Corporate governance compliance in banking industry: The role of the board

Zulfikar, Rudi et al. Article Corporate governance compliance in banking industry: The role of the board Journal of Open Innovation: Technology, Market, and Complexity Provided in Cooperation with: Society of Open Innovation: Technology, Market, and Complexity (SOItmC) Suggested Citation: Zulfikar, Rudi et al. (2020) : Corporate governance compliance in banking industry: The role of the board, Journal of Open Innovation: Technology, Market, and Complexity, ISSN 2199-8531, MDPI, Basel, Vol. 6, Iss. 4, pp. 1-18, https://doi.org/10.3390/joitmc6040137 This Version is available at: https://hdl.handle.net/10419/241523 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Journal of Open Innovation: Technology, Market, and Complexity Article Corporate Governance Compliance in Banking Industry: The Role of the Board Rudi Zulfikar 1, Niki Lukviarman 2, Djoko Suhardjanto 3, Tubagus Ismail 1,*, Kurniasih Dwi Astuti 1and Meutia Meutia 1 1Department of Accounting, Faculty of Economic and Business, University of Sultan Ageng Tirtayasa, Jalan Raya Jakarta KM 4 Serang, Banten 42123, Indonesia; [email protected] (R.Z.); [email protected] (K.D.A.); [email protected] (M.M.) 2Department of Accounting, Faculty of Economic and Business, University of Andalas, Limau Manis, Kec. Pauh, Kota Padang 25163, Sumatera Barat, Indonesia; [email protected] 3Department of Accounting, Faculty of Economic and Business, University of Sebelas Maret, Jl. Ir Sutami No.36 A, Pucangsawit, Kec. Jebres, Kota Surakarta, Jawa Tengah 57126, Indonesia; [email protected] *Correspondence: [email protected] Received: 30 August 2020; Accepted: 16 October 2020; Published: 10 November 2020   Abstract: This study seeks to supply empirical evidence for how board characteristics influence corporate governance compliance in the Indonesian banking industry. Corporate governance compliance level represents a company’s actions to fulfill regulatory obligations that aim to protect the public from potential investment losses in the banking industry. This research was conducted by analyzing the influence of board characteristics, specifically how a board of commissioners’ institutions and their instruments affect corporate governance compliance. The entire banking industry, which was listed on the Indonesia Stock Exchange from 2010 to 2015, was employed as the population for this research. Purposive sampling was used as the sampling technique, resulting in 195 observations. To test this study’s hypotheses, multiple regression was applied as the data analysis method. The results revealed that the size of the board of commissioners, the proportion of independent commissioners, the experience of commissioners, and the size of the audit committee were factors that encouraged management in the banking industry to improve their firms’ corporate governance compliance. This indicates that monitoring from the board acts as an effective mechanism for reducing information asymmetry. This research also proves that open innovation following regulations can increase compliance with laws. Keywords: Corporate governance; board; commissioners’ board; audit committee; risk-monitoring committee 1. Introduction When the Asian Corporate Governance Association (ACGA) conducted an annual survey related to the application of corporate governance (CG) in various countries, as shown in Table 1Indonesia came in 11th place after other Southeast Asian countries, such as Thailand (5th), Malaysia (6th), and the Philippines (10th) [ 1 ]. This demonstrated that companies in Indonesia still scored relatively low compared to companies in other countries regarding its compliance level for implementing corporate governance. For the Indonesian banking industry, results [ 2 ] showed that it scored only 4 out of 10 for transparency and accountability. J. Open Innov. Technol. Mark. Complex. 2020,6, 137; doi:10.3390/joitmc6040137 www.mdpi.com/journal/joitmc J. Open Innov. Technol. Mark. Complex. 2020,6, 137 2 of 18 Table 1. Corporate governance (CG) watch market scores: 2010–2016. No. Country 2010 2011 2014 2016 Change Direction of CG Reform 1 Singapore 67 69 64 67 3 Mostly sunny, but storms ahead? 2 Hong Kong 65 66 65 65 - Action. Reaction: The cycle of Hong Kong life. 3 Japan 57 55 60 63 3 Cultural change occurring, but rules still weak. 4 Taiwan 55 53 56 60 4 Form now in need of substance. 5 Thailand 55 58 58 58 - Could be on the verge of something great, if. 6 Malaysia 52 55 58 56 −2 Regulation improving, public governance failing. 7 India 49 51 54 55 1 Forward movement impeded by vested interests. 8 Korea 45 49 49 52 3 Forward movement impeded by vested interests. 9 China 49 45 45 43 −2 Failing further behind, but enforcement better. 10 Philippines 37 41 40 38 −2 New policy initiatives, but regulatory ennui. 