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CHAPTER 2
THEORITICAL FOUNDATION
2.1 Definition of CSR
The definition of CSR are varied and broad, but with the common purpose and
mission in achieving social and environmental prosperity. The European
Commission (2001) described that the definition of CSR has several important
implications. CSR is understood as an idea where a company combines social
and environmental issues in their operations and execute policies considering
voluntary stakeholders. Another definition by Atkisson cited in Rahendrawan
(2006) stated that CSR is a broad and intangible term, which is often being used
to determine an organization‟s activity outside its core business, related to
environment and social behavior.
On the other hand Anatan (2010) defined CSR as responsibility to other parties
such as goverment, local comunities and business; but company also gives
commitment to act legally, ethically and improving quality inside company.From
definition of CSR, the author could grasp a clearer perspective about the
necessity of sustainability and cooperativeness from the parties involved in
implementing CSR actualization, to achieve beneficial result for the society and
environment. In the American Conference on CSR (2002) CSR was generally
referred to business that linked to ethical values, legal requirements and aspect
for people, and the environment for decision making processes in companies.
2.2 The Concept of CSR
Corporate Social Responsibility is a familiar term for corporation and enterpises
around the world today. The concept and framework itself established by the
European Union and reffered as a firm‟s accomplishment in social benefits and
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economic gains accordingly to targets set; achieved by applying estimation and
responses to every other issue beside economics, technical and its own legal
requirements (Husted 2003). The current condition of the corporate world in
providing voluntary and philanthropic activity for the society and environment
have been limited which leads to a sense of public disappointment. CSR is not
prioritized by corporation and enterprises because their main focus is to generate
large sums of revenue for the stakeholders.
These problems need governments support to provide protection and solutions as
the party responsible for maintaining the viability of the community; impacted by
corporation and enterprises doing business practices in their territory or area. The
role of governments in relation to these companies is not required only as the
regulator or controller, but rather as those who act as partners. The role of
governments is required not only for policy makers but also as a facilitator and
dynamic factor for business to implement social responsibility towards society
involved. The implementation of CSR must accent on sustainability, embracing
external oriented policies (inside out policy) and internal (Anatan, 2010).
2.3 Scope of CSR in Term of Field of Work in Economics, Environment and
Social Walfare
Corporations in the field of natural resources exploitation, chemical process
manufacturing, and diesel/nuclear power plants; posses a greater CSR obligation
than corporations in the fields of trades and services. For instance, the mining
and petroleum industries cause not just green house effects –which most
environmental proctection agencies and/or organizations are critical about–, but
these corporations are often pushed and encouraged to rehabilitate the hazardous
environment to be eco-friendly again; from the effects of their operations in
converting rainforests to mine fields. The processing plants which create
industrial waste are required to develop a method of decomposing or exterminate
the remainings of its waste completely to avoid environmental contamination.
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The diesel and nuclear power plants have a positive effect for the society in
creating electricity, but they also possess the negative effect of the creation of air
and waste pollutions. These power plants are required to emit only a certain
amount of CO2 in the air, whereas for the nuclear waste are to be processed and
buried in the ground because it cannot be exterminated completely.
The result of the rapid industrial development is causing an environmental
awarness not just in individual societies, but in nations as well. The Kyoto
Protocol is established to balance this issue of environment preservation where
the mainpoint of the protocol is the commitment of developed nations to
maintain an eco friendly environment. CSR defined by European Commission
(2001) as a concept to develop awareness responsible of behavior that leads to
sustainable success, where the company merge both social and environmental
concerns in their business activities, as also voluntarily include those in their
interaction.
CSR strategy involves organizing the changes in a company through a socially
responsible method to implement with their employees; as well as other related
matters like the human capital investment, safety, health, and management
change; because environmentally responsible practices in the fields mentioned
above are related to the management of natural resources and its utilization in the
external production phase. The CSR strategy could also be laid out in the
company‟s external Involving local community that comprises of a broader
stakeholder such as customers, suppliers, business partner, public authorities in
addition to non governmental organizations that is a representative of local
communities and existing environment. This condition is strongly supported by
the statement by Milton Friedman (1970); and was defined by the most famous
definition of CSR intern of maximizing corporate shareholder profit by classical
economics means.
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2.4 CSR Condition in Indonesia
In Indonesia, the CSR activities had mostly begun to exceed only in the recent
years. Demands from the society and the democratic development have shifted
the currents of globalization and free markets; which raise awareness on the
importance of the industrial world, set to implementation corporate social
responsibility (CSR). Although CSR principles had long set out in legislation
within the scope of corporate law and regulation in Indonesia; the
implementations are still lack in awareness of CSR.
