Lita, I understand that Indonesian companies have both a Board of Directors and a Board of Commissioners. Can you explain how that works in practice? In the U.K., we usually just have one board that handles both management and oversight.

In many jurisdictions, such as the United Kingdom and the United States, companies adopt a one-tier board system, in which a single Board of Directors (BoD) is responsible for both the management and supervision of the company. Within this unified board, Executive Directors (EDs)—who manage the company’s day-to-day operations—serve alongside Non-Executive Directors (NEDs), who provide oversight and ensure accountability.

A typical one-tier board features two key leadership roles: the Chief Executive Officer (CEO) and the Chairman. The CEO is the highest-ranking executive, tasked with executing the company’s strategy and managing its operations. The Chairman, on the other hand, leads the board and ensures that it fulfills its governance responsibilities effectively, including overseeing executive management and safeguarding shareholders’ interests.

In contrast, Indonesia adopts a two-tier board system, as mandated by Law No. 40 of 2007 concerning Limited Liability Companies (commonly referred to as the Company Law). This structure separates management and supervisory functions into two distinct bodies:

1. Board of Directors (BoD)

The Indonesian Board of Directors is responsible for the executive management of the company. Under the Company Law, the BoD has the authority to represent the company in and out of court. Its core responsibilities include:

• Managing the company’s day-to-day operations

• Hiring and supervising employees

• Negotiating and executing contracts

• Making strategic and business decisions

• Representing the company in legal matters

In essence, the BoD acts as the executive arm of the company, implementing policies and running the business.

2. Board of Commissioners (BoC)

The Board of Commissioners has a supervisory and advisory role. It is tasked with overseeing the BoD’s actions and ensuring that the company complies with the law and adheres to good corporate governance practices.

The BoC:

• Does not engage in daily operations

• Does not represent the company legally, except in specific cases (e.g., when all BoD positions are vacant)

• Must not interfere in operational decisions

While the BoC supervises the BoD, it does not have higher authority—both boards are equal in rank but have distinct and complementary functions. This two-tier system ensures a clear separation of powers between management and oversight, supporting internal checks and balances. A significant feature of this model is that the same individual cannot simultaneously serve on both the BoD and the BoC in the same company. This structural separation is designed to strengthen corporate governance and maintain independence.

At the end of each financial year, both the BoD and BoC are held accountable to shareholders at the Annual General Meeting of Shareholders (AGMS). The BoD is responsible for convening the AGMS and presenting the Annual Report, which typically includes:

• Audited financial statements (balance sheet, profit and loss statement, cash flow statement, changes in equity, and explanatory notes)

• A report on the company’s activities and overall performance

• A report on the company’s Corporate Social and Environmental Responsibility (CSR)

• Disclosure of any significant legal or operational issues

• Remuneration details for BoD and BoC members

The BoC also provides a supervisory report, outlining the oversight it has carried out over the year.

Based on the Annual Report, shareholders may choose to grant a release and discharge (acquit et decharge) to both the BoD and BoC. If this release is not granted, members of the BoD and BoC may be held personally and jointly liable for any losses suffered by the company due to their actions or negligence during the reporting period, as stipulated in the Company Law.

The Indonesian two-tier board system offers a distinct approach to corporate governance compared to the one-tier models found in countries like the UK. By ensuring separation between management and oversight, it aims to improve accountability, independence, and transparency in corporate decision-making.