Board Member Duality and Its Relationship with Corporate Performance in State-owned Enterprises in Indonesia

Abstract

This paper presents preliminary findings from a survey about board member duality and agency cost in state-owned enterprises in 2014 in Indonesia. Board member duality is defined as the appointment to the position of director in a parent company while at the same time also holding a position as a commissioner in its subsidiary company. Agency cost refers to the cost which arises as a consequence of an agent and principal relationship. The principal expects that agency cost incurred in the relationship, will, in turn, increase corporate performance. Director’s remuneration, as one of the proxies for agency costs, is tested together with several variables involved in the respondent attributes, namely gender, age, and education in order to find the best predictor of the dual director response regarding his/her role in parent and subsidiary governance. The preliminary finding reveals that Director’s remuneration is the best predictor of the dual director response against three propositions, namely (1) Dual directors use their experiences to the advantage of both companies; (2) Dual directors tend to choose the interests of the parent rather than those of its subsidiary; (3) Dual directors increase subsidiary performance.