Strikes in state firms and foreign investors<\/p>\n
Suhunan M. Situmorang, Corporate Lawyer, Jakarta<\/p>\n
A new phenomenon in the history of the workers' struggle in
\nIndonesia has arisen. While their demands used to involve wage
\nincreases, better welfare, or rejection of lay-offs, today
\nworkers are turning their attention to corporate affairs.<\/p>\n
This is evidenced by the various acts of protest and
\nopposition waged by workers of state owned enterprises (SOEs)
\nsuch as PT Semen Andalas, PT Semen Tonasa, PT Semen Gresik, PT
\nTelkom, PT Dirgantara Indonesia and PT Kereta Api Indonesia, and
\nlately, Indosat.<\/p>\n
Though found only in companies with state-owned shares, the
\nphenomenon is not to be treated lightly. If the government (as a
\nquasi shareholder) trivializes the complaints or settles cases in
\na partial way, it will create a negative precedent for future
\ndisputes.<\/p>\n
While such massive strikes would distort the independence of a
\nlimited liability company as a legal entity and disturb corporate
\nperformance, the resulted precedent would also hamper the plan
\nfor privatization of SOEs -- which has been agreed upon with the
\nInternational Monetary Fund, and is needed by the government for
\nforeign debt installments.<\/p>\n
There are a number of reasons for this concern. First, it
\nwould no longer be easy for corporate boards of directors to
\ncarry out their policies and corporate actions such as selling
\nassets, executing acquisition-merger or takeovers, selling shares
\nto (particularly foreign) investors, undertaking joint operations
\nor profit-sharing marketing with foreign partners and other
\nventures.<\/p>\n
Business decisions may have to be made for corporate rescue or
\nfor increased profit making.<\/p>\n
Second, prospective investors or business partners would
\ncontinue to hesitate to invest their funds because of this
\nuncertainty. Third, the government as shareholder will frequently
\nbe thwarted in its authority and freedom to exercise its rights,
\nfor instance, to replace board members considered incapable.<\/p>\n
The arguments here are not to discredit the struggling SOE
\nworkers, but rather to analyze the legal basis of such demands.
\nBased on corporate law (Law no. 1\/1995 on limited liability
\ncompanies), employees have no right and authority to intervene
\nin, approve or reject a decision and policy of the board of
\ndirectors and shareholders concerning corporate affairs.<\/p>\n
Even shareholders are not permitted to interfere with
\ncorporate management, except in the appointment or relief of
\nmanaging directors, or in the case of asset conversion into
\ncollateral or asset transfer, and in the appointment of the board
\nof directors\/commissioners. If the shareholders general meeting
\nintervenes in corporate affairs, it means that the meeting acts
\nas shadow directors -- a move contradicting corporate law
\nprinciples.<\/p>\n
The organizational structure of limited liability companies
\naccording to Indonesian law comprises only three components: The
\nshareholders' general meeting (RUPS), the board of directors and
\ncommissioners. Despite the large authority delegated to the board
\nof directors, in practice it is not strong enough in the face of
\nshareholders. This is because the corporate law system in
\nIndonesia -- as in other countries -- grants vast power to
\nshareholders.<\/p>\n
On the other hand, workers are not accorded such a privilege
\nby law, unless they are among the shareholders or unless this is
\nenabled by their respective corporate articles of association.<\/p>\n
The government has inconsistently subjected limited liability
\ncompanies to legal principles and provisions. If it was
\nconsistent, it should not have unnecessarily intervened in the
\nmanagement of SOEs, including policy making and corporate
\nactions. Nearly all plans and important decisions of SOEs have
\nbeen finalized by the government itself, leaving company
\ndirectors to simply toe the line.<\/p>\n
Hence the \"independence\" of limited liability companies is
\nonly recognized in concept; but when employees or stakeholders
\nlodge their protests, the government performs the function of
\ndirectors by taking over and trying to \"settle\" the case.<\/p>\n
It should be the board of directors which explains emerging
\nissues at shareholders' meetings. Whatever decisions are adopted
\nshould continue to reflect good corporate judgment, instead of
\nthe mere ruling of shareholders. Government interference leads to
\nnot only the loss of authority on the part of the board of
\ndirectors but also its vulnerability to offensives, especially
\nthose launched by employees.<\/p>\n
If this pattern is maintained and spreads, how would the
\ngovernment proceed with its declared intention to empower SOEs?
\nWill foreign investors be attracted by the privatization of SOEs,
\nwhile the internal threat to SOEs cannot yet be solved in legal
\nterms?<\/p>\n
The government must now change its attitude, notably its
\nparadigm and concept of state control over SOEs. If a state
\nenterprise is a limited liability company, it should consistently
\nbe treated according to corporate legislation. Its workers should
\nalso be educated on their rights.<\/p>\n
Otherwise, all the offers made to foreign investors will not
\nmean much because every time a transaction is about to be
\nnegotiated, workers are able -- and likely -- to kill it off.<\/p>",
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