Corporate Governance

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Corporate Governance

PT Telekomunikasi Indonesia, Tbk. (TELKOM) differs from other public-listed companies in Indonesia. TELKOM is a public-listed company owned by the state (state-owned enterprise) whose shares are listed on the Jakarta Stock Exchange (JSX) and the Surabaya Stock Exchange (BES) and some overseas stock markets, namely the New York Stock Exchange (NYSE), London Stock Exchange (LSE) and issued in a public offering without listing (POWL) in Japan.

Concerning the implementation of corporate governance, being a state-owned enterprise (SOE), TELKOM is required to meet the regulations and laws, namely Law Number 19, 2003 in the SOE, particularly Article 5 and 6 point 3 and their explanations, and the Decree of the SOE Minister Number KEP-117/M-MBU/2002 on the Implementation of Good Corporate Governance (GCG) in SOEs, particularly Article 2 Point 1, which stipulates: SOEs are required to apply the GCG consistently and, or, make the GCG as the foundation of their operations.

As a go-public company, the demand for implementing the GCG is increasing. TELKOM is required to always comply with various terms and conditions issued by stock exchanges on which the Company's shares are registered and listed. As a multi-listed public company, TELKOM is required not only to meet all demands and rules issued by the Capital Market Supervisory Agency of the Republic of Indonesia (Bapepam, but also the United States Securities Exchange Commission (US SEC).

In other words, TELKOM's obligatory level for implementing the GCG is relatively higher than that of other public listed companies in Indonesia. TELKOM realizes that such demands constitute not only an “obligation”, but also a "need". Along with the increasingly tough competition in the telecommunication industry, TELKOM keeps striving to implement the GCG as a system that is closely linked with the Company's dynamism. TELKOM keeps boosting the GCG implementation, namely from a paradigm of a need to an internalization process, and then to be a corporate culture, and finally to become a system that strengthens the competitive advantage of the company.

TELKOM realizes the meaning and important role of the GCG as a vehicle to secure the Company's assets and boosting their long-term value for the shareholders. The effort to position the GCG as a system in TELKOM is closely linked with the endeavor to realize the Company's vision "to become a leading InfoComm player in the region".

Initially, the GCG spirit originated from the increasingly high demand for compliance from the stock exchange authorities and, therefore, it is very relevant for the publicly listed companies.

The core of the GCG policy is to enable the parties that run the companies to understand and implement their functions in accordance with their functions and responsibilities. The parties involved consist of the shareholders, board of commissioners, board of directors, heads of units and the employees.

To illustrate the implementation of the GCG in TELKOM, the examples of GCG implementations are grouped in accordance with the five key principles, namely transparency, independence, accountability, responsibility and fairness.

Transparency

the required disclosure of information and provide information for the stock market so that the Company's share price can reflect the value of the company and the projected income of the Company.

Table.1

Information transparency activities	Number of Activities	Date
Conference Call Quarterly Progress	4	Quarterly
Report Analyst/Investor Meeting	133	Twice a week
Public Expose	2	June and November 2006
AGMS	1	June 30, 2006
Press Release	14	as published
Road Show	2	May adn August 2006
Go Public Anniversary	1	November 14, 2006
New Ads
a. AGMS	4	May 24, June 8 and July 6
b. Financial Report	2	June 8, and July 31
c. Interim Dividend	2	Desember 8 and 22
d. Information Transparency	1	December 29

a. Transparency in the decision making process
Several examples of the implementation of the transparency aspect reached by the Company in 2006 include the information infrastructure development in the forms of the intranet and knowledge management. The knowledge management is the employees' means to give various information in the forms of articles and ideas in such a way that all TELKOM employees can have the access to them. Those who express bright ideas and innovations that can be realized will receive awards from the management or receive a certification (brevet) after being judged by the Board of Certification (Brevetisasi). In addition, TELKOM has also developed a communication means between the management and the employees, namely 'Send SMS to the President Director', which is expected to be used by the employees to provide direct input to the President Director if they find any irregularities. The Send SMS to the President Director also becomes a means for the employees to give input for the progress of the Company. The daily updated online media clip is used for internal information purposes.

b. Transparency to business partner
To boost transparency to all business partners, TELKOM applies the e-procurement and e-tender (e-auction) application and implement the vendor management module in the process of procuring goods and services. Due to e-procurement, the physical contact between the vendor/partner and the committee is minimized and all tender activities are done through a computer system so as to ensure the transparency. All vendors receive the same information.

c. Transparency in assessing employee performance
The implementation of employee competence assessment through the online assessment is conducted directly by the employee himself or herself, and involves his or her superior, fellow employee and subordinate, and also a document stating individual performance grades. The assessment center can also be used to know an employee's potential for certain position and promotion.

 Independency

Concerning the aspect of independency, TELKOM's Boards of Directors and Commissioners have their own independent views on every decision. In addition, TELKOM can possibly seek suggestions from an independent consultant, and legal consultant to support the work of the Boards of Directors and Commissioners.

The implementation of the independency in the financial sector leads to a positive condition of the Company's cash flow, which enables the Company to use its internal fund for most of its capital expenditure.

Meanwhile, the implementation of the independency in human resources is shown in the appointment of employees for certain positions. The short-listed candidates are selected through a job tender, while the appointment session and assessment tools are conducted through the assessment center by taking into account the results of individual performance grades, online assessment and assessment center.

Accountability

To uphold the accountability, the Company needs the clarity in the functions, implementation and accountability of the Company's organs to enable an effective management of the company. For instance, the function of the Board of Commissioners, the Board of Directors, supporting units such as the Internal Auditor Group, Corporate Secretary and other units in line with their respective function.

a. Accountability in Financial Reporting
The General Shareholders' Meeting constitutes a means for the Company's Board of Directors to be accountable for the Company's annual financial report. The report has been approved by the shareholders. In addition, the Directors' reports to the Board of Commissioners regarding the planned budget for the current period and the routine discussion between the Board of Directors and the Board of Commissioners on the performance evaluation of the quarterly and annual financial reports constitute forms of the GCG implementation in TELKOM, particularly in the aspect of accountability. Meanwhile, the submission of the annual and half-year financial report to the public is done through three print media with wide circulation.

b. Accountability Aspect in human resources
Concerning the effort to boost the performance of human resources, TELKOM has applied a reward and punishment system on all employees, which is linked with the current compensation system in the Company.

Responsibility

TELKOM always prioritizes the conformity of the company’s management with the existing law and healthy corporate principles. Each unit has its own separate task and function, having its own responsibility that is clearly written in the Company's policy, which is adjusted with the existing law and the healthy corporate principles.

Fairness

To meet the fairness aspect in the disclosure of information, TELKOM has applied equal treatment to both the majority shareholders as well as the minority shareholders, to domestic capital market authorities as well as overseas ones. The relationship among the employees is also maintained, namely by avoiding any discrimination, respecting the fundamental rights of the employees and giving equal opportunities, regardless of their age, ethnic group, race, religion and gender, treating them as valuable resources through a system of knowledge management and the SMS 3010.

In ensuring the fairness in the implementation of the remuneration system, the Committee for Remuneration decides on the salaries and bonuses for the Directors and Commissioners. In addition, TELKOM periodically conducts surveys on the level of remuneration in the telecommunication industry as well as the industry in general in Indonesia as material for the evaluation of the employee remuneration in TELKOM

In ensuring the fairness of prices in the provision of goods and services, TELKOM has provided an electronic auction service for the sales and procurement of goods called the e-auction, which serves as an initial platform for the establishment of e-procurement. Based on Presidential Decree Number 80/2003 on the Provision of Goods and Services, the principles in procurement are efficient, effective, open, competitive, transparent, fair and accountable.

Through the e-auction, TELKOM has tried to create transparency, accountability and efficiency in the tender implementation. TELKOM has provided a website, www.jalintrade.com, through the VPN-IP or the Internet for the e-auction purposes. Through the website, the Auction Committee also explains the terms and condition of the auction. Through the TELKOM data center, the administrator supervises the e-auction implementation. The server and application of the web-based e-auction are used by all e-auction customers. By using the e-auction for the procurement of software and hardware, Information Technology equipment, and telecommunication infrastructure, TELKOM can save up to 33% of the budget.

The Implementation of the Corporate Governance among the Commissioners

As of the end of 2006, TELKOM's Board of Commissioners consists of five commissioners, including the President Commissioner, and two Independent Commissioners, who were appointed in accordance with Regulation Number IX.1.5 of the Bapepam on the conflict of interest.

The Commissioners are required and or are allowed to form committees to assist the Commissioners in carrying out their tasks and responsibilities in applying the principle of corporate governance. The committees of the Board of Commissioners are: the Audit Committee, the Nomination, and Remuneration Committee and the Planning and Risk Assessment Committee.

1. Audit Committee
The task and responsibility of the Audit Committee are stipulated in the Charter of the Audit Committee, which was ratified by the Commissioners' Decree. The Charter of the Audit Committee is periodically evaluated and adjusted to the regulatory development of the Bapepam and the US SEC. The Charter of the Audit Committee was upgraded and ratified by Commissioners' Decision Number 20 KEP/DK/2006 dated September 11, 2006. The outline of the task and responsibility of the Audit Committee as stipulated in the Charter are supervising and monitoring in order to encourage and boost the following things:
a. integrity and reliability of the financial report;
b. effectiveness of the internal control system;
c. compliance with the regulations of the capital market and other regulations related to the Company's operation;
d. effectiveness of policies and implementation of the risk management carried out by the Directors;
In addition to those tasks, the Audit Committee also receives and handles complaints and carries out other tasks given by the Commissioners.

In reality, the Commissioners have distributed the tasks between the Audit Committee and the Risk and Planning Assessment Committee, which was also formed with the Commissioners' Decision. The distribution of tasks between the two Committees aims at enabling the Audit Committee to focus on supervising and monitoring the compliance with the regulations of the capital market and the financial reporting risks. Meanwhile, the supervision and monitoring on the compliance with the rules and risks related with the Company's operation is conducted by the Risk and Planning Assessment Committee.

2. The Nomination and Remuneration Committee
Based on the Decision of the Minister of State-owned Enterprise Number 117/M-MBU/2002 dated July 31, 2002 on the Implementation of the Practices of GCG in the State-owned Enterprises (SOEs), the commissioners can form nomination and remuneration committee. Based on the stipulation, the committee for nomination will be tasked to formulate the selection criteria and procedure for nomination of the commissioners, directors and other executives in the respective SOEs, formulate a valuation system and recommend the number of SOE commissioners and directors.

The committee for remuneration is tasked to formulate a compensation and benefit payment system and recommends the following:
a. Assessment of the system,
b. option to offer, among others, stock option,
c. retirement system,
d. compensation system and other benefits in the context of reducing the number of employees.

The Commisioners, based on the Decision of the Commisioner No.009/KEP/DK/2003, dated May 20, 2003 regarding the establishment of the Nomination and Remuneration Committee of PT. Telekomunikasi Indonesia, Tbk., have established the Nomination and Remuneration Committee which was amended by the Decision of the Commissioners Number: 003/KEP/DK/2005 dated April 21, 2005 on the Establishment of the Committee for Nomination and Remuneration of PT Telekomunikasi Indonesia, Tbk.

Based on the above mentioned Decision of the Commissioners Number: 003/KEP/DK/2005 dated April 21, 2005, the Committee for Nomination and Remuneration is tasked to:
a. Formulate a nomination and selection system for strategic positions in the Company, which refers to the corporate governance principles, namely transparency, accountability, fairness, and independence,
b. assist the Commissioners, who are with or in consultation with the Board of Directors, select the candidates for strategic positions in the Company, namely positions that are a level below the directors and the directors of consolidated subsidiaries, the selection of which will be submitted to the series A Dwi Warna shareholder,
c. formulate a fairness-based and performance-based remuneration system for the Company's directors. After obtaining the approval of the Commissioners, the remuneration system is submitted to the Minister of SOE as the shareholder of series A Dwi Warna share is to be processed for its ratification in accordance with the stipulation of the existing law,
d. the committee is also tasked to conduct an initial selection of candidates who are professional and own the competence for the director candidates of the Company, the selection of which will be submitted as input to the Minister of SOE as the holder of series A Dwiwarna share and the Minister of Communications and Information.

3. The Planning and Risk Assessment Committee (KPPR)
KPPR constitutes a redefinition of the Committee for Planning Assessment (KPP), which was established on July 16, 2003 through a Decision of the Company's Commissioners, with a broader scope of work on the risk assessment. The KPPR was established on May 19, 2006 through a Decision of the Company's Commissioners. The establishment aims at assisting TELKOM Commissioners to monitor and review the Company's planning process, including the use of the capital expenditure budget, and the implementation of the enterprise risk management in the Company by providing input in the form of an overall review.

Throughout 2006, KPPR conducted some activities, namely, among others, reviewing the implementation of the capital expenditure which had been approved in the annual budget, routinely evaluating the management performance, and reviewing the Company's Long-Term Plan (RJJP) or a corporate strategic scenario (CSS) for 2006-2010 and investment in its subsidiaries, and comprehensively evaluating the Company's 2006 plan and budget and that of 2007.

4. Investor Relations & Corporate Secretary
Investor Relations and Corporate Secretary unit that is led by a Vice President is put under the Head of Corporate Communication. The unit is responsible for preparing the information presentation in the process of maintaining the interrelationship between the Company, the shareholders and the stock exchange community so as to meet the shareholders’ needs in accordance with the required relationship structure. In addition, this unit also maintains a systematic feedback mechanism, which enables the management to respond to the dynamism of the shareholders and the stock exchange accurately and effectively

GCG Implementation among the Directors and Management

TELKOM Directors are responsible for formulating the policy, operating strategy and their implementation in the context of the Company management. The President Director is responsible for integrating the policy and resources of TELKOM for achieving the target and goal, and ensuring the policy implementation and the directors' working plan. Meanwhile, other directors are responsible for formulating the policy, expansion plan, and monitoring the implementation and administrative work in their respective working areas.

At of the end of 2006, the Board of Directors consisted of seven people, namely the President Director (CEO), Deputy Director (COO), Director of Network & Solution, Director of Consumer, Director of Enterprise & Wholesale, Director of Finance (CFO) and the Director of Human Resources, who are assisted by several committees, namely the GCG Committee, Committee for Discipline, Committee for Investment, Committee for Disclosure, Committee for Policy and Committee for Performance. The Committee for Disclosure consisting of 14 (fourteen) members, who are led by the Finance Director, and the main task of which is to evaluate and approve the company information that has to be disclosed to the public. The GCG Committee, also known as the 135 Patriot Committee, has seven members who are led by the Director for Human Resources. This Committee is tasked to supervise the process of any administrative action or legal action that should be taken by the company.

In addition, the directors are assisted by the SOA Management Unit, which is tasked to coordinate the integration of the Decigning and implementation process of the Company’s internal control, i.e., the Internal Audit Group that is tasked to monitor and assess the internal control implementation on the risk level faced by the Company, and improvement effort, including the settlement of auditing findings. 

Boards of Commissioners and Directors Meeting Mechanism 

The meeting of TELKOM Board of Commissioners should be conducted at least once in three months and at any time: (i) at the request of the President Commissioner, (ii) at the request of a third of the Board of Commissioners' members, (iii) at the written request of the Board of Commissioners or (iv) at the request of a shareholder or a group of TELKOM shareholders who control at least 10% of TELKOM’s share with voting rights. The Board of Commissioners' meeting reaches its quorum if more than half of its members are present or represented by another commissioner with a proxy. The meeting decision is taken after a consensus.

The Board of Directors' meeting is held in accordance with the need at the request of: (i) the President Director, (ii) at least a third of the directors, (iii) the directors or (iv) a written request from shareholders or a group of TELKOM shareholders who control at least 10% of TELKOM share with the voting right. The meeting reaches its quorum if more than a half of the Board of Directors are present or represented to other directors with a proxy. In the Board of Directors' meeting, each director has one vote and another additional vote from another director being represented.

The decision of the meeting is reached in a consensus. If the consensus fails to make any decision, the voting is held among members of the Board of Directors who are present or being represented at the meeting. If the number of votes turn out to be equal, the decision will be taken by the chairman of the meeting. The following tables, 2, 3 and 4, show the number of the meetings between the Board of Commissioners and the Board of Directors and the presence of its members in 2006. 

Table 2. Board of Directors' Meetings

Name	Title	Meeting Attended
Arwin Rasyid	President Director/CEO	42/45
Garuda Sudargo	Vice Presiden Director/CEO	43/45
Rinaldi Firmansyah	Director of Finance	43/45
John Welly	Director of Human Capital & General Affair	43/45
Guntur Siregar	Director of Consumer	45/45
Abdul Haris	Director of Network and Solution	41/45
Arief Yahya	Director of Enterprise & Wholesale	45/45

Table 3. Board of Commissioners' Meeting

Name	Title	Meeting Attended
Tanri Abeng	Chairman Commissioner	16/16
Anggito Abimanyu	Commisioner	4/16
Gatot Trihargo	Commisioner	16/16
Arif Arryman	Independent Commissioner	15/16
P.Sartono	Independent Commissioner	16/16

Table 4. Board of Commissioners' and Director Meetings

Nama	Title	Meeting Attended
Tanri Abeng	Chairman Commissioner	25/26
Anggito Abimanyu	Commissioner	12/26
Gatot Trihargo	commissioner	22/26
Arif Arryman	Independent Commissioner	20/26
P.Sartono	Independent Commissioner	25/26
Arwin Rasyid	Presiden Director /CEO	22/26
Garuda Sudargo	Vice President Director/CEO	23/26
Rinaldi Firmansyah	Director of Finance	21/26
John Welly	Director of Human Resources Development	13/26
Guntur Siregar	Director of Consumer	22/26
Abdul Haris	Director of Network and Solution	23/26
Arif Yahya	Director of Enterprise & Wholesale	16/26

Remuneration for Members of the Boards of Commissioners and Directors 

Every TELKOM commissioner receives a monthly honorarium and certain benefits, and bonuses, the amount of which is decided by shareholders in the Shareholders' General Meeting. Every commissioner also receives a bonus of appreciation money, which will be given at the end of the service period of that commissioner in accordance with the decision of the Finance Minister that is applied in all SOEs.

Each director receives a monthly salary and certain benefits (including the retirement benefit if he or she meets the requirement). Each director also receives an annual bonus (tantiem), the amount of which will be decided by the shareholders in the Shareholders' General Meeting. The bonus and incentive are budgeted in every year based on the directors' recommendation and the Board of Commissioners' approval. The Commissioners and the directors do not receive money for their presence in any commissioner meetings and or director meetings in which he or she is present.

The Remunerations of the BoD and BoC in 2006 are presented in the Table 5 & 6. 

Table 5. Board Of Directores' Remuneration 2006

Director	Salary	Annual Bonus	Insurance	Other benefits	Total
Arwin Rasyid	1,296.0	794.3	324.0	2,468.7	4,883.1
Garuda Sudargo	1,231.2	754.6	307.8	3,053.6	5,347.1
Rinaldi Firmansyah	1,166.4	1,429.7	291.6	2,602.7	5,490.4
Abdul Haris	1,166.4	1,429.7	291.6	2,600.7	5,488.4
Guntur Siregar	1,166.4	714.9	291.6	2,890.7	5,063.5
John Welly	1,166.4	714.9	291.6	2,217.7	4,390.6
Arief Yahya	1,166.4	714.9	291.6	2,216.2	4,389.1
Total	8,359.2	6,552.6	2,089.8	18,050.3	35,052.2

 

Table 6. Board Of Commissioners' Remuneration 2006

Commissioner	Salary	Annual Bonus	Insurance	Other benefits	Total
Tanri Abeng	536.0	635.4	54.0	1,337.3	2,562.8
Anggito Abimanyu	482.4	571.9	48.6	1,200.7	2.303.6
Gatot Trihargo	482.4	571.9	48.6	1,200.7	2.303.6
Arif Arryman	482.4	571.9	48.6	1,200.7	2.303.6
P.Sartono	482.4	571.9	48.6	1,200.7	2.303.6
Sekretaris Dekom	201.0	238.3	-	519.9	959.2
Total	2,666.8	3,161.3	291.6	6,660.0	12,736.5

Directors' and Commissioner's Shareowership 

Some directors and a commissioner of TELKOM own the Company's shares, the number of which reached 56,624 shares, or 0.0002809% of total shares in the Company. The following table shows such ownership as of December 31, 2006.

Table 7.Directors' and Commissioner's Shareowership

 

No	Name	Title	No.Shares	Precentage
1	Garuda Sugardo	Deputy President Director	16,524	0.0000820
2	Abdul Haris	Director	1,000	0.0000050
3	John Welly	Director	4	0.0000000
4	Guntur Siregar	Director	19,980	0.0000991
5	P.Sartono	Independent Commissioner	19,116	0.0000948
	Total		56,624	0.0002809