THE INFLUENCE OF GOOD CORPORATE GOVERNANCE
(GCG) IMPLEMENTATION TOWARD QUALITY
SUSTAINABILITY REPORTING (SR) DISCLOSURE (SURVEY ON INDONESIA COMPANIES LISTED IN INDONESIA
STOCK EXCHANGE)
By:
Berliansyah Nugraha Putra
Student ID: 108082100012
ACCOUNTING DEPARTMENT
INTERNATIONAL CLASS PROGRAM
FACULTY OF ECONOMICS AND BUSINESS
STATE ISLAMIC UNIVERSITY SYARIF HIDAYATULLAH
JAKARTA
1436 H /2015
THE INFLUENCE OF GOOD CORPORATE GOVERNANCE
(GCG) IMPLEMENTATION TOWARD QUALITY
SUSTAINABILITY REPORTING (SR) DISCLOSURE (SURVEY ON INDONESIA COMPANIES LISTED IN INDONESIA
STOCK EXCHANGE)
By:
Berliansyah Nugraha Putra
Student ID: 108082100012
ACCOUNTING DEPARTMENT
INTERNATIONAL CLASS PROGRAM
FACULTY OF ECONOMICS AND BUSINESS
STATE ISLAMIC UNIVERSITY SYARIF HIDAYATULLAH
JAKARTA
1437 H /2016 M
ii
THE INFLUENCE OF GOOD CORPORATE GOVERNANCE
(GCG) IMPLEMENTATION TOWARD QUALITY
SUSTAINABILITY REPORTING (SR) DISCLOSURE (SURVEY ON INDONESIA COMPANIES LISTED IN INDONESIA
STOCK EXCHANGE)
Undergraduate Thesis
Submitted to Faculty of Economy and Business
As Partial Requirement for Acquiring Bachelor Degree of Economics
By:
Berliansyah Nugraha Putra
Student ID: 108082100012
Under Supervision of:
Supervisor I Supervisor II
Prof. Dr. Margareth Gfrerer Atiqah, SE, M. Si
ID. 19820120 200912 2 004
ACCOUNTING DEPARTMENT
INTERNATIONAL CLASS PROGRAM
FACULTY OF ECONOMICS AND BUSINESS
STATE ISLAMIC UNIVERSITY SYARIF HIDAYATULLAH
JAKARTA
1436 H /2015
v
CURRICULUM VITAE
Personal Detail
Full Name : Berliansyah Nugraha Putra
Nick Name : Berly
Address : Ciledug Indah 2, Jalan Garuda 1 D 1 No 14/A
Ciledug Tangerang – Banten 15158
Mobile Number : 0813 80880 435
E-mail : [email protected]
Date of Birth : Jakarta, April 8th
, 1990
Sex : Male
Religion : Moslem
Nationality : Indonesian
Competences and Personality : Hard worker, Good working in team, Available
work in pressure.
Educational Background School Year
Elementary SDI Al-Hasanah Tangerang 1996-2002
Junior High School YPI An-Nisaa’ Tangerang 2002-2005
Senior High School SMAN 90 Jakarta 2005-2008
University State Islamic University Syarif 2008-Now
Hidayatullah Jakarta
Major : International Accounting
Non Formal Education
1. EF Pamulang ( Real English, Advance) 2010-2011
2. Chinese Course (Basic) 2012
3. Germany Course (Pre-intermediate) 2005
4. Japanese Course (Basic) 2007
vi
Working Experience
1. Computer Technician at CrownBase.Net Ciledug Tangerang 2009-2015
2. Cooker at Resto Pawon Bu Puji Ciledug Tangerang 2009-Now
3. Quality Control Standard Food and Beverage at Pawon Bu Puji 2010-Now
4. Quality Control Standard of Berlian’s Bakery, Cake and Cookies 2015-Now
Organization Experience
1. Chairman of Islamic extracurricular (ROHIS) SMPI AN-NISAA’ 2003
2. Vise chairman of Islamic extracurricular (ROHIS) SMA 90 JKT 2007
3. Chairman of Remaja Masjid Al-Muhajirin Ciledug Tangerang 2010-2012
Conference Participations
1. Climate Change Economy held by DAAD alumni (February 14, 2012)
2. Summer School in Weyden, Germany with theme “Renewable Energy-
Leadership and Entrepreneurship”, supported by DAAD
(10-18 September 2011)
3. Seminar about Economic Issues in global was held by United Nation (2010)
Activity of Co-curricular
1. Company visit to BMW Center Germany 2012
2. Company visit to P.T. Sucofindo Jakarta Selatan 2008
This statement, I create with the truly as the consideration.
Sincerely
Berliansyah Nugraha Putra
vii
FOREWORD
Assalammu'alaikum Wr.Wb
All Praise to Allah SWT as the Hearer, the Seer and above all an
abundance of grace, Taufiq, as well as his guidance. So, because Allah SWT I can
finish this research on time.
Shalawat always gives to the Prophet of Muhammad SAW and all his
family and friends who always helped him in establishing Dinullah in this earth.
With the strength, intelligence, patience, and strong desire from Allah
SWT, it is a pleasure and honorable to finish this mini thesis as graduation pre
requirement for bachelor degree. I believe there is an invisible hand that has
helped me going through this process.
My special thank for my Mom, Puji Arwati Zaini, who has been helping
and support her son to finish the thesis. You are the embodiment of angels in
human form. So, I want to make you always smile because your happiness is the
best moment that I’ve ever had. You always pray and give spirit, you always pray
for the pleasure for your family and your sons. Thank you mama.
I also would like to extend my gratitude to my father, Mufti Bernado who
has helped me to be the one and only investors to pay attention and the fee
semester of University. I often become very annoying during my thesis process
since I often asking him for pay some university activities. But all of your
viii
scarification has been paid off your son has got her bachelor degree. Thank you
also, you always pray for me in your sholah.
I believe I am nothing without each one of you who has helped me in finishing
this mini thesis. Thus, in this very special moment, let me say many thanks to all
of them who have been helping me the process of this thesis, including:
1. Dr. M. Arief Mufraeni, Lc., Msi., as the Dean of Faculty of Economics and
Business.
2. Prof. Dr. Margareth Greferer, as thesis supervisor I. A special person who
always give me spirits and motivation to keep continue with study until finish
my mini thesis. Also a mentor, who has provided direction and guided me,
gives the great knowledge and thank you for your time. So, Alhamdulillah this
mini thesis has done.
3. Atiqah, SE, MS., Ak., as thesis Supervisor II who has provided direction,
guidance, and thank you for your time and your helping. So I can finish this
thesis.
4. All Lecturers who have taught patiently, may what they have given are
recorded in Allah SWT almighty and all staff UIN Jakarta, special thanks to
Mr. Sugi and Mr. Bonic " thanks you have taught me and given explanation
about thesis"
5. All my friends in accounting, management2008 int'l. Shinta- Lucky- Novita-
Farah “Big love for you guys”. Thanks to My girlfriend Novita Megawati who
already help me and support me in finishing this thesis. You are so special for
me. Angga - Royan- Abhi- Ustadz Mahmud- Pitoy - Vivin- Mia- Shita- Ryan-
ix
Gugun, and Danke Prima for my Friend from Germany ‘Sebastian’ who
already help me in understanding about environmental indicators and motivate
me. Thanks all who could not mention one by one "Thanks for your prayers
and forward your ways.
6. Seniors and juniors prodi int'l accounting and management. Thank you
brothers and sisters for your pray and spirits.
7. Resto Pawon Bu Puji Team and Berlian’s Bakery Team. You are amazing
team that I’ve ever had. Let’s meet you again with another goal and
achievement to be successful on 2016.
I realize this mini thesis is still far from perfection, thus suggestions and
constructive criticism from all parties are welcome, in order to improve my thesis.
Finally, only Allah SWT will return all and I hope this mini thesis will be useful
to all parties, especially for writers and readers in general, may Allah bless us and
recorded as the worship of Allah’s hand. Amin.
Wassalamu’alaikum Wr.Wb.
Jakarta, December 2015
Berliansyah Nugraha Putra
x
ABSTRAK
Penelitian ini bertujuan untuk menganalisis faktor karakteristik Good
Corporate Governance (GCG) dalam perusahaan yang dapat mempengaruhi
kualitas pengungkapan laporan keberlanjutan pada Laporan keberlanjutan
perusahaan-perusahaan yang ada di Indonesia. Faktor-faktor karakteristik Good
Corporate Governance yang digunakan antara lain ukuran Dewan Komisaris,
proporsi Komisaris Independen dan ukuran Komite Audit.
Populasi dari penelitian ini adalah semua perusahaan di Indonesia yang
telah menerbitkan laporan keberlanjutan pada tahun 2009 hingga 2014. Total
sampel penelitian adalah 5 perusahaan yang ditentukan melalui purposive
sampling. Penelitian ini menganalisis pada laporan tahunan perusahaan dengan
metode Content analysis. Analisis data dilakukan dengan uji asumsi klasik dan
pengujian hipotesis dengan metode regresi linear berganda.
Hasil dari penelitian ini menunjukkan bahwa faktor Dewan Komisaris dan
Dewan Komisaris Independen berpengaruh signifikan terhadap kualitas
pengungkapan laporan keberlanjutan di Indonesia, sedangkan ukuran Komite
Audit, tidak berpengaruh signifikan terhadap kualiatas pengungkapan laporan
keberlanjutan di Indonesia.
Kata kunci: Sustainability Report (SR), Karakteristik Mekanisme pengawasan
dalam GCG, Dewan Komisaris, Dewan Komisaris Independen, Komite Audit,.
xi
ABSTRACT
This study aimed to analyze the characteristics of good corporate
governance (GCG) in a company that can affect the quality of sustainability
reporting disclosure on sustainability report companies that exist in Indonesia.
Factors characteristics of good corporate governance which is used are the size of
the Board of Commissioners, Independent Commissioner Proportion and size of
the Audit Committee.
The populations of this research were all Indonesian companies which has
published a sustainability report in 2009 to 2014. The total sample are 5
companies determined through purposive sampling. This study analyzed the
company’s annual reports with Content analysis method. Data analysis was
performed with the classical assumption and hypothesis testing with multiple
linear regression method
Results from this study indicate that factors Board of Commissioner are
significantly influence the quality of disclosure of Sustainability Report in
Indonesia, while the size of Audit Committee does not significantly influence the
quality of disclosure of Sustainability Report in Indonesia.
Keywords: Sustainability Report (SR), Characteristics Mechanism surveillance in
good corporate governance, the Board of Commissioners, Board of Independent
Commissioners, the Audit Committee ,.
