The company received an environmental permit from the local government for land that overlaps with adat (customary) land belonging to the indigenous tribe. Consequently, the company’s operation in the area may potentially violate the adat rights of the tribe and lead to more deforestation in Papua.

Many have discussed the conflict, along with similar cases happening across the country, from an administrative, environment, human rights or adat law perspective. But how many of us ever think about it from a corporate law perspective?

The decision of PT Indo Asiana Lestari to operate a project in a certain area is a business decision that is approved by its organs in accordance with the procedure in Company Law No. 40/2007. It seems that so far, Indonesian companies deem the law merely as a procedural rule that governs, for example, the quorum, or minimum number in attendance at a meeting, to pass a resolution for project expansion. However, the Company Law carries a more important message than just passing a procedurally correct resolution; the law bears a message of the corporate objective that Indonesian companies need to understand.

Corporate law theorists have long debated the question of the corporate objective, particularly, the question, “in whose interest is a corporation operated?”. The long-standing theories in this area are called shareholders’ primacy and stakeholders’ primacy. Shareholders’ primacy comes from a view that a corporation is not a real entity. Since it is not real, it does not have social responsibility to its surroundings. In 1923, the idea was famously articulated by economist Milton Friedman, who said that the only social responsibility of a company was to benefit its shareholders. Therefore, every business decision made by a company is aimed at maximizing shareholders’ wealth.

Meanwhile, stakeholders’ primacy comes from an understanding that a corporation is a real entity, just like a human being. It was corporate lawyers Berle and Means in 1932 who argued that a corporation should be seen as a major social institution, to which Chester Barnard later added that the objective of a corporation is to serve society.  

The definition of “stakeholder” was first formulated by the Stanford Research Institute in 1963 as “those groups without whose support the organization would cease to exist”, such as shareholders, employees, customers and society. From this point of view, company decisions should not only benefit the shareholders but the interests of other stakeholders should be kept in mind too.