Business Judgement Rule Principle as an Immunity Right  (2)

(State Owned Enterprises of Indonesia)

by A. Irmanputra Sidin, PhD in Constitutional Law/ Constitutional Lawyer

==> Part 1

Jakarta, February, 15,  2025

Regardless of the  views about the origin of BJR principle, it is essential in the administration of every country, and this principle should also apply there. As long as President and all the officers of the government adhere to the laws or policy rules principle (freieis ermessen) and while acting in good faith, they enjoy immunity, can not be sued and exempt from criminal charges regarding corruption. 

In Indonesia, they are continually risks of facing  ‘criminal charges” regarding to corruption due to the vague formulation of what constitutes  corruption in Indonesia’s Corruption Law. One of the problem, the definition of corruption according to Law No. 31 of 1999 on the Eradication of Criminal Acts of Corruption, as improved by Law No. 20 of 2001 on Changes in Law No. 31 of 1999, which refers to  unlawfully act, self-enrich or another person or a corporation that could harm the financial of state or economic of state.

Furthermore we encounter a variety of definitions concerning corruption, so many actions or decision you could be charges as a corruptor, even though not truly corrupt, 

instead of focusing on such ambiguous cases, a nation should aim to identify true corruption, which is rooted in violations of universally accepted moral and social principles, moreover  the nation’s energy going to waste only to find people who are not necessarily involved in the meaning of the  true corruption.

If you are an state administrator in any branch of power, when you take action as an executive officers or state administrator and then caused financial of state losses or economic of state losses, and at that time you can be charged with corruption. A question may arise why the directors of Indonesia’s SOE’s also subject to this, because they considered as government or state administrator. This is because the capital of SOEs either majority or entirely owned by the state and the sources of equity comes from financial of state.    

At this point, the Law on SOEs, amended in Indonesia in 2025, aims to provide legal certainty and encourage all directors of Indonesia’s SOEs to make decisions and take actions based on the BJR principle. The political power of the state notices that there are several issues with the Corruption Laws of 1999 and 2001, but amending them is not politically easy.

Why do SOEs appear so special? Because SOEs are the hands of the state, designed to accelerate the achievement of state goals as outlined in Indonesia’s constitution preamble: ‘advancing the general welfare.’The government is not meant “to create” welfare but only “to advance it”. The government realizes that general welfare will thrive naturally in the market, driven by people’s creativity and innovation to produce goods and services that fulfill human needs and support civilization. The Government exists only to encourage the people so that the people will make ‘the market’ as a ‘friend of life’. That is why  President Jokowi as a predecessor of President Prabowo Subianto created  Law of the Republic of Indonesia No. 11 of 2020 on Job Creation, to make less regulation for existence of the businesses and job creation. 

Over time, the existence of State-Owned Enterprises (SOEs) has revealed certain shortcomings that make it difficult for them to operate optimally. This realization has come about due to the impact of law enforcement in criminal corruption cases, where the financial losses of SOEs can be considered losses to the state’s finances or may harm the national economy. This uncertainty makes it difficult for SOEs to fulfill their role effectively, as it creates a lack of self-confidence among SOE directors. They fear being sued or even criminally charged with corruption for causing damage to the state’s finances, which could potentially lead to imprisonment.

Over time, the existence of SOEs realized that there were shortcomings so it is difficult to run optimally. This things start to be realized due to the impact of law enforcement in criminal corruption cases, where the financial losses of SOEs can be considered losses to the state’s finances or may harm the national economy. This uncertainty makes it difficult for SOEs to optimize their role, as it creates a lack of self confidence among the directors of SOEs, as they could be sued or even criminally charged with corruption for damaging the state’s finances, potentially leading to imprisonment.

This uncertainty, which has existed for approximately 25 years, has been fought constitutionally in various ways, but has still been unsuccessful in instilling self confidence in the directors of SOEs. 

