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A qualitative analysis of corporate governance in Indonesian state-owned enterprises: An internal stakeholders perspective

Worang, F.G. (2013) A qualitative analysis of corporate governance in Indonesian state-owned enterprises: An internal stakeholders perspective. PhD thesis, Murdoch University.

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Poor corporate governance practices in Indonesian State-Owned Enterprises (SOEs) have been blamed for being significant causes of the Indonesian financial crisis in 1998. A significant number of SOEs went financially bankrupt at that time. Currently, the effort to organise the SOEs by the Government of Indonesia, as the majority shareholder, is still ongoing. This study is concerned with corporate governance practices in Indonesian SOEs.

The research examines the behaviour of internal stakeholders of the SOEs in question. These included members of the Boards of Directors and members of the Boards of Commissioners in a state-owned bank, a state-owned power company, and a state-owned airline. There have been previous studies of corporate governance in Indonesian private companies but little research focusing on SOEs. This study investigates management and directors’ behaviour in the three SOEs using a qualitative research approach. This differs from previous research studies that primarily employed quantitative methods.

In-depth interviews were conducted with thirty-eight respondents from the managerial level upward in the three SOEs. In addition, to make the study more comprehensive, interviews were conducted with two respondents from the Office of the Ministry of State-Owned Enterprises, and one respondent from the Anti-Corruption Commission. Most interviews were conducted in 2005, a few in 2009, and these were updated in 2013.

Qualitative analysis was used to analyse the data from the interviews and archival data in the form of publications from the main Indonesian mass media, and journal publications.

It was found that the boards of directors and the boards of commissioners were not properly implementing good corporate governance (GCG) practices. They do, however, practise what is known as KKN or Korupsi, Kolusi, and Nepotism (corruption, collusion, and nepotism). Most of the time, SOEs are subject to significant intervention from the ruling government including politicians who have their own self-interest in SOEs. As stated by respondents, and supported by data in the mass media, SOEs have become “cash cows” or “automatic teller machines” to serve the government of the day. The government is interested in the performance of SOEs, because the government itself is a major shareholder. This is different from the private sector where people are the shareholders who hold the boards and management to account.

Another significant finding is that the adoption of wholesale corporate governance practices from the West is difficult to implement due to differences in the culture and legal structure of Indonesian SOEs. Indonesian society is mostly influenced by prevailing Javanese culture that has also been embedded in these SOEs. Another relevant factor is that the first two Presidents of Indonesia were Javanese. These factors have hindered the implementation of GCG.

Another finding is that the adoption of the concept of independent directors (independent commissioners in SOEs) from a Western based one-tier governance structure has been adopted blindly and unquestioningly in Indonesian SOEs.

A range of recommendations to ensure sound GCG are also presented in this thesis. For example, the establishment of whistleblower protection mechanisms, and appropriate GCG guidelines.

This study also finds that the shareholders’ approach arising from the agency theory is not suitable for GCG in Indonesian SOEs. The stakeholder theory approach is the more appropriate base from which SOEs should operate. This is because according to Indonesian law, the SOEs are the backbone of the Indonesian economy, and therefore, SOEs should satisfy the needs of the Indonesian public, a major stakeholder.

Item Type: Thesis (PhD)
Murdoch Affiliation(s): School of Management and Governance
Supervisor(s): Holloway, David
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