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Additionally, “International Finance Corporation” and “IFC” are registered trademarks of IFC and are protected under international law. BUSINESS Provides transportation services in Indonesia with a focus on four verticals: taxis, limousines, car rentals, and chartered buses LOCATION Indonesia SECTOR Transportation 2016 PROFIT US 36.9 million (Source: 2016 Annual Report) TYPE Publicly traded (IDX) # EMPLOYEES 3,961 (Source: 2016 Annual Report) # TOTAL FLEET +35,000 IFC ASSESSMENT DATE August 2015 Blue Bird Tbk, a leading transport group in Indonesia and that value creation would come from better management that owns and operates more than 15 subsidiaries, was of risks. By spearheading a review of its CG, Blue Bird showed incorporated in 2001 and went public in 2014. The Company its proactive stance and foresight. has consistently displayed positive performance, as demonstrated by its reported net revenue of US 353 million in 2016. WHAT DID THEY CHANGE? As a leading passenger transportation company in Indonesia, In April 2016, IFC conducted a diagnostic of Blue Bird’s CG Blue Bird currently has a fleet of more than 35,000 vehicles practices and developed a practical, action-oriented plan to serving more than 10 million passengers per month in 17 help the Company improve its governance structures and di erent locations throughout Indonesia. Its core business practices. In collaboration with IFC, Blue Bird developed a lines include regular taxi services, executive taxi services, comprehensive CG Manual to clearly outline how the limousine and car rental services, and charter bus services. The Company should be governed. To enhance the e ectiveness of Company plans to expand both its taxi and non taxi business its boards and more clearly delineate their roles and through geographical expansion and new business responsibilities, TORs were created for BoC and BoD members opportunities while continuing to invest in improving as well as for board-level Committees and the Corporate e ciency across all business segments. Secretary. The composition of the BoC and BoD was reviewed to ensure that both boards would be led by capable, independent members equipped with the expertise necessary WHY CHANGE? to steer the Company moving forward. To improve the capacity for monitoring risks, the Company strengthened its Following its IPO, Blue Bird approached IFC to support the Internal Audit Unit and established a more formal risk Company’s e orts to strengthen its corporate governance (CG) management framework. With expectations of transforming framework and policies to go beyond compliance with local from a privately held family business to a rapidly growing regulations and align the company’s governance with public company, the founders explored the development of a international leading practices and standards. The decision to family governance framework, including a family constitution, engage IFC Corporate Governance Group was a strategic one in order to set the vision, values, and policies regulating the that was in line with Blue Bird’s overall growth strategy. Blue family relationship with the business and ensure the continuity Bird Group’s dramatic transformation from a modest of Blue Bird for generations to come. family-owned business into a professionally run listed company and one of Indonesia’s leading transportation providers required a significant re-configuration in the company’s governance structure and practices. The Company wanted to set a tone at the top that highlights Mr. Purnomo, Blue Bird Group Founder the importance of CG. However, since many members of the Board of Commissioners (BoC) and Board of Directors (BoD) “As a family-owned company, were relatives, the leadership knew they needed to develop the growth of our business was no di erent formal board charters and terms of reference (TORs) to clearly than any other startup. We started small but over time articulate the roles of the BoC and BoD and clarify the became one of the largest transport groups in Indonesia. responsibilities of each body within the organization. In terms With IFC’s support, we have developed a robust corporate of internal controls, Blue Bird’s Internal Audit function needed governance framework and key policies improvement and dedicated resources to monitor systemic to ensure that our business continues to serve the interests risks. Regarding the treatment of shareholders, the Company of all our stakeholders (including our sta , employees, did not have policies to address conflicts of interest, insider customers, and our investors) and be trading or related party transactions, which was problematic a corporate governance leader in our industry.” since family members were represented in the BoC and BoD of both Blue Bird and a liated companies. The founders understood that better governance would bring added value SUMMARY OF KEY CHANGES KEY CHALLENGES KEY CHANGES Commitment to Corporate To clearly demonstrate their Developed a more formal governance Governance commitment to CG, the founders framework starting with a CG Manual wanted to put in place a proper that outlined the principles of governance and family governance governance and a Code of Conduct that framework and establish CG policies defined Blue Bird’s ethical values. and codes beyond regulatory Disclosed these codified documents to requirements. shareholders, sta , and the public. Board E ectiveness Composition: The industry experience Composition: The BoD added an and functional