Rule of law & your business model

While the rule of law is recognised in theory in Indonesia, in practice it is not always respected.  Firms that do not accommodate this in business model design and risk mitigation planning do so at their peril.

The rule of law establishes that everyone is subject to the law, or in other words that no one is above the law.  In Indonesia, the rule of law is in theory recognised in the 1945 Constitution.  In practice, Indonesia consistently ranks poorly in the World Justice Project’s Rule of Law Index (https://worldjusticeproject.org/rule-of-law-index/), which cites corruption, the civil justice system, and the criminal justice system as being problematic.

It’s little wonder that people don’t believe in the rule of law when they regularly see leadership figures disrespecting it.  Anyone who has spent time doing business in Indonesia will be able to tell stories about well-resourced individuals throwing their toys out of the cot when the rules of the game didn’t favour them.  Unfortunately, because of rife corruption, there is ample opportunity to escalate disputes by unjust means.  Civil court decisions can be bought, and key persons attacked through criminal sentencing and immigration concerns, for example.

Business model design needs to accommodate this fundamental feature of the Indonesian market.  Whereas in countries that rank high up on the World Justice Project’s list stakeholders can expect the judicial system to serve as a reasonably reliable backstop, that same safety net does not exist here.  It is important to ensure that the interests of key stakeholders continuously advance, and to anticipate trouble if they do not.  Supplier relationships are replaceable, shareholders less so. Nominees – messy.

Risk mitigation planning needs to address various scenarios prioritised based on likelihood of occurrence and potential impact.  Comprehensive and multi-layered dispute systems design, consisting of a clearly defined series of escalating steps and culminating in binding arbitration, should be considered.

Every business is unique, and therefore solutions are too.  Every business operating in Indonesia faces this challenge and must accommodate the lack of respect for the rule of law in strategic planning.