Good Corporate Governance

Good Corporate Governance

Implementing Good Corporate Governance (GCG) is not only a reflection of the Company’s compliance with prevailing laws and regulations in Indonesia. For the Company, GCG implementation is in line with the Company's vision and mission and serves as the cornerstone in the creation and building of resilient and sustainable corporate structure.



GCG also governs the relationships between the various interested parties (stakeholders), particularly between the shareholders, Board of Commissioners and Board of Directors for the achievement of company objectives. In addition to ensuring that the Company performs its business properly, GCG also guarantees the public that the Company demonstrates a sound business conduct, not only business-wise profitable, but also benefits the community and the environment.


Since PT Astra Agro Lestari Tbk became a public company in Indonesia in 1997, GCG has become one of the essential elements for the Company in maintaining sustainable growth, and also becoming a national oil palm plantation company. The Company is committed to engage in the country’s development by contributing significantly to the Indonesian economy and becoming a role model for others in the implementation of GCG.


General Meeting of Shareholders

According to Law No. 40 of 2007 on Limited Liability Companies (UUPT), the General Meeting of Shareholders (GMS) is an instrument of the Corporation vested with authority not given to the Board of Directors or the Board of Commissioners, within the limits as stipulated in the law and the Company’s Articles of Association. The GMS plays a crucial role in a company. Through the GMS, shareholders make important decisions related to the company, among others evaluating the performances of the Board of Commissioners and the Board of Directors, approve the Annual Report, and approve strategic decisions related to corporate actions proposed by the Board of Directors. Shareholders neither intervene in the tasks, functions, and authorities of the Board of Commissioners nor those of the Board of Directors.

On April 11, 2016, the Company held an Annual GMS and Extraordinary GMS (EGMS) which adopted the following resolutions:

I
Resolutions of the Annual GMS:

a.
Approve and accept the Company's Annual Report for the 2015 financial year, including ratification of the Report on the Supervisory Duties of the Company's Board of Commissioners and ratification of the Company's Consolidated Annual Report for the 2015 financial year, which were audited by the Public Accountant Firm of Tanudiredja, Wibisana, Rintis & Partners, as stated in their report dated February 20, 2016 with an unqualified opinion in all material matters;

b.
Approve to withhold disbursement of dividends to Shareholders for the fiscal year ending December 31, 2015.

c.(1)Grant authority to, and therefore stipulate that, the Board of Commissioners is commissioned, either directly or by the authority vested in the Company's Nomination and Remuneration Committee under the Nomination and Remuneration Charter, to determine salaries and / or allowances of members of the Board of Directors.


(2)Grant all members of the Board of Commissioners an honorarium in the amount of maximum Rp 2,500,000,000 per annum before taxes, effective from the closing of this GMS to the closing of the first Annual General Meeting of Shareholders of the Company subsequent to this GMS, and grant the President of the Board of Commissioners the power and authority to determine the disbursement amounts of aforesaid honorarium among members of the Company's Board of Commissioners.

d.

Grant authority to the Board of Directors to:



(1)Appoint a public accountant firm in Indonesia, duly registered with the Financial Services Authority (Otoritas Jasa Keuangan / OJK) to perform an audit of the Company's Annual Report for the 2016 financial year; and


(2)Determine the fee as well as other terms and conditions in relation to such appointment of a public accountant firm


II
Resolution of the Extraordinary GMS:

Approve the Limited Public Offering of the Company, which include:

a.
Limited Public Offering of the Company in order to increase capital by providing Rights Issue ("Rights") of a maximum number of 450,000,000 new shares with a nominal value of Rp 500 per share.

b.
Amend Article 4, paragraph 2 of the Articles of Association to conform with the Limited Public Offering of the Company.
With respect to the above mentioned decision, provide proxy and assign authority with substitution rights to the Board of Directors to prepare and sign the notarial deed in accordance with the applicable law to amend Article 4, paragraph 2 of the Articles of Association of the Company as stated above in order to conform to the results of the Limited Public Offering of the Company, and perform other necessary actions related to the aforesaid matter.

c.
Delegate authority to the Board of Commissioners to regulate and define the implementation of the EGMS resolution related to the Limited Public Offering of the Company, including the amendment of Article 4, paragraph 2 of the Articles of Association of the Company subsequent to the implementation of Limited Public Offering of the Company in order to increase capital by providing rights issue, and state the number of shares in reserve that has actually been issued in the context of Limited Public Offering of the Company in pursuance of a capital increase by providing rights issue.


