The Challenges of Corporate Governance in Indonesian Oil Palm: Opportunities to Move Beyond Legalism?

Abstract

Corporate governance plays an important role in shaping the behaviour of modern international businesses and has matured significantly since Friedman first advocated that corporate governance should solely be about serving shareholders. In the Indonesian business sector, belief in corporate governance, though growing, still has some way to go. This is particularly the case in the Indonesian oil palm industry, which currently finds itself in the international spotlight because of environmental and social concerns. Such attention reaffirms the need for sound corporate governance procedures to underpin a plantation's stakeholder relations because an oil palm plantation now needs to deal with a greater number of stakeholders than ever before. However, many Indonesian plantations have not yet embraced the potential for using a focus on corporate governance as a way to drive business improvements. This article argues that a judicious response to the increased attention on Indonesian plantations would be to implement plantation-wide business improvements based on improved corporate governance processes. It argues that plantations that fail to move beyond legal compliance (“beyond legalism”) in their relationship with local smallholders will continually need to grapple with the resulting tensions generated by the smallholders' endemic feelings of injustice towards the plantation companies' distribution of benefits.