Guidelines to `living less dangerously` in Indonesia
January-March 2018
By: Peter Verhezen, Ian O Williamson and Natalia Soebagjo

Thus, leaders doing business in Indonesia must answer two key questions: first, how to protect the organization’s reputation and investments against weak legal enforcement and political inconsistency as a result of these institutional voids; and second, how to ensure that minority shareholders’ rights in international ventures are respected by majority owners according to charter agreements and international rules. As the examples discussed above illustrate, a failure to address these two business challenges can greatly increase the risk of international business ventures failing in Indonesia.

Guidelines for success

So, how does Indonesia address these barriers? We suggest effective management in three areas: first, corporate governance practices; second, ethical organizational culture and proper character of leadership; and third, social capital or networks of crucial decision makers within companies are crucial building blocks for business success in Indonesia and Asia.

Social capital can provide informational resources that reduce the potential risk of information asymmetry generated by institutional voids. Without a doubt, the darker side of social networking cannot and should not be ignored. Hence, corporate leadership needs to ground its social capital within an ethical organizational culture based on sound and best governance practices, which not only allows leadership to navigate easier given the ambiguities and uncertainties as a result of institutional voids, but can also help alleviate potential conflicts of interest in Indonesia (see Figure 2).

Ideally, Indonesia’s legal framework and its enforcement should be strengthened and regulations should become more consistent over time instead of adding to the inherent uncertainty. At the organizational level, business leaders can more easily intervene and reduce concerns by implementing good corporate governance and pursuing ethical organizations. At the institutional level, business leaders have only informal and indirect influence over the DPR and politicians who legislate and execute the rule of law in Indonesia, albeit imperfectly.

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