Board of Commissioners

The Board of Commissioners is a Company instrument tasked with, and responsible for, performing supervision, both generally and specifically in accordance with the provisions of the Articles of Association, and to provide advice to the Board of Directors.



In 2015, the Board of Commissioners established a Board of Commissioners Charter which set out the legal foundation and implementation of the Board of Commissioners’ duties including its values, description of duties, responsibilities and authority, procedures for meetings and decision-making or reporting, and the Board of Commissioners' accountability. The Board of Commissioners Charter was stipulated and serves as a guideline for the Board of Commissioners and is an integral and inseparable part of the Company's Articles of Association.


The following are the tasks and responsibilities of the Board of Commissioners:

  1. Perform supervision and be responsible for overseeing management policies and management in general, both regarding the Company and the Company business, as well as providing advice to the Board of Directors.
  2. Must examine and has the right to approve the Company’s working plan and budget submitted by the Board of Directors. 

  3. Conduct periodical meetings to discuss the Company's performance related to the implementation of the Company's strategic and working plans. 

  4. The Board of Commissioners has the right to enter buildings, offices and grounds used by the Company and has the right to examine Company records, documents, and assets in performing its duties, and the Board of Commissioners also has the right to seek all information from the Board of Directors related to the Company as required by the Board of Commissioners to perform its duties. 
  5. In performing its supervisory duties, the Board of Commissioners may establish committees composed of one or more members of the Board of Commissioners and such committee shall answer to the Board of Commissioners.

In line with the provisions of the Company's Articles of Association, for certain actions, the Board of Directors requires the approval from the Board of Commissioners.


As resolved during the GMS of April 14, 2015, the Board of Commissioners have comprised of five persons, two of which are Independent Commissioners. Appointment and termination of the members' term of office shall be decided during the GMS. The composition of the Board of Commissioners for 2016 was as follows:

President Commissioners  
: Prijono Sugiarto
Vice President Commissioners
: Chiew Sin Cheok
Commissioner
: Johannes Loman
Independent Commissioner
: Anugerah Pekerti
Independent Commissioner
: Soemadi Djoko Moerdjono Brotodiningrat

The Board of Commissioners delivered its accountability for oversight on the management of the Company at the GMS on April 11, 2016. Until the end of its term, the Board of Commissioners has held 6 Board of Commissioners meetings to discuss the Company's performance in line with the strategic plan and working plans set forth by the Company's Board of Directors for the relevant financial year. During each of these meetings, the Board of Commissioners also invited the Board of Directors and Audit Committee.


The Board of Commissioners held regular meetings to discuss the Company’s performance. In line with the Articles of Association, a Board of Commissioners' Meeting is deemed valid and authorized to make binding decisions if more than half of the members of the Board of Commissioners are present or represented during such meeting. The Board of Commissioners and its members have full access to all information related to the Company.


The Board of Commissioners may hold discussions between its members or with other Corporate Instruments, including decision making, with or without convening a meeting. Without prejudice to the provisions of the Capital Market Law regarding the obligation of holding regular Board of Commissioners meetings, such meetings shall be held in accordance with the procedures and provisions stipulated in the Legal Foundation of this Charter, at a minimum of once every two months. At the end of each quarter, the Board of Commissioners will hold a meeting together with the Board of Directors to review the Company's performance for the respective quarter.


During the current financial year, the implementation of the Board of Commissioners responsibilities has been supported by two Committees, namely the Audit Committee and the Nomination and Remuneration Committee. Both committees assisted the Board of Commissioners in every decision that affect the Company.


