According to the empirical study by Leuz and Oberholzer-Gee 2006, there is a trade-off between political connections and foreign financing for well-connected firms. Such a dualistic trade-off, however, does not take into consideration the dynamics of a company’s internal structure. This paper takes the case of the Bakrie Group, one of Indonesia’s most powerful business groups, to investigate how such dynamics also influence a firm’s behavior.
Since its foundation in 1942, the Bakrie Group has grown as a prominent indigenous, or Pribumi, business group, developing businesses in wide range of sectors such as steel and mineral resources under Suharto’s authoritarian regime. After the Group reorganized enormous debts caused by the Asian Economic Crisis in 1997–98, the founder’s eldest son, Aburizal Bakrie, emerged on the Indonesian political stage, and with his political support the Bakrie Group experienced rapid growth. The Bakrie family has continued to dominate the Group’s management, making sure that the “independent” commissioners mandated by corporate governance reform in 1999 were in fact Bakrie supporters.
After the Global Financial Crisis of 2008, the politically connected group co-founded an international coal mining investment company, Bumi Plc., with Nathaniel Rothschild, a British financial tycoon, and listed it on the London Stock Exchange (LSE), which requires a high standard of corporate governance. This effort was led by a team of professional management personnel within the company in an attempt to improve the Group’s governance. But, after listing on the LSE, the Bakrie family, using financial means, exploited minority shareholders within Bumi Plc. and withdrew from the new LSE-listed company using their business connections. Those shareholders—businesses that shared common interests with the Bakries—clearly impeded accurate corporate governance procedures. The case therefore illustrates that political connections and international finance are not always in a trade-off but, depending on the dynamics within a business group, can be compatible.
After observing the conflict within the Bakrie Group, a technocratic minister in the government suggested revising Indonesia’s corporate governance standards, admitting there had been a “government failure” and urging more pressure for reform. Introducing more strict regulations to screen each independent commissioner is therefore needed.

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