The Constitutional Court Decision No. 62/PUU-XI/2013 actually acknowledged the Business Judgment Rule (BJR) Principle, but its implementation as law remains unclear. In its legal considerations, the Court stated that the separation of state wealth, viewed from the perspective of a transaction, does not involve the transfer or shifting of rights. Therefore, the implication of this ruling is that there is no transfer of rights from the state or government to SOEs (both national and regional) or other similar entities. As such, the separated state wealth remains state property. However, the Court acknowledged that corporate actions in SOEs should be based on the BJR Principle, but this has been overlooked by the Audit Board of The Republic of Indonesia (BPK RI), as the funds in SOEs management are still treated as state finances, despite the oversight paradigm being based on the BJR Principle.

Actually, in the Law of Republic Indonesia No 40 of  2007 Concerning Limited Liability Companies has acknowledge about BJR Principle in Article 97. The article states that members of the Board of Directors cannot be held liable for the losses contemplated ‘if they can prove’ that the losses were not due to their fault or negligence; they carried out the management in good faith and with prudence in the interests of and in accordance with the purpose and objectives of the Company; they do not have a direct or indirect conflict of interest in the action of management that caused the losses; and they took action to prevent the losses from arising or continuing.

However, this law is limited in its implementation to civil liability, the companies which does not involve capital from financial of state. Additionally,  the burden of proof in this article  not come from the origin that Onus probandi incumbit ei qui dicit, non ei qui negat which means that the burden of proof lies with the one who speaks, not the one who denies. The burden of proof lies on directors according to the phrase on the article 97states ‘if they can prove’.  They must prove their innocence, even if they are sued by the owners or others.

Therefore, this law cannot be used as an immunity law for the directors of SOEs, even though the legal entity of SOEs is a Limited Liability Company according to this law. This is because Article 155 states that “Provisions regarding the liability of Boards of Directors and/or Boards of Commissioners for their faults or negligence stipulated in this Act shall not prejudice provisions stipulated in Criminal Law Statutes.”

These provisions create a loophole for Criminal Law Statutes, such as the Law on Corruption (1999 and 2001), to be applied to SOE financial losses. Some directors are charged with corruption, even though they acted in good faith and never profited such as bribery, gratification, “kickback money” arising from the financial losses resulting from the corporate actions they were required to undertake.”

This is a violation of the constitutional rights of the people. Law enforcement has failed to determine whether the losses are real or potential, stemming from the corporate actions of the SOEs or their business entities. Furthermore, the losses of the companies could be deemed state financial losses, simply because 51% of the capital of the SOEs comes from financial of state.

Moreover, everyone knows that losses are a natural part of the business world due to market volatility, but future profits will follow. Warren Buffett and Charlie Munger have often said that wealth is transferred from the impatient to the patient. In the market, there is the principle of ‘high risk, high return,’ which is why the BJR Principle exists—to provide a mental foundation for directors when making  corporate decisions.

Of course, this condition, without the BJR Principle, cannot support the development of SOEs. One of the main reasons SOEs exist is to ignite  the market, and this process will be accelerated if SOEs have the confidence to plan and execute corporate actions. If SOEs succeed in stimulating the market, it will accelerate the welfare of the people, in line with the state’s goals as outlined in Indonesia’s Constitution (UUD 1945).

If the SOE’s is unprofitable or the SOE generates a profit and the directors remain passive, with no intent to develop or expand the business, merely distributing dividends to the owners, it suggests that the directors lack vision and initiative (Peter Lynch & John Rothchild, Learn to Earn). A passive actions of directors of SOEs will always be a reality, as actions aimed at expansion or exploring new business avenues could be threatened with imprisonment. The BJR Principle exists as a solution to enable SOEs to fulfill their role in advancing public welfare, as outlined in Indonesia’s Constitution (UUD 1945). This is because directors, with creativity, innovation, and confidence, can execute their responsibilities effectively.