The instruction was part of efforts to encourage more companies to go public so as to reduce the cost of an initial public offering (IPO).

However, the regulation also raised concerns over good corporate governance because independent directors had been mandated in 2014 to protect investors.

Responding to the concerns, experts have called on investors to stay calm, given the fact that the good governance of publicly listed companies had nothing to do with independent directors.

“They don’t really do anything,” IDX corporate assessment director IGD N. Yetna Setia said, referring to independent directors.

He said the purpose of independent directors, as required by the IDX’s Regulation I-A on shares and other effects, was unclear and thus it would be more cost effective for companies to remove the position. “Furthermore, under the 2004 Limited Liability Company Law, [regular] directors have to be independent anyway to protect the interest of their entities,” said Yetna.

The removal of the requirement for independent directors is stipulated under a revised IDX regulation on shares and other effects, issued on Dec. 27, last year.

 “The independent directors had acted as friends to investors within a corporation,” said stock market observer Adler Haymans Manurung. “They guaranteed policies that benefited investors.”

Former IDX president director Tito Sulistio, meanwhile, said the bourse’s revision risked giving the public an impression that it “ignored investors’ interests.”

An Organization for Economic Co-operation and Development (OECD) survey of corporate governance framework said many Southeast Asian countries, including Indonesia, still required an independent director to protect investors.

Investor protection is, in turn, necessary to help Southeast Asian countries attract much needed local and foreign investment.

Data shows Indonesia still struggles to attract investment as its asset under management (AUM) in domestic mutual funds was last recorded at Rp 700 trillion (US$48.14 billion), compared to Singapore’s Rp 30 quadrillion.

Indonesian investors also only amount to less than 1 percent of the country’s 265 million population, lower than Singapore (26 percent) and Malaysia (7.8 percent).

“Erasing the requirement [for independent directors] is actually alright as long as good corporate governance regulations are strengthened [to compensate the independent directors]. That way, the risk is still properly managed,” said Adler.

Andreas Sugihardjo Tjendana, an independent commissioner for PT Sentra Food Indonesia (FOOD), concurred with Adler, saying that good governance could still be maintained through independent commissioners, who had better-defined roles than independent directors.

Financial Services Authority (OJK) Regulation No. 33/2014, for example, states that independent commissioners monitor and advise the board of directors, comprise at least 30 percent of the board of commissioners and are members of the auditing committee.

“We already have one monitoring position, no need for a second one,” said Andreas.

He also supported the revision because independent directors, as newcomers in a company, often disrupted the “synchrony” of the board of directors with their limited familiarity of the organization.

As to the fate of independent directors, Andreas, who is also an independent director for sister company PT Super Energy (SURE), said it would depend on the compatibility of the directors and independent directors of each company.

“If the directors feel they work well with the independent director, they’ll appoint him as a regular director. If not, he’ll be removed.” he said. (waw)

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