The Second Asian Roundtable on Corporate Governance Island Shangri-La Hotel, Hong Kong, China May 31, 2000 Copyright, 2000 © FRS & Associates, Inc. The Role of Disclosure in Strengthening Corporate Governance and Accountability

Shareholder Meetings and Communications at Shareholder Meetings Copyright, 2000 © FRS & Associates, Inc. Presentation by: Mr. Herwidayatmo Chairman of the Indonesian Capital Market Supervisory Agency - BAPEPAM

Two-tier Board System  consists of Commissioners and Directors;  Commissioners supervise and advise Directors in running the company  Directors have responsibility for management of the company and to represent the company in and out of court

Commissioners, Directors, and Shareholder Meetings  Directors & Commissioners are elected by Shareholders  Powers of Directors are limited only by the Articles of Association  Duties and remuneration of Directors are determined by Shareholder Meetings  Approval from Shareholder Meetings is a must for transferring and pledging the assets of the company  Commissioners may temporarily remove a Director, but the final decision must be made by the Shareholder Meeting

Legal Obstacles  The Company Law does not conform to the model of a supervisory board as described in most Guidelines  TBS is not consistent with the model of accountability and independence in most Guidelines  Company Law would need to be revised

OUR PRIORITIES:  Increasing the quality of transparency and disclosure  Improving rules and regulations by revising and issuing new rules  Promoting the application of “good corporate governance”  Strengthening market institutions  Establishing a fully independent regulatory body

Shareholder Meetings  Must be held annually  Directors must compile a report, especially an annual financial report and annual report  For Public Companies, the financial report must be audited and published in 2 daily newspaper

Announcement of Shareholder Meetings  Must be called by the directors with at least 14 days prior notice by registered letter  For public companies, by publication in 2 daily newspapers at least 28 days prior to the meeting  The meeting must include the time, place and agenda for the meeting

THE QUORUM  For the general shareholder meeting: One-half of the voting shares at the first meeting One-half of the voting shares at the first meeting One-third of the voting shares at the second meeting One-third of the voting shares at the second meeting  Certain transactions requires the presence of three-fourth shareholders with voting right  Decision is valid only if three-fourth of those who present is in favor of the transaction

Shareholder Meetings under Bapepam Rules  to make changes in a company’s article of association  to approve “Conflict of Interest” transactions  to approve “Material Transaction” and Changing in Public Company Business Activity

Conflict of Interest  Defined as a difference between the economic interest of a Company and the personal economic interest of a director, commissioner, or substantial shareholder of the company  Disclosure requirements:  description of the transaction  summary report from independent person  date, time and location of shareholder meeting  justification and reason of the transaction  company plan, data, and other related info

Shareholder Meetings for Conflict of Interest Transactions  Quorum on the General Meeting: at least 50% of independent shareholders must attend the meeting at least 50% of independent shareholders must attend the meeting at least 50% of them representing more than 50% of total shares owned by independent shareholders approve the transaction at least 50% of them representing more than 50% of total shares owned by independent shareholders approve the transaction if not, a second meeting may be held if not, a second meeting may be held  Quorum on the Second Meeting: at least 50% of independent shareholders must attend the meeting at least 50% of independent shareholders must attend the meeting at least 50% of them who attend approve the transaction at least 50% of them who attend approve the transaction if not, a third meeting may be held if not, a third meeting may be held

The Third Meeting for Conflict of Interest Transactions  Conducted after having approval from Bapepam  More than 50% of independent shareholders who attend the Meeting must favor the transaction

Material Transaction  Any acquisition or disposal of assets in an amount that is greater than: 10% of the revenues 10% of the revenues 20% of the equity 20% of the equity  Change in the line of business

Procedures & Requirements for Material Transactions  Designation of an independent appraisal  Publication in 1 daily newspaper at least 28 days prior to the meeting  Additional info for changing the line of business: Reasons and justification Reasons and justification Summary report of feasibility study Summary report of feasibility study Company expertise to make the change Company expertise to make the change

Facts  The legal requirements are consistent with norms of corporate governance  Problems: Public investors not mature yet Public investors not mature yet Most public companies are controlled by economic groups Most public companies are controlled by economic groups Corporate culture Corporate culture

Essential Issues  Improve the quality of disclosure  Change the corporate culture, enhance the functions of corporate secretary, and promote the implementation of electronic dissemination of information  Coordination with SROs in defining corporate governance obligations  Take effective enforcement measures

Copyright, 2000 © FRS & Associates, Inc. Mr. Herwidayatmo Chairman of the Indonesian Capital Market Supervisory Agency - BAPEPAM