiality of information Summary of Commissioner and Director Potential Liabilities 22

24 BoC/BoD Roles and Responsibilities (Cont d) Overall BoC/BoD Responsibilities Board of Commissioners Oversight and supervision Advisory Board of Directors Day-to-day management Risk management and internal controls Public relations Social responsibility BoC/BoD charter builder coming Requirement to have a complete code of conduct that specifies the BoC/BoD s fiduciary duties. (CGC Code for Issuers and Public Companies 2015) 23

25 Percentage of Directors BoC/BoD Diversity Board Diversity Gender diversity in IDX-listed companies % 90.00% 88.40% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Men 11.60% Women Source: NUS Business School Indonesia Boardroom Diversity Report 2012 Female Footprints in IDX-listed Companies 24

26 BoC/BoD Diversity (Cont d) Board Diversity Women were better represented in the Board of Directors at 13.1%, as compared to the Board of Commissioners (9.9%). Although Indonesia leads the way in boardroom gender diversity in Asia, there s no regulation that governs diversity issues in BoC/BoD. Source: NUS Business School Indonesia Boardroom Diversity Report 2012 Female Footprints in IDX-listed Companies coming The Toolkit provides OECD recommendation to improve Board composition and effectiveness. Issuers and Public Companies are required to develop a diversity and anti-discrimination policy for members of the BoC/BoD. (CGC Code for Issuers and Public Companies 2015) 25

27 BoC Committees BoC Committee charter builder 26

28 BoC Committees Audit Committee The 2014 Global Audit Committee Survey: <50% of AC members indicate that it is increasingly difficult to oversee major risks [cyber risk and IT, risk management processes, and global compliance] in addition to implementing the committee s core responsibilities. Source: KPMG s Audit Committee Institute 2014 Global Audit Committee s Survey The Toolkit provides insights into the critical role of the AC, which is mandatory for Issuers and Public Companies. It elaborates on AC size and composition, appointment and dismissal, duties and responsibilities, as well as meetings. Sample AC Annual Agenda 27

29 BoC Committees Nomination and Remuneration Committee A new requirement mandated by OJK No.34/POJK.O4/2014 Only 25% of Issuers and Public Companies have an NRC and disclosed it in their 2012 Annual Reports. Source: Indonesia Corporate Governance Roadmap, OJK, 2013 The NRC should comprise at least three members and be chaired by an independent commissioner NOMINATION - Provide recommendations regarding Board structure, size and composition; as well as the nomination process and performance evaluation for members of the BoC and the BoD - Assess the independence of Commissioners and Directors REMUNERATION - Provide recommendations regarding remuneration structure and policy for members of the BoC and the BoD 28

30 General Meeting of Shareholders Protecting the rights of minority shareholders Key Issues new Voting procedure to accommodate the one shareone vote principle Areas that will be further strengthened: Dividend payments period Encouraging shareholders participation in the GMS Share ownership disclosure up to individual shareholder Disclosure of Independent Commissioner criteria Issuers and Public Companies are required to submit AGMS agenda to the OJK within five business days prior to its announcement and in detailed and complete manner. They are also required to publish the GMS results on the company s website. (December 2014) 29

31 Governing Instruments and Internal Regulations Internal Regulations Company Codes of CG Delegation of Authority BoC and BoD Charters Code of Ethics/Conduct Critical to ensure alignment and consistency across these instruments 30

32 BoC and BoD Composition and Performance 75% of Issuers and Public Companies disclosed the relationship between performance and remuneration of the BoD in their annual reports. Source: Indonesia Corporate Governance Roadmap, OJK, 2013 However, there is no regulatory provision requiring the BoC/BoD to conduct regular performance evaluation and its disclosure in the annual report. new OJK issued a regulation governing the BoC and the BoD of Issuers and Public Companies (December 2014) 1. Procedures for nomination of BoC/BoD members 2. Requirements for BoC/BoD candidates 3. BoC/BoD meeting requirements 4. Concurrent positions 5. Limitation of tenure for Independent Commissioner 6. Requirement to establish Board charters and Code of Ethics Pillars of Board Effectiveness Independence Performance and Value Add Diversity 31