11 Indonesia 40 37 39 36 −3 Losing momentum after progress of recent years. Source: Asian Corporate Governance Association (2016). The implementation of CG in Indonesia is mandatory. The authors in [ 2 ] posited that the results of a study conducted by Fair Finance Guide International (FFGI) were due to (1) a lack of bank information transparency, (2) low bank compliance, (3) a low level of bank interest transparency, and (4) risk management. Other opinions about limited accountability and transparency point to weak monitoring mechanisms, leading to a low corporate governance compliance level in the banking industry [3]. In 2015 FFGI study on transparency and accountability in seven countries’ banking industries, including Indonesia. Transparency and accountability are elements of corporate governance, and while this study shows that some banks tried to implement corporate governance, some banks still have low scores. Indeed, most banks in Indonesia have low scores (less than 4 out of 10) for their level of transparency and accountability [4]. In 2015, only two banks originating from Indonesia received the 2015 ASEAN Corporate Governance Award for the 50 best Southeast Asia banks at implementing corporate governance compliance, namely, Bank CIMB Niaga (Tbk) and Bank Danamon (Tbk) [ 5 ]. This award recognizes that a bank is managed fairly, transparently, and with accountability, thus protecting the community, and growing sustainably and stably [ 6 ]. The 2015 ASEAN Corporate Governance Award recipients were judged on the basis of their transparency and compliance with local regulations [7] Compliance with corporate governance by applicable regulations is necessary for the banking industry to achieve legitimacy in society [ 8 ]. Implementing effective corporate governance is also essential for cultivating and maintaining public confidence in banks [ 9 ]. Furthermore, the poor implementation of corporate governance has led to a banking crisis. As a result, a significant consequence of bad bank governance lowers public trust, which paralyzes the economy. This is because bank managers have their interests, increasing the likelihood of bank failure, and limiting corporate finance and economic development. The authors in argued that, in this era of globalization, companies need to take advantage of external ideas, and of research and development results and regulations from outside the company, which is called open innovation. This assumes that a company can use ideas or rules that come externally and internally, hoping that the company becomes more sustainable. One of the banking industry’s innovations is consistently complying with regulations from outside the company, namely, regulators, including the implementation of corporate governance. Compliance with corporate governance practices is indispensable in modern business management structures supported by capital and money markets because it can enhance public trust in these companies. Noncompliance with corporate governance in the banking industry has led to banks experiencing financial crises and scandals due to weak supervision. Corporate governance compliance also plays a significant role in business sustainability [ 10 ]. It is the responsibility (accountability) of top-level bank management to the public. They are also directly responsible for their banks’ shareholders and creditors for creating incentives for increased compliance to minimize the company’s capital costs [11]. J. Open Innov. Technol. Mark. Complex. 2020,6, 137 3 of 18 Compliance with corporate governance in the banking industry is also a way to protect the public from bank investment losses. Another view is that implementing CG can create value for shareholders and protect other community interests. Therefore, there is a belief that banking management, following relevant regulations, impacts by increasing the discipline of owners and other management entities, thereby increasing compliance with corporate governance [12]. In [ 13 ], the authors state that CG implementation can create shareholder value and fulfill the needs of society. As a result, banking risk has become the responsibility of company owners and depositors. Several previous studies into CG compliance level within the banking industry have not achieved much. Research was conducted in Indonesia [ 14 , 15 ]. African countries [ 16 ], Romania [ 17 ], Australia [ 18 ], India [ 19 ], Bangladesh [ 20 ] and Turkey [ 21 ]. Based on the results of various previous studies, it can be seen that the level of compliance with corporate governance is still a problem in multiple countries, including Indonesia. Low accountability and transparency are indications of weak monitoring mechanisms. This is thought to be a factor in the low corporate governance compliance level in the banking industry. This is by the opinion of [ 22 ] argue that weak monitoring is the cause of vulnerable application of corporate governance principles. This study concerns compliance with corporate governance in the Indonesian banking industry. It aims to examine banking industry practices in implementing corporate governance. Corporate governance compliance results from the supervision of a board of commissioners. Therefore, this study also analyzes the role of a board of commissioners in overseeing corporate governance practices. Limited accountability and transparency indicate a weak monitoring mechanism, so this is a contributing factor for the low level of corporate governance compliance in the banking sector. This agrees with; the authors in also argued that weak monitoring leads to the poor implementation of corporate governance principles. A board (namely, a board of commissioners, an audit committee, and a risk-monitoring committee) can encourage better management of compliance aspects such as corporate governance. This mechanism is intended as an early warning system to get the organization back on track before it faces an alarming level of difficulty [23,24]. Research related to this board’s characteristics was conducted [ 25 – 27 ], but these studies’ results led to inconsistent conclusions. According to one study, inconsistent findings produced by corporate governance research resulted from differences in the legal and regulatory policies. This current study assesses CG compliance by considering the items set by Bank Indonesia Regulation no. 8/14/2006. To the best of our knowledge, compliance level with corporate governance in the banking industry has not been examined in any previous research for Indonesia. To reach conclusions as to whether or not a board’s characteristics influence the level of compliance with corporate governance, this study tested ten elements of the board. 2. Theoretical Background and Hypothesis Development This study focuses on the level of compliance with corporate governance in the banking industry. According to one study, healthy CG implementation reduces the costs that a company must bear and brings long-term benefits. Indeed, favorable conditions can only be maintained for as long as investors are confident in a well-managed company. Therefore, companies need to improve their CG compliance, so that people are more interested in investing in them. The application of CG protects the interests of shareholders and the community, and the board plays the role of supervising and directing management in optimizing a company’s performance. Thus, research from agency theory provides an understanding of the importance of monitoring manager behavior, which is carried out due to the separation between ownership and control of the company. Thus, this research looks at the importance of supervision in monitoring management and explains the monitoring role of a board in encouraging management to become more compliant with corporate governance regulations. Therefore, agency theory is based on the disharmonious relationship between company owners and managers, which leads to conflicts, and it emphasizes the vital role of a board in the CG mechanism. J. Open Innov. Technol. Mark. Complex. 2020,6, 137 4 of 18 In public companies, governance is a steering mechanism by a social system that manages public affairs, and collectively produces and implements decisions to improve people’s welfare. Furthermore, corporate governance is a metaresponsibility and key in achieving responsibility for innovation. Study results proved that management policies influence the company’s innovation process, including the dominant innovation model, technology development, and performance. The larger the board size is, the more natural and effective it is to monitor management activities. The banking industry’s compliance with regulations also reflects effective monitoring by a board of commissioners. One study posits that a larger commissioners’ board may be advantageous because it increases the expertise and resources available in the company. Other studies [ 28 – 30 ] supported the positive effect on board size on the level of compliance with corporate governance. Corporate governance is the relationship among owners, managers, and stakeholders, and other rules that are used. Therefore, this rule refers to attributes of individual company managers. Thus, it is important to examine the characteristics of boards of commissioners in this study, which aims to examine the behavior of board of commisioners attributes in carrying out its responsibilities of supervising company managers. Such boards have more power, so pressure exerted through more extensive monitoring is also more significant, leading to better compliance with corporate governance. The corresponding research hypothesis, therefore, is: Hypothesis 1 (H1). Commissioner Board Size Has A Positive Effect on the Level of Corporate Governance Compliance. Research found that including commissioners from outside the company increases its effectiveness at monitoring management. Indeed, a higher proportion of independent commissioners can help ensure that company management complies with applicable regulations [ 31 , 32 ], so the greater the number of independent members on a board is, the better its mechanism for monitoring company management. There is also the opinion that a high proportion of independent commissioners facilitates more substantial control over managerial decisions because they have an incentive to maintain a positive image and attract outside sources of capital. One area that may be affected by independent commissioners is compliance with corporate governance. One study found that independent commissioners can improve the quality of corporate governance. According to, effective monitoring is carried out by members of a commissioners’ board, but their knowledge canvary, so it is not always optimal. The corresponding research hypothesis is: Hypothesis 2 (H2). A Higher Proportion of Independent Commissioners Has a Positive Effect on the Level of Compliance with Corporate Governance. Commissioners with more experience and knowledge about the company influence management performance, including increasing compliance with corporate governance. [ 33 , 34 ] study showed how experience leads to increasing corporate compliance for companies listed on the Danish Stock Exchange. In, meanwhile, the authors stated that a board of commissioners with expertise in various positions provides benefits for the company thanks to knowledge and insights. Therefore, the experience of board members is thought to be decisive in increasing compliance with corporate governance compliance. Indeed, research showed that board members with extensive experience can improve compliance with corporate governance. Furthermore, another study for companies listed on the Danish Stock Exchange concluded that experience affects corporate governance compliance. The third research hypothesis is, therefore, as follows: Hypothesis 3 (H3). The Experience of Commissioners Has a Positive Effect on the Level of Corporate Governance Compliance. J. Open Innov. Technol. Mark. Complex. 