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Corporate Social Responsibility in the Southeast Asian Context

James J. Spillane, S. J.

BACKGROUND TO CORPORATE SOCIAL RESPONSIBILITY (CSR)

Recent media reports on corporate corruption, fraud, poor governance, and environmental and social mismanagement have eroded much of the faith held in companies by a broad range of constituent parties. Society wants to better understand what companies are doing—how they are improving or damaging lives and the environment—what they are doing to ensure that resource use and business operations are set-up for the long haul. This is certainly true in Southeast Asia (SEA), geographically one of the largest and most populated areas of the world. Stretching from Vietnam in the east to Burma in the west, it has a total population that approaches a billion people.

In today's business climate, where companies compete globally for customers and talent, where reputation is as important as financial outcome, and where social and environmental risks have become key business dynamics, companies (both boards and management by implication) are increasingly being called to give account—by a diverse gallery of stakeholders—across a wide spectrum of their activities and operations. In order to demonstrate a true commitment to corporate responsibility, firms need to re-examine their policies, practices and presentation. Companies can no longer afford to outsource their conscience to a corporate foundation or the community development department. While many, if not most, large companies in Indonesia are still struggling even just to comply with current laws, an increasing number of business leaders in developing and developed countries have been promoting the principles of corporate social responsibility (CSR).

CSR has many definitions. Some simply call it a ‘socially responsible investing’. Others promote the concept as ‘good corporate governance’. But the essence is the same—it is no longer sufficient for companies to comply with the laws if they are really serious about sustainable development in the long term, which will contribute to poverty alleviation. The basic tenets of the CSR concept are by and large similar to the nine principles in the areas of human rights, labour and environment, which the United Nations has been promoting through its Global Compact Initiative and the International Chamber of Commerce (ICC). In this way, CSR depends greatly on initiatives and goodwill, but is seen as legally non-binding. Therefore, methodologically, CSR is reached by way of persuasive and educative endeavours. CSR then is often about how company directors resolve the dilemma of conflicting stakeholder demands that requires delicate judgement. Sometimes, especially in developing countries, it is about leadership and educating shareholders on the imperative of CSR because it is the shareholders who can decide to integrate CSR programs into the business mission and strategies for the management board to implement.

Warren Buffet ones said, ‘It takes 20 years to build a strong reputation and only five minutes to ruin it.’ If one is to believe one of the world's most successful business leaders, there are two important messages in that statement. First, reputation, while very intangible, is a highly valuable asset that needs constant nurturing to develop. Second, the downside risk is very significant and means even a small mistake can potentially be very costly.

Lack of CSR

The current application of CSR principles in Indonesia is still far from ideal as many firms still engage in exploitative practices that threaten the environment and social surroundings. To lure foreign direct investment, many countries are in fact disregarding their environmental laws and the protection of natural resources. At a March 2005 seminar titled ‘Corporate Social Responsibility: A New Business Mainstream toward Sustainable Development’—held by a non-profit organization Leadership for Environmental and Development (LEAD) Indonesia—it was noted that Indonesia was among the countries that set lower standards for investors regarding social and environmental responsibilities. While many responsible companies contributed enormously to the local community, many other firms were still not interested in adopting CSR and it had to be admitted that the development of CSR in Indonesia is still far from ideal.

Moreover, it is not uncommon that society holds some level of cynicism towards CSR-related activities. Beliefs can easily be formed that corporations, who produce unhealthy products or pollute the environment, use CSR-related activities as a way to ‘come clean’. At the end of the day, CSR is not just about contributing something back to society. ‘Doing the right thing’ is important but ‘not doing the wrong thing’ should be just as high a priority or stakeholders may indeed become cynical. Contribution and compliance go hand in hand. Open and honest communication is therefore vital to build sustainable public goodwill.

Ignoring CSR

Corporate social responsibility is a concept that remains alien not only among the general public, but also among many business people in Southeast Asia. Not that they are unwilling to learn. There have been many cases of companies claiming to have implemented CSR but when instance of violation of labour laws and rights were reported in their subsidiary firms and suppliers they chose to look the other way.

The CSR concept has been introduced in an evolutionary manner in Southeast Asia. Since the region is rich in natural resources, protecting the environment around operation sites from pollution is the most elementary stage of CSR. It must be inherent in a company's business practices if the company wishes to survive. It has been suggested that all large companies that have survived for so long must have ensured that they protect the environment around where they operate. It can also be argued that in regard to the environment, they have gone beyond what the regulations demand of them.

Necessity of CSR

Looking at the Asia Pacific region, today it can be seen that industries are being driven more and more by regional strategies. This is especially true for many multinational companies. Manufacturers in particular are looking to achieve economies of scale through both domestic as well as export-driven strategies. As a result of this, understanding customers across the entire region is becoming increasingly critical. Local market understanding is still, if not more important today in the context of making regional decisions.

In terms of population, it being one of the largest countries in the region and the fourth largest in the world, Indonesia continues to be dependent on consumption growth but is likely to be dragged along when the region as whole moves ahead. Some would doubt this and point to the many political and legislative problems that prevent Indonesia from moving forward. But some evident market trends suggest that many large companies in Indonesia will undergo significant changes over the next five years, changes that will influence the position at which some industries, and maybe also Indonesia, will stand in the future.

First of all, open market factors and democratization work hand in hand to slowly root out unproductive practices. Second, Indonesians are in many ways very attracted to foreign products, which means foreign investors are continually attracted to Indonesia and actively look for ways to enter the market. It would be fair to say that it is the entering that represents the largest hurdle, not the interest to enter. Therefore, in order to attract much needed direct foreign investment from multinational companies, Indonesia leaders must acknowledge that CSR is the new mantra in business today. In fact, a highly respected former minister declared that CSR is the essence of being successful in business.

