Board of Independent Commissioner Institutional Ownership

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2.1.5.2 Corporate Governance Structure

2.1.5.2.1 Board of Independent Commissioner

Board of commissioners are parts of the company in charge of organ and collectively responsible for supervising the management of the company held management directors, and is responsible for determining whether management fulfill their responsibilities in developing and organizing the companys internal control KNKG, 2006. An independent commissioner is a member of the board of commissioners who is not affiliated with the board of directors, other members of the board of commissioners and its controlling shareholder, as well as being free from the business relationship or other relationship which could affect its ability to act independently or act solely in the interest of the company Rao et al, 2012. The independent board is expected to conduct effective oversight as an independent commissioner has high integrity. Independent commissioner should ensure that the control mechanism works effectively and in accordance with the legislation. Besides being a supervisory function, independent commissioners also provide more guidance to directors to conduct their activities in a socially responsible way so that there is harmony between firm value and social value Khan, 2010.

2.1.5.2.2 Institutional Ownership

Shareholding composition has a significant impact on the companys control system. Ownership of the company can be divided into two types, namely concentrated and spread. Institutional ownership is concentrated ownership as 19 measured by the percentage of institutional shares divided by the total shares. Institutional investors are companies that raise and manage funds as investors and could be pension companies, leasing, banking, investment and insurance companies Lakhal, 2005 in Rao et al, 2012. Institutional investors as majority shareholder will reduce the effectiveness of the board of directors or company management. Investors who have large stocks will dominate and influence management decisions in exchange for shares in the invested company Solomon, 2007. With greater ownership concentration, firm are less likely to disclose their environmental activity Brammer and Pavelin, 2008 in Akbas and Canikli, et al 2014. Moreover, Rao, et al 2012 explain that the absence of powerful institutiona l ownership will influence on management’s decisions and the company is expected to be less independent under highly concentrated ownership.

2.1.5.2.3 Board of Commissioner Size