Board of Directors

The Board of Directors is the Corporate Instrument that carries out the duties and the full responsibility of the Company's management in accordance with the Company's vision, mission and strategies as well as the provisions of its Articles of Association. Members of the Board of Directors are appointed and discharged from office by the GMS.


In 2015, the Board of Directors enacted a Board of Directors Charter which sets out the legal foundation and implementation of the Board of Directors’ duties along with its values, description of tasks, responsibilities and authority, procedures for meetings and decision-making or reporting, and the Board of Directors' accountability.


The following are the tasks and responsibilities of the Board of Directors:

  1. The Board of Directors is tasked to operate and be responsible for managing the Company in the interest of the Company, in accordance with the vision and mission stipulated in the Articles of Association.
  2. The Board of Directors represents the Company within as well as outside of the court. 

  3. The Board of Directors shall develop an annual working plan prior to the commencement of the following financial year to be submitted to the Board of Commissioners for examination and to obtain the latter’s approval. 

  4. The Board of Directors, subsequent to its review by the Board of Commissioners, shall submit an annual report to the GMS within a period of maximum six (6) months after the end of the Company’s financial year. 

  5. The Board of Directors shall submit an accountability report to the GMS regarding the Company’s performance until the end of the financial year, and shall answer any questions raised by shareholders during the GMS.

During the current financial year, the composition of the Board of Directors is as follows:

President Director
: Widya Wiryawan
Director
: Bambang Palgoenadi
Director
: Joko Supriyono
Director
: Jamal Abdul Nasser
Director
: Juddy Arianto
Independent Director
: Rudy

Board of Directors’ meetings are held regularly. This policy is in compliance with provisions of the Company's Articles of Association and UUPT, and regular weekly Board of Directors meetings were held 32 times during 2016.


In order to comply with the Indonesia Stock Exchange (BEI) regulation No. I-A on Listing of Shares (Stock) and Equity-Type Securities Other Than Stock Issued by the Listed Company (Pencatatan Saham dan Efek Bersifat Ekuitas Selain Saham yang diterbitkan oleh Perusahaan Tercatat) (BEI Regulation No. I-A), the GMS appointed Mister Rudy as an Independent Director. 


In 2015, the Board of Directors enacted a Board of Directors Charter to serve as a guideline for the Board of Directors, and to become an integral and inseparable part of the Articles of Association. This Charter covers values, description of tasks and responsibilities, and authority, meeting procedures and decision making as well as reporting and accountability of the Board of Directors.


During 2016, in performing its primary tasks and functions, the Board of Directors was supported by two Committees, namely the Audit Committee and the Nomination and Remuneration Committee. Both committees assisted the Board of Directors in every decision making for the Company.



Audit Committee

The Audit Committee was established by and answers to the Board of Commissioners. In the performance of its duties and responsibilities, the Audit Committee shall refer to the Audit Committee Charter established by the Board of Commissioners. Membership of the Audit Committee shall comprise three persons, one of whom shall be one of the Independent Commissioner who concurrently Chairs the Audit Committee. The term of office of the Audit Committee shall be 2 years.


The main function of the Audit Committee is to assist the Board of Commissioners in carrying out their supervisory function over the Company. The Audit Committee shall regularly meet with the Board of Directors and its ranks to evaluate the Company Performance and submit a report of its evaluation during each of the regular meetings with the Board of Commissioners. Reports on the accountability of the Audit Committee will be further elaborated in the Audit Committee Report.


In 2016, the Board of Commissioners established the following composition of the Audit Committee:

Chairman: Soemadi Djoko Moerdjono Brotodiningrat
Member: Juliani Eliza Syaftari

Member
: Ratna Wardhani

In 2016, the Audit Committee enacted the Audit Committee Charter applicable as guidance in the implementation of the tasks and functions of the Audit Committee. Throughout 2016 the Audit Committee performed its tasks and responsibilities independently, particularly in implementing its oversight function of the Company.


Nomination and Remuneration Committee

The Nomination and Remuneration Committee was established by and answers to the Board of Commissioners. In the performance of its duties and responsibilities, the Nomination and Remuneration Committee shall refer to the Nomination and Remuneration Charter enacted by the Board of Commissioners.