Harmony

At the macro-political level, balance or harmony between business, state and public dimensions constitutes an ideal, which all nations are eager to pursue. This equilibrium is based on the new awareness that business, social and political institutions should be mutually supportive and complementary, in such a way that justice can be more extensively enjoyed by different groups in society. One of the paths to such balance is embodied in the phenomenon and concept called CSR.

Stakeholder Analysis

To understand CSR, one must acknowledge that there are many definitions offered. Hence, it is important to revisit the basic thinking underlying CSR. It is basically the concept that a corporation does not only have economic and legal responsibility to its shareholders, but also responsibilities to the other stakeholders that include consumers, creditors, suppliers, employees, the government, the community, and one silent stakeholder: the natural environment. It follows that besides providing good dividends to the shareholders, producing safe products for the consumer is an important part of CSR. It also includes practicing good corporate governance, or giving charity in various forms for those in need, or treating employees properly, or paying taxes to the government, or empowering the community surrounding the company as well as preserving the natural environment.

As opportunities present themselves and competition really starts to shape the market, creating more value for customers becomes increasingly important. In fact, managing the interest of all stakeholders to the business becomes essential. Customers are at the core of this process. However, employees represent another, sometimes not recognized, key stakeholder group. Only through well-trained and motivated employees can exceptional customer value be delivered. This is especially true for the service industry where often the provider of the service and the service experience itself cannot be separated. No doubt there will be some variability in service delivery and managing this, as well as expectations of customers, really is a major challenge. One important example of the service industry in SEA is tourism, which has become a major source of employment and foreign exchange earnings from many countries.

The final cornerstone of stakeholder management is corporate reputation, the values that ideally should be shared in common by both the company and the general public whether they are customers or not. Corporate reputation is sometimes referred to as ‘corporate image’ without making a clear distinction. The difference between the two is that image represents a promise whereas reputation is built from evidence of behaviour from which shared values with the community have manifested themselves. It is the ‘proof of the pudding’ as opposed to the images seen in a hyped television commercial.

DEFINING CSR IN THE INDONESIAN CONTEXT

Definitions of CSR

In many cases in Indonesia, CSR is simply understood as an initiative whereby companies commit themselves to integrating social and environmental concerns in their business operations and in their interaction with stakeholders on a voluntary basis. These stakeholders included their workers, suppliers, local communities, the government, non-profit organizations and customers. For example, a group promoting corporate philanthropy, chaired by Erna Witoelar and Ismid Hadad, has been quietly lobbying the Indonesian House of Representatives to ensure that the tax laws currently being deliberated will include tax incentives for corporate philanthropy and CSR, and most importantly, an income tax waiver for the recipients of donations. If companies still need convincing about the value of CSR, the civil society cause arguably is the most compelling because it places such activities in the broader context of nation building. It ensures that CSR is here to stay, and is not just another corporate fad. Unfortunately, since it is done on a voluntary basis, CSR tends to be a mere public relations tool. People can plainly see that CSR adoption by companies does not stop their violations as regards their social and environmental surroundings.

CSR as a Public Relations Tool

Now that CSR is in vogue, many are asking why are companies doing it? What is the real purpose of it all? If the intention is to get good publicity or increase one's social acceptability, then in accounting terms, such expenditures should be treated as a public relations exercise, or part of the advertising budget. Unfortunately, that is the way many companies do it today in SEA. CSR is handled by their public relations unit, or by hired PR consultants. It is nothing more than part of their image-building campaign. There is nothing socially responsible about companies doing something merely to gain from their activities. Surely, many feel that there must be a nobler motive for companies to engage in CSR than a self-serving cause like public relations. Donating to a worthy cause, though appreciated, is considered less effective than consistent efforts to empower the local community to provide for itself.

CSR as Corporate Accountability

Corporate accountability is related to all corporate obligations to act pursuant to law and social norms, otherwise the companies concerned will face consequences in compliance with relevant provisions, which may end up in a court case. In this concept, the aspect of law and punishment is more emphasized. This approach is mostly adopted by NGOs, which witness environmental pollution caused by many firms as well as violations of communal rights and fundamental rights.

Based on the facts, various theories of corporate complicity and rights violations have been developed. Thus far, there are several forms of complicity that can be accounted for. First, direct complicity means that a company is directly responsible because it commits or orders rights violations. Second, indirect complicity means that a company is indirectly responsible for rights violations. Third, beneficial complicity means that a company is aware of rights violations and takes no steps to end them because it benefits from the situation.

One of the basic aspects of CSR in Indonesia that has not been well understood or practiced is the mechanism of human rights audit. Several companies have had their human rights audit handled by independent third parties. This audit may be able to reveal to some extent the respect shown by companies for human rights. A human rights audit is conducted by an independent agency, covering the theme of whether a company is already in agreement with the policy and mechanisms on human rights legislation including an evaluation of the corporate procedure used for its acceptance or settlement of human rights compliance—a main feature indicating corporate responsibility. In Indonesia, parallel to the increasing public understanding of human rights, various business practices with the potential to violate rights are being spotlighted, particularly the abuse of nature conservation rights and labour rights. At the academic level, upholding rights is already understood such as in the case of Exxon Mobil which was tried in a court in Washington DC (2001) for alleged rights violations along with the Indonesian government and military.

Corporate reporting is evolving as a part of a broader system of business accountability and organizational management. As a practice, reporting is progressing with varying degrees of qualitative and quantifiable language attracting the attention of business owners, mainstream investors, capital markets, and many others. Various parties are using reporting outputs to benchmark, assess and survey corporate performance, rating and ranking as well as to improve business practices and make investment decisions. This is creating momentum to elevate the quality of reporting guidance, frameworks and tools to a higher level of robust and precise communication. To measure the extent to which a company has conducted its business in a responsible manner and find out how well it has considered the impact of its operations, accountability evaluates six categories: stakeholder involvement, corporate governance, strategic intent, performance management, public disclosure and assurance.

Bryan Dyer, Managing Director for Operations at PT Perusahaan Perke-bunan (PP) London Sumatra Indonesia, a plantation company listed on the Jakarta stock exchange, emphasized the need for companies to issue not simply a financial report, but a development balance sheet that accounts for financial (economic) performance and achievements in social and environmental development. Other large companies such as the Shell Group, Unilever, Gujarat Ambuja Cements Ltd. and the Kompas-Gramedia Group have CSR practices in the form of projects designed to transfer business, technical and social competencies to people. Companies, which cannot do CSR projects by themselves, manage the jobs in partnership with professional organizations or institutions.

CSR as Business Strategy

How can we know if a company is ready to embrace stakeholder management and develop a road map for growth? The answer lies in their vision of what the company strives to become. For example, those wishing to make a contribution to society by being socially responsible or environmentally friendly, probably already have some form of stakeholder management programme in place. Similarly, companies that strive to be an employer of choice are well positioned to reap the benefits of what stakeholder management has to offer. But even a simple proposition such as aiming to provide more value for customers is enough to start moving in that direction. In fact, the customer is almost always the starting point in this process. It is the first crucial step but certainly not the last. After all, Rome was not built in one day.

The primary reason that a company publishes a sustainability report is due to a combination of self-enlightenment and self-interest. It is not an altruistic gesture. A company publishes a sustainability report because its directors believe it will benefit the business. The business case for sustainability reporting is therefore remarkably simple. The process and product bring internal and external benefits that exceed actual or perceived costs. Although a definitive cost/benefit analysis on sustainability reporting has not yet been produced, the steady acceleration and uptake in the activity indicates that companies believe expanded disclosure is a rewarding exercise.

A comprehensive report by Linstock and Imagination during 2004 involved over 1,000 publicly listed enterprises and revealed that companies using generally accepted reporting guidelines (such as Global Reporting Initiative, GRI) to report on non-financial performance experienced lower share price volatility and significantly higher operating profit margins. The report also attributed the results to the presence of good management teams and noted a somewhat slower rate in comparative revenue growth. A 2005 corporate responsibility survey by KPMG confirms that 52 per cent of the top Fortune 250 companies now report specifically on sustainability practices for a number of commercial reasons. These include efforts to protect brand image and reputation, to maintain strong market position, to increase shareholder value, to insure the trust of the financial community, to be an employer-of-choice and to be innovative in creating new products, services and markets.

Each company, depending on its specific market circumstances, values a variety of business benefits from sustainability reporting. A company that processes tons of raw materials might value the reporting process for the internal materials inefficiency it helps identify. A company that depends on brand reputation for continued success might value sustainability reporting for its ability to position and convey the company commitment to ethical principles and community care. While there are numerous benefits to cite, companies, almost without fail, point to the internal benefits of sustainability reporting as far outweighing those reaped externally. They do not belittle the benefits of strengthening dialogue and trust with stakeholders or attracting additional socially responsible and mainstream investors. They just see the internal effects as fundamental improvements to their basic business foundations. Sustainability reporting requires a concerted effort to arrive at broadly accepted strategies, objectives and action plans. The reporting process links typically discreet and insular corporate functions—finance, marketing, R&D, human resources— into a more integrated strategic vision and operation, opening new conversations that pave the way for discovery and innovation. The strategic impact of a commitment to measuring, reporting and continuous improvement can influence product design and manufacturing processes in the early stages. Setting performance targets and making commitments in a sustainability report can radically alter corporate execution and operational results.

A key purpose of reporting is to track progress and shed light on areas needing improvement. When a corporation publicly reports its performance, there is a marked impact on the inside. By exposing the company to public scrutiny, employees and management become motivated to take action to insure that the numbers improve in the next report. The reporting process also provides a warning for trouble spots—and unanticipated opportunities—in supply chains, in communities, among regulators, and in reputation and brand management. These discoveries can help management evaluate potentially damaging developments before they emerge as unwelcome surprises. In today's business climate, the smart companies are those that identify their operational, social and environmental risks and put plans in place to deal with them.

The same applies to corporate reputation, a key cornerstone of stakeholder management. Corporate reputation stems from the values shared in common by both the company and all its key stakeholders including the general public. It is built from evidence of behaviour in which common values have manifested themselves. Companies therefore invest valuable resources on CSR activities in an effort to be perceived as good corporate citizens. However, CSR programmes should go beyond the basic premise of good corporate citizenship to be seen as a form of investment. While the aim is to enhance reputation and build public goodwill, ultimately the effort should lead to more sales and increased profitability. This is achieved through a combination of benefits such as improved relations with governments and unions, reduced barriers for sourcing capital as well as attracting better talent to the company. Ultimately, it can also attract new customers to the business.

Benefits identified from undertaking CSR fall into two categories. First, commercial benefits such as improved share prices, higher productivity, reduced security risks, customer loyalty, being an employer-of-choice, corporate reputation and brand image. Second, social benefits include improved relations with public authorities and NGOs, increased trust between community groups and the company, decline in social unrest and conflict and greater potential for sustainable socio-economic development.

CSR and Line of Business

Put another way, CSR is about capacity building for sustainable livelihoods. It therefore respects cultural differences and seeks to find the business opportunities in building the skills of employees, the community, and the government. Building competence is the main objective, not merely throwing money around, as most state companies in Indonesia have been doing through their small and microenterprise development programmes. But capacity building requires perseverance and even patience because social and business competence grows similar to a healthy economy, not by leaps and bounds, but by percentages. The main hallmarks of this process is that it utilizes, as much as possible, local labour, local contractors, suppliers, even when subcontracting the jobs elsewhere could be easier and less expensive.

The economic rationale is that good behaviour is good business because having prosperous businesses side by side with slums or poor communities fosters resentment and eventually resistance. This means that a company's best defense is its reputation in the society. However, the short-term nature of the market acts as a constraint on the business. But research has shown that sustainable value creation follows from steady, quiet investment over a period of time rather than chasing every quarter's figures for publicity. There are CSR case studies in Indonesia that show how social responsibility can become an integral part of the wealth creation process and is still, with proper management, able to enhance business competitiveness.

MULTINATIONAL CORPORATIONS AND CSR

Some Indonesian leaders have argued that if the pressure on investors continues there would be a great chance that the country would lose its foreign investors. This, of course, sounds very reasonable and in favour of everybody's interests. Reading through these arguments, one will certainly get the impression that big foreign corporations operating in Indonesia are merely helpless creatures and defenseless when facing criticism from the political elite. Actually, with experiences gained throughout the course of their existence, these foreign corporations have been forced to devise for themselves a multitude of strategies to cope with external pressures. In this respect, corporations resemble living organisms and behave accordingly.

In his book The Chrysalis Economy (2001), John Elkington ingeniously divides corporate environmental strategies into four kinds of organisms: the locusts, caterpillars, butterflies and honeybees. The grouping is based on a two-dimensional character of a corporation, that is, the nature of its resources utilization combined with the corresponding level of impact. In terms of resource utilization, corporate locusts are classified as a degenerative model with a high impact on the environment. They are part of the decreasing return world, where the more they do, the worse things become. The characteristics of the corporate locusts are: they use a highly unsustainable business model; have a tendency to swarm, overwhelm habitats; destroy various forms of capital; practice zero cross-pollination; and turn a blind eye to early warnings.

Corporate caterpillars are also representative of a degenerative model. However, they are usually more difficult to spot than locusts. Some traits of corporate caterpillars are: longer-term, unsustainable business models; a high burn rate; relatively low local impact; and the potential to switch to a regenerative model. Two regenerative models are represented by corporate butterflies and corporate honeybees. They are part of the increasing return world.

A particularly good area for applying these distinctions is the mining corporations which often have to deal with social and environmental protests. In dealing with such pressures, Sharon Beder in her contentious book Global Spin (2000) points out that big international corporations have been developing a special technique known as corporate activism. With their massive financial resources and power, the corporations defy claims made by environmentalists to reshape public opinion and to persuade politicians against tightened environmental regulations. In the Western world, corporate activism which began in the 1970s and rejuvenated in the 1990s has enabled corporate agenda to win most debates about the condition of the environment and what should be done about it. While numerous alternatives are available, two most perilous and yet most common methods of environmental activism are the setting up of front groups, and public relations.

Basically, the first model is like putting your words in someone else's mouth. When corporations intend to fight against environmental rulings, or promote environmentally destructive development, they may do so openly. But, strategically it is far more effective to form a group of citizens or experts—and preferably a coalition of such groups—which can publicly endorse the corporations’ interests while claiming to speak on behalf of the public. When such groups do not exist, the corporations can hire public relations firms to form them. The use of such front groups enables corporations to get involved in public debates and government hearings behind a cover of public interests.

SITUATION OF CSR IN INDONESIA

When a recent PR seminar advertised itself with the slogan ‘CSR—the New PR Invention’ to the horror of CSR advocates, it showed that suddenly in Indonesia CSR has also become one of the biggest corporate fads. Overall, it is an encouraging trend indeed, though in no way comparable to the state in more developed countries; there CSR has been thriving and almost like an industry in itself, with full-time staff, Web sites, newsletters, professional associations and armies of consultants. However, as was mentioned above, understanding of CSR in Indonesia still varies. While a number of corporations have built CSR into their strategies, many still regard CSR merely as a charitable activity.

Heeding a recent 2004 analysis of corporate governance impact across the Asia Pacific capital markets by Credit Lyonnais Securities Asia (CLSA) and the Asia Corporate Governance Association, astute local business leaders now realize that the top quartile of Jakarta Stock Exchange (JSX) firms possessing good governance ratings enjoyed an average share price out-performance of over 200 per cent. It is a clear indication that implementing and reporting on more accountable operational practices in Indonesia is rewarded by the investment community and delivers major financial benefits.

Public Perceptions of CSR in Indonesia

Transparency Indonesia (TNS) recently carried out a major study on CSR across 18 countries in the automotive industry. The results for Indonesia, based on 1,000 interviews with general public, are very interesting. They highlight the impact of different CSR activities on building public goodwill. The study covered several aspects of CSR including corporate ethics, social development, environmental policy and philanthropy. In addition to the standard components of CSR, additional dimensions were added that are somewhat specific to Indonesia. These included perceived involvement in corruption and bribery, support for local communities and efforts to create more local jobs.

To better understand how these aspects of CSR are perceived in Indonesia and to what extent they will impact corporations in the future, an analogy can be made to a typical five-star hotel. When checking into a hotel, most people do not like waiting, so the faster the check-in the more satisfied guests generally become. In other words, hotel guests tend to be motivated by a fast check-in and would evaluate the performance of the hotel accordingly. On the other hand, clean bedsheets are not evaluated in the same way because they are taken for granted. But while clean bedsheets cannot delight customers, low performance on this service aspect would most likely cause grave dissatisfaction.

Now think of any complimentary services offered by the hotel. Upon arrival, we may receive complimentary fresh fruit or a similar token of appreciation. This form of service has the potential to delight us. However, if not provided we are not likely to complain or even think about it. For sure, any mild annoyance we may experience would be a far cry from the feeling of finding unclean bed-sheets. We can apply the same line of thinking to CSR activities carried out by corporations in Indonesia. So what motivates high CSR ratings in Indonesia at this point in time? The study shows that being perceived to generate a sustainable future together with producing safe and environmentally friendly products are generally strong drivers for building public goodwill in Indonesia.

Similar to the check-in service at a hotel, companies perceived to do well on these CSR aspects stand a good chance of building strong public goodwill. Of course, actual performance can vary greatly between industries and from one company to another. In contrast, compliance in the form of not being involved with corruption is to a large extent seen as a hygiene factor. Like having clean bed sheets in a hotel, the general public expect corporations not to be corrupt. That means compliance in this area does not help to build goodwill, but noncompliance can create significant negative goodwill. This is the downside effect implied by Warren Buffet.

Similarly, providing for educational support, creating local jobs and supporting local communities are examples of contributions that the general public expects corporations to make. The implication here is to ensure that enough investment is made to reach an acceptable level of compliance. However, excessive investment is unlikely to generate any ‘brownie points’ and is better directed to other CSR activities. Another interesting aspect of CSR is perceived ethical behaviour including ethical production standards, fair pricing and respect for local culture or customs. These dimensions are similar to that of complimentary hotel services. For the general public, these issues are relatively less important but visible effort from corporations to focus on these areas can potentially generate a lot of goodwill. For corporations with strengths in this area, effective communication is the key to success.

The study also highlights a couple of areas where CSR investment shows relatively low potential. These include producing recyclable products and reducing emissions. While commendable activities in relation to other CSR initiatives, they are perceived to be less important and command relatively little impact on public goodwill, at least for automotive companies. Given the vast pollution and littering problem, the fact that Indonesia is facing it may come as little surprise. Having said that, over time as CSR develops it is likely that these activities will become increasingly more relevant. In the meantime, corporate communication departments need to be aware that not all CSR activities have impact on public goodwill, while perceived non-compliance can be detrimental. Like anything else, it is an investment that requires ongoing monitoring of performance in order to be managed properly.

In another study by LSM-FEUI (a management research centre of the Faculty of Economy of Universitas Indonesia in Jakarta) on what management concept is most influential among Indonesian companies, it was found that CSR has been most frequently (31 per cent) mentioned. This is heartening. Another qualitative study done earlier by Indonesian Business Link (IBL) and PPM (a business school in Jakarta) indicates that the scope of CSR within

Indonesia is mainly in the areas of environment; enterprise and economic development; education; human rights, labour and security; disaster relief; and good corporate governance.

The CSR framework of community development programmes such as providing free health services, scholarships, assistance to small and medium enterprises and donations to disaster victims has found acceptance among many firms all over the world.. In Indonesia, PT Freeport Indonesia, state oil and gas company Pertamina, cigarette maker PT HM Sampoerna, PT Coca Cola Bottling Indonesia, PT Bank Central Asia Tbk, PT Microsoft Indonesia, Nokia Mobile Phone Indonesia, PT Timah and Astra Group have implemented community development programmes.

Civil Society and CSR

Handled properly, CSR can plug a hole that has long existed in the current struggle to build a stronger civil society in Indonesia (and elsewhere, for that matter). When Indonesia removed strongman Soeharto in May 1998, it embarked on a process of reform aimed at building a free, democratic and prosperous Indonesia based on a strong civil society. That was the consensus then. There was a long and heated discourse about the kind of civil society Indonesia wanted. Since then the issue has faded and people have begun to lose faith in the cause. The civil society movement in Indonesia has fallen into disarray. It has lost sight of its objectives, its funding sources are drying up, and public support is waning. But a strong civil society—defined as a sector of civic and social organizations that are independent from the state and work to promote shared values and interests—is what Indonesia needs today and in the future.

Naturally, the choice faced by every society, from liberal and capitalist to socialist and communist, is how much should be handled by the state and how much by civil society. In socialist and authoritarian countries, the state dominates or controls virtually all activities—from security and defense, to the economy and basic social services such as education and health care. There is hardly any room for civil society in such a state. At best, it plays a peripheral role. In a liberal system, the state plays a minimal role (usually defense, security and monetary management) and people rely largely on a strong civil society and private business sector to do the rest, including education and health care. Indonesia is trying to move away from the controlled system left behind by the Soeharto regime, in which the state dominated most of the activities, but failed miserably because of rampant corruption. After 1998, Indonesians expected civil society to come to their rescue, but somehow it too failed to fill the vacuum. Thus, Indonesians find themselves today settling for a weak government and a weak civil society—clear symptoms of a failing state.

If companies are truly serious about being socially responsible, they can turn to civil society organizations to run programmes on their behalf. These organizations work at the grassroot level, they know what is needed, and they have the requisite expertise and experience. They have programmes worthy of support. They could put corporate funding to good use. The generous donations in the wake of the Aceh tsunami and other disasters show that corporations in Indonesia have some money to spare, which they can make available for these very purposes. Interestingly, those donations were mostly given with little or no media coverage. CSR creates a new model. It links civil society with the business world to work together on projects that help people with such basic services as education and healthcare that the government cannot be expected to do.

Conferences on CSR in Indonesia

The first Indonesian National Corporate Sustainability Reporting Awards were launched in Jakarta in late June 2006 in coincidence with the first Sustainable Performance Conference. Panelists at the fourth Asian Forum on Corporate Social Responsibility in Jakarta, which took place in September 2005 agreed that companies should go beyond simply making profit, beyond complying with the laws and beyond philanthropy. The buzzwords at the two day conference—organized by the Manila-based Ramon V. del Rosario/Asian Institute of Management Centre for Corporate Responsibility—were socially responsible, ethically right and environment-friendly business practices. Most speakers, who were corporate chief executive officers, stressed community development through the transfer of business skills to rural people, the urban poor or small and microenterprises as the most effective, sustainable way of implementing CSR.

Another recent seminar was titled ‘Corporate Social Responsibility: A New Business Mainstream toward Sustainable Development’ and was held by an NPO, Leadership for Environmental and Development (LEAD) Indonesia. There was an obvious enthusiasm among the some 300 top executives participating in the first day of a two-day national conference on CSR in September 2006 in Jakarta. The event inspired the businessmen present to hold impromptu discussions on the issue. Acknowledging that in Indonesia CSR is mainly associated with community development programmes, the conference stressed that a good CSR programme must also take into account aspects such as, economic, social, environmental, legal and business ethics. The Indonesia Business Link (IBL) is an NPO that focuses on promoting CSR among corporations.

Indonesia has been listed among the countries that did not set high standards for investors as far as the social and environmental responsibilities are concerned. The investors enjoy, among other facilities, easing of various social regulations, such as those that would have guaranteed the workers’ rights and environmental protection. Since the regulations were not strict, multinational as well as the local corporations could exploit natural resources on such a huge scale and at such a pace that the efforts towards environmental preservation and rehabilitation could hardly be successful. As a result, due to these practices the stakeholders demand the companies to be held responsible for their conduct, which tends to be highly exploitative.

INDONESIAN EXAMPLES OF CSR

PT Semen Andalas Indonesia (SAI)

France-based cement producer Lafarge, which owns P.T. Semen Andalas Indonesia (SAI), was quick to implement the CSR concept as part and parcel of the company's reconstruction and rehabilitation work at its heavily damaged production facilities in Aceh. Having their production facilities ruined and 182 employees killed or missing after the tsunami that devastated Aceh on 26 December 2004, Lafarge was well aware that reconstructing and rebuilding its own facilities without participating in the reconstruction and rehabilitation of the province was out of the question.

Unilever Peduli Foundation (UPF)

Another noteworthy example of CSR implementation is shown by the Unilever Peduli Foundation (UPF), which conducts the Surabaya Environment Programme empowering the community for a better environment in the East Java provincial capital of Surabaya. Under this programme, UPF initiated a community-based environmental programme in the Jambangan subdistrict, focusing on waste management and waste-plastic recycling in 2001. UPF started by identifying informal leaders within the community, who would then be trained as members of the programme. The programme succeeded in encouraging the community to improve the environment by supporting the establishment of sanitation facilities. In September 2006, the programme has been replicated in 14 districts in Surabaya.

L'Oreal

L'Oreal, the big cosmetics producer, has been conducting the L'Oreal Indonesia Fellowships for Women in Science since 2004. The programme aims to support and encourage young Indonesian women researchers with promising research projects at the start of their scientific careers. In partnership with the Indonesian National Commission for UNESCO, L'Oreal has supported six Indonesian women researchers with Rp. 50 million (about US$ 5,000) each. The awards are given based on the decision of a board that consists of five eminent scientists.

Chevron Geothermal Indonesia

Through Chevron Geothermal Indonesia Ltd., Chevron, in Indonesia, has been involved in two geothermal energy projects: the Gunung Salak project (377 megawatts), which is one of the largest in the world, and the Darajat Project (145 megawatt), which was to be expanded with the Darajat Unit 3 (110 megawatts). In Riau province, where PT Chevron Pacific Indonesia (CPI) has its operational base, the company set up a polytechnic called Politeknik Caltex Riau that provided training to young boys and girls between the age of 18 and 22. These young people came from villages that have been hit by tsunami. In their first session of a three-month-long training programme, they focused on construction, electrical wiring, welding, book keeping and computer applications, the skills believed to be the most needed for the reconstruction of their tsunami-devastated home villages.

Shell Companies in Indonesia (SCI)

Meanwhile, although it has not set up a polytechnic, Shell, which has been present in Indonesia for over a century, has awarded elementary school scholarships to people at the grass roots. The company supports 80 foster children, some of them as young as being in the fifth grade. These children receive school fees until they complete their secondary schooling. Since 1998, over 200 children have been included in the company's Foster Children Programme. Besides, Shell Companies in Indonesia (SCI) also support students pursuing higher education by tying up with several institutions of higher learning (UI, ITB, UGM and ITS), SCI has awarded scholarships to 60 students from poor families. SCI's Shell University Scholarship is given to an eligible student from the time he or she is accepted at a university until he or she completes his/her studies. Teaming up with Yayasan Bina Anak Bangsa (YBAB/National Children's Development Foundation), SCI also gives donations to provide free elementary school education for street children.

SCI's social investment can also be found in the health and entrepreneur-ship sectors. With regard to the latter, SCI generally partners with IBL, an organization that brings together multinational corporations. By investing in the entrepreneurship sector, it seeks to develop small-and-medium-scale enterprises. Since the Shell's retail network is expanding, the company has launched a capacity-building programme for differently abled people. The income-generating approaches of SCI carries out such activities that help improve the respect and dignity of people with some limitations. In addition to providing various types of skill training (such as hairstyling, sewing and cloth-screening) and setting up a Joint Business Cooperative for the marketing of products made by people with different abilities, SCI also gives opportunities to these people to join the company.

PT Kaltim Prima Coal (KPC)

KPC is an example of a company which when first arrived at its current production area had to build every piece of infrastructure starting virtually from scratch, including roads. There was no government participation. Basically, the company was the government and it established everything. The actual government stepped in around five years ago. In terms of responding to the high expectations the company did not promise but just walked the talk.

Newmont Minahasa Raya in Buyat, Sulawesi

One negative example of CSR in Indonesia is the alleged pollution caused by PT Newmont Minahasa Raya in Buyat Bay, North Sulawesi. When the case came to public attention, the mining firm placed numerous advertisements in the media to show that it has exhibited CSR by, among other things, providing clean water and a community health centre (Puskesmas) for residents near Buyat.

PT Lapindo Brantas in Sidoarjo, East Java

On 29 August 2006, during the three-month anniversary of the Sidoarjo mud-flow in East Java, there was a strange move by several desperate groups to demand the government declare the calamity a national disaster. This demand may have arisen from a genuine concern for the plight of the victims. By declaring the calamity a national disaster, it was expected the victims would at last receive proper attention. But rallying public concern could lead to dire legal implications. Indeed, for the Lapindo Brantas company that drilled the gas well from which the mud has flowed, see the costs of its colossal fault being borne by the wider public. The public would have to bear the colossal repair and compensation costs, partly or fully, through government expenditure. In theory at least, that would be the meaning of the Sidoarjo calamity being declared a national disaster. But once a problem is declared a national disaster, nothing in legal terms can halt an imperative wherein the government is forced to get involved in bearing the costs.

SUMMARY OF CSR IN INDONESIA

In Indonesia, CSR activities are still carried out on a voluntary basis, although state-owned enterprises are required to set aside 1 per cent of their profits for the development of small- and medium-scale enterprises. Because in developed countries, the stakeholders are able to apply significant pressure, the CSR programmes, or related activities are becoming more widespread. These activities belong to the second and third stages in the evolutionary growth of CSR. This becomes possible when there are no problems with business ethics, that is, when the taxes are regularly paid, and when other kinds of corrupt practices are absent. Looking at Europe, we find that many companies have entered the third stage of the evolutionary stage of CSR. There the CSR activities are perceived as investment. Shell, for example, refers to its activities to help and benefit the surrounding community as a social investment.

CSR is not philanthropic. It's good business, according to the president of the World Bank in 2001. One should be aware of the fact that social value created by CSR activities will form a positive corporate image. This image will then provide a competitive advantage to the company that is almost as significant as the brand image itself. In a survey conducted by Environic International (Canada), Prince of Wales Business Leaders Forum (the principal of IBL) and the Conference Board (the US), this phenomenon is confirmed by the results. If we go by another survey, the Millennium Poll on CSR, which was conducted in 23 countries and in which 25,000 people participated, 60 per cent of the respondents said that they consider following factors when they judge a company: how much its business practices affect its employees, its business ethics, how responsive the company is to the environment and how well it performs its CSR.

In coming times, as more and more people evaluate companies from a triple-bottom-line basis, that is, the profit (linked with the company's financial performance), the people (in relation to the welfare of the stakeholders) and the planet (in connection with environmental conservation), more and more companies will adopt CSR programmes as an integrated part of their business functions, goals and strategies.

As CSR comes to be an integral component of corporate operations, the survival of a business will be better guaranteed. One can recall the Lapindo case, which created a serious environmental problem. It only proves that Indonesian companies have a long way to go before reaching the ideal of responsibility. However, if properly applied, through sincere community development programmes and activities, CSR, even at the earliest evolutionary stage, can ensure the survival of a long-term business. Even though it would be far from ideal, it will still help the business operation as well as the community. A case in point is a pharmaceutical company in Surakarta, Central Java, which was of the worst affected areas during the 1998 riots. That firm was able to avoid mob attacks because the owner had been taking a good care of the community around his company.

SUGGESTIONS FOR IMPLEMENTING CSR IN INDONESIA

Standard Reporting Mechanism

As CSR programmes become more popular among private firms in the country, the availability of a general guideline is, therefore, pivotal to ensure the proper implementation of such programmes. In light of this, Business Watch Indonesia (BWI), with the help of other NGOs and a number of corporations, has drawn up a formula to help standardize CSR practices to improve the social and environmental conditions where a company operates. Therefore, BWI research coordinator Domi S. Wermasubun said standardization was vital to assure the public that CSR was more than merely a community development programme and philanthropy, but also ethical business conduct. The standardization is also crucial to improve the understanding of the practices. At present, most companies associate CSR practices only with charities and community-related development programmes. That is why BWI has formulated a draft of CSR standardization, wherein the content regulates employment practices, environment and public health issues, as well as consumption and consumer affairs. The draft referred to the United Nations conventions and other international treaties. Therefore, it was suggested that CSR implementation in Indonesia needs a standard, a reporting mechanism and verification processes, which would serve as guidelines to determine which activities were really socially and environmentally responsible.

In Indonesia, the government sets standards for environmental elements like PROPER, and the ISO 14001 certificate gives an indication of corporations’ environmental concerns. Certain institutions like the Indonesian Institute for Corporate Governance (IICG) have been producing the Indonesian Corporate Governance Index and have given awards and recognition to the 10 best corporations in this respect for the past three years. IBL has conducted some pilot tests on CSR benchmarking tools adapted from those developed by the Philippine Business for Social Progress. But, overall, not many measurement tools are available yet in Indonesia.

Government Regulation

It is not complete to deal with corporate responsibility and corporate accountability without also speaking about the scope of state responsibility. This is necessary because in reality, all companies are located within state territories so that the state is an actor responsible for regulation and punishment. Only a few discourses on state responsibility have taken place in Indonesia. Such discussions are now being popularized by various groups including the government and NGOs. At this point, both the government and business people should start preparing all the proper instruments for their adjustment to this global trend. Consequently, one of the requirements arising from this trend is the central and regional government role in formulating regulations so that human rights compliance can go hand in hand with its benefits: taxes, fees, employment, contributions and community development.

Furthermore, the government should make regulations to encourage the emergence of an ethical investment environment such as providing tax incentives to firms that adopted CSR and prioritizing such companies in government projects. Challenges related to the government are mainly derived from weak law enforcement across regulations in labour laws and environmental protection, as well as corruption. On top of that, there have been little or no incentives from the government to encourage companies to engage in CSR practices.

For example, the most proper role for the government in the mud flow affair in Sidoarjo, East Java is to act as an overseer. And by no means should the government spend public money to pay for the cleanup and compensation. That would be like a repeat of the Bank Indonesia liquidity funds scandal, where trillions of rupiah were looted by indebted bankers. Surely, it is not easy for the government to stick to its role as an overseer.