Lacking of CSR Implementation concern in Indonesia generally based on
responsibilities for the environmental sustainability, the economics growth and
social well being of society; are not just the responsibility of big company,
although in essence the majority of company doing CSR are big or multinational
company. In the other words, even small company should take responsibility for
their CSR aspect. In Indonesia, the implementation of CSR has long been
strongly influenced by the internal policies applied and the Chief Executive
Officer (CEO) decisions; so that they‟re CSR policies might not automatically be
in accordance with their business vision and mission. This meant that if their
current CEO has a high sense of social responsibility, then their CSR programs
would most likely be implemented. But if the CEO does not have the similar
awareness about the implementation, their CSR program would merely be
symbolic to maintain and boost the company's image to employees and public in
general. The –apparently– lack of will to regulate the CSR activity in Indonesia
resulted in no fewer violations occur, and had caused damage to the existing
environment. The State Law of Environmental Management Chapter IX Article
41 Point 1 stated that “any person who knowingly performs unlawful acts that
result in contamination or destruction of the environment can be punished with
imprisonment of ten years and a maximum fine of five hundred million rupiah."
The condition where companies might set and cause an environmental pollution
do not directly allege the absolute criminal liability, and pose yet no deterrent for
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the perpetrators of illegal actions that harm people and cause environmental
damages.
One example obvious and popular is the conflict between PT. Freeport Indonesia
with the Papua natives. The use of indigenous land, destruction and
environmental destruction, the destruction of the economy, and the existence
population is a reality condition that the Papua people experienced; as a result of
mining operations due to the presence of PT. Freeport Indonesia. The disastrous
damages inflicting the communities from their environment condition could be
observed further in the Lake Wanagon case; which appeared three times in
publications (June 20, 1998; 20 to 21 March 2000), triggered by a gigantic waste
disposal capacity which did not comply with the existing environmental carrying
capacity (Rudito and Famiola, 2007). Both of the points mentioned constitute
only a small picture of the phenomenon triggered and caused by the failure of
CSR that emerged in Indonesia; as there are many more similar examples of
cases nationwide.
On the other hand, there are also success stories of CSR implementation program
in Indonesia. The many manifestations of CSR can be explains through varied
forms of corporate activity such as program development and/or community
development, community services, and community empowerment programs.
Although the activity appear to be simple and rather narrow the scope of the
problem; but the positive impact to the targeted community would largely
acclaimed to the bigger general effects.
The HM Sampoerna Corporation is one of the cigarette giants in Indonesia, who
came along with a strategically designed and beneficial Corporate Social
Responsibility programs. Sampoerna is also concern with education issues and
women activity which were accomodated in it's non profit organization named
Putra Sampoerna Foundation (PSF). As one of the largest company in Indonesia,
Sampoerna would also bear a great responsibility for waste generated from the
effects of cigarette production for many years. Sampoerna has a high awareness
for social responsibility in society; therefore their CSR activityare what the
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perfectly designed bridge to establish good relations with both the environment
and community. This condition is very important to be maintained as it affects
the company's own existence that will correlate strongly with the positive image
of the company in the wider society.
Sampoerna itself has good variety of CSR programs and applied to its full
potential as a form of responsibility to all the people of Indonesia in varied fields.
Discourse of social responsibility carried by Sampoerna is improving living
conditions in both living and working environments of their employees, and the
farmers‟communities that have been the backbone to tobacco industry.
Realizations conducted in a number of key areaare poverty alleviation,
education, environmental conservation and natural disaster management.
Sampoerna Foundation is a non-profit organization first obtained the certificate
ISO 9001 in 2008, with certified quality management system fitting to the
international standard. Sampoerna Foundation has been trusted by more than 250
companies, organizations or associations to carry out their CSR; by applying the
principles of openness and accountability in all of its activities.
In addition, to increase the awareness of their commitment level of corporate
attention to environmental sustainability and social and also economics life of
society; it is necessary to conduct and uphold an evaluation tool to assess the
company's success in implementing the CSR program. The results of the
assessment conducted by an independent appraisal agency; can serve as basis for
the award in the form of award for communities‟ participation facilitated by
company. One of the best breakthroughs in environmental management and
awareness is the PROPER evaluation program; held by The Ministry of
Environment since 1996. Further discussion of this PROPER program will be
presented later in this writing.
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2.5 CSR Related Standard
Several researchers shared the paradigm that globalisation has brought a sort of
“social protections” to the entirety of the international scheme of
competitiveness, priorities, and even the globalisation itself. The phenomenon
has somehow weakened both national and state controls over labour conditions
in some countries. An ISO standardization influences the individuals perception
and good reputation, which signals social responsiblity issue compliance and
enhacement in leverage to organizations network; especially since worldwide
organizations and member states participate is involved in CSR matters (Braun &
Gearhart, 2004; Webb, 2005). The aim of the CSR and GC management system;
both altogether define, comprehend and improve the balance between
entrepreneurship and ethical practices (Castka et al, 2004).
Table 2.1 CSR Standard by Castla, et al (2004)
Reference name Description
Series ISO 9000 and ISO 14000 ISO 9000 this standard is International Organization for
Standardization International quality assurance standard
series ISO 14000 is International Organization for
Standardization International environmental systems
management series.
ISO CSR management system
standard (2002)
This standard is International Organization for
standardization it‟s applicable to management of operations
and is applicable to organization of all sizes from all
sectors.
