Board of Directors Charter
In the case of activities and actions in the management of the Company that are not governed by our Articles of Association or the provisions of the law, procedures are followed that support the principle of accountability through consensus, agreement and/or rules between the members of the BoD. This charter is aimed at expediting the decision making process, reducing bureaucracy in the administration of the Company’s management, and supporting improvements in performance. This charter also governs the working relationship between the BoD
Code of Business Conduct and Ethics
NYSE listing standards require each US listed company to adopt, and post on its web site, a code of business conduct and ethics for its directors, officers and employees. There is no similar requirement under Indonesian law. However, companies that are required to file or furnish reports to the SEC must disclose in their Annual Reports whether they have adopted a code of ethics for their senior financial officers. Although the requirements as to the contents of the code of ethics under SEC rules are not identical to those set forth in the NYSE listing standards, there are significant similarities in which under SEC rules, the code of ethics must be designed to promote: (a) honest and ethical conduct, including the handling of conflicts of interest between personal and professional relationships; (b) full, fair, accurate and timely disclosure in reports and documents filed with or submitted to the SEC; (c) compliance with applicable laws and regulations; (d) prompt internal reporting of violations of the code and (e) accountability for adherence to the code. Furthermore, shareholders must be given access to physical or electronic copies of the code. See “Code of Ethics.”
Code of Conduct: The Telkom Way
We have always aimed to build integrated corporate systems and cultures as a comprehensive approach to the management of our business that will enable us to achieve the objectives of being profitable, obeying the law, and being ethical, as well as fostering an awareness within the company and our employees of our corporate responsibilities towards society as part of being a good citizen. Moreover, we build these systems and cultures in order to realize our aspirations that Telkom will continue to advance, be valued by our customers, be competitive in our industry and be a role model for other companies. Like the two sides of a coin, our system and culture are inseparable: our corporate culture becomes established because we have systems and operate them consistently, and conversely, the systems we design are meaningless without the moral values that underpin our employees’ behavior in their work.
To ensure that we and our subsidiaries implement ethical business practices, we have issued a policy on the application of GCG in the Telkom Group (PD.602.00/r.00/ HK000/COP-D0030000/2011) which articulates our measures to strengthen our corporate culture and business ethics within the Group. Our commitment to our code of ethics in managing the Group is as follows:
Further, as a general guideline on conduct for our employees, we have issued a Code of Ethics for all Telkom Group employees which require that every Telkom Group employee to:
Evaluation of the Implementation of our Corporate Culture
Each year, we conduct an internal survey to assess the effectiveness of the application of our corporate culture and business ethics. This is known as the Business Ethics Family Survey. The survey, which is conducted online to allow us to reach all our employees quickly, asks questions about GCG, business ethics, The Telkom Way, anti fraud, internal control, the integrity pact, the whistle blowing system and more. The survey results from the last three years were as follows: 2009, 78.13 points; 2010, 73.62 points and 2011, 79.07 points out of a possible 100 points.
Corporate Planning Governance
Consistency in planning governance is a key concern for management in implementing GCG. According to Company policy number KD.74/LB100/CA- 20/2006, the management ensures that the corporate planning is systematic, simple, organized, integrated, aligned with the corporate vision and mission, and can be properly executed accord to previous plans; it should also facilitate evaluation and control when applied.
The corporate planning model comprises three phases:
Board structure & composition
With five members, 40% of whom are Independent Commissioners. Our BoC complies with the provisions of the capital market laws and regulations.
As of December 31, 2011, our BoD comprised eight Directors.
Detail Profile of the Board of Directors and Commissioners see Annual Report 2011 page 156 and 159.
Board of Directors’ Meetings
BoD meetings are chaired by the President Director. In case the President Director is unavailable or absent for any reason, the meeting will be chaired by Vice President Director or, if he is not present by a member of the BoD appointed by the meeting.
Board of Commissioners’ Meetings
Meetings of the BoC are held at least once a month at any time deemed necessary by one or more member of the BoC, or at the written request of one or more shareholders holding at least one-tenth of our outstanding Common Stock. total number of Commissioners then represented in person or by proxy granted to another Commissioner at such meeting.
In 2011, the BoC held 9 meetings, which were attended by the entire Board. The Board of Commissioners also held 13 joint meetings with the BoD.
Board of Commissioners’ Committees
The Audit Committee Charter outlines the Committee’s purpose, function and responsibilities. It provides that the Audit Committee is responsible for:
Bapepam-LK Audit Committee Rules require that the Audit Committee comprises at least three members, one of whom must be an Independent Commissioner who serves as chairman, while the other two members must be independent. At least one of these two members must have expert knowledge (in the context of item 16A Form 20 F) in the field of accountancy and/or finance.
Our Audit Committee consists of six members: two Independent Commissioners, one Commissioner, and three independent external members who have no affiliation with Telkom. The BoC has determined that Sahat Pardede, as an independent member of our Audit Committee, qualifies as an Audit Committee Financial Expert in accordance with the requirements of Item 16A of Form 20-F, and as an “independent” member pursuant to the provisions of Rule 10A-3 of the Exchange Act.
