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Directors and commissioners will no longer be allowed to serve on the board of more than one company in any given market sector, following a new ruling from the Business Competition Supervisory Commission.

The commission, known as the KPPU, issued the ruling on Monday. It takes effect immediately.

KPPU communications director Ahmad Junaidi said the ban will apply to companies operating in the same marketplace, such as two transport companies, and to firms connected vertically, such as a manufacturer and one of its suppliers or distributors.

The intention is to prevent monopolistic or unfair business practices, he said.

“If someone holds positions on the board of directors or commissioners in more than one company it greatly increases the chance for unhealthy business practices to occur if the companies are competing within the same business field,” Ahmad said.

If someone sits on the boards of two companies in the same marketplace, it made it easier to form cartels and collude on pricing and production levels, he said. While if someone sits on the boards of two vertically related companies, it created opportunities to do things like shut out other distributors.

Ahmad said he was not sure how many directors or commissioners would be affected by the ruling. There was no specific time frame for directors or commissioners affected by the ruling to step down from one or more of the boards they serve on but they should comply as soon as possible, Ahmad said.

The ruling applies to limited liability companies, as well as other companies, cooperatives and state-owned enterprises.

Fuad Rahmany, the chairman of the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK), said he welcomed the ruling as a way to improve corporate governance but added that he needed to study the details and research international best practices.

However, Djimanto, secretary general of the Indonesian Employers Association (Apindo), said the new KPPU ruling would not be effective in preventing monopolistic or unfair business practices, as company strategy was not decided by just one board member.

“If a company decides to vote upon a particular strategy, then I think the whole board would be involved,” he said.

Muhammad Said Didu, secretary of the Ministry of State-Owned Enterprises, said no directors of state enterprises served on the boards of other state enterprises in the same market. However, he said some commissioners did serve on boards of related companies. Although this did not create conflicts of interest, the SOEs would comply with the new rule, he said. “I assure you that it has not caused the creation of cartels or monopolies,” he said.

Didu serves as chief commissioner at three state firms: fertilizer company PT Pupuk Kaltim, plantation firm PT Perkebunan Nusantara IV, and PT Merpati Nusantara Airlines.