2020,6, 137 5 of 18 The number of board meetings is also proposed to improve a board’s effectiveness. Some even believe that more sessions held by a board of commissioners can enhance compliance with regulations such as corporate governance. The supervisory role of a board of commissioners is determined not just by its structure and composition, but also by its process for meetings. During these, many supervisory matters are discussed, and important decisions are made. These meetings’ frequency may also reflect the extent to which the board is involved in management oversight. Some propose that the monitoring activities carried out by a board of commissioners can be measured according to the number of meetings because it is one indication of an effective monitoring mechanism. For the banking industry of Malaysia, one study demonstrated the positive influence of many meetings by a board of commissioners on corporate governance [ 35 ]. This research was supported by another study of Southeast Asia that concluded that an increase in corporate governance compliance was influenced by the many decisions made at board of commissioners meetings. The corresponding research hypothesis is, therefore: Hypothesis 4 (H4). More Frequent Meetings of a Board of Commissioners Positively Affect the Level of Compliance with Corporate Governance. According [ 16 ] argued that more members on audit committees lead to improved management policies that follow regulations, including compliance with corporate governance. Therefore, the quality of management policies is determined by the results of effective monitoring, and the greater the size of an audit committee is in a company, the better its level of compliance with regulations such as corporate governance is. This agrees with other research that companies with larger audit committees tend to be more compliant with regulations. Other research [ 36 ] also showed a positive influence of audit committee size on the level of compliance with corporate governance. The corresponding research hypothesis is, therefore, as follows: Hypothesis 5 (H5). The Size of An Audit Committee Has A Positive Effect on the Level of Corporate Governance Compliance. Researchers [ 37 ] argued that an audit committee with expertise can improve financial management and compliance with regulations because a committee with accounting and business skills can cultivate regulatory discipline, and thus enhance the quality of financial statements. The skills of an audit committee can also help increase the scope of compliance oversight in the United States, and the benefits resulting from a well-composed audit committee can have positive impact on a company when there are strong and binding regulations to follow. Another study [ 38 ] reinforced how audit committees play a significant role in organizational direction, supervision, and accountability. The associated research hypothesis is, therefore, as follows: Hypothesis 6 (H6). The Experience of An Audit Committee Has A Positive Effect on the Level of Compliance with Corporate Governance. Meetings are held to direct, monitor, and evaluate company policies. Some argued that frequent meetings of an audit committee result in more active monitoring. One study showed that, in Malaysia, the more the sessions that are held by an audit committee, the more it seems to produce management decisions regarding regulations and business ethics [ 39 ]. Another study argued that frequent meetings of an audit committee’s members result in ineffective monitoring. Meanwhile, [ 40 ] stated that the frequency of audit committee meetings determines its assessment of disclosure, principles, and compliance. More frequent committee meetings allow for it to immediately identify problems that occur in the company, including those related to disclosure and compliance. Other research concluded that the frequency of meetings positively influenced the level of corporate governance compliance. The corresponding research hypothesis is, therefore, as follows: J. Open Innov. Technol. Mark. Complex. 2020,6, 137 6 of 18 Hypothesis 7 (H7). The Frequency of Audit Committee Meetings Has A Positive Effect on the Level of Compliance with Corporate Governance. In [ 41 ] the authors posited that the more members there are on a risk-monitoring committee, the more optimal the monitoring of management becomes. Hence, information is more transparent and can be used to improve performance. The authors in found a similar effect of having more members on risk-monitoring committees. In, meanwhile, it was argued that a risk-monitoring committee can reduce management noncompliance with regulations, which, in turn, lowers company losses. The authors in studied businesses in the UK for the 1981–2001 period, and found that a larger risk-monitoring committee plays a significant monitoring role and ensures that company information is disclosed, thus potentially improving the quality of corporate governance. Research in also showed that a risk-monitoring committee’s size has a positive effect on improving corporate governance compliance [ 42 ]. Thus, the size of a risk-monitoring committee seems to encourage management to comply with regulations, including corporate governance, as represented in the following research