xii
LIST OF CONTENTS LIST OF CONTENTS
SUPERVISION SIGN .................................................................................... ii
CERTIFICATION OF THESIS EXAM SHEET ............................................. iii
SHEET STATEMENT AUTHENTICY SCIENTIFIC WORKS .................... iv
CURRICULUM VITAE .................................................................................. v
FOREWORD ................................................................................................... vii
ABSTRAK ....................................................................................................... x
ABSTRACT ..................................................................................................... xi
LIST OF CONTENTS ..................................................................................... xii
LIST OF FIGURE ............................................................................................ xvii
LIST OF TABLE ............................................................................................. xviii
CHAPTER I INTRODUCTION
1.1. Background .................................................................. 1
1.2. Problem Definition ...................................................... 3
1.3. Purpose of this Research .............................................. 3
1.4. Benefit of Research ...................................................... 4
CHAPTER II LITERATURE REVIEW
2.1 Introduction................................................................... 5
2.2. Theory Development ................................................... 7
2.2.1. Agency Theory ................................................... 7
2.2.2. Earning Management ........................................ 10
2.3. Good Corporate Governance ........................................ 11
2.3.1 Theoretical Foundation of Corporate
Governance ........................................................ 12
2.3.2 Definition of Corporate Governance ................. 13
xiii
2.3.3. National Committee of Governance (KNKG)
Definition of GCG ............................................. 15
2.3.4 Good Corporate Governance Mechanism ......... 19
2.3.4.1 General Meeting of Shareholders ......... 21
2.3.4.2 Board of Commissioners and Board of
Directors ............................................... 20
2.3.4.3 Board of Commissioners ....................... 20
2.3.4.4 Board of Directors ................................ 20
2.3.5 The Impact of Corporate Governance
Disclosure of Firm Performance ........................ 21
2.3.6 Good Corporate Governance Development in
Indonesia ............................................................ 23
2.4. Sustainability Report .................................................... 25
2.4.1 The Concept of Sustainable Development .......... 26
2.4.2 Sustainability Report Definition in General ........ 29
2.4.3 Global Reporting Initiative (GRI) Definition of
Sustainability Report .......................................... 31
2.4.4 Impact of Sustainability Disclosure of Firm
Performance ........................................................ 33
2.4.5 Relationship between GCG and Sustainability
Reports ................................................................ 35
2.4.6 Sustainability Report in Indonesia ...................... 37
2.5 Previous Research ......................................................... 39
2.5.1 Analisis Pengaruh Good Corporate Governance
(Gcg) Terhadap Kualitas Pengungkapan,
Sustainability Report (Abdul Aziz, Desember
xiv
2014).................................................................... 39
2.5.2 Corporate Governance and Sustainability
(Alena Kocmanová, Jiří Hřebíček, Marie
Dočekalová, 2011) .............................................. 40
2.5.3 Corporate Governance, Sustainability and the
Assessment of Default Risk (Christina James-
Overheu, Asian Journal of Finance &
Accounting) ......................................................... 41
2.6 Theoretical Framework ................................................. 41
2.7 Hypothesis Development ............................................. 45
CHAPTER III RESEARCH METHODOLOGY
3.1. Scope of Research ........................................................ 46
3.1.1 Dependent Variable ............................................. 46
3.1.2 Independent Variable .......................................... 47
1. The size of Board of Commissioners ............ 47
2. The proportion of Independent
Commissioners ............................................ 47
3. The size of the Audit Committee .................. 48
3.2. Sampling Method.......................................................... 49
3.3. Data Collection Method ............................................... 50
3.4. Analysis Method .......................................................... 51
3.4.1 Descriptive Method ............................................. 51
3.4.2 Classical Assumption .......................................... 52
1. Normality Test............................................... 52
2. Multicollinearity Test ................................... 53
xv
3. Heteroscedasticity Test ................................. 53
4. Autocorrelation.............................................. 54
3.4.3 Multiple Regression Analysis ............................. 55
a. Simultaneous Regression Analysis (Test - F) 56
b. Partial Regression Testing (T-test) ...……… 56
3.4.4 Coefficient Determination Test (R2) .................. 56
CHAPTER IV FINDING AND ANALYSIS
4.1. General Description of Research Object ...................... 58
4.1.1. Overview of 5 selected Companies ..................... 58
4.1.2. Overview of business development 5 selected
Companies ........................................................... 59
4.2. Analysis and Discussion ............................................... 59
4.2.1.Descriptive Analysis ........................................... 59
4.2.1.1 Independent Variable (GCG Components) . 60
4.2.1.2 Dependent Variable (Sustainability Report
Indicator) ....................................................... 69
4.2.2 Classical Assumption .......................................... 75
1. Normality Test............................................... 75
2. Multicollinearity Test ................................... 77
3. Heteroscedasticity Test ................................. 78
4. Autocorrelation .............................................. 79
4.2.3 Multiple Regression Analysis ............................. 80
a. Simultaneous Regression Analysis (Test - F) 82
b. Partial Regression Testing (T-test) ……....... 82
xvi
4.2.4 Coefficient Determination Test (R2) ................. 84
4.3. Interpretation................................................................. 85
1. The influence of Board of Commissioners to the
quality of Sustainability Report Disclosure ............. 85
2. The influence of Board of Independent
Commissioners to the quality of Sustainability
Report Disclosure .................................................... 85
3. The influence of Audit Committee to the quality of
Sustainability Report Disclosure ............................ 86
CHAPTER V CONCLUSION AND RECOMMENDATION
5.1 Conclusion ..................................................................... 87
5.2 Recommendation .......................................................... 89
REFERENCE ................................................................................................ 91
APPENDIX ..................................................................................................... 93
xvii
LIST OF FIGURE
Figure 2.1 Theoretical Framework ............................................................... 44
Figure 4.1 The Compliance with Size of Board of Commissioners in 2009
– 2014 ......................................................................................... 60
Figure 4.2 The Compliance with Size of Independent Commissioners in
2009 – 2014 ................................................................................ 63
Figure 4.3 The Compliance with Size of Audit Committee in 2009 – 2014 .. 67
Figure 4.4 The Compliance with GRI G3 Index in 2009 ................................ 70
Figure 4.5 The Compliance with GRI G3 Index in 2010 ................................ 70
Figure 4.6 The Compliance with GRI G3 Index in 2011 ................................ 71
Figure 4.7 The Compliance with GRI G3 Index in 2012 ................................ 72
Figure 4.8 The Compliance with GRI G3 Index in 2013 ................................ 73
Figure 4.9 The Compliance with GRI G3 Index in 2014 ................................ 74
xviii
LIST OF TABLE
Table 2.1 Matrix of the Logical Framework ............................................... 42
Table 3.1 Operational Variable ................................................................... 48
Table 4.1 COMPANIES SECTOR ............................................................. 59
Table 4.2 SIZE OF BOARD OF COMMISSIONERS IN 2009 -2014
BOARD OF COMMISIONERS ................................................. 60
Table 4.3 SIZE OF INDEPENDENT COMMISSIONERS IN 2009 -
2014 SIZE OF INDEPENDENT COMMISSIONERS .............. 63
Table 4.4 SIZE OF AUDIT COMMITTEE IN 2009 -2014 AUDIT
COMMITTEE ............................................................................. 66
Table 4.5 GRI G3 INDEX IN 2009 -2014 .................................................. 69
1
CHAPTER I
INTRODUCTION
1.1.Background
In the last decade, especially in Indonesia, the sustainability reporting
began to receive attention by stakeholders, especially among investors. Investors
are not only rely simply on the financial statements consisting of balance sheet,
income statement, cash flows, and notes to the financial statements as a tool to
make investment decisions. Trend of making sustainability reporting is increasing
every year, according to Indonesian sources Sustainability Report Award (ISRA)
and some information about the company official web page up until the year of
2014 was 60 companies that have issued sustainability reports.
Practices and disclosure Sustainability Report is a logical consequence of
implementation of the concept and mechanism of Good Corporate Governance
(GCG), which principally functioned as states that the company needs to consider
the interests of their stakeholders, according with the existing rules and establish
active cooperation with stakeholders for the sustainability of the companies in a
long term.
Additionally, mechanisms and governance structures in the company can
be used as a supporting infrastructure for practices and disclosure Sustainability
Report in Indonesia. With the mechanism and governance structure, it can reduce
asymmetry information. If the asymmetry of information is allowed, then it can
lead to adverse selection and moral hazard, as the consequence for every company
which does not carry out practicing and disclosure Sustainability Report.
2
Another side, in this unprecedented economic growth era, achieving
sustainability can be seemed more of an aspiration than a reality. As economies
globalize, new opportunities in generating prosperity and quality of life are arising
though the trading, knowledge-sharing, and access to technology. However, these
opportunities are not always available for an ever-increasing human population,
and accompanied by new risks to the stability of the environment. The indicators
used in measuring of sustainability in companies are developed continuously by
some different international organizations with the aim of achieving an
internationally acknowledged sta Therefore, based on phenomena above, the
author interested to analyze “The Influence Of Good Corporate Governance
(Gcg) Implementation Toward Quality Sustainability Reporting (Sr)
Disclosure”dard. The most widely international activity known is the Global
Reporting Initiative (GRI) which concentrates on standardization of a report on
sustainable development (Sustainability Report).
Therefore, based on phenomena above, the author interested to analyze
“The Influence Of Good Corporate Governance (Gcg) Implementation
Toward Quality Sustainability Reporting (Sr) Disclosure”
Sustainability is strategy of the process of sustainable development. It wins
a special importance where this process assists the management in reaching
sustainability or can discourage from this process. It means that sustainability is
the corporate strategy in monitoring corporate growth, efficiency, performance
and competitiveness by incorporating economic, environmental and social aspects
into corporate management.
3
This research has been done by Alena Kocmanová, Jiří Hřebíček, Marie
Dočekalová in 2011 concern with the research of “Corporate Governance and
Sustainability”. The paper focuses on Sustainability and Corporate Governance
from the point of view of integration and, in connection with the measurement of
corporate performance, Corporate Sustainability Reporting is also gaining in
importance. The end of the results show that Corporate governance is understood
as the key element in achieving economic performance and growth ensuring
increased trust of the investors. It covers a wide range of relationships between the
company management, governing bodies, stakeholders and other parties with
justified interests.
1.2. Problem Definition
In problem definition, the current and require situation is formed as a
structured description of the design problem, with the goal of creating an explicit
statement on the problem and possibly the direction of idea generation. Also, it
clearly written down and provides a global understanding of the problem and its
relevant aspects.
1. Are Board of Commissioners influence the quality of Sustainability Report
Disclosure?
2. Are Board of Independent Commissioners influence the quality of
Sustainability Report Disclosure?
3. Are Internal Auditor influence the quality of Sustainability Report Disclosure?
1.3. Purpose of this Research
4
The purpose of this research is to investigate the extent of qualified
sustainability reports printed voluntary by companies listed on the Indonesian
Stock Exchange regarding to the requirements provided by GRI G3 guideline. The
purpose is as follow by:
1. To observe and clarify the influence the Board of Commissioners to the
quality of Sustainability Report disclosed.
2. To observe and clarify the influence the Board of Independent Commissioners
to the quality of Sustainability Report disclosed.
3. To observe and clarify the influence Audit Committee to the quality of
Sustainability Report disclosed.
1.4. Benefit of Research
Some benefits of this research are:
1. Contribute to the development of the science of Management Accounting,
primarily on how the implementation of GCG in a company can influence the
company's decision to disclose qualified sustainability report practice in the
company's annual report.
2. It provides a practical contribution to the company / management about the
benefits implementation and mechanisms of good corporate governance
(GCG) and disclosure of sustainability report for the company.
3. As reference material or reference for those who will perform further research
on this issue.
4. As a guidance to build transparency about non-financial performance that can
help to reduce reputational risks, open up dialogue with stakeholders such as
customers, communities and investors, and demonstrate leadership, openness
and accountability.
5
CHAPTER II
LITERATURE REVIEW
2.1 Introduction
Each company is committed to implementing the highest standards of
corporate governance in every aspect of the business operations. Good corporate
governance principles are embodied in values, Code of Business Principles,
business processes, controls and standard operating procedures, and how
companies strive to ensure that these are internalized and consistently practiced by
every board of the Company.
Corporate governance has recently received much attention due to
Adelphia, Enron, WorldCom, and other high profile scandals, serving as the
impetus to such recent U.S. regulations as the Sarbanes-Oxley Act of 2002,
considered to be the most confiscate corporate governance regulation in the past.
If better corporate governance is related to better firm performance, better-
governed firms should perform better than worse-governed firms.
Further, regulators and governance advocates argue that the stock price
collapse of such former corporate as Adelphia, Enron, and WorldCom was due to
poor governance. If their controversies are valid, a market premium should
implement for relatively well-governed firms. It also shown by Gompers et al.
(2003), and Bebchuk and Cohen (2004), those firms with stronger stockholder
rights have higher Tobin Q’s, and their proxy for firm value, suggesting that
better-governed firms are more valuable, as measuring of firm performance.
6
In other side, manager has a prerogative to expropriate a firm’s assets by
undertaking projects that giving benefits themselves personally, but impact the
shareholder wealth adversely (Jensen and Meckling, 1976; Shleifer and Vishny,
1997). Effective corporate governance reduces “control rights” stockholders and
creditors confer on managers, increasing the managers probability invest in
positive net present value projects, (Shleifer and Vishny, 1997), and suggesting
that better-governed firms in having better operating performance as the proxy for
firm performance.
Prominent examples of corporate scandals in the US, UK and many others
in different continents of the world, many of which were caused by, or at least
exacerbated by governance weaknesses, give rise to financial community’s which
concern about the appropriateness of the firm profitability or growth prospects in
valuing a firm as well as the necessity of effective control mechanisms in ensuring
the investors’ funds in value-maximizing projects. However, there is no
unequivocal evidence to suggest that better corporate governance enhances firm
performance in different market settings (Klein, Shapiro and Young, 2005).
As a result, investors are still much skeptic about the existence of the link
between good governance and performance indicators like share price
performance and for many practitioners and academics in the field of corporate
governance. It remains their search for the Holy Grail – “the search for the link
between returns and governance” (Bradley, 2004, p. 9). In spite of increasing
volume of cross-country and individual country level evidence especially
suggesting a positive link between corporate governance and firm performance,
7
many companies still remain unconvinced and to them, “the practical adoption of
good governance principles has been “patchy” at best, with “form over substance”
of the norm” (Bradley, 2004, pp. 8-9).
