Corporate Governance and State-owned Enterprises: A Study of Indonesia’s Code of Corporate Governance

In Indonesia the concept of corporate governance was formally introduced in 1999 when the government established the National Committee on Corporate Governance (NCCG). Indonesia then created its national code of corporate governance in 2000 through the NCCG, later revised in 2006. This code is a reference point for all companies in Indonesia, including state-owned enterprises (SOEs) that are regulated under Law No. 19 of 2003. According to the law there are two types of SOEs: general companies and limited liability companies. The former are SOEs that have tasks to run social purposes. The latter are business-oriented SOEs, comprise listed companies or companies where shares are fragmented and non-listed companies (pure SOEs), where the government is representative of ordinary public as shareholder. Consequently, Indonesia’s code of good corporate governance applies also to pure SOEs. By undertaking a document analysis method, the study attempts to answer a question as to what extent Indonesia’s concept of corporate governance conforms to the Anglo-American corporate governance regime. In addition, this examines Indonesia’s code of corporate governance and to determine whether the code is suitable for solving the existing problems of SOEs, including pure SOEs. This study found that the mainstream corporate governance is designed to deal with agency problem that occurs in publicly traded companies with widely dispersed shareholders as opposed to non-listed companies such as pure SOEs with the government as shareholder’s representative. Likewise, it found that the code has failed to be a problem solver for two other crucial problems, conflicting objectives and political interference. However, like other countries, the Indonesia code is the best solution in upholding listed companies with fragmented shareholders.