2.6 Measurement of CSR
2.6.1 Global Reporting Standard (GRI) Framework
GRI is a standardized Global reporting initiative concerning the organizational
reports on social portraits, environment, economics, and dimensions of their
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activities, products, and services (Castka, et al 2004). GRI is a network-based
organization; as a network-based organization, it aims to achieve success through
corresponding and a commonplace in financial reporting (GRI‟s Sustainability
Report, 2006). GRI website explains that the Sustainability Reporting
Framework enables all company and organizations to criterion and reports their
sustainability performance. By reporting their accountability as clearly and
transparently, organizations can increase the trust that stakeholders have in that
also strengthening their position in the global economy.
A global network of some 30,000 people, where many of them are experts on
sustainability issues; as they all contribute to the work. GRI‟s governance boards
and secretariat simply perform as a coordinative element in many activities of its
network partners. GRI framework is being exploited because it is the most
comprehensive framework among the others framework; based on a triple-
bottom-line reporting economics, environment, and social. GRI has positioned a
different approach to a guided corporate social responsibility reporting using
more than 2,500 company and organizations.
Table 2.2 Measure GRI 3 Guidelines Framework by Sustainability Reporting
Guidelines (2007)
Performance Detail information
Economics Performances
Indicator
Economics performance, market presence, indirect
economics impact.
Environmental Performance
Indicator
Materials, energy, water, biodiversity, emission,
effluents, waste, land, products & services,
compliance, transport, overall.
Social Performance Indicator Employee retention, labor / management relations,
occupational health & safety, training & education,
diversity &equal remuneration for women and
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men, investment & procurement practices, non-
discrimination, child labor, forced &compulsory
labor, security practices, indigenous right, local
communities, corruption, public policy, any
competitive behavior, compliance, customer health
and safety, product and safety labeling, marketing
communication, customer policy, compliance.
For company CSR disclosures the activity that were referred to by the words
count. Verbs used by each company to describe their activity are varies and have
more synonym. Furthermore both singular & plural versions and words with both
uppercase and lower cases were counted. The procedure has already been done in
the content analysis; as relied by frequency shown in the subject‟s importance
(Krippendorff, 2004).
GRI Framework has strengths and limitations as viewed byte EPA (Environment
Protection Agency). It shows strengths in creating a consistent information
reporting method with different facilities; allowing for comparison of various
organizations worldwide. The flexible means can be implemented profitably;
where it can reduce any redundancy among other reporting guidance rules
documents, and is also suitable for measuring performance from individual
facilities or groups of facilities which received pollution prevention assistance.
On the other hand, GRI Framework has limitations to be performed in countries
like Indonesia. First, there has been no specific emphasize on a certain important
area for each aspect of detail. Second, some of GRI Framework aspects might
not applicable in Indonesia. Thirdly in business environment in Indonesia may
not meet the scope and basis.
2.6.2 SA 8000
The Social Accountability International (SAI), is based on social accountability
international standards listed in the website. SA8000 standard is based on the
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Universal Declaration of Human Rights, establishment of standards is intended as
a universal tool that can be accessed across different product lines and the sector
as a benchmark that would be the company's social responsibility. The SA 8000
provides a standard, transparent, measurable and verifiable for the certification of
the company's performance in nine key areas: freedom of association, child
labor, forced labor, health and safety, and the right to collective bargaining,
disciplinary practices, working hours, remuneration, discrimination, and also the
managerial system.
In addition, there are some implementing SA 8000 Social Accountability has
become a mandatory requirement for social performance accountability are clear,
first, with a management system which ensures that certain companies have met
the required performance can be significantly reduced costs in managing the
different social needs, fair and safe working environment, and the second has a
continuous and regular audit of the need of holding a third party, and the
company's reputation is in a position that would be better on both ethical and
social standards.
2.7 The Criteria of Company Doing CSR
2.7.1 Company Financial Performance
Those who should carry out CSR programs are profitable company and company
which consciousness would take responsibility for their conducts of
accountability to the surrounding environment voluntarily. In real condition,
business firms in generally good financial condition are more likely to voluntary
reveal CSR information; as the potential cost and financial implications of these
disclosures is expected to be relatively less than those of firms in unhealthy
financial conditions (Cormier and Magnan 1999, as cited in Karim et al. 2006).
Those facts indicated that profitable company is disclosing more CSR
information than less profitable company.
In real condition, companies with low profit can effect resources explore to doing
CSR activities. Robin (2005) stated that this condition does not need preclude or
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business condition from good practices in society to operates. The strategic
scenario of CSR is a concept which originally introduced by Baron (2001), the
situation proves a clear relationship between the profitable companies with the
sustainability of CSR policies in their strategy of implementation.
2.7.2 Based on Types and Sizes of Industry
The number company who are doing more, or less, CSR programs depended on
the characters and nature of their business activity which may cause harm to the
natural environment; and types of industry that will be affected in their area of
the business. in which they operate and working conditions, regardless of the size
of their company. Firm‟s engagement in CSR will vary according to the industry
(Sweeneyand Coughlan, 2008; Moore, 2001; Griffin and Mahon, 1997), where
industries related on chemical ingredients will receive higher attention and
pressure, regarding the environmental and working conditions affects despite
their size. A bigger particular opportunities or connections to apply CSR mostly
are attached to family-owned firms or companies; due to their special ownership
structure (De´niz and Cabrera Sua´rez, 2005).
Wes Hanson, the president and CEO of Noront Resources Ltd., stated that CSR
programs really represent the future of mining companies. The mining industry,
more than other fields, has becoming more aware of the problems and
understands the impacts of what it has left in the past. It is suffice to say that
companies who are using and exploring a huge number of natural resources and
human resources; will have more responsibilities to uphold the CSR in their
business activity.
2.8 Internal Reasons for CSR
To implement CSR programs and policies, company must have a very clear
vision and mission in the long term of perspectives, related with the purpose for
company benefit as well. In broad outline, there are two forms of approach as to
CSR, which are the traditional and new approaches. In the traditional approach,
CSR conducted by company only viewed as a mere obligation fulfilling; whereas
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in the new approach, CSR also serves as both method and mean to achieve
business goals. As an addition, the United States governments has circulated a
certain discourses that should a company participates in social issues, not just the
company will appear good to the consumers, investors and financial analysts; but
they will also harvest good reputation from the Congress, or even from inside the
courtroom whenever it got involved in any legal suit or case (Kotler & Nancy,
2005).
2.8.1 Corporate Image
Statement by Rio D. Praaning Prawira Adiningrat (Secretary General, PA
International Foundation; an internationally renowned CSR consultant
firm) proves that many company consider CSR only as a financial burden,
and it makes them more hesitative that this condition can actually be seen
reverse, as it could be used in contributing the increasing profitability and
strengthens the company’s position with the community. Adiningrat later on
laid out the two ways to address this particular case of corporate mindset.
Firstly, those companies should try to picture being in the headlines of major
national or even international media; related with complaints against them for
exploiting the environment and the people surrounding their facilities or projects.
That could be a situation which might imply a serious loss of money, reputation
and share value. However, the circumstance can be avoided through a link
between the company‟s profitability and the social environment where it works.
This chain of thoughts lead us to one positive mindset; that if a company
conducts researches on how it can profit itself of optimal local support (human
resources), local good food, local clean water and whatever else it requires to
perform well; it may not have to spend any additional cost at all which equals to
no additional burden of expense.
After strategically conducted a targeted investing in both local and regional
society, the company can harvest the benefit of both the products and a very
positive relationship with the surrounding local and regional society. This
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achievement will eventually create a better psychological environment inside and
outside the company, both among workers and in civic society, concerning
loyalty and dedication.
2.8.2. Business Ethics
CSR in the context of capital investment must be interpreted as an instrument for
reducing unethical business practices. Therefore an opinion stating CSR is
identical with volunteer activity and inhibits the investment climate should be
denied. CSR is an array of means to minimize the negative impact of the
production process in general business practices, especially with its stakeholders.
Therefore, it is appropriate to apply CSR as an obligation that are mandatory and
must be executed by the company while it is operating which correspond to the
governments‟ dedication as an agent representing the public interest. It is only
fitting for the governments who have the authority to make arrangements or
regulate CSR; to uphold and monitor CSR implementations.
Ambadar (2008) explains some motives and expected benefits to company with
CSR. Firstly,the company could prevent from being in a negative reputation by
conducting less environmentally destructing activity. Second, company with
strong ethical frameworks can help managers and employees to manage issues of
employment demand in an environment in which company work or operate.
Thirdly, the company earns the respect of the core group of people who demand
its existence, especially in term of providing employment. Lastly, the ethical
behaviour of company around the society canbe saved from unnecessary
interference; resulting in company to continue operating normally.
2.9 External Reasons for CSR
2.9.1 CSR Rules and Regulations in Indonesia
CSR in Indonesia must be implemented as mandatory; as support by the law and
to Law of Limited Company Article 74 No. 40/2007. By the law, either industry
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or cooperative possesses the obligation to complete it. Upon this context, the
CSR has become the main menu for the corporate, despite the obligatory mean as
stated by the regulation.
The research is purposed to acknowledge the CSR application CSR appropriated
to the corporate vision and the instruction based on the Law of Limited Company
Article 74 No. 40/2007 upon limited company, and to acknowledge any risen
obstacles faced by the corporations upon the implementation. The data and
findings in the research were analyzed in qualitative approach, which is
secondary of definition, theory, and substance from literature and regulation; and
primary of observation, interview, and field study, in which they were analyzed
with the relevant theory, code, and experts‟ opinion. The research could then
conclude the various applications of corporate social responsibility campaigns
related to resolving social problems or issues.
The provisions of the legislation caused a certain fear in investment to a number
of people especially local business. The Law of Limited Company Article 74 No.
40/2007 contains four points that had increased the polemic. Pros and cons of the
law still continue even until today. Most of the members of the Indonesian
Chamber of Commerce Employers Association (Apindo) are very strongly
against the presence of the particular article. The common question that always
arises is that, why should CSR be organized and become a corporate liability?
The problems beside the CSR activity of the general obligations, company as
established in formal legislation are the order of business, and the tax on profits
and environmental standard. If the set continued but contrary to the principle of
voluntary, CSR will also give a new burden to business; especially if it does not
undermine the financial side of a company.