2.2. Theory Development
2.2.1. Agency Theory
Since the publication of Jensen and Meckling's seminal work in 1976,
agency theory has become an important part of modern financial economics. It is
commonly cited as one of the key areas in the development of modern financial
considerations. This principles have been extended provide explanations of
merger activity and corporate restructuring, dividend policies, executive
compensation, composition of corporate boards, and capital structure, among
other issues.
Agency theory is the basis of the theory underlying the company's
business practices used at this time. The theory develops from the synergy of
economic theory, decision theory, sociology, and organizational theory. Main
principle of this theory suggested a working relationship between the investor
who gives authority and agency who receive authority, called manager.
Agency theory has basic roots in economic theory which was exposed by
Alchian and Demsetz (1972) and further developed by Jensen and Meckling
(1976) who defines as “the relationship between the principles, such as
shareholders and agents, such as the company executives and managers”. It
defines the firm as a "nexus of contracts" between different resource suppliers.
Two parties are central to the agency theory; principals, who supply capital, and
agents, who manage the day to day of the firm’s affairs (CBFA, 2000).
8
More formally, Jensen and Meckling (1976) define an agency relationship
as a contract under which one or more persons (the principals), engage another
person (the agent), to perform some service on their behalf that involves
delegating some decision making authority to the agent. In an organizational
context, a firm hires agents in part to exploit economies in specialization.
Shareholders who are the owners or principals of the company, hires the gents to
perform work. Principals delegate the running of business to the directors or
managers, who are the shareholder’s agents (Clarke, 2004).
Jensen and Meckling assume that the behavior of all parties, both
principals and agents, is motivated by self-interest. However, utility of wealth
maximization is remains the single human motivator in their entire theory. They
have individual goals and perquisites that will sometimes take precedence. Self-
interest is defined as maximization of the utility of personal wealth. In making this
assumption, Jensen and Meckling make no assertion about its morality. Rather,
they simply claim that it is the best descriptor of human motivation. Nevertheless,
this assertion generates a great deal of criticism in the literature of financial ethics.
Meanwhile, the agency theory developed by Michael Johnson, considers
that the company's management as "agents" for the shareholders, will act with full
awareness of their own interest, not as the wise and prudent and also fair to
shareholders.
Daily et al (2003) argued that two factors can influence the prominence of
agency theory. First, the theory is conceptually and simple theory that reduces the
corporation of two participants of managers and shareholders. Second, agency
9
theory suggests that employees or managers in organizations can be self-
interested.
In further development, agency theory got a broader response deemed as
better reflect of reality. Some various considerations of corporate governance
were developed by relying on agency theory where the management should
conduct with full compliance according to various rules and regulations exist.
Eisenhardt (1989) use three assumptions on human nature to clarify the
agency theory are: (1) general human selfishness (self-interest), (2) humans have a
limited power of thinking about the future perception (bounded Rationality), and
(3) people always avoid risk (risk averse). Based on the assumption of human
nature, manager as human will most possibility act opportunistic that relates to
prioritizing personal interests.
The world of business has competition at its very core. Competition exists
not only among firms, but within firms, as employees compete for recognition,
promotions, and salary increases. Agency theory acknowledges this world, but did
not create it. As reconceptualized, Agency Theory provides a basis for ethical
behavior. It focuses on the responsibilities of the firm to society as a whole.
To date, agency theory has defined the firm as the principal, and managers
as the agents-trustees. This focus naturally highlights the responsibilities of agents
to the corporation, while the responsibilities of the corporation to others have been
ignored. If the role of the firm is redefined as an agent of society, which is
represented by governmental bodies, the responsibilities of the corporation can be
given a sharper focus.
10
2.2.2. Earning Management
Healy and Wahlen (1999), in their article states that earning management
were often happened by the management to increase compensation and job
security. Beside it, earning management is also done to avoid rules breaking in a
loan contract, reduce regulatory cost, or increase regulatory benefit (Cornett et al.,
2008).
Earning management is not only done by the management for their benefit,
but also for major shareholder, even though it will cause loss for the minor
shareholder. This fit the statement of Laporta et al (1999, 2000) that present an
argument that the real problem of most big company listed on Indonesia Stock
Exchange’s agency conflict is to limit the resources usage by the major
shareholders (who are the controller shareholder) that can cause mean of resources
transfer from the company to major shareholder’s benefit.
Cheung et al. (2005) has done a study about tunneling activities in China
that shows there are transaction done between the companies listed in the Stock
Exchange with the major shareholder. The research shows that the transaction
done by them can cause bad effects to minor shareholders. Jiang et al. (2005) then
documented practices done by most of China’s company, where major
shareholders used company’s loan for their own benefit. Tunneling activities
happen often in a developing country; a country that hasn’t applies GCG well. If a
company really did tunneling, major shareholders will hide the real condition of
the company and use the information for their own benefit. One of the ways to
cover the real condition of company is doing earning management. To reduce
11
earning management activities, GCG need to be applied (Klein, 2002; Warfield,
Wild, and Wild, 1995; Dechow, Sloan, Sweeney, 1996; Beasley, 1996).
Ortega and Grant (2003) stated that earning management is possible
because there is flexibility in a financial report making in order to change the
operational profit of a company. In other words, Abdelghany (2005) explains that
earnings management is revenue manipulation done to fulfill the target stated by
the management. Lo (2008) then relates earnings management and earnings
quality, where a company that did earnings management the most has a bad
earning quality. But a company that didn’t do earning management doesn’t always
have good earning quality, because earning quality is affected by many factors.
This opinion is supported by Schipper and Vincent (2003) whom states that
earning management will affect earning quality.
2.3. Good Corporate Governance
As explanation of the agency theory and earning management, so each
company has to commit to implementing the highest standards of corporate
governance in every aspect of the business operations to implement the principles
of Good Corporate Governance.
Corporate governance consists in contributing to not only corporate
prosperity, but also to the responsibility. Along with the increasing of global
markets investors’ development activity, these will be focusing on demand higher
standards of responsibility, conduct and performance.
Investors tend to seek opportunities outside their domestic markets even
more. The companies try to gain resources on the international capital markets,
12
even find that capital only available for those who conform to the internationally
accepted standards of corporate governance and publishing of information. These
are only some of the reasons leading to the worldwide improvement of the
Corporate Governance standard and, in some degree to its convergence. The
defining of corporate governance is not a matter of unified terminology.
Policies and corporate governance in the future should be more attentive to
the needs of stakeholders (Murtanto, 2005; 4). Disclosure on the economic
aspects, environmental and social has now become a way for companies to
communicate the accountabilities form to stakeholders. This is known as
sustainability reporting, or triple bottom line reporting recommended by the
Global Reporting Initiative (GRI).
2.3.1 Theoretical Foundation of Corporate Governance
Corporate governance lacks any accepted theoretical base or commonly
accepted paradigm as yet (Carver, 2000; Tricker, 2000; Parum, 2005; Larcker,
Richardson and Tuna, 2007; Harris and Raviv, 2008). Citing Pettigrew (1992),
Tricker (2000) and Parum (2005) argue that corporate governance research lacks
coherence of any form, either empirically, methodologically or theoretically,
means that only piecemeal attempts have been made to understand and explain
how complex modern organization is run.
As a result, a number of different theoretical frameworks originate from a
broad range of disciplines including economics, finance, management and
sociology; have been used by researchers in explaining and analyzing corporate
governance. Using various terminologies, these frameworks view corporate
governance from different perspectives.
13
Stiles and Taylor (2002) argue that fragmentation of these various
perspectives has led to a lack of consensus regarding corporate governance and
the actual role of the board of directors in the organization as the nature of board’s
contribution (and the expectations placed upon it) depends heavily on which
theoretical perspective used. However, these frameworks often overlap
theoretically and do share significant commonalities (Solomon and Solomon,
2004).
2.3.2 Definition of Corporate Governance
According to Cadbury (2000) in Dima Jamali (2008), Corporate
Governance (CG) defines as “the system by which companies are directed and
controlled”. The control aspect of CG encompasses the notions of compliance,
accountability, and transparency (MacMillan, Money, Downing and Hillenbrad,
2004), and how managers exert their functions through compliance with the
existing laws and regulations and codes of conduct (Cadbury, 2000). The
importance of CG lies in its quest at crafting/continuously refining the laws,
regulations, and contracts that govern companies’ operations, and ensuring that
shareholder rights are safeguarded, stakeholder and manager interests are
reconciled, and that a transparent environment is maintained wherein each party is
able to assume its responsibilities and contribute to the corporation’s growth and
value creation (Page, 2005). Governance thus sets the tone for the organization,
defining how power is exerted and how decisions are reached.
According to Macey (2008, p. 1), the purpose of corporate governance is
to persuade, induce, compel, and otherwise motivate corporate managers to keep
14
the promise they make to investors. Another way to say this is that corporate
governance is about reducing deviance by corporation where deviance is defined
as any actions by management or directors that are at odds with the legitimate,
investment-backed expectations of investors. Good corporate governance, then, is
simply about keeping promises. Bad governance (corporate deviance) is defined
as promise breaking behavior
The OECD Principles of Corporate Governance, inter alia referred to in
the EU Commission’s Action Plan on Company Law and Corporate
Governance, take a slightly broader view: “Corporate governance involves a set
of relationships between a company’s management, its board, its shareholders and
other stakeholders. Corporate governance also provides the structure through
which the objectives of the company are set, and the means of attaining those
objectives and monitoring performance are determined. Good corporate
governance should provide proper incentives for the board and management to
pursue objectives that are in the interests of the company and its shareholders, and
should facilitate effective monitoring.” This definition goes beyond the definitions
cited above mainly insofar as a company’s objective(s) and the mechanism for
setting the objective(s) are treated as a corporate governance issue, not as
endogenously given. Put succinctly, corporate governance “deals with the ways in
which suppliers of finance to corporations assure themselves of getting a return on
their investment.”
Regarding to Ministry Of Finance Of The Republic Of Indonesia
(BAPEPAM, 2006) in Corporate Governance, Annual report must include a brief
15
discussion regarding implementation of corporate governance that the company
has taken and intends to take in the last financial statement period. The discussion
must at least contain Board of Commissioner, Directors, Audit Committee, Other
Committees, job description and function of corporate secretary, description of
company internal control system and internal control audit, detailed description of
the company risks and preventive action toward the risks, description of social
responsibility activities and expenditure, Any lawsuit in which the Issuer or Public
Company, any of its directors or commissioners is involved, and description of
place/address that can be reached by the shareholders or public to obtain company
information.
2.3.3. National Committee of Governance (KNKG) Definition of GCG
Regarding to KNKG (2006), GCG is necessary to enhance the creation of
an efficient and transparent market that is consistent with the laws. Hence, the
implementation of GCG needs to be supported by three inter-related pillars; (1)
the regulatory, supervisory and enforcement authorities as regulator/policy
makers, (2) business community as market participants, and (3) public as users of
products and services of the business community. The basic principles that must
be implemented by each pillar are:
1. The regulatory, supervisory and enforcement authorities develop laws and
regulations that will promote the creation of a healthy, efficient and
transparent business climate, implement and maintain it, and support it with a
consistent law enforcement.
2. The business sectors as market participants implement GCG as the underlying
ground in conducting business.
16
3. The public as users of the products and services of the business sectors and as
the party impacted by the existence of a company demonstrate its concern and
exercises an objective and responsible social control.
Some principles explained by KNKG (2006), that each company must
ensure that principle of Good Corporate Governance is applied in every business
aspect and at all levels of the company. The principles of Good Corporate
Governance to achieve business sustainability of the company (GCG) are:
1. Transparency
To maintain objectivity in running the business, the company must
provide materials and relevant information in easy way that accessible and
understandable by stakeholders. Companies should take the initiative to
disclose not only certain cases as seen and made by regulations, but also
important cases for decision-making by shareholders, creditors and other
stakeholders.
Companies should provide the information on time, appropriate, clear,
accurate and comparable, and easily accessible to interest stakeholders
according their rights. In other side, information that must be disclosed
include and not limited in: vision, mission, business objectives and corporate
strategy, financial condition, board structure and compensation, the controlling
shareholder, stock ownership by members of the Board of Directors and
members of the Board of Commissioners and their family members in the
company and other companies, risk management systems, monitoring and
internal control systems and the implementation of good corporate governance
17
and the level of compliance, and important incident that can affect the
condition of the company.
