Press Release Building the Future of State-Owned Enterprises (BUMN): M&A Strategy and Legal Reform for Growth
PRESS RELEASE
Enhancing SOE Competitiveness Through M&A Strategies and Legal Reforms
Jakarta, November 7, 2024 – The Faculty of Economics and Business at the University of Indonesia, the Indonesia Strategic Management Society (ISMS), and the Indonesian Institute of Accountants (IAI) today held a strategic seminar titled: “Building the Future of SOEs: M&A Strategies and Legal Reforms for Growth” at the BCA Auditorium, Faculty of Economics and Business (FEB) Salemba Campus, University of Indonesia. This seminar brought together experts from various fields to discuss how mergers and acquisitions (M&A) and legal reforms could serve as key elements in strengthening the role of State-Owned Enterprises (SOEs) in Indonesia’s economy.
Indonesian SOEs currently manage assets totaling IDR 10,402 trillion (around USD 670 billion) and play strategic roles in critical sectors such as infrastructure, energy, and transportation. However, legal uncertainties and governance challenges have hindered SOE growth and their ability to compete globally. This seminar aims to identify concrete solutions to these challenges, emphasizing the importance of legal protection through the Business Judgment Rule (BJR) and governance improvements to enhance SOE flexibility and innovation in the face of competition.
The keynote speakers, Prof. Hikmahanto Juwana, SH., LL.M., Ph.D., Amien Sunaryadi, Ak. MPA.CISA, Dr. Oki Ramadhana, M.B.A., and Dr. Soebowo Musa, M.B.A., discussed how M&A could help SOEs expand operational scale and strengthen international competitiveness, though legal uncertainties remain a key obstacle.
Prof. Sari Wahyuni, M.Sc., Ph.D., President of ISMS, and Dr. Ardan Ardiperdana, M.B.A., Chair of IAI, emphasized that the seminar's outcomes are expected to serve as the foundation for legal reform recommendations to accelerate the effective implementation of M&A strategies while protecting SOE decision-makers from unwarranted criminalization risks.
The “Building the Nation” discussion series, initiated by FEB UI, ISMS, and IAI, aims to foster interdisciplinary and professional collaboration to provide practical solutions supporting Indonesia’s sustainable economic development. Through appropriate governance and legal reforms, SOEs can increasingly serve as drivers of Indonesia's economic growth.
Optimizing M&A for SOE Growth
One primary strategy to enhance SOE competitiveness is through mergers and acquisitions (M&A). Through M&A, SOEs can expand market share, optimize resources, and increase operational scale. Sectors such as banking and telecommunications in Indonesia have shown great potential in M&A; however, legal uncertainty often poses obstacles. Inconsistent regulations make SOE executives hesitant to make strategic decisions due to potential legal risks. Without legal certainty, both SOEs and private companies targeted for acquisition tend to avoid M&A, ultimately limiting SOE growth potential (Wijayati et al., 2021).
Additionally, several fundamental challenges in the legal framework affect M&A implementation, such as contradictions between Law No. 17/2003 on State Finance and Law No. 19/2003 on SOEs regarding the interpretation of "separate state finances." Constitutional Court Ruling No. 48/PUU-XI/2013 further added uncertainty by stating that state assets invested in SOEs remain part of state finances (Constitutional Court of the Republic of Indonesia, 2013).
Strengthening the Business Judgment Rule (BJR) in Indonesia
To protect SOE executives from undue criminalization, a robust Business Judgment Rule (BJR) framework is essential. In countries like Australia, the BJR provides legal protection for executives who make business decisions in good faith and with due care, helping to alleviate concerns about criminal charges (Nicolson, Wilcock, & White, 2021). In Germany, the BJR helps mitigate hindsight bias, which often leads to criminal liability for executives when business decisions yield unfavorable outcomes (The ‘Business Judgment Rule’ and the problem of hindsight bias, 2016).
Clarifying Protections for Directors
For BJR to be effective in Indonesia, a clear distinction is needed between errors in business decisions and criminal liability. This standard can be aligned with other jurisdictions, such as the United States and Germany, to reduce excessive prosecution risks and enable executives to make decisions without fearing personal legal repercussions.
Establishing Standards for Fiduciary Duties and Due Diligence
Indonesia needs to establish clear standards for fiduciary duties and due diligence. These standards are aimed at protecting directors as long as they act in the best interests of the company, in accordance with international standards such as the Corporations Act in Australia (Tan & Associates, 2020).
Enhancing Judicial Understanding and Consistent Application of BJR
Comprehensive education on Business Judgment Rule (BJR) principles for stakeholders, including judges, legal practitioners, and executives, is crucial to ensure consistent application. For example, in Germany, intensive training for judges on BJR has strengthened fair protection for executives, allowing them to focus on innovation without the risk of criminalization for good-faith business decisions (The ‘Business Judgment Rule’ and the problem of hindsight bias, 2016). Consistent application of BJR will strengthen a culture of measured risk-taking, enabling Indonesian SOEs to be more competitive in global markets.
Additionally, this educational program will ensure that the judiciary can clearly distinguish between unintentional strategic mistakes and deliberate criminal acts. This consistency gives executives strong legal assurance, enabling them to make strategic decisions in the company's best interest without undue concern over personal legal repercussions (Asian Development Bank, 2021; Nicolson, Wilcock, & White, 2021).
Executives also need to understand BJR principles to know the limits of their legal responsibilities, allowing them to act confidently, knowing that good-faith, prudent decisions will be legally protected. This understanding encourages them to make bolder, strategic decisions, thereby promoting sustainable growth for SOEs (Asian Development Bank, 2021).
Conclusion: The Importance of Collaboration, Legal Reform, and Follow-Up for SOE Growth
Close collaboration between regulators, SOE executives, academics, and legal practitioners is a strong foundation for implementing effective and sustainable M&A strategies and legal reforms. Through this partnership, SOEs can overcome legal and governance barriers that hinder growth, enabling them to take innovative steps without undue risk of criminalization.
Legal reforms that strengthen the Business Judgment Rule (BJR) framework and elevate fiduciary standards are an urgent need. With government policy support, these reforms will create a conducive business environment, support sustainable SOE growth, and accelerate M&A implementation to enhance global competitiveness.
This seminar also outlines concrete follow-up plans, including risk mitigation, preparation, and post-acquisition monitoring to ensure that each M&A delivers long-term value for SOEs and the Indonesian economy.
Event News:
Mix
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Tribunnews
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The Iconomics
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