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Implementation of the Company’s Good Corporate Governance

The following narratives further exhibit the policies and implementation of the Company’s good corporate governance in comparison with the Indonesian Principles of Good Corporate Governance.

No. Principles and Recommendations Adaro’s Practices
1 Good Corporate Governance Principles  
  GCG principles need to be implemented at each business facet and within the entire company, and includes transparency, accountability, responsibility, independency and fairness. The essence of corporate governance has been consistently applied by the management and the formal system to support the implementation of the GCG has been continuously improved through the formalization of the disclosure policy, committee and team members (including persons in charge at the subsidiaries level). Audit Committee and Internal Audit Unit were both established in January 2009 to assist in the oversight activities while complying with capital market regulations. Both the Audit Committee and Internal Audit Unit have completed their charters.
2 Business Ethics and Code of Conduct  
  To attain long-term success, GCG implementation needs to be based on high levels of integrity. Sets of values need to be developed that describe the morals of the company in conducting its business, which are then further elaborated into a code of conduct. The Company has developed a set of core values for the entire Adaro Group. A part of the code of conduct was formalized such as a gratification policy and has been disseminated and distributed to all employees.
3 Organs of the Organization  
  The GMS, the BOD, and the BOC have an important role in implementing GCG effectively. By carrying out their respective functions based on the principles that each organ is independent in carrying out its duty, they function in the sole interest of the company. The BOD currently consists of 7 Directors who are in charge of managing Adaro and its subsidiaries. A board manual that assigns the rules and responsibilities of each Director is currently being developed to ensure the accountability of all directors’ actions.

During most part of the year, the BOC consists of 6 members who are mostly representatives of the ultimate shareholders including 2 independent commissioners. One of the independent commissioners is the Head of Audit Committee.

The diverse background of the members of the BOC and BOD provides the necessary expertise and qualifications.

In the decision making process, risk management approach has been implemented at both the senior management and executives levels. Going forward, formal sets of committees and policies will be established.

Management has declared its vision and mission statements and these statements have been disseminated throughout Adaro Group.
4 The Rights and Role of the Shareholders  
  Shareholders as owners of share capital have certain rights and responsibilities within the company in accordance with the laws and regulations and the Articles of Associations of the company. Adaro’s Articles of Association have complied with both Indonesian Company Law No. 40 Year 2007 and with Bapepam-LK regulations.

While conducted in the spirit of achieving mutual consensus, GMS decisions are made by voting. Voting is only valid if cast by more than half of the attendees, following the stated quorum.

Management invites shareholders to attend the GMS through the publication of detailed information of the GMS in 2 nationally circulated media

Adaro regularly reports changes in the shareholdings of the BOC and BOD.

Adaro’s Articles of Association (AoA) stipulates that all material transactions where there may be a conflict of interest must have GMS approval whereas ultimate shareholders with conflict of interest must cast their votes in an agreement with independent shareholders. The quorum required for this exercise is at least half of total independent shareholders and the vote is valid only if approved by more than half of the attending independent shareholders.
5 The Rights and Role of Stakeholders  
  Stakeholders including employees, resource providers, and communities, particularly in which the company operates, have an interest in the company and are directly affected by the strategic and operational decisions of the company. Therefore, the relationship between the company and its stakeholders needs to be fair and equal, in accordance with the prevailing laws and regulations, and should be based on mutual arrangements applicable to each respective party. Adaro maintains a register of shareholders through the Company’s Shares Registrar (PT Ficomindo Buana Registrar) in accordance with prevailing laws and regulations and the AOA. Adaro regularly provides information updates to its stakeholders through disclosures listed in the IDX website and press releases. Resolutions of the Company’s GMS are published in 2 nationally circulated medias, the IDX website as well as the Company’s website.

Adaro will continually improve its human resources practices, as well as develop and implement a code of conduct, improve labor agreements, and systems to detect breaches of the code of conduct.

Control over suppliers is managed through Quality-Cost-Delivery criteria where only companies that meet this criterion become suppliers. Evaluation of the effectiveness of this policy is on-going.

Adaro had established a social foundation (Adaro Bangun Negeri) to better govern and manage community development and corporate social responsibility programs.
6 Statement of GCG Implementation  
  A statement regarding the implementation of GCG shall be made a part of the company’s annual report. In the event that GCG has not been fully implemented, a company shall disclose the non-conformance aspects and the reasons for such. The statement shall comprise the structure and working mechanism of the BOC and the BOD, and other pertinent information regarding the implementation of GCG. The BOC and BOD as well as the Company’s committees conduct regular meetings. The attendance and the minutes of the Boards meetings are recorded and documented.

Adaro plans to establish Remuneration and Nomination as well as Risk Management committees in the near future.

Going forward, Management will seek to employ independent third parties, to audit and provide attestations on the corporate governance statements.
7 Institutionalization of GCG Practices  
  GCG shall be implemented in a systematic and continuous manner. Accordingly, it is necessary to have practical guidelines to be used as a reference in implementing GCG. Adaro has made progress in improving its governance practices exhibited in the establishment and implementation of governance aspects throughout the year as stated in the above mentioned points.