hypothesis: Hypothesis 8 (H8). The Size of A Risk-Monitoring Committee Has Positive Impact on the Level of Compliance with Corporate Governance. The authors in reported that a risk-monitoring committee’s expertise is also crucial in overseeing risk management to implement corporate governance [ 43 ]. A risk-monitoring committee’s expertise can effectively mitigate company risk and ensure that the company’s operations are following applicable regulations, including corporate governance. Recommendations passed to a board of commissioners can be more optimal with a high level of expertise on a risk-monitoring committee. Research conducted in Australia showed that a risk-monitoring committee’s expertise plays a role in reducing banks’ risk, and compliance with corporate governance practices can also reduce business risk in banks [44]. The associated research hypothesis is, therefore, as follows: Hypothesis 9 (H9). A Risk-Monitoring Committee’s Expertise Positively Influences the Level of Compliance with Corporate Governance. In, the authors posited that a risk-monitoring committee’s meetings effectively obtain information about management compliance with risk management, which in turn manifests in corporate governance [ 45 ]. The authors in proposed that the number of risk-monitoring committee meetings positively affects company management’s compliance with applicable regulations, including corporate governance [ 46 – 48 ]. Furthermore, found that risk-monitoring committee meetings effectively obtain management compliance information for risk management, which is essential to corporate governance [ 49 ]. Therefore, the frequency of risk-monitoring committee meetings affects the early detection of risks and management’s compliance levels. The authors in stated that a risk-monitoring committee can function effectively in monitoring management if it holds enough management meetings [35,50–53]. The corresponding research hypothesis is, therefore, as follows: Hypothesis 10 (H10). The Frequency of Risk-Monitoring Committee Meetings Has A Positive Impact on the Level of Compliance with Corporate Governance. 3. Methodology and Data This study’s population comprised Indonesia’s banking industry as listed on the Indonesia Stock Exchange over the 2010–2015 period: 42 banks, including 4 state-owned banks, 37 privately owned banks, and 2 mixed-ownership banks. Choosing 2010 was because of Bank Indonesia Regulation no. 11/1/2009 for commercial banks. The regulation reaffirms the obligations of the banking industry in Indonesia to implement corporate J. Open Innov. Technol. Mark. Complex. 2020,6, 137 7 of 18 governance. Meanwhile, the mandatory implementation of corporate governance is stipulated in Bank Indonesia Regulation no. 8/14/PBI/2006 concerning corporate governance in the Indonesian banking industry. Another cause is the global financial crisis in 2008–2009, which affected the financial sector, especially banking in Indonesia. Therefore, this study examines whether these events subsequently affected the level of corporate governance compliance during the 2010–2015 period. Two studies had been carried out in Indonesia for the Islamic banking industry [54,55]. This research formulates its operational variables and their measurements as follows: The size of a board of commissioners is the total number of commissioners from internal and external companies who supervise the directors. Size_BC =Xpresident commissioner +independent commissioners (1) Independent commissioners are not affiliated with company management, other board members, or controlling shareholders. They are free from business or other relationships that may affect their ability to act independently. Prop_IC =(Xof independent commissioners)/(size of board of commissioners) (2) Commissioner experience is based on the number of members on a board of commissioners with previous experience in various positions. Experienced commissioners are members of a board of commissioners who have previous experience in multiple places. In addition, a board of commissioners that has experience in various positions provides benefits for the company because of the knowledge and insights that it has. Commissioner experience =(Xof experienced commissioners)/(number of commissioners) (3) A board of commissioners’ meeting frequency is based on how many meetings they hold each year [2]. Meet_BC =Xmeetings of board of commissioners in a year (4) The size of an audit committee is the total number of members on the audit committee in the company. Size_ AC =Xaudit committee member (5) Audit committee expertise is defined in this study on the basis of its members’ accounting and financial knowledge. This definition was formulated on the basis of PBI no. 8/14/PBI/2006 concerning the implementation of corporate governance for commercial banks. Expt_AC =(Members of AC with accounting/financial education)/(Xaudit committee members) (6) Audit committee meeting frequency is based on how many meetings they hold each year. Meet_AC =Xaudit committee meetings in a year (7) Risk-monitoring committee size is the number of members tasked with ensuring sound risk management. Size_RC =Xmembers of risk-monitoring committee. (8) J. Open Innov. Technol. Mark. Complex. 