A family-controlled bank needs commissioners who can refuse the family
In a bank with a controlling family, the decisions that matter most concern related-party credit, dividends and succession. Independent commissioners should hold written authority over those decisions before any request arrives, and the family gains more from that arrangement than it gives up.
Most of my career has been spent lending to family businesses or working for family-controlled banks, and I have come to admire what a good controlling family brings to a bank. It takes a long view. It answers the telephone in a crisis. In 1998 the founder of Bank Kartadana put his own family's money into the bank when many owners could not or would not, and the bank exists today because he did. My argument is not against family control. It is that a family-controlled bank needs its independent commissioners to hold written authority over the three decisions where the family's interest and the bank's can diverge, and that this authority must be settled before any particular request arrives.
Where the family's interest and the bank's diverge
In ordinary years the interests run together. The family wants a profitable, respected bank, and so do minority shareholders, depositors and supervisors. They part company in three places.
The first is credit to the family's other businesses. Indonesian families that own banks often own property developers, plantations, manufacturers and distributors as well. Those businesses need finance, the bank knows them well, and lending to them can look like the safest loan on the books. The legal lending limit restricts how much a bank may lend to related parties, and supervisors look through structures designed to avoid it. But the limit is a ceiling, not a standard of judgement. A loan can sit comfortably within it and still be priced or structured more generously than an unrelated borrower would ever receive.
The second is dividends. A family holding company frequently has borrowings of its own, serviced from the bank's dividend. In a good year that is unremarkable. In a bad year the holding company needs the dividend at precisely the moment the bank should be retaining capital. I met that tension in 2021, when about a fifth of our loans had been restructured during the pandemic and I recommended cutting the payout from 45% of profit to 15%. The family accepted it, but only after an argument that a published policy would have made unnecessary.
The third is succession. A founder's child who has worked in the bank may be the best person to lead it, or may not. The question is who decides and on what evidence. When I was recommended as President Director in 2021, ahead of the founder's son, the decision came through a nomination committee led by independent commissioners, and the founder accepted it. Not every family would have done so, and I am conscious that the outcome depended partly on his character rather than on any rule.
Write the rule before the request
The weakness I have seen most often is not bad faith. It is timing. When a related-party request arrives, management and the commissioners must decide both the request and the principle at once, and any principle proposed in that moment looks like a verdict on the family. In February 2025 our controlling family's property business asked for a construction facility, structured through a joint venture, that would in substance have taken us well beyond our related-party limit. I recommended a smaller facility within the limit, decided by independent commissioners. Our President Commissioner, the founder's son, felt the bank was treating his family worse than a stranger. Part of that feeling came from the fact that we were writing the decision rule while deciding his family's request.
Since then we have written down what should have existed years earlier. Any related-party transaction above Rp 25 billion is decided by independent commissioners, with family commissioners recused and the recusal minuted. Pricing is compared with comparable unrelated borrowers and the comparison is attached to the paper. The dividend recommendation follows credit and capital thresholds published a year ahead, so that the payout in a bad year is known before the bad year arrives. Succession for the President Director and the other directors runs through the Remuneration and Nomination Committee, chaired by an independent commissioner, with a written profile of the role agreed before any candidate is named.
None of these rules is unusual on paper. Indonesian bank governance already expects independent commissioners, board committees and disclosure of related-party transactions. What makes rules like ours work is their specificity and their timing: thresholds expressed in rupiah, recusals recorded in minutes and decisions framed before a name is attached to them.
What the founding family gains
The objection I hear from families is that such rules treat them as suspects in their own bank. I understand the feeling, and I would put the case differently. A family that controls a listed bank is asking minority investors, depositors and supervisors to trust that its control will not be used to their disadvantage. Written rules are the cheapest way to earn that trust, and they protect the family as much as anyone. When a later generation, or a less careful relative, takes a seat on the Board of Commissioners, the rules will already be in place.
There is a benefit for succession as well. A founder's children are more readily accepted as leaders, by staff, investors and supervisors alike, when they reach a role through a process that could have chosen someone else. I believe Benedict's standing as President Commissioner is stronger today because the 2021 decision passed through a committee that did not simply ratify the family's preference.
The rules also protect the family's own business interests. A related-party facility approved by independent commissioners on documented terms is far harder for a supervisor, an auditor or a minority investor to challenge than one approved informally. Our President Commissioner made that point himself, some months after our disagreement, when the facility we had approved came up during an examination and the file answered every question put to it.
I would ask the board of any family-controlled bank to test itself with one exercise. Take the last three decisions that involved the controlling family, whether on credit, dividends or appointments, and ask who made each one, on what written basis and with whom recused. If the answers depend on the goodwill of particular people, the bank has a governance arrangement that works only for as long as those people remain.