The Implementation of the Business Judgment Rule under Indonesian Company Law: Legal Protection for Directors

Abstract

The increasing complexity of corporate activities in Indonesia has placed directors in a position that requires strategic business decision-making while simultaneously exposing them to potential legal liability for corporate losses. This condition highlights the importance of the business judgment rule as a legal protection mechanism for directors under Undang-Undang Nomor 40 Tahun 2007 tentang Perseroan Terbatas. This study aims to analyze the implementation of the business judgment rule in the Indonesian Company Law framework and to examine its role in balancing legal protection for directors with the principle of corporate accountability.

This research uses a normative juridical method based on secondary legal materials. The approaches applied include the statute approach, conceptual approach, and case approach. The legal materials consist of primary, secondary, and tertiary sources analyzed qualitatively to obtain a systematic understanding of the legal issues related to the implementation of the business judgment rule. The findings show that the business judgment rule provides legal protection for directors against personal liability arising from business decisions, provided that such decisions are made in good faith, with due care, within the scope of authority, and for the benefit of the company. Nevertheless, its implementation in Indonesia still encounters challenges due to the lack of explicit standards concerning the interpretation of good faith and prudence in corporate management. This condition may result in inconsistent legal interpretations and reduced legal certainty. This study concludes that the business judgment rule is essential in supporting sound corporate governance while maintaining directors’ accountability. Therefore, clearer legal standards and consistent judicial interpretation are necessary to strengthen legal certainty in Indonesia.