2020,6, 137 8 of 18 Risk-monitoring committee expertise is based on how many members have a certificate of risk expertise or previous relevant experience in the bank. Expr_RC =(Paccounting/risk-management background)/ (Prisk-monitoring committee member) (9) In line with, the frequency of risk-monitoring committee meetings is based on the committee’s number of sessions each year. Meet RC =Xaudit committee meetings in a year (10) This study’s dependent variable is the level of corporate governance compliance, specifically for the banks listed on the Indonesia Stock Exchange from 2010 to 2015. The more items that comply with CG regulations in a bank there are, the higher its CG compliance score is. Therefore, a higher CG compliance score reflects that a bank has implemented CG more comprehensively than a bank with a lower score has. The formula used is as follows: CG : XThe CG Disclosure score is available in the annual report The Overall CG disclosure score ×100% (11) where CG, level of CG compliance; 1, CG disclosure score is available in the annual report; and 0 =CG disclosure score is not available in the annual report. Measurement of compliance with corporate governance using a disclosure score informs on variations in compliance with corporate governance items in the annual report. This study’s scoring method is the unweighted method, where each item on the level of corporate governance compliance has the same weight (considered equally important). The researcher gives each item of CG compliance a score of 1 for compliance with regulations (Comply) and a score of 0 for noncompliance. Measurement of the level of corporate governance compliance uses scoring techniques to indicate variations in corporate governance compliance. The scoring method is carried out by preparing a corporate governance compliance checklist on the basis of Bank of Indonesia Regulation no. 8/14/2006 concerning good corporate governance for commercial banks. On the basis of these regulations, each bank is required to disclose 114 items and six elements of corporate governance. Additional testing is carried out to support the primary model and provide confidence in the obtained results, so this study carried out further testing by dividing the research sample into 2 parts, examples of state ownership and private ownership, and by dividing the models with high and low CG compliance levels. The aim was to obtain proof that additional test results support the main test results. The used test tool was logistic regression. 4. Results and Discussion On the basis of Table 2mean CG score is 0.955, meaning that the average level of CG compliance in the sample companies was 95.50%. This indicates that Indonesia’s banking industry complies reasonably well with regulations through the implementation of corporate governance. Table 3below shows the pooled data by subcategory for the level of compliance with corporate governance. These subcategories are Directors (91%–100%), Audit Committee (95%–100%), Risk-Monitoring Committee (87%–100%), Remuneration and Nomination Committee (91%–100%), and Audit Functions, which seemed to be stable (100%). The Board of Commissioners, meanwhile, experienced the fewest changes (91%–95%). J. Open Innov. Technol. Mark. Complex. 2020,6, 137 15 of 18 and advice to encourage management to be more compliant with corporate governance practices. The research did not find any effect of meeting frequency for a board of commissioners on the level of corporate governance compliance. Therefore, corporate governance compliance is determined by the quality of the held meetings rather than by their frequency. The size of an audit committee positively affects the level of corporate governance compliance, reflecting how an audit committee is tasked with assisting the board of commissioners in monitoring a company. However, this study could not establish that this committee’s expertise positively influences the level of compliance with corporate governance. This may be because members’ expertise on an audit committee is limited to financial matters. This study’s results indicated that risk-monitoring committee size does not affect the level of corporate governance compliance. It is suspected that many, or at least some, members on risk-monitoring committees are not effectively monitoring management. This committee’s expertise also did not seem to affect the level of compliance with corporate governance. It was also established that increasingly complex banking business activities followed developments in the banking sector’s external and internal environment, so the banks’ risks are even more complicated. This study could not prove that the frequency of meetings for a risk-monitoring committee influences corporate governance compliance. It is suspected that the banking industry’s complex risks are not resolved through a more significant number of meetings, but rather through fewer, highly productive meetings. The results of this study have implications for policymakers, among others, Financial Services Authority (OJK) drafts rules regarding criteria for the size of a board of commissioners according to the complexity of the banking industry. There are rules from the Financial Services Authority that regulate the number of independent commissioners according to the level of each bank’s risk and compliance with laws. The Financial Services Authority needs to prepare rules regarding the requirements to become a member of a commission, namely, having previous experience, being on a board of commissioners, or being the president director of a company. The Financial Services Authority prepares rules regarding criteria for the size of audit committees that are adjusted to the size and complexity of the banking sector. 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