Telkom has adopted pre-approval policies and procedures under which all non-audit services provided by our independent registered public accounting firm must be pre-approved by our Audit Committee, as set forth in the Audit Committee Charter.
Consistent with Section 10A(i) (1) (B) of the Exchange Act and paragraph (c) (7) (i) (C) of Rule 2-01 Regulation S-X issued there under, Audit Committee Charter waives the pre-approval requirement for permissible non-audit services where: (i) the aggregate amount of the fees for such non-audit services constitutes no more than five percent of the total amount of fees paid by us to our independent registered public accounting firm during the year in which the services are provided; or (ii) the proposed services are not regarded as non-audit services at the time the contract to perform the engagement is signed; and (iii) the performance of non-audit services are promptly brought to the attention of and approved prior to the completion of the audit by a member of the Audit Committee who has been delegated pre-approval authority by the full Audit Committee or by the full Audit Committee itself.
Nomination and Remuneration Committee
The objective of the Nomination and Remuneration Committee is to establish, administer and enforce GCG principles in the process of nomination for strategic management positions and the determination of the BoD’s remuneration.
To ensure their independence in the execution of their duties, the members of the Nomination Committee have no relationship, either directly or indirectly, with the Company.
During 2011, the Committee gave its input on the proposed candidates for certain strategic positions, namely the EGM of the Carrier & Interconnection Service Division, members of the BoD of PT Telekomunikasi Indonesia International (Telin), the EGM of the Telecommunications Infrastructure Division, and the EGM of the Access Division. The Committee also provided input on the candidates for the BoC and candidates for the BoD of PT Telkomsel
In 2011, the Committee assisted the BoC in formulating the proposal on remuneration for the Directors and Commissioners of the Company, to be proposed to the shareholders. With the assistance of an independent consultant, the remuneration proposal was formulated on the basis of benchmarking against the remuneration of Directors in other telecommunications companies in the region.
During 2011, the Nomination and Remuneration Committee met 17 times
Planning and Risk Evaluation and Monitoring Committee (“PREMC”)
The objective of the PREMC is to review our longterm plans, as well as annual business budget plans, following which recommendations would be made by this committee to the BoC. This committee is also responsible for supervising and monitoring the implementation of our business plans. This committee provides comprehensive reviews and necessary inputs in order to fulfill its objective to assist the BoC in reviewing and monitoring the process of executing our corporate plans, budget disbursement for capital expenditure and the implementation of enterprise risk management.
During 2011, the PREMC exercised supervision and monitoring over the implementation of the current CSS, the implementation of the RKAP 2011, the implementation of the capital expenditure (“capex”) budgeted in the RKAP 2011 including the investments in our subsidiaries and the implementation of enterprise risk management. The PREMC also evaluated the proposed CSS for 2012-2016, the proposed RKAP 2012, as well as other duties entrusted to it by the BoC.
Board of Directors’ Committees
In line with our Articles of Association, our BoD is collectively responsible for our entire operation, including the authority to take any and all actions in the management of the Company while abiding by the prevailing laws and regulations. In fulfilling this responsibility, the BoD has established mechanisms for decision-making and approval through its Executive Committees (with joint approval authority) as the execution of the BoD charter.
In line with changes in our business and organization, the BoD has reviewed and simplified the Executive Committee structure and formalized the Executive Committees in Company Rule number PD.608.00/r.00/ HK.000/COP-D0030000/2001, effective since October 28, 2011, such that the Executive Committees are now as follows:
• Ethics and Human Capital Committee;
• Treasury and Finance Committee;
• Subsidiary Management Committee;
• Investment Committee;
• Risk, Compliance and Revenue Assurance Committee; and
• Disclosure Committee.
Corporate Secretary/Investor Relations (“IR”)
Headed by a Vice President (“VP”) reporting to the Finance Director, Investor Relations (“IR”) is responsible for preparing the provision of information in the process of interrelations between the Company and our shareholders in accordance with the specified rules in relationship management and maintaining systematic feedback mechanisms to enable management respond to shareholder and capital market dynamics appropriately and effectively.
The current VP Investor Relations is Agus Murdiyatno. Mr. Murdiyatno, 41, joined the Telkom Group as Director and Chief Operating Officer of PT Sigma Cipta Caraka in June 2009. On November 1, 2009, he was appointed as Vice President Investor Relations/ Corporate Secretary of our Company. He began his career as a financial auditor at the Supreme Audit Board of the Republic of Indonesia in 1990. In 1996, he joined Coopers & Lybrand’s Jakarta Office as Senior Information Systems Auditor. In 1997, he joined Excelcom, a major cellular company in Jakarta, as Revenue Assurance Manager and Information Systems Audit Manager. In 1998, he joined KPMG, where he was responsible for managing the technology risk and internal audit services. In 2003, he started his consulting career by joining Ernst & Young’s Management Consultant Division where he was promoted to Executive Director of Business Risk Services in 2006. He holds a BA degree in Accounting from the State College of Accounting, Jakarta, and is a Certified Information Systems Auditor (“CISA”) and a Certified Internal Auditor (“CIA”).
