Mandatory and Voluntary Corporate Social Responsibility Policy Debates in Indonesia Abstract Sabela Gayo CSR has been becoming a major issue in Indonesia since the Government of Indonesia released Company Liability Act Number 40/2007. The Act contains a very crucial and critical article particularly clause 74 regulated CSR as a mandatory for natural resources-based companies. Moreover, the Indonesia Chamber of Commerce and Industry together with the Indonesia Young Businessmen Association, the Indonesia Business Women Association, and 3 other companies directors of Lili Panma Company, Apac Centra Centertex, and Kreasi Tiga Pilar have submitted a judicial review of the article 74 of the Act to the Constitutional Court of Indonesia. The Constitutional Court had rejected the judicial review by releasing a verdict number 53/PUU-VI/2008 based on the following legal reasons; firstly, there are three of total six parties have not met its legal standing, those parties are the Chairperson of the Indonesia Chamber of Commerce and Industry, the chairperson of the Indonesia Young Businessmen Association and the chairperson of the Indonesia Business Women Association. Secondly, the norm of mandatory CSR in the Act is based on the basis of the Indonesia economic principle which is known as the economy owned by the people. And it was one of the government s strategies to involve corporate participation on local economic empowerment programs. Nevertheless, even the verdict is there, the debates on whether CSR is a mandatory or voluntary are still on-going in Indonesia until now. The debates are now still underway between business association, government and society but the government of Indonesia has just released a Government Regulation number 47/2007 on Corporate Social Responsibility. It is an executing regulation of Article 74 on Corporate Social Responsibility in the Act. The debates are now discussing several key issues such as the limitation of CSR programs, tax exemption, guiding principles, and also punishment and awards. Proponents say that by applying CSR as mandatory would increase the production costs of company s products, weaken the competitiveness of the company s products; the government just wants to put its responsibility to develop infrastructures and economic empowerment over the companies. And there are no tax incentives for the companies. Therefore, the proponents say mandatory CSR has become a new burden for the companies and there will be workers termination due to the policy. In contrast with the proponents; opponents say mandatory CSR would provide legal certainty and clear guidelines in implementing the CSR programs. Last but not least, CSR is an important as well as smart way to make business and community interest stand together. In today s world, local communities and corporations must have very close engagement to reach one direction by applying a code of conduct with general principles and guidelines. Notwithstanding, there should be finalized one major distinct definition between mandatory and voluntary corporate social responsibility terms in Indonesia. Of course, It is just semantics disputes but it must be resolved properly and promptly to avoid any ignorant to implement CSR program. After all, the most essential is government should regulate corporations to behave in the interests of society. Finally, the most appropriate way to make it real is by launching guiding principles on mandatory corporate social responsibility. And it is a good start.
Sabela Gayo ICIRD 2012 Page 2 of 5 Introduction Over years relationship between business practices and human rights principles are not compatible between one and another. Business orientation is to make profit as much as possible without pay attention to human rights principles(friedman, 2007). And also there is insufficient evidence that socially responsible firms are more profitable than other firms (Aupperle, Carroll, & Hatfield, 1985). In contrast with Dahlsrud (2008) CSR is defined around 37 different definitions. All of them are containing five different dimensions such as environmental, societal, economic, stakeholders and voluntariness dimension (Dahlsrud, 2008). The difference perceptions and definition concerning CSR makes CSR programs in particular country like Indonesia is unclear and sometimes does not achieve the objectives of the CSR programs. One of the reasons is there is no single regulation on CSR itself. In environment protection, one of the most important strategies is regulation (Gunningham & Sinclair, 1999). It means that, regulation is the most crucial foundation to run any programs or activities. At the same time, in relation to CSR programs, the policy or regulation must be clear enough to come up with very significant results. Even though, Friedman (2007) said the social responsibility of corporation is to increase its profits. And also it is intended to maximize shareholders value (Sundaram & Inkpen, 2004). Whatever the scholars said about CSR definitions itself, the most important points is the demand of CSR come from the consumer and stakeholders (McWilliams & Siegel, 2001). There are internal and external factors have been influencing the managers or decision makers within the corporations to implement CSR or become socially responsible. Even though there is no a clear linkage in any direction between corporate social activities and profitability (Abbott & Monsen, 1979). But still some managers consider that CSR is one of the important tools to adapt with local community and culture. As examples, protests and consumer boycotts experienced by Nestle in selling baby formula in Africa and by Nike as a result of child labour abuse in outsourcing in Asia (Husted & Allen, 2006). Corporate Social Responsibility Overview in Indonesia A paradox between voluntary and mandatory CSR in Indonesia resulted in a blur CSR programs implementation. And then it becomes as new source of corruption for particular groups. Multinational enterprises in an environment that inter-related between political behavior, corporate social responsibility and corruption (Luo, 2006). CSR in Indonesia is formally recognized by state-owned companies since 1989 when the first time Minister of Finance of Republic of Indonesia released a policy for state owned-companies to support financially cooperatives, small and medium enterprises in their business operation area. The policy makes a significant change within the State owned-companies management because they must allocate particular budget of their profits to be given and distributed to co-operative institutions, small and medium enterprises throughout Indonesia. Even though, informally, private sectors and companies have recognized corporate social responsibility in term of charity by providing financial assistance to youth organizations, worship development and its infrastructures and donate some of their money to support students in term of distributing small amount of scholarship or other kind of financial assistances. The distinction perceptions concerning CSR in Indonesia is not just limited to the CSR definitions only but also the distinctions in term of interpreting kind of CSR programs, whether it is qualified as charity program only or it is a CSR program that has sustainability meaning. As said by Visser (2008) CSR in developing countries more crucial rather than in developed countries because it represents the formal and informal ways in which business makes contribution to improving the governance, social, ethical, labour and environmental conditions of the developing countries in which they operate. Accordingly, there are at least four fundamental reasons why CSR is very important issue in developing countries, namely; developing countries represent rapidly expanding economies, and hence the most lucrative growth markets for business, developing countries are where the social and environmental
Sabela Gayo ICIRD 2012 Page 3 of 5 crises are usually most acutely felt in the world, developing countries are where globalization, economic growth, investment and business activity are likely to have the most dramatic social and environmental impacts, and developing countries present a distinctive set of CSR agenda challenges which are collectively quite different to those faced in the developed world (Visser, 2008). Charity, Philanthropy and CSR As researched by Dahlsrud (2008), there are at least five dimensions of CSR programs. But in Indonesia, the most influenced dimension is environmental factor. It causes CSR policy in Indonesia becomes mandatory CSR because of environmental reasons. Environmental reason is mostly influence CSR mandatory objectives in Indonesia. CSR must include other elements such as social and economic empowerment. The three-bottom line namely social, environmental and economic empowerment is part of corporate sustainability strategy. Wright (2001) said philanthropy is quite popular in the United States rather in United Kingdom. There was a negative connotations applied to the concept of philanthropy in United Kingdom and philanthropy is viewed in Britain as a somewhat dubious attitude or stance (Wright, 2001). But still according to Wright (2001) charitable giving in Britain is comparatively positive act. Moreover, in the United States the situation is reversed. Philanthropy is an act, and an increasingly commanding one while charity is dismissed as a patronizing and somewhat out of date attitude (Wright, 2001). Not like in Indonesia, charity and philanthropy are almost having no any differences among them. There has no exact rules and regulation or any act is discussing about the two different issues. But commonly, either charity or philanthropy actions, those are acceptable by public in Indonesia as social responsibility of corporations. Corporate Social Responsibility policy must cover the issue of charity and philanthropy issues more specific in order to the public is aware the differences meaning of the two. Recently, Government of Indonesia through Ministry of Law and Human Rights has released a government regulation on corporate social responsibility. Unfortunately, it is nothing says at all about charity or philanthropy term or its kind of program. As Gunningham and Sinclair (1999) explained that one of the most important thing for protecting something such as environment is regulation. By providing an exact and very comprehensive regulation a particular object might be implemented well and will never have any multi interpretations. The Importance of Corporate Social Responsibility Policy According to Ratner (2001) in his theory of legal responsibility, Corporate Social Responsibility as a social obligation of corporations come from human rights violations might be caused or were caused by corporations. There is a shifting of global actors committed human rights abuses from the state entity convert to multinational enterprise (Ratner, 2001). According to Ratner (2001) At least there are several reasons why the legal responsibility of corporations become a must are as follows; the United Nations condemns illegal trade in diamonds for fueling the civil war in Sierra Leone and asks private diamond trading associations to cooperate in establishing a regime to label diamonds of legitimate origin, the European Parliament concerned about accusations against European companies of involvement in human rights abuses in the developing world, calls upon the European Commission to develop a European multilateral framework governing companies operations worldwide and to include in it a binding code of conduct, American companies and their agents are violating the rights of workers in the developing world, the South African Truth and Reconciliation Commission puts in its final report on the involvement of business sector in the practices of apartheid, Human Rights Watch established a special unit on corporations and human rights and makes report accusing the Texasbased Enron Corporation of corporate complicity in human rights violations by the Indian Government and other international companies operating in Nigeria of cooperating with the
Sabela Gayo ICIRD 2012 Page 4 of 5 government in suppressing political opposition, citizens of Burma and Indonesia sue Unocal and Freeport McMoran in United States under the Alien Tort Claims Act and accuse the companies of violating the human rights of people near their operations and Holocaust survivors sue European banks, insurance companies, and industries for complicity in wartime human rights violations (Ratner, 2001). In Indonesia context, Mandatory CSR policy is mostly influenced by environmental reasons. There have been several human rights violations committed by multinational enterprises throughout Indonesia. The most popular case is Lapindo mud volcanoes in East Java, Indonesia. Lapindo Brantas Company has drilled its oil mining area for searching oil in East Java province but it was failed and caused a mud volcanoes. Mud volcanoes are a geological term which argillaceous material is altered and transported from the Earth s interior and expelled onto its surface (Åkesson, 2008). Environment is also part of basic human rights and must be fully protected by the state. It clearly said at the Universal Declaration of Human Rights and United Nations Declaration of the Rights of Indigenous Peoples. Accordingly, mandatory CSR in Indonesia is part of the state s policy to protect basic human rights of its people. Apparently, Indonesia is one of countries in the world that highly concerns with its people destiny. By providing mandatory CSR policy, the world must appreciate the step was taken by the Government of Indonesia in protecting its environment for the interest of its people even the world. Discussion and Implications The importance of comprehensive, precise and concise CSR policy in Indonesia is highly necessary. Voluntary CSR is unable to grab local people aspirations on CSR implementation strategy. Accordingly, many corporations implement CSR program just a make-up to brand their corporations as a corporation socially responsible. Corporate Social Responsibility is linkage with corporate respect for human rights principles and standards. Recently, human rights issues in term of human rights violations have been committed by particular corporations have become a major external factor of corporations implement their CSR programs better. According to Edmunds (1977) business institutions can deal with social responsibility by avoiding the issue and encountering more regulation whenever adverse social impacts occur and decentralizing and reducing authority and responsibility individual lives. By implementing corporate social responsibility, business institutions may gain more tract-able social costs and more adaptable economy (Edmunds, 1977). It supported by Aneel Karnani (2011) where firms have a corporate social responsibility to achieve some larger social goals, and can do so without a financial sacrifice. Conclusion Corporate Social Responsibility is expected can be a bridge to integrate and synthesize the two different interests of society and corporations. People in the area in which corporation is operate are always accuse the corporations conducted human rights abuses to the people around their business operations. It makes sometimes the tension between corporation and society is scale up. A good bottom-up CSR policy is necessary to assist all stakeholders solve their cases comprehensively in term of human rights, environmental damages accusations. Hopefully, CSR may create corporation and society stand and walk together to a particular area where those may live together in harmony. References
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