Melbourne Law School - Theses

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    Corporate governance in the Indonesian capital market: a legal-sociological study of legal culture
    Tabalujan, Benny Simon ( 2000)
    This thesis examines corporate governance in the Indonesian capital market during the 1990s. The key elements of corporate governance used are: transparency, accountability and predictability. After sketching the salient features of the Indonesian corporate sector, detailed case studies on three banks are undertaken focusing on critical junctures in their corporate lives: Bank Duta (1990); Bank Summa (1992); and Bank Pikko (1997). Since banks are highly regulated entities in Indonesia, studying their corporate governance experience provides a good benchmark of Indonesian corporate governance. The case studies reveal that the written rules on corporate regulation were often not complied with. This finding casts doubt on the effectiveness of corporate law reform initiatives undertaken during the 1990s, including the recent 'rush to law' following the 1997-1999 Asian financial turmoil. To explain the discrepancy between the written provisions and actual practice of Indonesian corporate governance, I create an analytical model based on the sociological concept of legal culture. This model incorporates the work of Lawrence M. Friedman (Stanford University) on legal culture and the work of Ugo Mattei (University of Trento) on patterns of law. According to this model, law reform which targets only changes in legal institutions and substantive written law is unlikely to be effective. This is because legal culture - the third and most important aspect of any legal system - has not been addressed. I then refine the model by identifying two key components of legal culture. I refer to them as legal habit and legal consciousness. Thereafter, I analyse Indonesian legal culture through its legal habit and legal consciousness. The analysis reveals a legal culture that is dominated by two contradictory trends: a conservative trend based on traditional cultural values (patrimonialism); and a progressive trend driven by economic development imperatives (developmentalism). The conclusion which emerges is that past Indonesian corporate governance reforms, despite introducing major changes in legal institutions and substantive law, have not succeeded because of an unreceptive legal culture torn between patrimonialism and developmentalism. I then offer suggestions as to how this tension can be managed so as to create a corporate governance system which respects Indonesia's unique cultural heritage. If these findings can be extrapolated, they highlight the significance of local legal culture for corporate governance reform in emerging and transitional economies. This has important policy ramifications for corporate law reform in these countries.