Ethical leadership is needed to restore the integrity of Indonesian SOEs

Pertamina tankers at Kertosono train station. ikhlasulamal/flickr, CC BY-SA

Indonesia’s President Joko “Jokowi” Widodo dubbed the country’s state-owned companies as ‘agents of development’. State-owned enterprises (SOEs) are involved in 40% of the country’s infrastructure projects, a priority of Jokowi’s presidency.

But while SOEs play a vital role in providing goods and services in the largest economy in Southeast Asia, corrupt practices still occur within the sector. The newly appointed State-Owned Enterprises Minister Erik Thohir faces a challenging task to eradicate corruption and build integrity within state-owned companies.

Last year, no less than eight SOE directors have been accused of bribery by the Corruption Eradication Commission (KPK).

Basuki kedubesaustralia/flickr, CC BY

The entrenched corruption within SOEs can hamper Jokowi’s ambition for these companies to be ‘agents of development’. As of 2019, Indonesia has a total of 142 SOEs. However, only 15 contributed significantly to the state coffers.

But it’s possible for a public organisation in a corrupt political-economic environment to build integrity. Our recent research showed that this could be done through the concept of ethical leadership.

Thohir seems to be trying to imbue this concept in the SOE sector through his new appointments of commissioners in a number of state-owned companies. But finding leaders that have a clean record and free from controversy is not easy.

Ethical leadership

Ethical leadership refers to the character, behaviour, and decision-making that a leader demonstrates using role modelling, reinforcement, and communication to motivate employees to make decisions and behave by relevant moral values, norms, and rules.

Within and beyond the organisation it plays an important role in fostering and maintaining high organisational integrity.

Ethical leadership is paramount for leading the way to sustainable change in a challenging political and socio-cultural environment like Indonesia, but its guarantee remains an almost impossible undertaking.

Findings and lessons from academic research confirm the importance of ethical leadership for the ethics and integrity of organisations.

To cultivate integrity throughout the organisation, there must be executive managers within it who lead by example and show constant commitment to its integrity program.

Leaders need autonomy to develop and implement integrity programs for their organisation’s, and they need to have the moral courage to persevere in doing this despite stakeholder pressure.

Political leadership must support and protect organisations that take integrity seriously to break the cycle of conflicts of interest and the resulting corruption.

SOEs are part of wider networks with opportunistic political, public and private stakeholders. Therefore organisational leaders must get political backing from the highest levels in government, including the Ministry of SOE, to be able to become the desired ‘agents of development’.

For an SOE to be able to function with high integrity and effective achievement of its objectives, ethical leadership needs to be in place on all three levels, i.e. political backing, autonomous leadership at the chief executive level, and ethical commitment on the executive management level so leaders can lead by example. Only when the public can see better ethical performance of public institutions, public trust can be regained.

Thohir’s choices

To improve good corporate governance and ethical management practices, Thohir recently appointed individuals who are generally perceived as ‘leaders of anti-corruption’ as commissioners in SOEs.

He appointed former Jakarta governor Basuki “Ahok” Tjahaja Purnama, also known as BTP, a recipient of the Bung Hatta Anti-Corruption Award (BHACA) in 2013 as president commissioner of the state oil and gas company (Pertamina).

He also appointed former Corruption Eradication Agency commissioners Chandra Hamzah and Amien Sunaryadi as president commissioner of the State Savings Bank (Bank Tabungan Negara) and the state electricity company (PLN) respectively.

Controversy

However, Thohir’s appointments are not free from some controversy.

For instance, While BTP he was governor of Jakarta, he had been accused of involvement in cases such as alleged corruption in the acquisition of land for a hospital in Jakarta and has been questioned by the police over possible maladministration of Jakarta Bay reclamation project.

Additionally, some people consider BTP for being vulgar in his use of language and consider him arrogant and rude. Some believe that this led to his two-year imprisonment for blasphemy. His supporters believe it was a character assassination of a clean governor just before election time.

Chandra once became a lawyer for a suspect for corruption in a power plant project after he stepped down from KPK.

The controversy surrounding the new SOE commissioners show that it’s not easy to find ethical leaders. Even the ones with a track record in anti-corruption leadership seem to be struggling with conflicts of interest around them.

It’s still early to see if either BTP, Chandra or Amien can succeed in cultivating integrity within the organisations they are embedded. But with these roles, they have been given a second chance to prove their ethical leadership skills.

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