skills of BoD members additional independent Director was appropriate, however the size (4 una liated with the family, who Directors) was limited. currently serves as the CFO. Structure: Since the majority of BoC Structure: Leadership worked to find and BoD members were family the right equilibrium in terms of size members and not independent, and and balance between family and their experience was concentrated on non-family members and oversight of the Company’s industry, there were management to avoid conflicts of challenges in terms of oversight of interest. management who, in many cases, were also family members. This represented a Roles: Created a Board Charter and potential conflict of interest at times. documented the responsibilities of the BoC and BoD, including their TORs, in Roles: No formal board charter to the CG Manual and Charter. establish roles of the BoC and BoD. Corporate Secretary: Developed TOR Corporate Secretary: No documented to define the responsibilities of the roles for the Corporate Secretary. Corporate Secretary based on best practices. Procedures: Informal board working procedures, in particular for BoC Procedures: Incorporated provisions meetings and in the quality and depth for board meeting procedures in the CG of board papers to help Commissioners Manual. Established a formal annual and Directors in their oversight duties. calendar of BoC and BoD meetings and enhanced meeting packages and Evaluation: No established process for agendas. Ensured board materials were evaluating BoC and BoD members. shared 5 days in advance of meetings. Succession Planning: No formal, clear Evaluation: Instituted a formal process succession plan or process. for evaluating BoC and BoD members and as a group annually with formal objective-setting procedures to serve as KPIs. Succession Planning: The BoC, led by the Nomination and Remuneration Committee, identified key senior management positions for consideration. Established emergency interim plans and targeted individuals who could fulfill each role. Set up a longer term strategy to nurture internal talent. Management Control Internal Audit: With 11 members, the Internal Audit: Widened scope of work Internal Audit Department’s scope was plan to focus on risk-based audit, IT narrow and focused on financial audit, operation and accounting audits, aspects including fraud detection and and files recording/archiving. SUMMARY OF KEY CHANGES KEY CHALLENGES KEY CHANGES Management Control mismanagement of cash collection and Strengthened Internal Audit function to reconciliation. ensure it provided input to the BoC’s Audit Committee and independent Compliance: There was no assurance on the e ectiveness of whistleblower policy. controls and risk mitigation practices. Compliance: Established organization-wide whistleblower policy for drivers and customers. Disclosure and Transparency Public Disclosures: Annual Reports Public Disclosures: Provided more were not completed with high quality detailed information in English on the financial and non-financial information. CG framework in the Annual Report The website lacked information on CG and on the website. policies. External Auditor: Audit Committee External Auditor: The GMS selected tasked with selecting the external the external auditor. auditors and given authority to monitor and oversee their work. Shareholder and Stakeholder Shareholder Protection: Informal Shareholder Protection: Formally Relations policies existed to protect minority improved practices in treating all shareholders. shareholders, including minority shareholders, fairly and equitably. Conflicts of Interest/RPTs: No policies Formalized AGM in terms of in place on conflicts of interest or RPTs. notification time, meeting agenda, Family members were members of the advanced sharing of materials, voting BoC and BoD of both Blue Bird and its mechanisms, proxies, and shareholders’ sister or parent companies. rights to information and representation. Dividends: No transparent or easy mechanisms for determining the Conflicts of Interest/RPTs: Developed amount of dividends to be distributed policies to ensure family members are to shareholders. not involved in conflicting business decisions nor are they permitted to serve on the BoC and BoD at Blue Bird and other Group subsidiaries simultaneously, to ensure transactions were conducted at arms’ length terms. Dividends: Adopted a clearly stated and rational dividend policy in line with shareholder preferences and best practices. IMPACT REPORT BLUE BIRD REPORTED THE FOLLOWING IMPACTS TWO YEARS AFTER EMBARKING ON THE CHANGES: Access to Capital Although the Company has never had a problem accessing capital, Blue Bird reported US 295 million in financing facility since major corporate governance changes were implemented. Sustainability Corporate Governance changes laid a critical foundation for the company to ensure its longevity and long-term sustainability. The positive steps taken by Blue Bird to address key governance issues, including family governance, will help ensure an appropriate balance between the family and the business. Board Oversight Blue Bird achieved clarity of roles and improved coordination among key governance functions through the development of board charters and improved board working procedures, which further strengthen the BoC’s oversight capacity and strategic stewardship of the Company. Reputation Blue Bird’s already strong reputation has been reinforced by demonstrating its commitment to international corporate governance best practices. Strong