The opinion against CSR implementation as a mandatory task was allegedly able
to inhibit the company's investment climate, for both existing and those of
foreign prospective business to come into Indonesia. On the basis of the varied
pros and cons condition, this explanation is to provide an appointed
understanding of CSR in the perspective of legal liability. The obligation of CSR
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has also been applied to state-owned enterprises, as state-owned company have
long implemented CSR by providing assistance to the third party in the form of
physical development; as stipulated in the Decree of the Minister of SOEs and
the Minister of Finance since 1997. Therefore, it is good timing for many
company in Indonesia to take part to think about new concepts or policies related
with the environment in which the company is located.
Law and regulation on CSR were already set up, in which the company's
performance assessment must meet the standardized scheme named PROPER.
PROPER is the Corporate Performance Rating Program in Environmental
Management; which aims to encourage company adhere to environmental
regulation and achieve environmental benefits through the integration of
sustainable development principles in the process of production and services; by
the way the application of environmental management systems, energy
efficiency, resource conservation and ethical business conducts, and its
responsibility to the community through community development programs.
PROPER program was begun in 1996, and was paused for a while due to the
economics crisis in the years of 1997 to 2001. Revived in 2002 with more
complete criteria, it originally only considered aspects of water pollution control;
which then evolved into a multimedia include water pollution control, air, waste
management and implementation of EIA (Environmental Impact Assessment).
The period of 2002-2009 saw the corporate compliance aspects of environmental
management as emphasized. This effort is characterized by its assessment
criteria, based on the observance of the four aspects of multimedia mentioned
above. In the years of 2010-2014 the emphasis will be given to the two goals of
extending PROPER and encourage voluntary efforts in the company; to
internalize environmental concepts in the activity of the production process.In
the 2011-2012 monitor network will be extended to 22 provinces and 400
districts/cities.
PROPER is the monitor and incentive programs and/or disincentives to the
management of activity.The award PROPER, it is an award based program on an
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assessment of performance management of the organization and / or activity in
such as pollution prevention and / or damage to the environment; pollution
counter measures and / or damage to the environment; and pollution recovery
and / or environmental damage.
firstly to adherence color criteria used for ranking the blue, red, and black;
secondly, more aspects of the assessment criteria required (beyond compliance)
for ranking the green and gold Assessment criteria for a more complete PROPER
can be seen on the minister of environment regulation No. 5 of 2011 on
Corporate Performance Rating Program in Environmental Management. In
general PROPER performance ratings are divided into 5 colors with the details
as follows:
Table 2.3 Rating by Secretariat PROPER Environmental Ministry, 2011
Color Description
Gold To the person in charge of business and / or activity that have
consistently demonstrated the superiority of the environment
(environmental Excellency) in the production process, conducted by
business ethically to society.
Green The person in charge of business and / or activity that have made
environmental management is more than required under the regulation
(beyond compliance) through the implementation of environmental
managerial systems, the efforts of implementing social responsibility
(CSR) well, and the efficient use of resources through the efforts of the
4Rs (Reduce, Reuse, Recycle and Recovery)
Blue The person in charge of business and / or activity of environmental
management efforts do not comply with the requirements stipulated in
laws and regulation, and
Red The person in charge of business and / or activity that have made the
required environmental management actions in accordance with the
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2.10 Responsibility in CSR Area
2.10.1 Economics Responsibility
Nowadays, good relationship between CSR and economics benefit is important
conditon that should be mantained. Chamhuri & Wan Noramelia (2004) stated
that the economics theory reflected various degrees of both CSR and financial
performance association by considering market advantages, cost-related
advantages, and reputation advantages. These circumstances proved an
extremely good idea to CSR for its corporate sustainability to join in the
responsibility for what has been done to surrounding.
However, there has been another strong argument about CSR in developing
country; which is seen as most considerably formed by the socio-economics
environment where the company operation and its development priorities.
Amaeshi et al. (2006) argues that, in reality the implementation of CSR in
Nigeria in particular grew weeks to assist in overcoming the economic
challenges the country's development, including in health care, the state of
poverty alleviation, education, and infrastructure development for the
community. Amaeshi also added the opinion that the situation there is in stark
contrast to many Western CSR priorities that occur.
Schimdheiny (2006) questions the effectiveness of imported CSR strategy. Latin
America countries facing tax avoidance and poverty are not included in CSR
conception and methodology originated from many developed countries. On the
other hand, CSR approached developed locally will trigger more social and
provisions and / or legislation;
Black The person in charge of business and / or activity that intentionally
perform any act or omission which did result in contamination and / or
environmental damage.
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environmental concerns like unemployment, deforestation, incomeinequality,
and crime (De Oliveira, 2006 cited Visser 2007).
2.10.2 Legal responsibility
CSR is seems a way to meet ggovernance challenges, while in developing
countries it is perceived as a method to fill in governance gaps due to the
existence of corruption or under-resourced administration failing to give a
variety of social services. Not having good institutions and governance policies
are among the common problems. Many developing countries‟ government‟s
initiatives are involved in setting a living conditions hesitation, proponents of
CSR and the lowest social structure level. Many their strategies believe that
company can take on the role of supporters of CSR (Blowfield & Frynas, 2005),
but has an alternative to government that can be fill gaps in governance and
acceleration of liberal economics.
Matten and Crane (2005) also suggested that company could as well join the
citizenship scope where well-administered citizenship rights have not been
established by governments; as it being encouraged to step in to the areas where
once only governments acted through both privatization and welfare reform
mechanisms. In other words, multinational companies may cut their expenditure
and pull out investment from a region; if the economicss indicates that they will
be more profitable elsewhere. Ite (2004) states there are also some issues related
to the perceived complicity between companies and governments, as severely
experienced by the Shell company in Nigeria.
2.10.3 Social Responsibility
Chamhuri & WanNoramelia (2004) stated that social issues involved advantages
in terms of training served donations, health and the environment, and health
benefits to placing the importance of protecting and preserving the existing
natural resources, one of them by recycling garbage, noise reduction plan of
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action (in ballot initiative to build a new repair), water treatment and processing
limhag processes, and compliance with regulatory authorities and requirements.
Many companies already have a high understanding for memahamii their
responsibility to the environment, and have begun to set targets for continuous
improvement of their performance to achieve goals.
2.10.4 Environment Responsibility
In current condition there are many companies that have been criticized due to
unfavorable impact to the environment, associated with the waste of natural
resources and contribute less to environmental problems, such as pollution and
global warming. The use of fossil fuels is considered as a major contributor to
global warming, and there is good government and social pressure on companies
to strictly comply with and lack of awareness of existing environmental
standards, and also to voluntarily change the production process causes less harm
to the environment. Other issues related to the environment is acid rain, land
degradation, deforestation, and waste disposal systems / cycles.in the conduct of
the CSR disclosures there are high expectations of corporate responsibility rising
in areas where the company's activities over the coming year. In addition, certain
companies may also involve a review to be conducted on a regular basis of the
cognitive process of transportation, which will increase efficiency and reduce
environmental impacts, as well as liaison with suppliers to implement good
environmental practices in the supply chain, global environment, national, and
locally in a more positive and good, to promote the recycling of raw materials,
enhance and maintain the enthusiasm of staff of similar policies, and also ensure
that the involvement of employees to support the practice and reporting resulting
in an indication of the environmental aspects, and regularly reviewing progress
against targets to be addressed.
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2.10.5 Global Issue Responsibility
Recently there are more corporations who are developing their operations as
adjusted to the global environment perspective; where the business globalization
is seen as the only progressive trend. Meanwhile, there are also suggestions from
many critics on the globalization; that it somehow also opened a trend to the
exploitation in many developing countries and their working force, the
environmental destruction, and the growing of human rights violations.
Somehow there is a doubtful sense in the benefits brought by globalization to the
wealthy, which indeed also stretched the economic gap of the rich from the poor.
The open market phenomenon is seen as an opening to the increase of people‟s
living standard, where a higher rate of wages is applied and there are feasible
developments in developing countries. In this state of mind, there are more of
large corporations which becoming multinational in their operational scope; and
most likely will progress in dealing with various issues driven along with the
growing globalization in business.
It might not be simple to alter from the fact how corporations who are operating
globally may stumble upon tightening societal matters; such as the biased
standards of labor in different places of the world. There are so many other
companies which must bitterly accept the facts of how their global operations are
exploitative as ever, and even have been employing underage children in various
conditions. Despite the niche that there are those globally different social and
legal standards of implying children; these business ventures will have to
strategically draw their decisions wisely by adapting to the current preconditions
in the countries they are operating, or set an international approach which will
forcibly applied therein. The similar paradigm must also be fluently applied to
the matters of workplace safety in different places of the world.
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2.11 Theories Developed in CSR
Figure 2.1 the organization viewed as parts of a wider social system by
Financial Accounting book (Deegan, 2009)
BAPEPAM (Indonesia Capital Market Supervisory agency ) as capital market
regulatory state that its a mandatory to company have to reporting 25 items
disclosures. The disclosure of legitimacy in the social contract theory, provide
evidence that the entity in accordance with the expectations and wishes of the
people. In the perspective of the entity-based system is assumed to be influenced
by and has influenced the society operate. The figure 2.4 had shown the
objectives. Within legitimacy theory, stakeholder theory and social contact
accounting disclosures policies are considered to constitute a strategy to
influenced the organization relationship with the others parties. Organization
makes certain regulation social responsibility disclosures within the annual report
or other corporate report this is will be explain in Stakeholder and Legitimacy
Theory. Moir (2001) added that despite the diverse paradigms, there is one
specific mindset which will appoint to the companies‟ stakeholders, their
employee
Industry
bodies
consumer
goverment
supplier
Intererst
Group investor
public
media
The organization
30
existence as industrial entities, and their shared social contract which elaborate
their CSR campaigns coherently with different institutions.
2.11.1 CSR as a Response to Stakeholder Relationships
Stakeholder theory is mainly concerned with the people involved are not too far
away to a company. It depends on circumstances and whether or not the idea of a
particular relationship that exists between stakeholders and the activities of the
company's situation (and Wigrenm Blomback, 2008). Nowadays , many
company accentuate social needs using strategic communications to preserve and
stakeholder relationships in a cohesive and positive is seen as an intangible asset.
