The injection of state capital participation (PMN) funds into Indonesian State-Owned Enterprises (SOEs) has often failed to yield desired improvements, as indicated by research (Idris, 2019). This failure is attributed to shortcomings in strategic decision-making related to asset management and the effective utilization of PMN (Arbar, 2020). According to the upper echelon theory, a company’s strategic quality mirrors the values and cognition of its board of directors, which in turn shape management’s mindset towards achieving high performance (Hambrick & Mason, 1984).
Essential characteristics such as education level, degree, female representation, and political connections among directors play crucial roles in determining the quality of strategies and subsequent SOE performance (Abatecola & Cristofaro, 2018; Cheng et al., 2010). Studies suggest that female directors, in particular, bring valuable attributes to the boardroom, including conservatism in earnings management, communication excellence, and critical assessment of management reports (Bennouri et al., 2018; Conyon & He, 2017; Fan et al., 2019). Recognizing this, the Minister of SOEs has taken steps to increase the proportion of women on SOE boards through Regulation PER-8/MBU/08/2020 (Mahrofi, 2020; Pratama, 2020).
A notable success story in this regard is the leadership of Dwina Septiani Wijaya at Perum Peruri, where her tenure as President Director saw a remarkable turnaround in performance (Bureau of Communications of Perum Peruri, 2019). Under her guidance, Peruri expanded its digital presence, ventured into international markets, and secured lucrative contracts, resulting in a substantial increase in net profit (Ananda, 2020). This success underscores the positive impact of female leadership on strategic decision-making and performance enhancement.
However, contrasting views exist regarding the influence of female directors. While some argue that their strict supervision may hinder communication and reduce performance (Lim et al., 2019), others suggest that their appointments are often based on merit and contribute positively to company performance (Saleh et al., 2021).
Moreover, studies analyzing the performance of SOEs often focus solely on financial metrics like Return on Assets (ROA) and Return on Equity (ROE), neglecting other aspects of performance (Astami et al., 2010; Harymawan et al., 2020). This research aims to address this gap by comprehensively assessing SOEs’ performance across financial, administrative, and operational domains, thereby providing a more holistic view of their effectiveness.
Additionally, the study explores the influence of board characteristics such as political connections and educational background on SOE performance. Political connections, while potentially beneficial in terms of understanding government policies, also pose risks of corruption and inefficiency (Chancharat et al., 2019; Chong et al., 2018). Meanwhile, directors with backgrounds in economics and business are better equipped to make informed decisions and optimize company resources (Elsharkawy et al., 2018).
The findings suggest a positive correlation between female directors, political connections, and educational backgrounds in economics/business with SOE performance. This underscores the importance of diverse and qualified boards in driving organizational success. Furthermore, it supports initiatives to increase female representation and consider educational backgrounds in SOE board appointments.
The robustness test conducted in this study reaffirms the importance of female directors, political connections, and educational backgrounds in driving SOE performance. It supports the Minister of SOEs’ initiative to increase female representation on boards and underscores the need to consider politically connected directors and those with economics/business education backgrounds (Morresi, 2017).
This research has implications in three ways. The first implication is the support for the upper-echelon theory. Positive findings on female directors, political connections, and an economics and/or business education background influence the choice of strategic decisions, thus improving performance.
Second, this research supports the Minister for SOEs’ plan to increase the proportion of women on the boards of directors by showing the positive influence of female directors. Third, it supports the development of research related to the characteristics of the boards of directors. The findings show that female directors and political connections positively affect the performance of SOEs with a two-tier board management system.
In conclusion, the study sheds light on the critical role of female directors and board characteristics in shaping SOE performance. By leveraging diverse expertise and fostering strategic decision-making, SOEs can navigate challenges effectively and achieve sustainable growth. This research contributes to the ongoing discourse on corporate governance and performance management in Indonesian SOEs.
Author: Dr. Wiwik Supratiwi, Dra., M.BA, Ak.