and transparent governance practices have also bolstered the Company’s reputation and image as the best in class, thus allowing Blue Bird to attract highly qualified professionals in a market where competition for talent is fierce. Transparency The Company’s disclosure practices have improved substantially, making Blue Bird one of the most transparent companies in the Indonesian market. In 2017, Blue Bird received the Indonesia Corporate Secretary Award from Warta Ekonomi magazine. This award was given to companies that have implemented good corporate governance practices and are committed to transparency, accountability, responsibility, independence, and fairness. IMPACT SCORECARD Access to Capital Profitability Reputation Organizational E ciency Sustainability Board Stewardship & Decision-Making Risk Management & Control Negligible Minor Moderate Strong Substantial Value of financing facilitated: US 295 million BUSINESS Active investment holding company in Southeast Asia focused on early and growth stage companies, with an emphasis on sectors that support Indonesian economic development. LOCATION Indonesia SECTOR Financial sector (focused on natural resources, infrastructure, and consumer products and services) 2016 NET PROFIT US 453 million TYPE Publicly Traded (IDX) # EMPLOYEES 52 (Source: 2016 Annual Report) # PORTFOLIO COMPANIES 22 operating companies, 11 Publicly Listed +20,000 employees (Source: company website) IFC ASSESSMENT DATE December 2013 “Our commitment to corporate governance is not merely to support our own growth and ensure the long-term sustainability of our business. We want to set an example for our investee companies. We also replicate key corporate governance principles and changes at our investee companies. By implementing IFC’s recommendations, we have new insights into the key role played by corporate governance as we pursue new investment opportunities and help catalyze corporate governance changes at our investee companies.” Mr. Jerry Ngo, Independent Director and Chief Financial O cer Saratoga Investama Sedaya is a leading the Company’s current performance and further prepare the active investment company headquartered in Jakarta, organization for continued growth. To drive more e cient Indonesia. The Company boasts a Net Asset Value of over US decision making structures and address other challenges that 1.4 billion and directly employs 52 people. Founded in 1998, impeded progress, the roles and responsibilities of the BoC and Saratoga takes an active role in managing its investee BoD needed to be documented and formalized. Additionally, companies with a blended focus on promising early and Saratoga’s Internal Audit and Risk Management capacity growth stage companies, special situation opportunities, as warranted strengthening and policies to manage conflicts of well as blue chip sector leaders. Investments are targeted on interest, insider trading, and RPT’s needed to be developed and sectors that support Indonesian economic development, enforced. Leadership was committed to ensuring that its including natural resources (50%), infrastructure (39%), and governance practices were in line with market expectations. consumer products and services (11%). Saratoga has amassed a portfolio of 22 companies with over 20,000 employees with a goal of actively managing these investments and growing WHAT DID THEY CHANGE? them into listed companies. In October 2013, IFC conducted a CG Assessment to help Saratoga was listed on the IDX in 2013 and it currently has a Saratoga improve its governance structure and practices market capitalization of US 717 million (Reuters, March 19, following its recent listing on the IDX. The CG framework was 2017). The Company formally launched its CG Code and Code evaluated for gaps between actual practices and requirements of Conduct in June 2014. Saratoga is dedicated to exercising the for listed companies in Indonesia. In the last two years, the principles of good corporate governance across all of its Company made great strides in improving its CG practices operating units and believes that this will enhance through activities such as finalizing the BoC and BoD Charters, performance, increase investor trust, improve amending the Nomination and Remuneration Committee communications, and protect the interests of all stakeholders. Charter and the Audit Committee Charter, and updating the Investment Committee Charter to comply with new OJK regulations. Saratoga established Internal Audit and Risk WHY CHANGE? Management units shortly after its public listing. A robust Investor Relations (IR) Unit was set up in 2015 to provide Saratoga’s founders desired to be recognized as a market public access to the Company’s information via an IR section leader in the implementation of good CG, but they realized on the website. A Code of Conduct, which included related that the Company first needed a proper governance party transaction and whistleblower policies, was adopted in framework. Since going public in 2013, Saratoga’s primary focus 2014. The IPO was a key catalyst that motivated Saratoga to was to ensure compliance with local listing requirements. The revamp its CG policies and build a CG Code on par with founders acknowledged that changes were needed not only to international standards and regional best practices. meet Indonesian capital market regulations, but to optimize SUMMARY OF KEY CHANGES KEY CHALLENGES KEY CHANGES Commitment to Corporate The founders, members of the BoC and Developed a CG framework with active Governance