2. Accountability
Companies must be transparent and accountable of business
performance in responsibly. Thus, a company must be properly managed,
scalable and accordance with the company's interests by taking account of
interests of shareholders and other stakeholders. Accountability is a necessary
prerequisite needed to achieve sustainable performance.
In other side, companies should clearly define the roles and
responsibilities of each company’s comity and all employees clearly consist
with the vision, mission, corporate values, and corporate strategy. It must
ensure that all comities of the company and all employees have the ability
conform to the duties, responsibilities, and roles in the GCG implementation.
Another, Companies should ensure that there is an effective system of
internal control in company management and should have a range of
performance measures for all companies consist with the business objectives
of the company, and has a reward and punishment system. In carrying out its
duties and responsibilities, every comity of company and all employees must
hold on business ethics and code of conduct that has been agreed upon.
3. Responsibility
Companies must comply with the regulation of law and implement the
responsibility to society and the environment so it can well maintained in
business continuity in the long term and as a recognizing as good corporate
citizen.
18
Company’s comity must adhere to the principle of circumspection and
ensuring compliance with the laws exist, basic estimation and regulations
companies (by-laws). It also should implement social responsibility by taking
care on society and the environment especially round company by make
adequate planning and implementation.
4. Independency
To expedite the implementation of good corporate governance
principles, the company should be managed independent so that each comity
does not dominate in each other and no intervention by other parties.
Each company comity should avoid domination by any party,
undeterred by the certain special interests, free from collision interest (conflict
of interest) and from any influence or pressure, so decision-making can be
done objectively.
Each commitee of the company must carry out its functions and duties
accordance with the statutes and regulations, not dominate by each other or
passing the duty from the others to others.
5. Fairness
In conducting its activities, the company should always consider of
shareholders interests and others stakeholders according to principles of
fairness and equality.
Companies should provide the opportunity for every stakeholder to
give inputs and express of companies sustainability and open access to
information in accordance with the principle of transparency within the scope
19
of their respective positions. It also should provide fair and equitable treatment
to stakeholders in accordance with the benefits and contributions given by the
company.
2.3.4 Good Corporate Governance Mechanism
The organs of a company, consisting of the General Meeting of
Shareholders, the Board of Commissioners, and the Board of Directors, have an
important role in implementing the GCG effectively. The organs of a company
shall carry out their respective functions in accordance with an applicable
provision based on the principle that each organ is independent in carrying out its
duty, function and responsibility in the sole interest of the company;
2.3.4.1 General Meeting of Shareholders
The General Meeting of Shareholders is a company’s organ that facilitates
shareholders to make important decisions regarding their investment in a
company, by observing provisions in the articles of association and the rules and
regulations. Decisions taken in the General Meeting of Shareholders must be
based on the long term interest of a company. The General Meeting of
Shareholders and or shareholders cannot intervene in the exercise of the duty,
function and authority of the Board of Commissioners and the Board of Directors,
without curtailing the authority of the General Meeting of Shareholders to carry
out its rights in accordance with the articles of association and laws and
regulations, including the replacement or termination of the members of the Board
of Commissioners and or the Board of Directors.
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2.3.4.2 Board of Commissioners and Board of Directors
The management of a limited liability company in Indonesia is adopting a
two board system, namely the Board of Commissioners and the Board of
Directors, each of which has a clear authority and responsibility based on their
respective functions as mandated by the articles of association and laws and
regulations (fiduciary responsibility). Yet, they both have the responsibility to
maintain the company sustainability in the long term. Accordingly, the Board of
Commissioners and the Board of Directors must have the same perception
regarding the company’s vision, mission and values.
2.3.4.3 Board of Commissioners
The Board of Commissioners as an organ of the company shall function
and be responsible collectively for overseeing and providing advices to the Board
of Directors and ensuring that the Company implements the GCG. However, the
Board of Commissioners is prohibited from participating in making any
operational decision. Each of the members of the Board of Commissioners,
including the Chairman, has equal position. The duty of the Chairman of the
Board of Commissioners as primus inter pares is to coordinate the activities of the
Board of Commissioners.
2.3.4.4 Board of Directors
The Board of Directors as a company organ shall function and be
responsible collegially for the management of the company. Each member of the
Board of Directors can carry out its duty and take decisions in accordance with
21
their respective assignments and authorities. However, the execution of tasks by
each member of the Board of Directors remains to be a collective responsibility.
The position of each respective member of the Board of Directors including
President Director is equal. The duty of the President Director as primus inter
pares is to coordinate the activities of the Board of Directors. For the Board of
Directors to be able to effectively exercise its duties, the following principles shall
be observed:
1. The composition of the Board of Directors shall enable it to make effective,
right and timely decisions and to act independently;
2. The members of the Board of Directors must be professional that possess the
integrity, experience and capability required for carrying out their respective
duties;
3. The Board of Directors shall be responsible to manage the company for the
purpose of achieving profitability and ensuring the company’s sustainability;
4. The Board of Directors shall be accountable for its management to the General
Meeting of Shareholders in accordance with applicable laws and regulations.
2.3.5 The Impact of Corporate Governance Disclosure of Firm
Performance
Better corporate governance is likely to improve the performance of firms,
through more efficient management, better asset allocation, better labor practices,
or similar other efficiency improvements (Claessens, 2006). Drobetz et al. (2004)
argue that agency problem, the foundation of agency theory, is likely to exert
impact on a firm’s stock price by influencing expected cash flows accruing to
22
investors and the cost of capital. Firstly, low stock price result from the investors’
anticipation of possible diversion of corporate resources. Theoretical models by
La Porta, Lopez-de-Silanes, Shleifer and Vishny (2002) and Shleifer and
Wolfenzon (2002) also predict that in the existence of better legal protection,
investors become more assured of less expropriation by controlling bodies and
hence, they pay more for the stocks. Secondly, through reducing shareholders’
monitoring and auditing costs, good corporate governance is likely to reduce the
expected return on equity which should ultimately lead to higher firm valuation.
There exists a well number of anecdotal evidence of a link between corporate
governance practices and firm performance. But the empirical studies mainly
focus on specific dimensions or attributes of corporate governance like board
structure and composition; the role of non-executive directors; other control
mechanisms such as director and managerial stockholdings, ownership
concentration, debt financing, executive labour market and corporate control
market; top management and compensation; capital market pressure and short-
termism; social responsibilities and internationalization.
Though the relationship between shareholders, directors and management
has been the central topic of corporate governance research for a long time,
focusing merely on the legal company and the firm as the agent of the shareholder
seems no longer sufficient and time has come to view the governance of the firm
as a whole (Van den Berghe, 2002). Moreover, as Ho (2005) argues, evaluating
corporate governance on individual dimension or attribute may not capture the
total effect of corporate governance as much as the case where all the attributes
23
are considered collectively.3 Hence, researchers often attempt to measure overall
corporate governance and try to identify the relationship between corporate
governance and firm performance.
2.3.6 Good Corporate Governance Development in Indonesia
The Indonesian business world needs various instruments to increase its
competitiveness. One key instrument from a shareholder’s viewpoint is good
corporate governance. Companies who implement good corporate governance in a
proper and continuous manner have an advantage over other companies who do
not implement or have not implemented good corporate governance. Challenges
faced by the business world will continue to become more complex. The
challenges for business will be increasingly not limited by borders as information
technology development continues to penetrate our daily lives. The challenges
vary from the very simple to the vary complex. The Code and its application by
business will benefit businesses in responding to these many challenges. The
Code is intended to be dynamic and evolutionary in nature. It will need to reflect
the changes in the business environment in this era of globalization, and the
business world is faced with a new paradigm, the stakeholders’ value added
maximization paradigm. Without providing a value increase, it is difficult for the
business to maintain its competitiveness. The higher competitiveness will start as
companies gain enough experience and the benefit from good corporate
governance implementation.
Now, Indonesia has launched The Indonesian Good Corporate Governance
(GCG) Roadmap issued by Financial Services Authority (OJK) for issuers and
24
publicly listed companies on 2014. The corporate governance roadmap is
formulated by all stakeholders of corporate governance in Indonesia and
supported by International Financial Corporation (IFC), a World Bank subsidiary.
It is expected that this GCG roadmap can be used as the main reference for
comprehensively improving practices and regulations related to good corporate
governance in Indonesia, particularly for issuers and publicly listed companies,
said Chairman of OJK Board of Commissioners Muliaman D. Hadad. Considering
Indonesian’s role in Association of South East Asian Nations (ASEAN) region,
this roadmap will give a positive contribution for improving good corporate
governance. The aim is so that the GCG roadmap can stand equally to the
roadmap in ASEAN region, in the framework of welcoming ASEAN Economic
Community in 2015.
The roadmap is created to provide overall description about various
aspects of corporate governance that must be improved, namely: corporate
governance framework, shareholders protection, stakeholders’ roles, transparency
of information, as well as roles and responsibilities of the board of commissioners
(BOC) and board of directors (BOD). The roadmap is arranged using main
references and refers to international standards related to good corporate
governance.
Indonesia has learnt from experiencing the global financial crisis in 1998
and 2008 that corporate governance is highly crucial. Poor implementation of
corporate governance has been identified as one of the reasons that caused global
financial crisis. In relation to this, improvement of corporate governance
25
implementation in issuers and publicly listed firms in Indonesia becomes first
priority now. This roadmap exists to facilitate the priority realization.
OJK and IFC have been committed to leverage the quality of GCG
implementation in companies in Indonesia, particularly those in financial services
sector, based on corporation agreement signed on June 17th, 2013. IFC is a
subsidiary of the World Bank, which has been contributing to the development of
48 corporate governance codes in 32 countries.
OJK realizes that contributions from all stakeholders of corporate
governance in Indonesia are very significant in achieving the objectives of the
roadmap. Considering the matter, OJK has formed corporate governance task
force (CGTF), which has a special task to develop corporate governance roadmap
together with IFC. This task force encompasses representatives from regulatory
institutions (Bank Indonesia, State-Owned Enterprises Ministry, Taxation
Directorate General, State Development and Finance Comptroller, Indonesian
Accounting Association, and Indonesia Stock Exchange) and governance
institutions (National Committee on Governance Policy, Indonesian Institute for
Corporate Directorship, Indonesian Institute for Corporate Governance, and
Indonesian Institute of Commissioners and Directors).
2.4. Sustainability Report
The issue of sustainability has been one of the most significant
developments in the investment community in recent years, and corporate
information on environmental, social and governance (ESG) issues has become an
increasingly essential information source for investment decisions of capital
26
market participants. Broad empirical evidence supports the notion that ESG
factors are relevant to companies’ economic performance and, thus, are relevant to
investment analysis (Margolis et al., 2007; Orlitzky et al., 2003).
For a number of years, the investment community has had extensive
discussions of the quality of sustainability reporting, which constitutes a primary
reason for the community’s skepticism toward integrating ESG into investment
decision-making processes (Juravle and Lewis, 2008; Sullivan, 2011). Recently,
however, the content quality of corporate sustainability reports has improved
significantly (Foretica, 2011). This change is the result of greater awareness of
corporate governance issues, which in turn leads to greater transparency (Kolk,
2008), and of a growing number of mandatory sustainability frameworks around
the world (Ioannou and Serafeim, 2011).
Moreover, a number of sustainability initiatives have found wide-spread
adoption on a global scale. Nevertheless, the question of the reporting format for
sustainability reports has increasingly arisen in research and practice (Eccles &
Krzus, 2010; Eccles & Serafeim, 2011). Reports have increasingly arisen in
research and practice (Eccles & Krzus, 2010; Eccles & Serafeim, 2011).
2.4.1 The Concept of Sustainable Development
The development of non-financial reporting (which typically for
organizations beginning the sustainability reporting journey) began in the US in
the 1980s. The key focus at that time was on environmental reporting, as external
stakeholders became concerned with the impacts of organizations on a wide
variety of community resources (e.g. air, land and water emissions, waste and
27
whether the resources would be sufficient for future growth). In addressing the
issue, Hubbard (2008) stated that the Brundland Commission (WCED 1987)
developed the term “sustainable development” defining as: “Development that
meets the needs of the present without compromising the ability of future
generations to meet their own needs”
It is argued that globally we must ensure that our generation’s
consumption patterns do not negatively impact on future generation’s quality of
life (Deegan, 2000, p. 300). In 1998, Elkington developed the term “triple bottom
line” to argue the case for reporting environmental and social performance
together with economic performance. The triple bottom line concept implied that
economic, environmental, and social performance were to be balanced and were
of equal importance (Hubbard, 2008). Elkington’s first theory is capitalism must
satisfy legitimate demands for economic performance. Elkington echoes Adam
Smith’s theory that the firm has one and only one goal to satisfy the desires of
shareholders by making profits.