33 BoC and BoD Composition and Performance (Cont d) Performance Assessment Criteria for Commissioners and Directors General attributes Technical skills Behavior attributes Leadership Strategic assessment, development and execution skills Risk Management and Assurance Industry experience Financial Literacy Time Commitment and professionalism People skills Human Resources Crisis response Communication skills Major Transactions Major Projects Legal/ IP Making an impact and accountability 32

34 The Corporate Secretary There is increasing recognition of the need to elevate the position and function of company secretaries to allow them to take on a stronger role in promoting governance within companies. Source: Suruhanjaya Sekuriti, 2011 as published in Indonesia Corporate Governance Roadmap 71% of Issuers and Public Companies have disclosed the corporate secretary s job description in their annual reports. Source: Indonesia Corporate Governance Roadmap, OJK, 2013 The Toolkit provides insight into productive meeting protocols (e.g. agenda, attendance, frequency and duration). new OJK issued a regulation strengthening the qualifications, functions, authorities and responsibilities of Corporate Secretary for Issuers and Public Companies. (December 2014) 33

35 Insightful Strategy In what areas has the Board s involvement in strategy increased over the past 2 to 3 years? GLOBAL INDONESIA 53% Formulation of strategy alternatives/consideration of strategic alternatives 41% 47% 35% 33% 24% Monitoring execution Recalibrating strategy Devoting more time to technology issues, including cyber risk Testing the ongoing validity of assumptions Source: ACI Global Pulse Survey: Indonesia Edition % 25% 13% 9% 34

36 Insightful Strategy (Cont d) 72 % of Indonesian respondents said the board has deepened its involvement over the past two to three years particularly in monitoring the execution of strategy. Boards need to devote more time to: Formulating strategic alternatives Considering technology issues, such as cyber security Source: ACI Global Pulse Survey: Indonesia Edition 2015 The Toolkit provides insight on how to utilize the balanced scorecard to get a more accurate picture of the business from different perspectives. 35

37 Ethical Culture O N L Y 29% of Issuers and Public Companies have had and disclosed their whistle-blowing systems. Source: Indonesia Corporate Governance Roadmap, OJK, 2013 The Toolkit provides insight on how to establish and implement Code of Ethics/Conduct. coming The OJK Roadmap: Existing provisions need to be strengthened to require Issuers and Public Companies to have whistle-blowing systems, anti-corruption policy and disclosure, and financial crime policy. (CGC Code for Issuers and Public Companies 2015) 36

38 Risk Management 1. The Board of Directors shall establish and implement a sound risk management within the company covering all aspects of the company s activities 2. Each strategic decision taken, including the creation of new products or services, shall carefully consider its risk exposures, ensuring appropriate balance between the benefit and risk 3. To ensure proper implementation of the risk management, the company shall have a work unit or a person in charge for such function 1 1 CG Code Part IV.D

39 Internal Control 1. The Board of Directors shall establish and maintain a sound internal control system to safeguard company s assets and performance and its compliance with laws and regulations; 2. Shall have an internal control function or unit 3. The internal control function or unit shall to assist the Board of Directors in ensuring the attainment of objectives and business sustainability by: (i) evaluating the implementation of the company s program; (ii) providing recommendations to improve the effectiveness of the risk management process; (iii) evaluating the company s compliance with company s regulations, implementation of GCG and the laws and regulations; and (iv) facilitating sound coordination with external auditor; 4. The internal control unit or the head of an internal control function shall be responsible to the President Director or to the Director in charge for the internal control function. The internal control unit has a functional relation with the Board of Commissioners through the Audit Committee 2 1 Applicable to publicly listed companies, state-owned enterprises, province and region-owned companies, companies that raise and manage public funds, companies of which products or services are widely used by public, and companies with extensive influence on environment 2 CG Code Part IV.D