Running the CSR principles into business practices leave companies vulnerable
to negative social perceptions of stakeholders, especially when bad news occurs
in the environment. People have their own perceptions of appropriate corporate
behavior and business depends on their goodwill to maximize profits and
maintain the company's reputation (Spangler & Pompper, 2010) .In a paradigm
of CSR responsibilities, it is often that stakeholders set a requirement for MNEs
to respond to both local and global issues. Logsdon and Wood (2005) stated that
a diverse characters of stakeholders and conflicting value systems, will indeed
require complex CSR strategy responses.
2.11.2 CSR as the Result of Social Contact
Results 2000 Social Responsibility Report of the Anglo-Swedish-based
multinational pharmaceutical Astra Zeneca stated goal of social sustainability is
to provide a better standard of living for all members of society. Our social goals
can be more clearly identified by considering all registered customers as
stakeholders, shareholders, employees, and society at large as well as in both
positive and negative impacts. Moir (2001) states that a compelling reason to
follow and execute syatu peusahaan CSR activities, can be explained because the
appropriate response is expected by the public; other than the possibility that the
company also believes such action should take their social contract to society and
the environment involved. Another opinion is also the implementation of CSR
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and also regarded as a firm indication of adjustment to social norms and social
macro instruction contract (Donaldson and Dunfee, 1999, as cited in Moir, 2001)
involving the company and the surrounding communities. Strong similarity to the
social contract theory also appears in his elaboration of the concept of focusing
on others.
2.11.3 CSR as a Form of Legitimacy
Theories by Degaan (2008) legitimacy theories cannot use to define the
management behavior, good or bad in legitimacy can impact in the society, by
having good legitimacy organization can get more profit and increase
shareholder. Distinguishes between legitimacy, which is considered to be a status
pre condition and legitimating which considered being the process that leads to
an organization being legitimate. In the theory of legitimacy, is considered to be
a resource that can be used depending on an organization's survival (Dowling &
Pfeffer, 1975; O'Donovan, 2002).
CSR can also be interpreted as the company's efforts to improve, get externally,
or maintain legitimacy (Moir, 2001). The Company may take action to prove and
legitimize their business practices, although it can occur in cases where people
are given legitimacy and power companies; with the assumption that they will
eventually act responsibly in a manner beneficial to the community associated
(Moir, 2001). This situation provides a discourse to discuss both of the firms‟
legitimacy gain and maintenance. The legitimacy is becoming an issue which is
closer to our preferred perceptions of social contracts as stated by Moir (2001),
which indicates a rather difficult possibility this situation to distinguish between
different goals and reasons for going on behind each CSR activities undertaken
by the company concerned., observing at how the legitimacy will be implored
urgently from implementers to affect business, there are also relations which
relate back to the stakeholder theory. In many other cases, the boundaries of
32
these theories are proven difficult to differ clearly; whilst they are also not not
directly exchangeable in nature.
2.11.4 Triple Bottom Line Reporting
This means that company is not longer faced focus in economics aspect, but also
focus in social and anvironment aspect. Robins (2005) said that the company is
experienced in dealing with social and environmental problems, in fact the
company is positioning itself on a more practical level. The 'Triple Bottom Line
(TBL) has affected a larger part of this state, where Robins (2005) emphasize a
different business approach uses a balance between environmental and social
consequences of business operations; in addition to the financial strategies that
are targeted by the company. A company is required to evaluate both of its
environmental and human aspects; which also involved certain recognition and
assessment of non-business risks which will implicate the firm. To be sustainable
a company must financially secure, meet the social expectation to keep the good
their business operating and also minimize negative impact from environment.
Figure 2.2 Sustainability Triangles
Social
(People)
Environment Economy
(Planet) (Profit)
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2. 12 CSR by Categories of Company
Blomback and Wigren (2008) stated that CSR can applied differently in various
companies depends by types; which implied how the CSR comprehension in
different environments can also result significantly. There are four identified
reasons which are frequently cited by major corporations, to differentiate what
identification they chose as good corporate citizenship. These were their chosen
strategies to boost both their corporate and brand reputation, to protect their
operating license, to attract good employees, and to pose themselves in a
competitive stand of market position. This standpoint shows that they can be
relied upon to exert a continuing influence (Robins, 2005).
Various company types also clearly influences the level of doing CSR. This
paradigm somehow intensified the attention to the subject, and required an
inclusion firms‟ types differentiation. However, the recent contributions opened a
new swift to distinguish various kinds of CSR; depending on their primary sizes.
The study was conducted to examine the responsibilities of local firms by small
firms distinguished. Although, it still seems that the big companies are not
involved or can not benefit directly from such activities. Similarly, Blomback
and Wigren (2008) states that there is little research on how small companies
perform various types of CSR activities we usually focus on a somewhat larger
company.
UU PM (Capital Invesment Law) guarantees to all investors, not only domestic
and foreign, based on the principle of transparency, equal treatment,
accountability, and did not differentiate the origin country, togetherness,
efficiency, equity, environmental friendliness, independence, unity and balance
of progress and economics nationwide. There were about 120 voluntary
companies participated in the year 2003, which covered the earliest index period
of their industrial responsibilities, which showed solid proofs of the increasing
acceptance about CSR obligations. Participation in the global current of CSR
means that these companies were allowing a tracking record method to differ
their responsible business practices; as also enabling them to gain an in-depth
34
analysis to compare the integration of practices across their operatives regarding
the four key aspects like the environment, the marketplace, the workplace, and
the community impacted.
On the other hand, Robin (2005) stated that the ever growing numbers of
participating corporations actually gives a different outlook on how unclear they
perceived the CSR obligation. The varieties of companies conducting CSR
analysis also laid out the phenomenon that there is no specific segmentation by
types to participate in, instead it has been solely based on the core context as they
are parts in the industrially growing world.
2.12.1 Multinational Company
By general definition, multinational companies are corporations which operate in
several countries with other production and/or business services in countries
other than the origin. The basic objective to this setting is to obtain maximized
profits due to a wider market basis, where this situation will preserve their
domestic identification as located in one preferred country. Siwar and Haslina
(2007) stated that recently there is an encouragement to both international and
multinational enterprises to become main players in the business world.
Different varieties of regulations, strategies and campaigns have been applied by
implementations, to contribute continuously to a sustainable development. Best
performances of CSR practices are often seen in the strategies they chose to
apply, although sometimes are not in line with both the environment and social
aspects regarded. There is a duty for every investor who comes to Indonesia;
they must obey for follow the rules and regulation in term condition in Indonesia
because this country still promising not only for investor local but also for
foreign. Natural resources are still a special attraction than fellow ASEAN
country in position of natural resources (SDA) and human resources (SDM).
These condition can be realized when be achieved with balanced benefits of
readiness improving quality of human resources, infrastructure, and also
knowledge.
35
Blomback and Wigren (2008) stated that it‟s not only the smaller enterprises who
can globally change the societal conditions; but larger multinational corporations
can as well take part in their local level. There are also concerns on the unsettled
process of globalization, where multinational companies were seen as only
pursuing maximized profit by sacrificing both employees and the environment.
Meanwhile, there were the increased phases have gone through by MNCs which
focused them better at proving their social responsibilities as enterprises. Crouch
(2008) mentioned how an extraordinary development in the matter is a genuine
result of CSR regulatory climate, as those firms took part voluntarily to alter
their industrial traits. The CSR codes of conduct are seen as guidance for
compatible behavior, with the change being lead by their organizations „superiors
(Aaronson & Reeves, 2002). Diller (1999) stated the challenges which might
block those MNCs in obtaining legitimating by the wider public. MNCs can
always rely and find guidelines to consistently pursue their environmental targets
and the recognition embedded. Shiwar and Haslina (2007) laid out that a higher
demand of CSR practices performed by MNC expected especially in the
concerned and socially responsible countries. Further and intact adaptation to
their local settings can be conducted to better adjust in other places where CSR
implementation is strictly mandatory.
MNCs have been doing more CSR because the level of consciousness and
awareness invested their business area. The obligatory adherence to observe and
obey to rules and law regulation applied. MNC has greater responsibilities than
local company because there is regulation restricting them, which are based on
International Standard, and the fact that they represent a big responsibility of
their brand company image. Those rules and regulation area also applied as
general responsibility for their global CSR campaigns, policies, and practices.
Corporations of larger sizes are somewhat getting closer to metamorphism into
either regional and/or global enterprises. Zadek and McIntosh (2002) mentioned,
that with a growing several hundred thousand of national and regional subsidiary
36
units, about almost seventy thousand multi-national companies have been
globally acknowledged.
2.12.2 Local Company
Operation in local businesses operating has larger economic outlook. Economic
activity will affect the local business environment. in fact it challenges local
companies such as access to capital, the level of consumer spending, and the
overall health of the economy, and to control the environment in which
regulations, and taxes on local businesses that directly affects the felt and
profitability and sustainability of the business is run. Indonesia has legitimate of
proper status for investment grade. The ratings are rising, Indonesia as the largest
economy in Southeast Asia became the target of foreign investors. It is not
separated from the large domestic market and mineral resources. Ministry of
Labor issued a rule against banning chief executive officer (CEO) of local
company from foreign people.
Visser and partners (2007) stated a strong argument about how CSR
implementations in developing countries are simply carved by socio-economic
environment where those companies operate to even grow priorities related.
Factually, there are several developing countries that still experience the lack of
foreign investments to cope with their high rate of unemployment and vast
number of poverty. The United Nation record (2006) monitored that one major
challenge facing CSR campaigns in developing countries; have always been
around the issues like poverty, higher life expectancy for mothers and babies,
increased health rate, balanced opportunities for female citizens, higher
education accessibility, and the healthier environment. Siwar and Haslina (2007)
noted that there were many companies in developing countries refuse to reveal a
more thorough insight on their CSR activities, as faced to the low social
awareness and the weak legal implementations. Quite the contrary to those in
developed countries, there are even very low interest to intrigue a certain
enterprise of changing into a sustainable one regulation and culture in developing
country in Indonesia has many problems in the process run in real condition.