“The board of directors has a significant role as one of the company’s organs. Therefore, to avoid conflict of interest and monopolistic practices, some regulations prohibited for holding dual director positions in multiple companies.”
Company can be defined as legal entity that can carry out legal actions. However, in its implementation, the Company acts represented by its organ. The organs of the Company consist of General Meeting of Shareholders (“GMS”), Board of Directors and Board of Commissioners as stated in Article 1 paragraph (2) of Law No. 40 of 2007 concerning Limited Liability Company (“Company Law”). However, Director cannot be categorized as the same of worker in the Company since their task is determined according to GMS. In this Articles, we will discuss about the dual position of Director in multiple companies.
A. Brief Summary for Director in the Companies
According to Article 1 paragraph (5) of Company Law, it is stated that Board of Directors can be defined as the company organ which authorized and fully responsible for the management of the Company for the interest of the Company, in accordance with the purposes and objectives of the Company and represents the Company for both in and out of the court as stated in the provisions of the Articles of Association. However, if he is unable to do so, the Director can be represented by another person based on a special Power-of-Attorney.
The responsibility of Directors is begun from the time when the Directors are appointed or from the time the Director are serve as Director in the Company, until the expiration or termination of the Director in accordance with the result of the GMS Decision.
According to Article 93 of Company Law stated that anyone that may be appointed as Board of Director shall be individual persons capable of conducting legal acts, unless if within a period of 5 (five) years prior to their appointment there has ever:
- Been declared bankrupt;
- A member of the Board of Director or Board of Commissioner who was declared at fault in causing the Company to be declared bankrupt; or
- Been convicted for committing a criminal offense that is detrimental to the finance of the state and/or related to the financial sector.
Based on Article 92 of Company Law, the Board of Directors carries out the management of the Company for the interest of the Company in accordance with the purposes and objectives of the Company. The Board of Directors are required to:
- Draw up the register of shareholders, the special register, the minutes of the GMS, and the minutes of meeting of the Board of Directors;
- Draw up the annual report as referred to in Article 66 of Company Law and the financial documents of the Company as set out under the Law on Corporate Documents; and
- Maintain all registers, minutes, and financial documents of the company as the Board of Directors or Board of Commissioner have a conflict of interest with the company.
Move along, as stated in Article 104 para. 4 of the Company Law, in the condition that a Director is found guilty or negligent in carrying out his duties in good faith then the Director is fully personally responsible for the company’s losses, unless the Director can prove:
- The said bankruptcy was not due to his/her fault of negligence;
- They have performed management in good faith, with due care, and fully responsible in the in the interest of the Company and in accordance with the purposes and objectives of the Company;
- They have no conflict of interest, either directly or indirectly, over the acts of management that are taken;
- They have taken measures to prevent the occurrence of bankruptcy.
In conclusion, the Director will manage the Company and maintain the system of the Company. However, if there is a loss to the Company, the Director can be personally responsible for this unless it can be proven that the matter was not his fault based on the Company Law.
B. Regulation for Director in Multiple Companies
There are not yet regulation regarding holding multiple positions in the Company. Director has the authority to carry out legal actions on behalf of the company. In the condition that Board of Directors uses its authority in several companies, it is feared that it could regulate the market and eliminate healthy competition.
According to Law No. 5 of 1999 regarding the Prohibition of Monopolistic Practices and Unfair Business Competition (“Law No. 5/1999”) that has been updated through Government Regulation in lieu of Law No. 2 of 2022 in Article 26, any person who concurrently holds a position as a Director is prohibited from holding a position as Director in other companies, in the event that such companies:
- In the condition that are in the same relevant market; or
- Have a strong linkage in the sector and or type of business activities; or
- Are jointly capable of controlling the market share of certain goods and/or services, which may result in monopolistic practices and or unfair business competition.
It can be seen that Directors can hold concurrent position in multiple companies, as long as the companies are not within in the same business field. Apart from that, the regulation for holding position in multiple companies for Director are also contained in Government Regulation No. 45 of 2005 concerning the Establishment, Management, Supervision and Dissolution of State-Owned Enterprises (“GR No. 45/2005”) as amended by the Government Regulation No. 23 of 2022 that the Director is prohibited from holding positions in multiple companies. According to Article 21, it is explained that Directors are prohibited from holding multiple positions such as:
- Member of the Board of Directors at other State-Owned Enterprises, regionally owned companies and privately-owned companies;
- Other structural and functional positions in central and regional government agencies/institutions;
- Other positions that are in accordance with the provision of statutory regulations; and/or
- Other positions that may create a conflict of interest.
Apart from that, there are other regulation regarding positions in multiple companies such as in Financial Services Authority Regulation No. 33/POJK.04/2014 of 2014 concerning Directors and Board of Commissioners of Issuers or Publicly-Traded Companies (“FSA Regulation No. 33/2014”). According to Article 6 it is stated that Directors may hold concurrent positions as:
- Members of the Board of Directors shall be at most 1 (one) other Issuer or Publicly-Traded Company;
- Member of Board of Commissioners of a maximum 3 (three) other Issuers or Publicly-Traded Companies; and/or
- Committee members in a maximum of 5 (five) committees of Issuers or Publicly-Traded Companies in which the person concerned also serves as a member of the Board of Directors or a member of the Board of Commissioners.
Furthermore, there are different regulation for dual positions to Director in terms of Bank Institution as stated in Financial Services Authority No. 17/2023 concerning the Application of Governance for Commercial Bank (“FSA Regulation No. 17/2023”). In accordance to Article 15 paragraph (1) of FSA Regulation No. 17/2023, Board of Directors are prohibited from holding concurrent positions such as:
- As a member of Directors, Commissioner, Sharia Supervisory Board, or Executive Officer at another bank, company, and/or institution;
- In the field of functional duties at bank financial institutions and/or non-bank financial institutions domiciled in the country or abroad;
- In other positions that may give rise to a conflict of interest in implementing their duties as a member of Directors; and/or
- In other positions in accordance with the provision of prevailing laws and regulation.
However, it is not categorized as holding dual positions as a director in the below conditions:
- Responsible for supervising the Bank’s participation in subsidiary companies, carrying out functional duties as a member of Commissioners in non-bank subsidiary company controlled by the Bank;
- Responsible for supervising pension funds or carrying out duties as a supervisory board for pension funds which owned by the Bank;
- Implement duties as replacement director in accordance to FSA Regulation No. 17/2023; and/or
- Holding positions in non-profit organizations or institutions as long as it does not result in the person concerned to neglect the implementation of duties and responsibilities as Director.
Therefore, each company has its own policy regarding concurrent positions for Director. The existence of regulations regarding multiple positions needs to be explained further since having multiple Director positions can affect the company’s performance and it is feared that there may be a conflict of interest.
Author: Naomi Catherine Felencia
Gaffar & Co. is an Indonesian Boutique Law Firm focusing on commercial law, Investment Regulatory and Corporate Secretarial Services.
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