40 Review and Disclosure of Risk Management and Internal Control Review Disclosure (i) Audit Committee financial reports are presented appropriately in accordance with the generally accepted accounting principles; (ii) internal control structure is adequate and effective (iii) (iv) (v) internal and external audits are conducted in accordance with applicable audit standards audit findings are followed up by the management review candidates for external auditors including remuneration 1 (i) Risk Policy Committee assist the Board of Commissioners in reviewing the risk management system established by the Board of Directors and evaluating the company s risk tolerance 2 Listed companies are required to provide: Appropriate information disclosure and transparency, as well as an effective system of risk management and internal control. Board of Director s report, which shall include a statement on the effectiveness of the internal control system including risk management, control system and internal audit. 1 CG Code Part IV 4.1.a. and 4.1.b 2 CG Code Part IV 4.3 and CG Regulations, Article

41 Risk Management and Internal Control What would most improve the company s risk-related decision making? Source: ACI Global Pulse Survey: Indonesia Edition

42 Risk Management and Internal Control (Cont d) KPMG Board Assurance Framework 41 41

43 Receiving Assurance Adequacy vs. Effectiveness 42

44 Reporting and Disclosures Annual Report disclosures: Summary of financial highlights Report of the BoC Report of the BoD Company profile Management analysis and discussion Corporate governance implementation Corporate social responsibility Audited financial statements Statement of responsibility by the BoC and the BoD Accurate Relevant Timely Complete 43

45 Other Governance Requirements The Toolkit provides an overview of governance requirements covering major markets around the world. UK Korea USA India China Japan Singapore Australia Given the number and mandates of regulators, it is no longer enough to adopt a reactive approach to compliance. Companies must take an integrated approach rather than reacting to a specific regulation in isolation. 44

46 Stakeholder Engagement A good reputation is a prized corporate asset. Companies that can mobilise their stakeholder base are able to present a positive public image and reap the rewards that follow. Plan Profile and map stakeholders Conduct risk assessment and set priorities Set roles and accountabilities Establish monitoring indicators Prepare training where appropriate Engage Initiate contact with boardlevel stakeholders Focus on the issues that matter Proactive not reactive Drive mutual relationships and outcomes Review Monitor and respond to risk on an ongoing basis Evaluate performance Report progress through a formal annual report statement 45

47 Private Equity Private equity (PE) dealings attract regulatory scrutiny Plan Pre-emptively discuss the board s plan for PE approaches, establishing the response process for future dealings Evaluate Rigorously evaluate any PE approaches, conducting thorough due diligence activities and utilising independent advice as necessary Communicate & Respond Continue to comply with continuous disclosure requirements and respond in the best interests of the shareholders 46

48 Board Governance Toolkit Update Financial Services State-Owned Enterprises Family Conglomerates Work Health and Safety Corporate Sustainability How to get these updates? BGF will send out regular announcements to all of its members highlighting new content and resources. (When you attend our event, you are automatically registered as a BGF member. You can unsubscribe anytime.) To register to become a member of the KPMG Board Governance Forum, please send an to Liana Lim (Liana.Lim2@kpmg.co.id) 47

49 Board Governance Forum Website Registration Key contacts Relevant and recent thought leadership Upcoming events Related links KPMG KPMG Siddharta Advisory, an an Indonesian limited limited liability liability company and and a a member firm firm of of the the KPMG KPMG network of of independent member firms firms affiliated with with KPMG KPMG International International Cooperative Cooperative ( KPMG ( KPMG International ), International ), a Swiss a Swiss entity. entity. All rights All rights reserved. reserved 48

50 KPMG Siddharta Advisory 35 th Floor Wisma GKBI Jl. Jendral Sudirman Kav. 28 Jakarta 10210, Indonesia Presenter Contact Details Irving Low Partner Head of Risk Consulting KPMG Singapore and Indonesia KPMG Siddharta Advisory, an Indonesian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved.