Dealing with state-owned enterprises' principal dilemma: a proposal for governance of Indonesia's state-owned enterprises

Purpose: This study looks at the issue of State-Owned Enterprises (SOEs) ownership dilemma. Originality: This study found that the main problem in SOEs, at least in the context of Indonesian SOEs, is the lack of clarity regarding the definition of the SOE’s principals and their relationship with the government as an agent. Therefore, this study introduces the so-called the SOEs principal-agent concept. Key literature/theoretical perspective: In discussing the governance of SOEs scholars have stopped at the simple and narrow conclusion that the so-called state ownership is considered as ownership by the government. This is what is referred to as misguidedly discus of SOEs governance in this study. Design/methodology/approach: Document analysis is the method utilised in this study. Findings: Indonesia’s national code of corporate governance and existing laws and regulations on State-Owned Enterprises has failed to be a problem solver for the existing problems, especially the political interference. Instead Indonesia’ regulation legitimizes the political interference by putting the rights of electing both board of commissioners and directors in the hands of Final Assessment Team chaired by the President of the Republic of Indonesia. Practical and Social implications: In practical support of the concept of SOEs Principal-agent, this study proposes the undermining of the government power to SOEs by way of making board of commissioners stronger, and legally positioned board of commissioners as representative of society as ultimate owners of SOEs. A cross-control concept is also introduced in this study, in order to maintain the functioning separation of business and politics.