However, profit may not be attainable if the environment in which the
business operates is neglected. Hence, according to Elkington, firms must also be
accountable for social and environmental performance. The economic, social and
environmental consciousness of corporations, the tripod goal, creates a balance
that makes their operations and actions sustainable a corporation which
accommodates the triple bottom line is contributing to sustainable development
(Ngwakwe, 2008).
28
Corporate responsibility strategies are perceived to be related to
sustainable development. Sustainability philosophy assumes that we abandon a
narrow version of a classical economic theory and develop corporate strategies
that include goals that go beyond just maximizing shareholder’s interest.
Attention is directed to the demands of a wider group of stakeholders since the
firm’s success depends on stakeholder’s satisfaction (Bucholz and Roshenthal,
2005; Freeman, 1984; Hardjano and Klein, 2004; Michael and Gross, 2004 in
Lopez et al, 2007)
Companies are becoming aware that they can contribute to sustainable
development process (Lopez et al, 2007). Sustainable development is obtained
through the management of environmental, natural, economic, social, cultural and
political factors. These issues are interrelated and therefore should not be
considered independently (Sage, 1999, p. 196 in Lopez et al, 2007).
Furthermore, investors are increasingly seeking to invest in socially
responsible investments (SRI) in those companies deemed to be following good
social and environmental practices (Hubbard, 2008). They also need social,
ethical, and environmental information. Naturally, a company which is sustainable
will be less risky than one which is not. Consequently, most large companies in
their reporting mention sustainability and frequently it features prominently (Aras
and Crowther, 2009). Since the social, ethical, and environmental (SEE)
performance of a corporation may directly impact on its financial position, the
corporation has to provide sound (SEE) information to investors (Hummels and
Timmer, 2004).
29
2.4.2 Sustainability Report Definition in General
Sustainability report is a new term which is widely used to explain the
communication of the companies’ effect on social, environmental and economic
performance which is also referred to as “triple bottom line reports” (profits,
people, and planet). Many large companies publish such kind of reports especially
for the company which is socially environmentally sensitive such as oil and gas,
mining, chemical, automotive, computers, and electronics (Choi, 2006, p. 158). It
is published to fulfill the need of wide range of stakeholders which is not only
limited to investors and creditors, but also include employees, customers,
suppliers, governments, activist groups, and the general public’s.
Hubbard (2008) states the purpose of sustainability reporting is to provide
information which holistically assesses organizational performance in a multi-
stakeholder environment. In the social area, it is focus on contributing back to the
society and community, providing growth and development opportunities for
employees and improving relationships and practices for customers, suppliers,
governments and communities. The notion of reporting against the three
components (or bottom lines) of economic, environmental, and social
performance is directly tied to the concept and goal of sustainable development
(Deegan, 2000, p. 289)
Triple bottom line reporting, if properly implemented, will provide
information to enable others to assess how sustainable an organization’s or a
community’s operations are. The perspective taken is that for an organization to
be sustainable (long-term perspective), it must be financially secure (as evidenced
30
by such measures as profitability), minimize or ideally eliminate its negative
environmental impacts and act in conformity with societal expectations. These
three factors are obviously highly interrelated (Deegan, 2000, p.289).
A sustainability report can be thought of as an impact statement for the
entire corporation, which is defined not only in terms of natural resources and
climatological effects, but also in terms of economic and social impacts of labor
practices, charitable endeavors, and governance structures (Leibs, 2007,
December).
Sustainability report is closely related with corporate social responsibility
reporting which has a voluntary character. Social responsibility reporting refers to
the measurement and communication of information about company’s effect on
employee welfare, the local community, and the environment. Information on
company welfare may involve working conditions, job security, equal
opportunity, workforce diversity, and child labor. Environmental issues may
include the impact of production process, products, and services on air, water,
land, biodiversity, and human health (Choi, 2006, p. 158).
However, corporate social responsibility reporting focuses only on
environmental and social disclosure, while the concept of sustainable
development tied in sustainability reporting involves broader area that covers
environmental, social, and economic performances. As the campaign of
sustainable development has been increase, many corporate non-financial reports,
corporate social responsibility reports now have been repackaged as sustainability
report (Lopez et al, 2007).
31
2.4.3 Global Reporting Initiative (GRI) Definition of Sustainability Report
Global Reporting Initiative (GRI) is a network- based organization that has
pioneered the development of the world’s most widely used sustainability
reporting framework.
Sustainability reports based on the GRI framework can be used to
benchmark organizational performance with respect to laws, norms, codes,
performance standards and voluntary initiatives; demonstrate organizational
commitment to sustainable development; and compare organizational
performance. GRI promotes and develops this standardized approach to fulfill
demand for sustainability information.
As economy globalizes, new opportunities tend to generate prosperity and
quality of life that are arising are accompanied by new risks to the stability of the
environment. According to Global Reporting Initiative (2011), there is a contrast
between the improvement in the quality of life and alarming information about the
state of the environment and the continuing burden of poverty and hunger on
millions of people. It raises an issue about how to create new and innovative
choices and ways of thinking. New knowledge and innovations in technology,
management, and public policy are challenging organizations to make new
choices in the way their operations, products, services, and activities impact the
earth, people, and economics. It is the Global Reporting Initiative’s (GRI) mission
to fulfill this need by providing a trusted and credible framework for sustainability
reporting that can be used by organizations of any size, sector, or location.
Sustainability reports based on GRI Reporting Framework disclose
outcomes and results that occurred within the reporting period in the context of
32
the organization’s commitments, strategy, and management approach. The GRI
Reporting Framework is intended to serve as generally accepted framework for
reporting on an organization’s economic, environmental, and social performance.
Furthermore, The Global Reporting Initiative (GRI) is an Amsterdam-
based nonprofit organization, which is made up of stakeholders mainly from
business, government, and social advocacy groups (Leibs, 2007, December 1). For
the past eight years, GRI’s framework has been available as at least one formal
framework to follow when communicating corporate sustainability efforts and
exposures (Leibs, 2007, December 1). Although it is widely used, GRI’s
framework is not an officially sanctioned standard (Leibs, 2007, December 1).
The GRI’s generally accepted framework for companies implementing
sustainability reporting continues to evolve (“How accountants,”2002, October).
Now in its third iteration, the GRI framework has become much more detailed
regarding the performance indicators companies are urged to measure and monitor
(Leibs, 2007, December). By providing in six comprehensive categories guidance
on details such as how to craft a broad statement of strategy and which specific
performance indicators to measure, the GRI framework has brought increasing
levels of rigor to the practice of sustainability reporting (Leibs, 2007, December).
As of December 2007, the GRI framework had almost 80 indicators, many
of which could be broken down into various subcategories (Leibs, 2007,
December). For example, in the emissions, effluents, and waste subcategory, the
GRI framework advised companies to report total direct and indirect greenhouse
gas emissions by weight and total weight of waste by type and disposal method
(Leibs, 2007, December).
33
2.4.4 Impact of Sustainability Disclosure of Firm Performance
It can be generalized that sustainability reports does have an association
with company performance. However, further analysis shows that only social
performance disclosure has an association with company’s performance. For
companies, improving sustainability performance is important. Even it is as
important as improving company’s financial performance. Sustainability means
the development that meets the needs of the present without compromising the
ability of future generations to meet their own needs. It means that, in running the
business, a company need to concern to the needs of future generations.
The consumptions made by a company as the input to produce and to
provide goods and services, should not negatively impact the quality of the
consumption of future generation. It is important to remind, especially for
companies, that generating profit is not merely the aims of the business. Being
care and responsible to the environment become important aspects in running the
business in order to increase the company’s reputation, increase profitability and
bring benefits to the entire stakeholders.
Obviously, stakeholders such as employees, suppliers, governments,
activist group, investors, and communities’ around the business are very important
to be considered. Without the credibility and trust that is put by them, business is
impossible to run. In addition, this world now has been facing global warming and
climate change problem. The awareness of a company regarding those problems is
a must. That is why besides improving the profitability, a company should be
responsible for managing the sustainability.
34
For investors, it is important for them to be selective in making investment
decision. Besides making investment decision based on information of financial
performance, it would be better if investors also consider about the performance
of companies in managing sustainability. They should consider about this non-
financial aspect in making investment and lending decision. Investing in profitable
and socially responsible companies would be better than investing in a company
with a high profitability but have been neglecting the environment. High
profitability might be look good in the eye of only one part of stakeholder that is
investors. Whereas, high performance of sustainability might be look good in the
eye of the entire stakeholders.
Sustainability reports cause company management to be more focused on
social and environmental issues (Leibs, 2007, December). For things that are truly
important to the company, management should set goals, establish metrics, and
then monitor progress against them (Leibs, 2007, December). Thus, sustainability
reports will help establish processes for gathering and reporting data (Leibs, 2007,
December). This means companies will become less focused on the report itself
and more focused on the reporting process, thereby conceiving of the act of
producing sustainability reports as part of a continuous activity that is as critical to
running the business as it is to selling the business (Leibs, 2007, December). In
addition to providing more information to customers and investors, the process for
producing sustainability reports could yield another benefit by providing more
information to management for decision making purposes (Leibs, 2007,
December). Therefore, capturing sustainability data more efficiently can make the
35
sustainability reporting process function more like traditional performance
management reporting and give management more current information, which
they can use to make decisions about emissions, energy usage, and other critical
business matters (Leibs, 2007, December).
2.4.5 Relationship between GCG and Sustainability Reports
At present companies tend to focus on sustainable development as well as
sustainability, which brings with it changes to the corporate culture as well as
society. Sustainability has three important dimensions for all companies:
economic growth, social responsibility and responsibility for the environment.
The social and environmental responsibility, however, cannot become separated
from economic growth. Profitability and growth create jobs and wealth;
companies have to continue to provide products and services that people need.
Sustainability is therefore a strategy of the process of sustainable
development. It acquires special importance when the process helps people
progress toward sustainability or may, on the contrary, dissuade them from
engaging in the process. Sustainability is the ability to sustain the quality of life or
the ability to maintain quality, which means that each generation has a
responsibility for the quality of life and needs to continue improve it.
Sustainability in connection with the business environment has become part of the
general awareness as a result of environmental approaches implemented in
companies.
Corporate sustainability is a strategic approach focusing apart from the
effectiveness and efficiency also on the company productivity, on the creation of
36
value for the owners (on competitiveness), as they follow from the environmental,
economic and social dimensions.
The defining of sustainability relates to the concept of the strategy known
as the strategy of sustainable development, according to the authors (Hart, 1995;
Shrivastava, 1996; Stead & Stead, 1995) in relation to the company.
The strategy of sustainability of the company currently includes a broad
approach aimed at the integration of economic, environmental and social
dimensions.
Based on the most extensive study on CEOs so far (Accenture, 2010), 93%
of them believe the sustainability issues will be important for future success of
companies. In 2007 72% of CEOs believed that sustainability issues should be
fully integrated into the strategy and running of the company, while in 2010 this
belief is expressed by 96%, which proves the increasing interest in sustainability.
The environmental, social and economic factors and Corporate
Governance are at the heart of the corporate and business strategies, they are part
and parcel of daily operations, stimulate work for success and work as an
indicator of threat and risk and push for seizing opportunity, and of course they
should become part of the voluntary corporate reporting on the assessment of
links between the environmental and economic assessment of performance, the
social assessment of performance and the relation to Corporate Governance.
Although there is no direct relation between the environmental performance and
that of Corporate Governance (Salo, 2008), we can state that the environmental
performance and the Corporate Governance performance individually contribute
to the general performance.
37
There is a fuzzy relation, too, between the environmental and the
economic performance (Horváthová, 2010). The relation of the social and
Corporate Governance performances and the relation of the social - environmental
performances and the economic performance should be the subject of further
research.
It is important to create measurable and relevant goals of sustainable
development and suitable metrics, and further integrated reporting on the financial
and non-financial information on the internet basis. The companies who provide
insufficient and incomplete information, while its delayed provision is also a flaw,
are regarded by investors as involving greater risk and in consequence they are
inclined to invest smaller amounts in such companies (Bartes,1994).The solution
is offered by the reporting integrating the financial and nonfinancial indicators.
The same principles should be applied to both the financial and nonfinancial
indicators. In both cases they should be relevant, measurable, comparable,
motivating and clearly understandable.
