Is a Private Sector CEO Required to Resign When Appointed as a Director of a State-Owned Enterprise (SOE)?
Yes. A CEO from a private company is legally required to resign from their position upon accepting an appointment as a board member (director) of a State-Owned Enterprise (SOE). This obligation is grounded in two key legal instruments.
The first is Law Number 19 of 2003 on State-Owned Enterprises, specifically Article 25, which explicitly states:
“Members of the Board of Directors are prohibited from holding concurrent positions as: (a) members of the Board of Directors in another SOE, regional government-owned enterprise, or private company, or in any other role that may result in a conflict of interest; (b) structural or functional positions within government institutions/agencies at the national or regional level; and/or (c) other positions as regulated by applicable laws and regulations.”
This provision affirms that SOE directors must remain independent and professional, free from any potential conflicts of interest that may arise from outside obligations.
The second legal basis is found in Government Regulation Number 45 of 2005 on the Establishment, Management, Supervision, and Dissolution of SOEs, particularly Article 21 paragraph (1), which reinforces the prohibition:
“Members of the Board of Directors are prohibited from holding concurrent positions as: (a) directors of another SOE, regional government-owned enterprise, or private company; (b) structural or functional positions in government institutions/agencies; (c) other positions as stipulated by law; and (d) any position that could result in a conflict of interest.”
These provisions make it clear that the role of CEO in a private company falls under the scope of this restriction, as the CEO is part of a company’s board of directors. Therefore, once appointed as an SOE director, a CEO of a private enterprise must resign from their current position.
What is the Deadline for Resignation?
The regulation provides a 30-day grace period for the appointee to resign from their concurrent position. Article 21 paragraphs (3) and (4) of Government Regulation No. 45/2005 state:
(3) If a member of the Board of Directors is appointed to hold a concurrent position, they must resign from the concurrent position within 30 (thirty) days from the date of appointment.
(4) Failure to resign within the 30-day period results in automatic termination of their SOE board membership without the need for a formal dismissal decision.
This provision enforces accountability and ensures that SOE directors can focus entirely on their public mandate without distractions from conflicting interests.
Risks and Implications of Dual Roles: Why the Resignation is Critical
If a private company CEO were to continue serving after being appointed as an SOE director, several significant risks and negative consequences could arise:
1. Conflict of Interest
- Description: Holding roles in both a public and private entity creates a risk that decisions made for the SOE may be influenced by personal or corporate interests.
- Example: Directing procurement contracts or strategic partnerships toward their own private company.
2. Violation of Good Corporate Governance (GCG) Principles
- Description: Principles such as transparency, accountability, and independence are jeopardized.
- Impact: Erosion of trust from investors, stakeholders, and the public in both the SOE and the government.
3. Diminished Managerial Focus
- Description: Leading either a major SOE or a large private company requires full-time, undivided commitment.
- Risk: One or both entities may suffer from ineffective leadership due to time and energy constraints.
4. Risk of Corruption and Collusion
- Description: Dual roles open opportunities for misuse of insider information or abuse of authority.
- Example: Leveraging confidential data from the SOE to benefit the private company.
5. Public Perception of Nepotism or Favoritism
- Description: The public may view the dual role as a sign of political patronage or elite privilege.
- Impact: Damages public confidence in SOEs and undermines the government’s credibility.
6. Misalignment of Public vs. Commercial Interests
- Description: SOEs are tasked with public service mandates, whereas private companies prioritize profit.
- Issue: A CEO serving both may favor commercial gain over public interest, violating the SOE’s mission.
Conclusion
The resignation of a private company CEO upon appointment to an SOE board is not merely a formality—it is a legal and ethical imperative designed to safeguard public interest, prevent conflicts of interest, and uphold the integrity of SOE governance. By enforcing these legal provisions, the government reinforces its commitment to professional, transparent, and accountable management of state assets.