Membership of the Nomination and Remuneration Committee shall comprise of three persons, one of whom shall be one of the Independent Commissioners that concurrently Chairs the Nomination and Remuneration Committee. The term of office of the Nomination and Remuneration Committee shall be 2 years.


The Nomination and Remuneration Committee assists the Board of Commissioners in performing its function of nominating and remunerating members of the Board of Directors and the Board of Commissioners. Reports on the accountability of the Nomination and Remuneration Committee will be further elaborated in the Nomination and Remuneration Committee Report.


In 2016, the Board of Commissioners established the following composition of the Audit Committee, as follows:


Chairman : Anugerah Pekerti
Member : Prijono Sugiarto
Member
: Kokasih Mariana

In 2016, the Nomination and Remuneration Committee enacted the Nomination and Remuneration Committee Charter as a guideline in carrying out its duties and functions. Throughout 2016, the Nomination and Remuneration Committee performed its tasks and responsibilities, as well as independently monitoring the Company's performance.


Corporate Secretary

The Corporate Secretary is one of the functions within the Company that is assigned and given the responsibility to communicate with external parties such as the capital market authorities, stock exchange authorities, investors, and the public. The Corporate Secretary answers to the Board of Directors.
The function of Corporate Secretary shall include Company duties, maintaining relationship with investors and the public.

  1. Acting as a representative of the Company in its relationship with all stakeholders in communicating the Company's activities, especially those related to transparency of information.
  2. Supervising the external and internal communication strategy management with all stakeholders, to openly and responsibly disseminate Company news, and to build a positive image of the Company.
  3. Ensuring the Company’s compliance with all relevant laws of the financial market and UUPT, as well as laws and regulations related to the Company's business.
  4. Monitoring the development and changes of the UUPT and relevant regulations in the financial market as any laws related to the Company’s line of business, and providing recommendations and input to the Board of Directors on the effect of those changes to the Company, and their implementation within the Company.
  5. Assist the Board of Directors and Board of Commissioners in the implementation of GCG.

The position of Corporate Secretary is held by Rudy who is also a duly appointed member of the Board of Directors.


Internal Audit

The Internal Audit is responsible for assisting the Board of Directors in evaluating all of the Company's business activities. The Internal Auditors also assist the Board of Directors in ensuring that Good Corporate Governance is implemented in every aspect of the Company's organization. The Internal Auditors assist the Board of Directors in conducting the Company's business efficiently and effectively in order to improve on the existing performance.


By virtue of the decree of the Chief of Bapepam-LK No.  KEP/496/BL/2008, the Internal Auditors must perform their duties according to the Internal Audit Charter which regulates the Internal Audit working system. In performing its tasks, the Internal Auditors must be guided by a Risk Based Audit Method. This auditing method demands testing of the internal control system, efficiency and effectiveness of the Company's business operations, and compliance with prevailing laws and regulations.


Internal Auditors are partners of the Board of Commissioners, the Board of Directors and other stakeholders, working together to achieve the Company's objectives. The Internal Audit convenes routine meetings with the Audit Committee and holds discussions with all relevant divisions. The objective is to review and disseminate information of the Internal Audit team's findings and recommend corrective measures to improve the Company's performance. In 2016, the Audit Committee Charter was enacted as guidance in the implementation of its tasks and functions.


Risk Management

The Company, whose main line of business is in oil palm plantations, will always face many business risks, the majority of which are among others external risks beyond the Company's control. The business risks faced by the Company corresponds with the risk characteristics of the commodity sector, one of which is price fluctuations.


The Company analyzes all potential risks and subsequently formulates a control strategy or manages the risks. The objective of implementing risk management is:

  1. To provide the Board of Directors and management with the necessary information on potential risks faced by the Company. 

  2. The available information will serve as the basis for the Board of Directors to make decisions relevant to the Company's operational targets. 

  3. Assessment of risks inherent to every aspect of the Company's business. 

  4. Implementation of risk management shall also become a guidance for the Audit Committee in performing their tasks to evaluate and asses the Company's governance. 