2.4.6 Sustainability Report in Indonesia
Sustainable Reporting is a report containing the company's performance in
three aspects, namely economic, environmental, and social. The objective of this
report was to be the assessment of whether a company has been able to overcome
issues related to sustainability, such as energy savings and conversion.
According to data from the National Center for Sustainability Reporting
(NCSR), the development of a sustainability report in Indonesia is quite good. In
2012, there were approximately 40 companies that make sustainability reports
38
with reference to the reporting standards issued by the Global Reporting Initiative
(GRI). The number of companies that make sustainability reporting in Indonesia
is the highest in Southeast Asia. In Malaysia, the number of reporting issuer is
only about 10 companies. Meanwhile, in Singapore there are 15 companies
(NCSR, 2012). Indonesian companies have gone public have an obligation to
make a sustainability report in accordance with the Article 66 paragraph 2 of Law
No. 40 Year 2007 regarding Limited Liability Company. Through the application
of Sustainability Reporting company is expected to develop in a sustainable
growth based on business ethics
The National Development of Indonesia is not separate from the
Sustainable Development objective which is “To fulfill the need for humans now
without demolishing the capability of future generations in fulfilling their needs”
(Brunt land Report 1987). For this reason, the strategy of development must be
based upon 3 (three) main pillars in sustainable development, which are:
Environment, Social and Economic”. This strategy has been conducted by the
business community with its concept of Corporate Social Responsibility (CSR) or
in a broader sense can be described as Corporate Sustainability (CS).
For the purpose of assisting, developing, measuring and reporting of the
implementation of CSR / Corporate Sustainability (CS) there is a need for a
independent organization. That is why the “National Center For Sustainability
Reporting (NCSR)” has been established which comprise of corporations, as an
Organizations and professional individuals which have the vision and
commitment in implementing and developing Sustainable Development in
Indonesia.
39
NCSR has been declared on June 23, 2005 by 5 (five) major independent
organizations which are the Indonesian Management Accountants Institute (IAMI
/ prev. IAI-KAM), the Indonesian-Netherlands Association (INA), National
Committee on Governance (KNKG), Forum for Corporate Governance in
Indonesia (FCGI) and the Public Listed Companies Association (AEI).
2.5 Previous Research
This literature review tries to find out the research conducted in this field
and to what this thesis could contribute. The following researches have been
conducted in this field:
2.5.1 Analisis Pengaruh Good Corporate Governance (Gcg) Terhadap
Kualitas Pengungkapan, Sustainability Report (Abdul Aziz, Desember
2014)
This research aims to analyze the characteristics of good corporate (GCG)
in a company that can affect the quality of sustainability reporting disclosure on
sustainability report or Sustainability Report corporations in Indonesia. Factors
characteristics of good corporate governance which is used are, the size of the
Board of Commissioners, the proportion of Independent Commissioner, the size
of the Audit Committee, managerial ownership, institutional ownership, share
ownership is concentrated, and the size of the company.
Results from this study indicate that factors managerial ownership
significantly influence the quality of disclosure of SR in Indonesia, while the size
of the Board of Commissioners, the proportion of Independent Commissioner, the
size of the Audit Committee, the shareholding institutional stock ownership is
40
concentrated, and the size of the company does not significantly influence
kualiatas disclosure of SR Indonesia.
2.5.2 Corporate Governance and Sustainability (Alena Kocmanová, Jiří
Hřebíček, Marie Dočekalová, 2011)
The paper focuses on Sustainability and Corporate Governance from the
point of view of integration and, in connection with the measurement of corporate
performance, Corporate Sustainability Reporting is also gaining in importance.
In accordance with the OECD principles (OECD Principles, 2004) it is
assumed that the effectively functioning Corporate Governance system within the
company and across the whole economy assists to create the confidence and trust
necessary for existence of the market economy. A very wide spectrum of sectors
coming under the Corporate Governance also appears when trying to define this
term succinctly. Integrated with sustainability which is defined as corporate
strategy, long-term corporate goals are followed along with effectiveness,
performance and competitiveness by means of incorporating of economic,
environmental and social aspects into corporate governance.
The end of the results show that Corporate governance is understood as the
key element in achieving economic performance and growth ensuring increased
trust of the investors. It covers a wide range of relationships between the company
management, governing bodies, stakeholders and other parties with justified
interests. It encompasses a widely varying range of areas, which is also
manifested by an effort to create a concise definition of the term
41
2.5.3 Corporate Governance, Sustainability and the Assessment of Default
Risk (Christina James-Overheu, Asian Journal of Finance &
Accounting)
This paper investigates whether the quality of a firm’s corporate
governance practices and its sustainability disclosures are inversely related to its
assessed default risk. It is expected that high reported standards of corporate
governance will reduce the assessment of a company’s default risk by lenders,
underwriters and ratings agencies, and therefore reduce the cost of debt for such
companies. A corporate governance index based on annual report disclosures was
developed to rate each company’s corporate governance quality. Derivation of this
index was centered on corporate governance indicators suggested by prior
research and best practice; particularly the Australian Stock Exchange “Principles
of Good Corporate Governance and Best Practice Recommendations”.
The assessment of default risk is captured by a firm’s individual credit
rating supplied by Standard and Poor’s. Our results indicate that neither annual
report disclosures about corporate governance practices nor sustainability
disclosures are significantly related to assessed default risk when firm size is
controlled.
2.6 Theoretical Framework
The logical framework for the following research will be used to elaborate a
structure for the research, to specify the results and to define the activities, which will
be required in order to achieve the respective results.
42
Table 2.1
Matrix of the Logical Framework
Summary Objective
Indicators
Verification
Method
Important
Assumption
Goal To contribute to
social,
economic and
environmental
improvement
Number of
Companies that
Issue
Sustainability
Report
All Companies
listed in IDX
Increasing of
welfare of
society,
environmental
and economic
Purpose To observe and
clarify the
Impact of
Corporate
Governance to
the quality of
Sustainability
Report
disclosure
Sustainability
Report
Disclosure
The
sustainability
Reports and
Annual reports.
Improving
and create
awareness for
others
companies to
disclose
Sustainability
Results GRI G3 Index
ratio
The ratio
expressed in
numbers
Compliance to
GRI G3
indicator
All Indonesian
companies get
compliant with
the GRI
guidelines in
their
sustainability
reporting
GCG
Component
Ratio
The ratio
expressed in
numbers
Annual report
of company
Better
Corporate
Governance to
implement the
better
sustainable
development
Interdependency
between
GCG and
Sustainability
Report
Disclosure
The ratio
expressed in
numbers
The
combination
of compliance
GCG
Components
and GRI G3
Corporate
Governance
has influence
relationship to
the
Sustainability
43
Summary Objective
Indicators
Verification
Method
Important
Assumption
indicators Report
Disclosure
Activities Select companies
with sustainability
report
Sustainability report that is published in
website company
Documentation of the planning
of the research
proposal
Quality of sustainability
reporting could be more
completed Check
applicability of GRI G3 Guideline
Application of GRI cross
index
Documentation of the planning
of the research
proposal
All companies compliance all
indicator of GRI
Elaborate index
indicators and check the indicators of Sustainability
reports and follow
the GRI G3
The GRI G3 Indicators
Documentation of the planning
of the research
proposal
All companies compliance all
indicator of GRI
Evaluate the companies checklist
The GRI G3 Indicators
Documentation of the planning of the research
proposal
All companies compliance all
indicator of GRI
Compliance ratio
calculating
The ratio expressed in
numbers
Documentation of the planning
of the research
proposal
All Indonesian companies could be
compliant as GRI guideline in reporting
Sustainability. Select the GCG
components The ratio
expressed in numbers
Documentation of the planning
of the research
proposal
Company with Good
Corporate Governance
can influence the Quality of Sustainable
Report The statistical
process The Statistical
express the number
Documentation of the planning of the research
proposal
The GCG has significant with
Quality of Sustainability
Report The analysis of
the results from the statistical
The significance
result is
Documentation of the planning of the research
The GCG has significant with
Quality of
44
Summary Objective
Indicators
Verification
Method
Important
Assumption process. express by
number proposal
Sustainability
Report
Source: Processed from secondary data
Figure 2.1
Theoretical Framework
to contribute for social economic and environmental improvement of on
nation or economy.
to prove the relationship between
sustainability reporting and financial report.
GRI G3 Index ratio
Select companies with
sustainability report
Check applicability of
GRI G3 Guideline
Elaborate index
indicators
and check the
indicators of
Sustainability
reports and follow
the GRI G3
Select the GCG
components
Independent
Variable
Evaluate the
companies
checklist
GCG Component
Ratio
Dependent
Variable
Compliance
ratio
calculating
45
2.7 Hypothesis Development
The Hypothesis is considered as a tentative statement that proposes a possible
explanation to some phenomenon or event. Based on the literature review previously,
the hypothesis development can be formulated as:
1. H1: The Board of Commissioners influence the quality of Sustainability Report
Disclosure
2. H2: The Independent Commissioner influence the quality of Sustainability
Report Disclosure
3. H3: The Audit Committee influence the quality of Sustainability Report
Disclosure
46
CHAPTER III
RESEARCH METHODOLOGY
3.1. Scope of Research
This research is quantitative research with the steps of causality
relationship and evaluation. Causality is a type of relationship, which can be seen
from the characteristics of the relationship between independent and dependent
variables. When the dependent variable explained or influenced by independent
variables, it can be stated that variable X cause variable Y.
The scope of this research is limited to sustainability reports and annual
report of 5 Indonesian nationally listed companies within 2009 and 2014. In total
there are 30 sustainability reports and 30 annual reports. These reports and
statements have been coded, analyzed and scored as content analysis.
The target samples of this research are Indonesian companies that are
listed in the Indonesian Stock Exchange. This research is using purposive
sampling method. The reason for this sampling method is that sustainability
reports are established voluntarily and not all Indonesian companies are
presenting their sustainability reports.
3.1.1 Dependent Variable
In this research, there is only one dependent variable, and it is
Sustainability Report which connected with the GRI G3 indicator. Subsequently,
the GRI G3 guidelines are applied to measure the compliance of Sustainability
reporting disclosure of company.
47
The GRI G3 indicator consists of the following indicator groups, which
are the social performance indicators, the environmental performance indicators
and the economic performance indicators. In detail there are 40 items for social
performance indicators, 32 items for environmental performance indicators and 7
items for economic performance indicators. In total 79 items will be examined in
each company’s sustainability report. The index for testing the compliance of
Sustainability Report by follow as formulation:
Description:
n = the total indicators in sustainability report that compliance with GRI G3
k = Total of GRI G3 indicator
3.1.2Independent Variable
In this research, there are 3 independents variables. It is the size of Board
of Commissioners, the proportion of Independent Commissioners, and Audit
Committee, which is the part of Good Corporate Governance Components.
4. The size of Board of Commissioners
The size of Board of Commissioners in this research is the total
number of members of the Board of Commissioners in a company. Board of
Commissioner Size is calculated by counting the number of members of the
Board of Commissioners in a company mentioned in the annual report.
5. The proportion of Independent Commissioners
Independent commissioner is a member of the Board of
Commissioners that is not derived from affiliated parties. Independence of the
𝐼𝑁𝐷𝐸𝑋 =n
k x 100%
48
Board of Commissioners referred to this research, is the proportion of
Independent Commissioners in a Board of Commissioners. Independence of
the Board of Commissioners is measured by the ratio or percentage (%)
between the numbers of the Independent Commissioner members as compared
to the total number of members of the Board of Commissioners.
6. The size of the Audit Committee
Size of the Audit Committee is the amount of number of Audit
Committee within a company. Audit committee size is calculated by counting
the number of members of the Audit Committee in the annual reports of the
companies listed in Indonesian Stock Exchange (IDX).
Table 3.1
Operational Variable
Variable Measurement Scale
Dependent Variable:
Sustainability Report
Amount of item that disclosure
as follow by GRI G3 indicators
in Sustainability reporting. If
the company disclosure as
follow the indicator of GRI G3
is obtained score one (one), but
if not disclosure is obtained
score zero (0).
𝐼𝑁𝐷𝐸𝑋 =n
k x 100%
Ratio
Independent Variable :
The size of Board of
Commissioners
Board of Commissioners size
is calculated by counting the
number of members of the
Board of Commissioners in a
company mentioned in the
annual report.
Ratio
49
Variable Measurement Scale
The proportion of
Independent
Commissioners
The size of the Audit
Committee
Independence of the Board of
Commissioners is measured by
the ratio or percentage (%)
between the numbers of the
Independent Commissioner
members as compared to the
total number of members of
the Board of Commissioners.
Audit committee size is
calculated by counting the
number of members of the
Audit Committee in the annual
reports of the companies
Ratio
Ratio
Source: Processed from secondary data
3.2. Sampling Method
Sampling method is kind of method that taken data from population. A
sample is a subset of the population. A sample consists of the member of
population. The sample in this research includes companies listed at the
Indonesian Stock Exchange within 2009 - 2014. The reason for choosing the
period 2009 until 2014, it’s due to some companies listed in Indonesia Stock
Exchange has just begun to disclose the sustainability report with good corporate
governance disclosure start in 2005.
This research use purposive sampling, which means determine in advance
the number of samples to be taken, then the sample selection is done based on
certain objectives. Start from 2005, it was a primary for some companies to
disclose their sustainability reporting as a voluntary and follow in according to
GRI guideline. This research will conduct a purposive sampling. Regarding to the
50
population in this research must meet the following criteria:
1. The Issuer has published sustainability reports within 2009 until 2014
2. The Issuer applies GRI cross index as the guidance for the sustainability report
3. The Issuer has published and disclosed the good corporate governance
information.
4. The Issuer has published the respective sustainability reports on the
company’s website
6.3. Data Collection Method
This research is using data from secondary sources, which was published
by the companies such as reports on the company’s website, annual reports of
company or media reports. The data used in this research is secondary data.
Secondary data is data that available from previous research, case studies, and
library records, online data, company websites, and the internet in general
(Sekaran and Bougie, 2010).
The data collection method in this research is a panel data. Panel data
analysis is a method of studying a particular subject within multiple sites,
periodically observed over a defined time frame. It means the combination of time
series with cross-sections can enhance the quality and quantity of data.
The data in this research is obtained from respective companies website
and Indonesia Stock Exchange (IDX). The Annual Report data from the sampled
Companies has been collected from the respective websites, and the sustainability
reports are taken from respective companies website and as appropriate with
population criteria. The good corporate governance reports have been taken from
51
the sustainability report (SR) from GRI Index. The research will examine 30
sustainability reports and Annual Report databases from 5 companies listed in
Indonesia Stock Exchange in the period of 2009 to 2014.
3.4. Analysis Method
The method of analysis data in this research is using statistical
calculations; the name of application is SPSS (Statistical Product and Service
Solutions). The emphasis will be put on the frequency of sustainability report
disclosure in sustainability report. The content analysis comprises 30
sustainability reports and annual reports which coded, analyzed and scored. The
limitation of the content analysis is to identify the disclosure of social information
under each theme.
Each type of information will be scored by using numbers. Zero numbers
for no disclosure through the GRI G3 in sustainability reports, 1 for element that
disclosure as guided by GRI G3 indicators. The variables in this research will be
tested through the method of descriptive statistical and hypothesis testing,
followed as:
3.4.1. Descriptive Method
Descriptive statistical testing in this research basically is a process
transformation research data in a form of tabulation in order that can be easier to
understand and interprets. Tabulation in generally is used by researcher to obtain
information about characteristics of primary variable in research.
The measurement applied in this descriptive statistical testing depends on
the type of scale of measurement. The descriptive statistical testing obtains a
picture or describes data that can be seen from median, mean, mode, standard
52
deviation, variance, maximum and minimum,
3.4.2 Classical Assumption
1. Normality Test
According to Hair et al. (2006) cited in Adinugraha et al (2007), the
purpose of the normality test is to determine whether the regression model
variables are normally distributed or not. The normality test conducted to
determine whether the inferential statistics to be used is a parametric or non-
parametric statistics. There are two ways to test, i.e. the graph analysis and
statistical tests Ghozali (2011). Researcher chooses two tools to test whether the
data is normally distributed or not.
a. Graph Analysis
When using graph analysis, normality test can be done by looking at the
spread of the data (dots) on the diagonal axis of the graph or by looking at the
histogram from the residual.
1) If the dots spread around the diagonal line and follow the direction of the
diagonal line, the regression model meets the normality assumption.
2) If the dots spread away from diagonal lines and / or do not follow the
direction of the diagonal line, the regression model does not meet the
normality assumption.
b. Statistical Test
Kolmogorov-Smirnov Z (1-Sample KS) uses for making decision regarding
the normality test.
1) If the value Asymp. Sig. (2-tailed) less than 0.05, it means that the data are
not normally distributed.
2) (b)If the value Asymp. Sig. (2-tailed) of more than 0.05, it means that the
53
data are normally distributed.
2. Multicollinearity Test
Multicollinearity test aims to test whether the regression model found a
correlation between the independent variables Ghozali (2011). A good regression
model should not happened correlation between the independent variables. To
detect the presence or absence of multicollinearity in the regression model can be
seen from the value of tolerance and the variance inflation factor opponent (VIF).
Multicollinearity views from the tolerance value <0.10 or VIF> 10. Both of these
measurements indicate each independent variable, which is explained by the other
independent variables.
3. Heteroscedasticity Test
Heteroscedasticity test aims to test if there is variance difference from
residual of one observation to (an) other observation(s) occurred (Santoso, 2010).
Furthermore, if the variance remains constant, it is called homoscedasticity and if
it is changing or different, it is called heteroscedasticity (Santoso, 2010). A good
regression model is homoscedasticity or there is no heteroscedasticity.
In this study, heteroscedasticity test can be viewed by using the Scatter
plot graph between the standardized predicted variable (ZPRED) and studentized
residual (SRESID). Y-axis becomes the axis that has been predicted and the X-
axis is the residual (Y predicted-Y actual). Decision-making can be made by this
consideration:
a. If there is a specific pattern, like dots, which form well-ordered pattern
(waving, spreading then narrowing), it indicates that heteroscedasticity occurs.
b. If there are no well-ordered pattern and the dots spread above and below 0 in
54
Y-axis, heteroscedasticity does not prevail.
4. Autocorrelation
Autocorrelation test aims to find if there is correlation in linear regression
model between disturbances in t period with previous period (t-1) (Santoso,
2010). A good regression model is a regression that is free from autocorrelation.
Autocorrelation can be determined using the Durbin–Watson. Durbin–
Watson statistic is a test statistic used to detect the presence of autocorrelation (a
relationship between values separated from each other by a given time lag) in
the residuals (prediction errors) from a regression analysis. It is named
after James Durbin and Geoffrey Watson.
To get a conclusion from the test, it need to compare the displayed statistic
with lower and upper bounds in a table. If D > upper bound, no correlation exists;
if D < lower bound, positive correlation exists; if D is in between the two bounds,
the test is inconclusive
Positive Autocorrelation Detection:
Negative Autocorrelation Detection:
Source: (Imam Ghozali, 2011:111)
If d < dL there is positive autocorrelation
If d > dU there is no positive autocorrelation,
If dL<d<dU the test does not convince or inconclusive.
If (4 - d) < dL there is negative autocorrelation
If (4 - d) > dU there is no negative autocorrelation,
If dL<(4-d)<dU the test does not convince or inconclusive.
55
3.4.3 Multiple Regression Analysis
Multiple regression analysis used to test the effect of two or more
independent variables toward the dependent variable (Ghozali, 2011). Regression
analysis divided into two kinds, simple regression analysis (if there is only one
independent variable) and multiple regression analysis (if there is more than one
independent variable). Multiple regression analysis can be measured partially
(indicated by coefficient of partial regression) jointly indicated by coefficient of
multiple determination or R2.
Independent variable in this research is Good Corporate Governance
components which elaborate into size of board of commissioners, proportion of
independent commissioners and size of audit committee. Besides, dependent
variable is sustainability report which appropriates with GRI G3 Indicators.
Structural equation model that proposed as an empirical model is as
follows:
Y1 = β0 + β1X1 + β2X2 + β3X3 + ε
Where
Y1 Sustainability Report
X1 Size of Board of Commissioners
X2 Proportion of Independent Commissioners
X3 Size of Audit Committee
β1 Regression Variable Size of Board of Commissioners
β2 Regression Variable Proportion of Independent
Commissioners
β3 Regression Variable Size of Audit Committee
ε Error
56
a. Simultaneous Regression Analysis (Test - F)
Essentially, F- test has purpose to know whether among independent
variables simultaneously have significant influence toward dependent
variable. Independent variables in this research are good corporate governance
components structure whereas dependent variable is sustainability report
disclosure. So, F- test has a function to know the influence among good
corporate governance components towards the quality of sustainability report
disclosure. α that is used for this research is 0.05 (5%) with assumption:
1) α > 5%, Ho is accepted.
2) α < 5%, Ho is rejected.
b. Partial Regression Testing (T-test)
The T-Test has the purpose to examine the influences of the
independent variables (GCG Components) to the dependent variables, which
GRI G3 Indicators. The value significant T is compared with the degree of
believes.
The level of significance used in this test is 5% or (α) 0.05 Thus, if the
significant T is more than 0,05 so H1, H2 or H3 is rejected. Whereas, if
significant T is less than 0,05 so H1, H2 or H3 is accepted. If H1, H2 and H3
are accepted, this means that there is a significant relationship between
independent variable and dependent variables.
3.4.4 Coefficient Determination Test (R2)
Coefficient determination (R²) can measure how far ability of independent
variable (GCG Components) elaborate dependent variables (GRI G3 Indicators).
57
The value of coefficient determination (R²) can show the truth of the presentation
of the decomposition about regression prediction made.
R² has a value range between 0 to 1. If the value R² approaches 1, means
that the greatest of independent variables can explain the dependent variable. The
fundamental weaknesses of using the coefficient of determination is biased the
number of independent variables entered into the model.
58
CHAPTER IV
FINDING AND ANALYSIS
4.1. General Description of Research Object
This chapter presents and discusses the findings of the research. The
research is conducted as a descriptive study of 30 sustainability reports, which are
compliant with GRI G3. The Good Corporate Governance components of the
selected companies are compiled from the data from Annual Report 2009 - 2014
from Indonesia Stock Exchange (IDX). The hypothesis is tested by the Multiple
regression method. The selection of sample is chosen by criteria of population
that have explained in research methodology in previous chapter that is taken
annually in 2009 until 2014.
4.1.1. Overview of 5 selected Companies
Year 2015, the Indonesian Companies that listed in Indonesia Stock
Exchange are 517 companies. From 517 companies, it takes samples as purposive
sampling. In the time series 6 years, regarding on criteria of sampling in previous
chapter, so the amount of sampling are 5 companies.
In this objective research of independent variable, 30 of sustainability
report is taken from the 5 Indonesian companies website. The 5 Indonesian
companies published the sustainability reporting as a separate with annual report
and also the sustainability report as already guidance by GRI cross index. This is
the 5 companies that voluntarily reported the sustainability report in their
companies website as follow by:
59
Table 4.1
COMPANIES SECTOR
COMPANIES NAME SECTOR
PT TELKOM TELECOMUNICATION
PT ASTRA INTERNATIONAL AUTOMOTIVE
PT ANTAM MINING
PT TAMBANG BATU BARA
BUKIT ASAM
MINING
PT HOLCIM INDONESIA CEMENT
Source: Processed from secondary data
4.1.2. Overview of business development 5 selected Companies
The 5 selected companies can be seen in table. These selected companies
consist of 2 mining companies, 1 telecommunication companies, 1 cement
company and 1 automotive company. The mining company is the most revealing
sustainability report. It is due to mining company take directly of natural resources
and has responsibility to disclose sustainability report.
4.2. Analysis and Discussion
4.2.1. Descriptive Analysis
In this research, there are 3 independents variables. It is the size of Board
of Commissioners, the proportion of Independent Commissioners, and Audit
Committee, which is the part of Good Corporate Governance Components
60
4.2.1.1Independent Variable (GCG Components)
Table 4.2
SIZE OF BOARD OF COMMISSIONERS IN 2009 -2014
BOARD OF COMMISIONERS
COMPANY BOC
2009
BOC
2010
BOC
2011
BOC
2012
BOC
2013
BOC
2014
PT TELKOM 5 5 5 5 5 5
PT ASTRA 10 10 11 11 12 11
PT ANTAM 5 4 6 6 6 6
PT HOLCIM 7 7 7 6 6 6
PT BUKIT ASAM 5 5 6 6 6 6
MINIMUM 5 4 5 5 5 5
MAXIMUM 10 10 11 11 12 11
MEAN 5 5 6 6 6 6
Figure 4.1
The Compliance with Size of Board of Commissioners in 2009 - 2014
0
2
4
6
8
10
12
14
PT TELKOM PT ASTRA PT ANTAM PT HOLCIM PT BUKITASAM
Size BOC 2009
Size BOC 2010
Size BOC 2011
Size BOC 2012
Size BOC 2013
Size BOC 2014
61
In this table 4.2, it shows that the mean of Size Board of Commissioner in
year 2009 are 5 persons. From 5 companies, the maximum numbers for the
amount of Board of Commisioners are PT Astra International that show 10 person
for the amount of Board of Commissioners. And Continue with PT Holcim with
show 7 person for the amount of Board of Commissioners and 3 companies, PT
Antam, PT Telkom and PT Bukit Asam that show the same amount of minimum
numbers of Board of Commissioner, it is 5 person.