Whistleblower Law

President Susilo Bambang Yudhoyono of Indonesia wants his House of Representatives to quickly deliberate and pass a bill protecting whistleblowers. Passing the bill is vital if the country wants to have a proper working rule of law. This law would make investigations into criminal cases easier because whistleblow-ers would be legally protected. With a whistleblowers’ protection law, the likelihood of the courts punishing the wrong people because of a lack of witnesses would be lessened. The bill requires the establishment of an independent institution consisting of police officers, prosecutors and legal experts which would consider a request for protection. In serious cases where witnesses’ lives could be in danger, the state-funded body would provide them and their families with bodyguards, and even new identities and safe houses. Some feel a witness protection law is as important as legislation on legal aid.

Training in CSR

Yayasan Pembangunan Berkelanjutan (YPB), the Foundation for Sustainable Development has been conducting training on a long-term basis with CSR as the main theme. There has been a significant addition to the various CSR forums regularly organized by IBL during the last few years. BWI has been doing research on CSR-related issues. The Association of Textile Industries together with the Ministry of Trade and Industry has organized three national round table discussions on CSR. The Environment Ministry and the Association of Indonesian Accountants launched recently a competition for an award on sustainable reporting. Nevertheless, challenges for corporations in Indonesia undertaking CSR still exist, coming from within the company itself, the community and from the government. However, within companies lack of skills and knowledge may mean that companies are not able to sustain CSR programmes. Within the community, the problem of ‘charity’ may exist because it breeds dependency. Cultural conflicts may also occur, and community resistance is likely to happen as a result of inadequate information on the company programmes.

REFERENCES AND FURTHER READINGS

Bayuni, Endy M, ‘CSR—Time to Do It for Civil Society,’ The Jakarta Post, 7 September 2006.

Burhanuddin Abe, ‘Partnering with NGOs on CSR Programs,’ The Jakarta Post, 30 November, 2006.

‘Corporate Scandals Have Hurt Public Confidence: TI,’ The Jakarta Post, 23 January 2003.

‘Corporate Social Responsibility Has Good Impact on Businesses,’ The Jakarta Post, 16 February 2002.

‘Corporate Social Responsibility Still a Mere PR Tool,’ The Jakarta Post, 10 September 2006.

Crook, Clive. ‘A Survey of Corporate Social Responsibility: The Good Company,’ The Economist, 22 January 2005.

‘CSR Forum Wins Positive Response from Businesses,’ The Jakarta Post, 8 September 2006.

Fadli, ‘Corporate Responsibility Still Rare in Batam,’ The Jakarta Post, 30 November 2006.

‘The Future of Auditing,’ The Economist, 20 November 2004.

Finneren, David J., ‘Assessing Business Performance,’ The Jakarta Post, 11 July 2005,

Hasibuan Sedyono, Chrysanti, ‘CSR in Indonesia: Are We Up to the Challenge,’ The Jakarta Post, 4 September 2005,

Haswidi, Andi, ‘CSR Forum Wins Positive Response from Businesses,’ The Jakarta Post, 8 September 2006.

Herry Priyono, B, ‘The Sidoarjo Mudflow as an Acid Test for CSR,’ The Jakarta Post, 12 September 2006.

―, ‘Who is to Blame for Big Business Feeling the Heat?,’ The Jakarta Post, 23 March 2006.

Hotland, Tony, ‘President Wants Whistleblower Bill to be Deliberated Quickly,’ The Jakarta Post, 25 April 2006.

Kotler, Philip and Nancy Lee, Corporate Social Responsibility: Doing the Most Good for Your Company and Your Cause (New York: Wiley, 2005)

Lindgren, Daniel, ‘Developing A CSR Model for Indonesian Business,’ The Jakarta Post, 26 June 2006.

―, ‘Stakeholder Management Leads to Growth,’ The Jakarta Post, 25 April 2006.

Lingga, Vincent, ‘Serving Both Stockholders and Stakeholders,’ The Jakarta Post, 12 September 2005.

Lynn, Matthew, ‘Business Cannot Get Rid of Liars and Cheats,’ The Jakarta Post, 4 October 2006.

Lubis, Debbie A, ‘Promoting Social Awareness Through Community Programs,’ The Jakarta Post, 16 February 2003.

‘Maintaining Harmonious Relationship with Community,’ The Jakarta Post, 30 November 2006.

Nugroho, I.D., ‘Unfavorable Business Climate Hampers CSR,’ The Jakarta Post, 30 November 2006.

‘Oil and Gas Firms Boost Spending for CD Programs,’ The Jakarta Post, 30 November 2006.

‘A Question of Trust,’ The Economist, 22 February 2003.

Rudijanto, ‘Behavioral Changes Serves as the Basis of CSR,’ The Jakarta Post, 30 November 2006.

―, ‘Is CSR a Business Cost or Strategy?,’ The Jakarta Post, 3 September 2006. Sejiwan, Bondan, ‘CSR Creates Goodwill for Companies,’ The Jakarta Post, 3 September 2006.

Simbolon, Johannes, ‘Natuna People Start Enjoying Oil and Gas Benefits,’ The Jakarta Post, 30 November 2006.

Slamet, Susanto, ‘Water Purifier Meets Needs of Bantul Earthquake Victims,’ The Jakarta Post, 30 November 2006.

Soeharso, Silverius Sonny Y, ‘CSR Concepts and Relative Deprivation,’ The Jakarta Post, 30 November 2006.

‘Standardization of CSR Practices Proprosed,’ The Jakarta Post, 10 September 2005.

Todung Mulya Lubis, ‘The Necessity for Corporate Social Responsibility,’ The Jakarta Post, 2 March 2005.

Urip Hudiono, ‘U.S. Wants Indonesia Exporters to Apply Corporate Social Responsibility,’ The Jakarta Post, 18 December 2004.

Widianarko, Budi, ‘Investment Hungry Indonesia Must Fight Corporate Locusts,’ The Jakarta Post, 5 April 2006.