Risk Profile

The following are several risks which have the potential of affecting the Company's business operations:

1.
Commodity Price Risks

Price fluctuations due to the capricious nature of supply and demand in the international market are one of the factors that affect the palm oil business. The higher the price, the higher Company profits will be. On the other hand, the lower the price, the lower will be the profits with a potential of causing greater losses.

To anticipate this risk, the Company must ensure that the CPO (Crude Palm Oil) produced is of higher quality with a low production cost, so as to maintain competitiveness in the market throughout the year.

2.
Financial Risks

Financial risks may be caused by price fluctuations in the international market and currency exchange fluctuations. The Company and its subsidiaries, however, enjoy an excellent liquidity, capable of supporting the Company's action plan and sustain the Company against any possible price and foreign exchange fluctuations in the market. In addition, the banking industry is prepared to extend funding facilities to the Company. 


3.
Operational Risks

Operational risks related to the management of labor and fertilizing costs. As commonly known, labor and fertilizing costs are the two largest components of the Company's operating costs. Operational risks are anticipated by implementing a more efficient process of crop husbandry, and improvement of human capital productivity by applying mechanization and automation. 


4.
Legal and Policy Risks

As a Company active in the palm oil industry, the Company is also facing legal and policy risks. Legal risks are risks arising in relation with meeting the legality aspects of the plantations managed by the Company. While policy risks are related to changes in policies in the palm oil industry, both policies issued by the national government and the regional governments.

Legal risks are also related to the relationship between the Company and the community in the surroundings of the Company's plantations. In maintaining a harmonious relationship between the Company and the community, the Company always ensures that the presence of its plantations must at all times provide a positive mutual benefit to the community. This is brought about through Corporate Social Responsibility programs. 


5.
Disaster Risks

Disaster risks are risks faced by the Company resulting from natural disasters such as flooding, land slides, and earth quakes. Natural disasters can pose a business risk to the Company. Therefore, the management of the Company designed measures to mitigate the risks of natural disasters, as well as anticipative efforts in the event such natural disasters occur. 


Business Ethics

Business ethics is a system of values explicated from the corporate culture, and adhered to by all components within the Company, from the Board of Directors, the management, to all employees. Business ethics will become a reference for all components within the Company in their conduct with the environment, both internal and external. Including the conduct with stakeholders.


The Company always affirms its commitment to uphold business ethics at all times by complying with all prevailing laws and regulations in Indonesia. In its implementation, the Board of Directors together with the management and all employees, always ensure that every aspect of the Company's business shall adhere to the principles of Good Corporate Governance, which cover such aspects as transparency, accountability, reasonability, and full of responsibility. Consistent implementation of business ethics will increase the Company's value in the eyes of shareholders and other stakeholders.


In implementing business ethics, the Company will also avoid conflicts of interest within the company, starting from the Board of Directors, the management, and all of the employees. The Board of Directors, the entire management, and all employees are prohibited from accepting compensations in any form, from others who have either direct or indirect interests.


The Company also consistently and continuously communicates the Business Ethics Standards as well as Company values to all employees and all stakeholders. As such, Business Ethics Standards may become the reference in attitude and conduct of all components within the company.


Professional Institutions Supporting the Company

The Company and all of its subsidiaries have engaged the services of Professional Institutions Supporting the Company to assist its business activities, including independent accountants, public appraisers, actuaries, and rating service providers at a total cost of approximately Rp 12.6 billion in 2016.


Fair Business Competition

During the period of 2011, the Company and other CPO producers were investigated by the Business Competition Supervisory Commission (KPPU). The investigation was related to allegation of cartel practices among CPO producers and cooking oil manufacturers. The charges were based on the KPPU analysis regarding high cooking oil prices during 2010 to 2011.


The charges were not proven during court proceedings. The Company has never committed any cartel practice of CPO and cooking oil price fixing. The surge in cooking oil prices was solely due to high demand, while at the same time the production capacity could not meet market demand.

Stakeholders

The Company's sustainability cannot be separated from the efforts to build and foster relationships with all stakeholders. The Company has identified its stakeholders and approach methods to continue maintaining harmonious relationships with them.