15 Nov 2021
Indonesia’s State Enterprises Ministry Introduces Overhaul of SOE Directors’ Selection Process
In order to improve the quality and accountability of new appointees to directorships in State-Owned Enterprises (“SOE Directors”), the Ministry of State-owned Enterprises (“SOE Ministry”) has issued Regulation No. Per-11/MBU/07/2021 on Requirements and Procedures for the Appointment and Removal of Directors of SOEs (“Reg. 11/2021“), which revokes Regulation No. PER-03/MBU/02/2015 on the same topic (“Reg. 3/2015”). Reg. 11/2021 introduces a number of changes to the process of selecting top executives for Indonesia’s state enterprises, including the concept of “talent management,” as elaborated below.
B. Talent Management
Talent management is a multi-layered process for the management and development of SOE Directors. It is implemented through a five-stage process: (i) screening and selection; (ii) assessment; (iii) classification; (iv) development; and (v) mobility. Candidates with directorship potential are sought from the following sources:
The following stages are involved in the talent management process:
a. Screening and Selection
During this stage, Prospective Ministry Candidates are screened internally by Echelon II officials, while Prospective SOE Candidates are screened by an SOE Candidate Screening Committee made up of representatives of the SOE in question and the SOE Ministry.
Prospective External Candidates are screened by the Minister, Deputy Minister, and the Deputy for SOE Human Resources (the “Deputy”) from references provided by third parties or headhunters (if necessary).
Prospective appointees who are identified by the screening process will then undergo background checks (of financial transactions, criminal record) before being designated as eligible candidates.
Eligible candidates will subsequently be designated as qualified candidates if the following criteria are fulfilled:
Qualified candidates will be identified using a mapping process by the Deputy based on the assessment results.
This mapping process identifies suitable candidates for the office of director having regard to the class, function, and sector/cluster of the relevant SOE.
In addition, two other considerations are taken into account:
i. Talent Development
Personal development and candidates’ potential to develop themselves through experience, social learning and formal learning.
ii. Talent Mobility
Mobility is a process of talent development through the mechanism of work assignment within an SOE, SOE sector or cluster, and across SOE sectors/clusters. In general practice, mobility simply refers to the practice of rotating directors between different roles.
The talent development and mobility processes are to be further provided for by the Minister.
To be appointed to an SOE directorship, a candidate should be drawn from the talent pool and should be selected after a fit-and-proper test or following an evaluation of assessment results by an independent, external recruitment agent.
All prospective appointees must first fulfill a variety of formal and other criteria prior to undergoing their fit-and-proper tests. The test process and results are confidential, and only for internal use by the SOE Ministry.
Once a candidate is selected for appointment, this will be formalised by:
D. Removal of Directors
An SOE Director may be removed at any time by a resolution of a GMS or a ministerial directive, with reasons for removal being given. The grounds on which a Director may be removed include:
E. Prohibitions on Directors
SOE Directors are prohibited from concurrently:
In addition, BOD members are also prohibited from holding positions concurrently as commissioners of other companies, unless:
By introducing a more transparent, systematic, and multi-layered approach to the appointment of SOE Directors, Reg. 11/2021 represents a positive response from the SOE Ministry to longstanding and widespread criticism of the quality and accountability of appointments made in the past. The new regulation is aimed at establishing a robust and accountable selection system that will help to ensure that the right people get the right jobs. However, whether the new system is sufficiently robust to actually achieve this laudable goal remains to be seen.
By partner Mr. Ayik Candrawulan Gunadi (firstname.lastname@example.org), senior associate Mr. Novario Hutagalung (email@example.com), and associate Ms. Nindi Saskia (firstname.lastname@example.org).
This ABNR News and its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.
 Peraturan Menteri Badan Usaha Milik Negara Republik Indonesia Nomor Per - 11/MBU/07/2021 Tentang Persyaratan, Tata Cara Pengangkatan, Dan Pemberhentian Anggota Direksi Badan Usaha Milik Negara
 An “echelon” is a structural level in the government employment structure and is divided into 4 levels, with echelon 1 as the highest level and echelon 4 the lowest. In essence, each level has the following duties:
 SOE Candidate Screening Committees are to be established to screen and evaluate candidates in order to identify SOE Candidates to be proposed to the SOE Ministry.