BoD, and senior executives were support from the BoC and Corporate committed to good CG. The will to Secretary. Created a CG Code/Manual improve CG practices was evident, which outlined the Company’s however even after the IPO, the principles of governance practices. Company still needed to put in place Codified principles of the BoC and BoD more formal governance structures and and disclosed them to shareholders, the processes, develop a CG Code and Code public, and to sta . A Code of Conduct of Conduct, and build a professional CG was also developed. framework. Board E ectiveness Composition: The BoD had 4 Directors. Composition: Although the BoC did BoC size was appropriate with 5 not revise its composition, the BoC Commissioners (2 independent), successfully oversaw the however the balance of skills required implementation of significant corporate enhancement. governance changes within the Company. In 2015, the Commissioners Structure: Lack of clarity as to the participated in an external CG training respective roles of the BoC, BoD, and (“Going Beyond External Compliance”). management. No annual board plan to clarify all areas of responsibility. There Structure: Defined and documented were three Committees: Audit, the roles and responsibilities of the BoC Nomination and Remuneration, and and BoD in the CG Manual. Developed Investment. No formal BoC or BoD respective charters to clarify the charters. No TORs for the roles of segregation of duties, including TORs Commissioners and Directors as well as for Commissioners and Directors. the scope of work of individual Developed an annual board plan to Committee members. ensure all areas of responsibility were worked into BoC agendas. Investment Committee: The Committee was under the authority of Investment Committee: Made the BoD. The BoC delegated its modifications in the Investment Policy authority to the President within the Investment Charter. Commissioner, so there was an unclear Decisions required unanimous delineation of authority between the agreement of all members and an BoC and BoD. Questionable whether acknowledgement from the President investment decisions taken by the Commissioner, as appointed by the BoC Committee were in line with the RPT to supervise the Investment policy and that risks associated with Committee. Authorized the Investment investing in new ventures were Committee to regularly report its considered by the BoC. activities during BoC meetings. The BoC, through the Audit Committee, Procedures and Corporate Secretary: periodically reviews the decisions taken Informal working procedures, especially by the Investment Committee to ensure for BoC meetings. Members of the BoD alignment with the Investment Policy. also attended BoC meetings. Needed to formally and comprehensively Procedures and Corporate Secretary: document board minutes and publish Documented board meeting procedures outcomes. As part of the listing in the CG Manual, including provisions requirements, hired a Corporate on a formal agenda and advance Secretary with strong legal background briefing materials. Regular BoC yet still lacked formal TOR or clarity of meetings held according to annual reporting lines. schedule. Several BoC meetings scheduled to be followed by joint Evaluation: No formal individual meetings with the BoD. Developed TOR evaluation process or a process for to clarify the scope of work of the evaluating BoC members as a group. No Corporate Secretary, who reports objective setting process to establish directly to the President Director. The key performance indicators for Corporate Secretary attended Directors. SUMMARY OF KEY CHANGES KEY CHALLENGES KEY CHANGES Board E ectiveness Succession Planning: Informal competence development programs in succession plan in place involving the financial management and IFC’s Master top leadership position in Saratoga, and Program for Corporate Secretary each BoD member identified his/her Training. own potential successors. Nomination and Remuneration Committee did not Evaluation: Criteria for evaluations formally develop a succession plan for more clearly documented and linked to senior management or a succession the defined roles of the BoC in the CG plan strategy to nurture internal talent. Manual, Board Charter, and the Commissioner’s TOR. Remuneration for BoC members based on the performance of the BoC. The Nomination and Remuneration Committee mandated to determine the remuneration of Commissioners. BoD members’ remuneration was based on the Company’s performance against budget, business targets, and industry benchmarks. Succession Planning: As part of the HR program, Saratoga developed succession and talent management plans for members of the BoC, BoD, and strategic positions within senior management which are formally overseen by the Nomination and Remuneration Committee. Management Control Structure: As a public company, Structure: Established an Internal Saratoga still needed to establish its Audit Unit and hired a head of Internal Internal Audit function and formalize its Audit. planning, monitoring, and risk management processes. Risk Management: Established a Risk Management Unit (RMU), integrated Risk Management: Business and into the CG assurance alongside the investment risk function embedded in Internal Audit and Compliance units. scope of Investment Committee and its RMU’s role is to identify, assess, pre-investment process. No systematic, manage, and monitor risks with the enterprise-wide risk management BoD and business unit heads. Risk framework that encompasses