We are fully aware of two important GCG principles, accountability and transparency. Through our IR and Public Relations units, we continuously strive to ensure that the information released is as accurate, clear, prompt and comprehensive as possible in order to improve and maintain market integrity and stakeholders’ trust.
INTERNAL AUDIT GOVERNANCE
The Internal Audit Unit (“IA”) serves to exercise control over our business activities. For this reason and as governed by the prevailing capital market regulations, the IA is directly responsible to the President Director.
Internal Audit Charter
To strengthen the duties and responsibilities of the IA, the IA Charter explicitly describes the vision, mission, structure, status, duties, responsibilities and authority of the IA, the requirements of auditors and the President Director’s and Audit Committee’s approval of the content of the Audit Charter, with reference to the international standards for the Professional Practice of Internal Auditing issued by the Institute of Internal Auditors (“IIA”).
Internal Audit Duties and Responsibilities
The IA’s activities are based on a commitment that IA’s mission should be executed methodologically. This means that each stage of auditing and internal consulting, consisting of preparation, implementation and follow-up monitoring must be standardized and measured. Therefore, at the preparation stage, the main reference is risk-based audit methodology, which stipulates that auditable units must be based on a risk rating of the business processes of said units: the higher the risk, the greater need for auditing. Accordingly, in every audit plan, the first thing that should be taken into account is the auditable risk rating based either on the risk register mapped out by the Company or on the professional judgment of IA itself.
The IA’s role was strengthened by increasing quality assurance on our operations through audit and nonaudit activities. The auditing is dedicated to ensuring that any business risks that may arise can be immediately addressed through effective internal controls. If there are deficiencies and/or uncontrollable risks in the control of any business process, they will be subjected to a substantive test which is a further test of the audit object and is designed to go in depth into the root cause of the issue.
As part of a Company with a strong commitment to successful GCG, the IA has an important role to play in the whistleblower mechanism which is the domain of the Audit Committee and the Executive Investigative Committee (“EIC”), wherein the Head of IA was appointed as secretary of the EIC. The whistleblower mechanism serves to accommodate any ‘whistleblowing’ by employees and forward such input to management. In turn, if the Audit Committee and EIC judge that certain whistleblower feedback needs to be investigated further, IA will take action to follow it up as part of its audit engagements.
Since 2007, the IA has been led by Tjatur Purwadi, SE, MM, an employee who has pursued a career in engineering design. He became involved in organizing and improving our accounting policy and eventually served as Vice President of Financial and Logistics Policy before becoming Head of the Internal Audit Unit.
Public Access to Information
Telkom’s corporate disclosures can be accessed through our website (www.telkom.co.id). Certain disclosures are published in print or electronic mass media or disseminated specifically to employees and their families. Some corporate information is also published in our internal magazine. In addition, we can be contacted directly at:
Grha Citra Caraka 5th Floor
Jl. Jend. Gatot Subroto No.52
Consistency of GCG Implementation in 2011
Our experience and learning in managing GCG has given us a better understanding of what it involves. We believe that in its implementation, GCG is a dynamic system that demands continuous strengthening and renewal in line with the changes in the business, and provides very tangible support for the growth of the business and the organization rather than restricting their flexibility. We are continuously aligning our implementation of GCG with the evolving dynamics of the business. To do this, our GCG implementation is integrated with the management of compliance, risk management and internal control. This practice requires us to be able to manage Governance, Risk and Compliance (“GRC”) in alignment with the management of our business performance and ensure the business as a going concern. Initially, implementing risk management was not easy, requiring time to master the competencies, achieve greater accuracy in recognizing the industry and organizational risks and embed a culture of risk within the corporate culture. However, thanks to the commitment, consistency and patience of the management, risk management is now making a very positive contribution to the planning and decision making processes, and reinforcing the implementation of GCG in the Telkom Group.
The following key activities have been implemented consistently to support GCG practices and ensure that it is aligned with the management of the business:
To ascertain our GCG performance, we undergo an annual assessment by the Indonesian Institute for Corporate Governance (“IICG”), an independent GCG rating institution in Indonesia. In its assessment process, the IICG conducted research and rated several public companies (issuers), SOEs, including Telkom, and other companies using the Corporate Governance Perception Index (“CGPI”). At the end of the process, Telkom was declared ‘The Most Trusted Company’ in line with the 2011 GCG assessment theme of “GCG as ethics”.
The CGPI assessment had four stages, with each given a different weighting:
Apart from the IICG assessment, we were also frequently selected for observation by other GCG rating agencies as we are seen as a benchmark or role model for other companies. Some of our other achievements with respect to GCG evaluation are as follows: