18 July 2008
The Securities and Exchange Commission has raised the required number and qualifications of independent directors and audit committee members to be congruent with international standards which have recently been revised to improve global corporate governance.
The amended requirements are detailed in the Capital Market Supervisory Board's Notification No. Tor. Jor. 14/2008 Re: Application for and Approval of Offer for Sale of Newly Issued Shares dated 2 June 2008 (the "Notification"). Under the Notification, a public limited company intending to do an Initial Public Offering ("IPO") or Public Offering ("PO") must have at least one third of the members of its board of directors, but not less than 3, as independent directors. The required member of audit committee members, which is 3, was not changed, but the minimum qualifications of such audit committee members are now more stringent pursuant to the Notification.
Previously, a publicly listed company was required to have at least 3 independent directors. This required number has been amended to one third of the total directors provided that in any event there shall be no less than 3. This means that a publicly listed company which has 15 directors must have 5, instead of 3, independent directors.
The qualifications of independent directors have essentially remained unchanged. The few changes aim to further strengthen the "independence" of these directors. For example, shareholdings in the company by an independent director cannot exceed 1% now, compared with the old regulations which allowed an independent director up to 5% shareholdings. In addition new terms and definitions have been added to complement today's corporate environment. These include such terms as "Company with the Same Parent Company", which is a company which has and shares the same controlling company with another company, and "Director having a Management Role" who is a director involved in the day-to-day management and operations of the company.
The requirement that a publicly listed company shall have at least 3 audit committee members remains unchanged. However, the disclosure of the experience of the audit committee members as well as their knowledge in auditing financial statements is now required.
The new requirements shall apply to companies submitting applications for IPOs from 1 July 2008. Listed companies which submit applications for POs need to comply with the Notification by the time they hold their respective Annual General Meetings in 2009.
A copy of the full details of the Notification may be provided upon request.