its culture is more closely embedded portfolio companies. No risk within Saratoga. BoD was active in management system documented or implementation of risk management approved by the BoC and BoD. while Audit Committee oversaw the RMU and escalated issues to the BoC. Internal Audit: Compliance driven as required by the capital market Internal Audit: Formalized the role of regulators. The head of Internal Audit the Internal Audit Unit in the Internal needed to establish and formalize the Audit Charter. The Internal Audit Unit internal audit review process, expanded to include a Head and Senior procedures, and work plans. The O cer directly accountable to the sta ng capacity needed to be President Director with close ties to the improved. Audit Committee to provide assurance to the BoD. Cooperated with internal Compliance: The role was handled by audit throughout investee companies the legal department and Corporate and formulated an annual work plan Secretary. No whistleblower policy or which was approved by the BoD and system in place in either the holding or Audit Committee. Auditors received portfolio companies. structured and continuous training. SUMMARY OF KEY CHANGES KEY CHALLENGES KEY CHANGES Management Control Compliance: The Audit Committee was responsible for compliance with applicable internal and external regulations. Established an o cial mechanism for whistleblowers to report misconduct as defined in the CG Code and Code of Conduct of the Company. Disclosure and Transparency Public Disclosures: Did not disclose CG Public Disclosures: Disclosed all Manual, Code of Ethics, or relevant relevant CG specific materials on the governance related policies on the website. website or to shareholders. Conflicts of Interest/RPTs: Developed Conflicts of Interest/RPTs: No policy Code of Conduct that includes conflict or mechanism to deal with conflicts of of interest, insider trading, related party interest, insider trading, and issues with transactions, and whistle-blowing RPTs. policies. Shareholder and Stakeholder Shareholder Protection: No Shareholder Protection: Formally Relations shareholder relations function to ensure established and improved the equitable treatment of shareholders. Company’s policy and practices on Needed to improve its shareholders’ treatment of shareholders, particularly meeting policy. minority shareholders. Enhanced shareholder meetings by formalizing the meeting notification and organization of the annual GMS (e.g., notification time, meeting, agenda, meeting papers, representation, voting mechanisms, proxies, etc.). IMPACT REPORT SARATOGA REPORTED THE FOLLOWING IMPACTS FOUR YEARS AFTER EMBARKING ON THE CHANGES: Access to Capital CG policies implemented by Saratoga have had a strong impact on its ability to access capital, providing a one percent saving in the cost of capital annually, improving its credit score, and providing opportunities to diversify its funding sources. Corporate Governance Catalyst Saratoga has replicated the Company’s CG structures and policies in its investee companies, moving from a CG Champion to a CG Catalyst. Strong and transparent governance structures both within Saratoga and its portfolio companies have yielded consistent profits and maximized shareholder value. Organizational E ciency The adoption of various CG policies has improved Saratoga’s organizational e ciency and contributes to e ective decision making. The Company reported improved clarity in roles and responsibilities, which allows the Company to adopt a lean and e cient structure unburdened by many layers of bureaucracy. Risk Management Risk management has improved significantly following the establishment of the Risk Management Unit. The Unit, under the supervision of the Audit Committee, regularly identifies and reviews key risks to the business and appoints a key risk champion for each respective department, thereby building an overall strong risk awareness and risk culture. Internal Audit Saratoga’s Internal Audit Unit plays a significant role in identifying and conducting high risk audits and pressure points within its portfolio companies, thereby ensuring the e ectiveness of internal controls and the control environment throughout the Group. Reputation The implementation of corporate governance changes has built greater trust, confidence, and positive perception that inspired market confidence. Saratoga is consistently perceived as a reliable and responsible business with solid corporate governance structure and practices by investors and other stakeholders. IMPACT SCORECARD Access to Capital Profitability Reputation Organizational E ciency Sustainability Board Stewardship & Decision-Making Risk Management & Control Negligible Minor Moderate Strong Substantial Value of financing facilitated: US 350 million Contact Us: About IFC Corporate Governance Group Chris Razook Corporate Governance Lead The Group brings together sta from investment and advisory operations into a +852-2509-8512 single, global team. This unified team advises on all aspects of corporate crazook@ifc.org governance and o ers targeted client services in areas such as increasing board e ectiveness, improving the control environment, and family businesses Leyal Savas governance. The Group also helps support corporate governance improvements Program Manager and reform e orts in emerging markets and developing countries, while +84-8-3823-5266 leveraging and integrating knowledge tools, expertise, and networks at the global lsavas@ifc.org and regional levels. ifc.org/corporategovernance