Year 2010, it shows that the mean of Size Board of Commissioner are 5
persons. From 5 companies, the maximum numbers for the amount of Board of
Commissioners is still from PT Astra International that show 10 person for the
amount of Board of Commissioners. And Continue with PT Holcim with show 7
person for the amount of Board of Commissioners and 2 companies, PT Telkom
and PT Bukit Asam that show the same amount of numbers of Board of
Commissioner, it is 5 person. It continues with PT Antam with the minimum
number of Size Board of Commissioner with 4 persons.
Year 2011, it shows that the mean of Size Board of Commissioner are 6
persons, 1 number bigger than previous year. From 5 companies, the maximum
numbers for the amount of Board of Commissioners is still from PT Astra
International that shows 11 persons, 1 number bigger than previous for the
amount of Board of Commissioners. And Continue with PT Holcim with show 7
person for the amount of Board of Commissioners and 2 companies, PT Antam
and PT Bukit Asam that show the same amount of numbers of Board of
Commissioner, it is 6 person. It continues with PT Telkom with the minimum
number of Size Board of Commissioner with 5 persons.
62
Year 2012, it shows that the mean of Size Board of Commissioner are 6
persons, the same number with year 2011. From 5 companies, the maximum
numbers for the amount of Board of Commissioners is still from PT Astra
International that shows 11 persons, for the amount of Board of Commissioners.
And Continue with PT Holcim, PT Antam and PT Bukit Asam that show the same
amount of numbers of Board of Commissioner, it is 6 person. It continues with PT
Telkom with the minimum number of Size Board of Commissioner with 5
persons.
Year 2013, it shows that the mean of Size Board of Commissioner are 6
persons, the same number with year 2011 and 2012. From 5 companies, the
maximum numbers for the amount of Board of Commissioners is still from PT
Astra International that shows 12 persons, 1 number bigger than previous year and
it is the maximum number for the amount of Board of Commissioners from the
year 2009 to 2014. And Continue with PT Holcim, PT Antam and PT Bukit Asam
that show the same amount of numbers of Board of Commissioner, it is 6 person.
It continues with PT Telkom with the minimum number of Size Board of
Commissioner with 5 persons.
Year 2014, it shows that the mean of Size Board of Commissioner are 6
persons, the same number with year 2011, 2012 and 2013. From 5 companies, the
maximum numbers for the amount of Board of Commissioners is still from PT
Astra International that shows 11 persons, 1 number less than previous year for
the amount of Board of Commissioners. And Continue with PT Holcim, PT
Antam and PT Bukit Asam that show the same amount of numbers of Board of
63
Commissioner, it is 6 person. It continues with PT Telkom with the minimum
number of Size Board of Commissioner with 5 persons.
Table 4.3
SIZE OF INDEPENDENT COMMISSIONERS IN 2009 -2014
SIZE OF INDEPENDENT COMMISSIONERS
COMPANY IC 2009 IC 2010 IC 2011 IC 2012 IC 2013 IC 2014
PT TELKOM 0.4 0.4 0.4 0.4 0.4 0.4
PT ASTRA 0.5 0.5 0.454545455 0.454545455 0.416666667 0.363636364
PT ANTAM 0.6 0.75 0.333333333 0.333333333 0.333333333 0.333333333
PT HOLCIM 0.571428571 0.571428571 0.571428571 0.5 0.5 0.5
PT BUKIT
ASAM 0.4 0.4 0.333333333 0.333333333 0.333333333 0.333333333
MINIMUM 0.4 0.4 0.333333333 0.333333333 0.333333333 0.333333333
MAXIMUM 0.6 0.75 0.571428571 0.5 0.5 0.5
MEAN 0.5 0.5 0.4 0.4 0.4 0.363636364
Figure 4.2
The Compliance with Size of Independent Commissioners in 2009 - 2014
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
PT TELKOM PT ASTRA PT ANTAM PT HOLCIM PT BUKITASAM
Size IC 2009
Size IC 2010
Size IC 2011
Size IC 2012
Size IC 2013
Size IC 2014
64
In this table 4.3, it shows that the mean of Size Independent
Commissioners in year 2009 are 0.50 or 50%. From 5 companies, the maximum
percentage for the amount of Size Independent Commissioners is PT Antam that
shows 0.60 or 60% for the amount of Size Independent Commissioners. And
Continue with PT Holcim with shows 0.571428571 or 57.14% for the amount of
Size Independent Commissioners and PT Astra International for showing the
amount of 0.50 of 50%. Besides, another 2 companies, PT Telkom and PT Bukit
Asam that show the same amount of minimum numbers of Board of
Commissioner, it is 0.40 or 40%.
Year 2010, it shows that the mean of Size Independent Commissioners are
0.50 or 50%, the same percentage number from the previous year. From 5
companies, the maximum percentage for the amount of Size Independent
Commissioners is PT Antam that shows 0.75 or 75% for the amount of Size
Independent Commissioners, 0.15 bigger than previous percentage. And Continue
with PT Holcim with shows 0.571428571 or 57.14% for the amount of Size
Independent Commissioners and PT Astra International for showing the amount
of 0.50 of 50%. Besides, another 2 companies, PT Telkom and PT Bukit Asam
that show the same amount of minimum numbers of Board of Commissioner, it is
0.40 or 40%, the same percentage with previous year in 2009.
Year 2011, it shows that the mean of Size Independent Commissioners are
0.40 or 40%, 10% less percentage number from the previous year. From 5
companies, the maximum percentage for the amount of Size Independent
Commissioners is PT Holcim that shows 0.571428571or 57.14% for the amount
65
of Size Independent Commissioners. And Continue with PT Astra International
with shows 0.454545455 or 45.45% for the amount of Size Independent
Commissioners and PT Telkom for showing the amount of 0.40 of 40%. Besides,
another 2 companies, PT Antam and PT Bukit Asam that show the same amount
of minimum numbers of Board of Commissioner, it is 0.333333333 or 33.33%,
the minimum percentage from 2009 to 2014.
Year 2012, it shows that the mean of Size Independent Commissioners are
0.40 or 40%, the same percentage number from the previous year. From 5
companies, the maximum percentage for the amount of Size Independent
Commissioners is PT Holcim that shows 0.50 or 50% for the amount of Size
Independent Commissioners. And Continue with PT Astra International with
shows 0.454545455 or 45.45% for the amount of Size Independent
Commissioners and PT Telkom for showing the amount of 0.40 of 40%. Besides,
another 2 companies, PT Antam and PT Bukit Asam that show the same amount
of minimum numbers of Board of Commissioner, it is 0.333333333 or 33.33%,
the minimum percentage from 2009 to 2014.
Year 2013, it shows that the mean of Size Independent Commissioners are
0.40 or 40%, the same percentage number from the year 2011 and 2012. From 5
companies, the maximum percentage for the amount of Size Independent
Commissioners is PT Holcim that shows 0.50 or 50% for the amount of Size
Independent Commissioners. And Continue with PT Astra International with
shows 0.416666667 or 41.66% for the amount of Size Independent Commissioners
and PT Telkom for showing the amount of 0.40 of 40%. Besides, another 2
66
companies, PT Antam and PT Bukit Asam that show the same amount of
minimum numbers of Board of Commissioner, it is 0.333333333 or 33.33%, the
minimum percentage from 2009 to 2014.
Year 2014, it shows that the mean of Size Independent Commissioners are
0.363636364 or 36.36%, less percentage number from the previous year. From 5
companies, the maximum percentage for the amount of Size Independent
Commissioners is PT Holcim that shows 0.50 or 50% for the amount of Size
Independent Commissioners. And Continue with PT Telkom with shows 0.40 or
40.00% for the amount of Size Independent Commissioners and PT Astra
International for showing the amount of 0.363636364 of 36.36%. Besides,
another 2 companies, PT Antam and PT Bukit Asam that show the same amount
of minimum numbers of Board of Commissioner, it is 0.333333333 or 33.33%,
the minimum percentage from 2009 to 2014.
Table 4.4
SIZE OF AUDIT COMMITTEE IN 2009 -2014
AUDIT COMMITTEE
COMPANY AC
2009
AC
2010
AC
2011
AC
2012
AC
2013
AC
2014
PT TELKOM 7 5 5 5 5 5
PT ASTRA 4 4 4 4 4 4
PT ANTAM 6 6 7 7 6 4
PT HOLCIM 3 3 3 3 3 3
PT BUKIT
ASAM 3 3 3 3 3 4
MINIMUM 3 3 3 3 3 3
MAXIMUM 7 6 7 7 6 5
MEAN 4 4 4 4 4 4
67
Figure 4.3
The Compliance with Size of Audit Committee in 2009 - 2014
In this table 4.4, it shows that the mean of Audit Committee size in year
2009 are 4 persons. From 5 companies, the maximum numbers for the amount of
Audit Committee size are PT Telkom that shows 7 persons for the amount of
Audit Committee. And Continue with PT Antam with shows 6 persons for the
amount of Audit Committee and PT Astra International with shows 4 persons for
the amount of Audit Committee. Besides, 2 companies, PT Holcim and PT Bukit
Asam show the same amount of minimum numbers of Board of Commissioner, it
is 3 persons.
Year 2010, it shows that the mean of Audit Committee size in this year are
4 persons, the same amount from the previous year. From 5 companies, the
maximum numbers for the amount of Audit Committee size are PT Antam shows
6 persons for the amount of Audit Committee. And Continue with PT Telkom
with shows 5 persons for the amount of Audit Committee and PT Astra
0
1
2
3
4
5
6
7
8
PT TELKOM PT ASTRA PT ANTAM PT HOLCIM PT BUKITASAM
Size AC 2009
Size AC 2010
Size AC 2011
Size AC 2012
Size AC 2013
Size AC 2014
68
International with shows 4 persons for the amount of Audit Committee. Besides, 2
companies, PT Holcim and PT Bukit Asam show the same amount of minimum
numbers of Board of Commissioner, it is 3 persons, the same amount from the
previous year.
Year 2011, it shows that the mean of Audit Committee size in this year are
4 persons, the same amount from the year 2009 and 2010. From 5 companies, the
maximum numbers for the amount of Audit Committee size are PT Antam shows
7 persons for the amount of Audit Committee. And Continue with PT Telkom
with shows 5 persons for the amount of Audit Committee and PT Astra
International with shows 4 persons for the amount of Audit Committee. Besides, 2
companies, PT Holcim and PT Bukit Asam show the same amount of minimum
numbers of Board of Commissioner, it is 3 persons, the same amount from the
previous year.
Year 2012, it shows that the mean of Audit Committee size in this year are
4 persons, the same amount from the year 2009, 2010 and 2011. From 5
companies, the maximum numbers for the amount of Audit Committee size are
PT Antam shows 7 persons for the amount of Audit Committee. And Continue
with PT Telkom with shows 5 persons for the amount of Audit Committee and PT
Astra International with shows 4 persons for the amount of Audit Committee.
Besides, 2 companies, PT Holcim and PT Bukit Asam show the same amount of
minimum numbers of Board of Commissioner, it is 3 persons, the same amount
from the previous year.
Year 2013, it shows that the mean of Audit Committee size in this year are
4 persons, the same amount from the year 2009, 2010, 2011 and 2012. From 5
companies, the maximum numbers for the amount of Audit Committee size are
69
PT Antam shows 6 persons for the amount of Audit Committee. And Continue
with PT Telkom with shows 5 persons for the amount of Audit Committee and PT
Astra International with shows 4 persons for the amount of Audit Committee.
Besides, 2 companies, PT Holcim and PT Bukit Asam show the same amount of
minimum numbers of Board of Commissioner, it is 3 persons, the same amount
from the previous year.
Year 2014, it shows that the mean of Audit Committee size in this year are
4 persons, the same amount from the year 2009, 2010, 2011, 2012 and 2013.
From 5 companies, the maximum numbers for the amount of Audit Committee
size are PT Telkom shows 5 persons for the amount of Audit Committee. And
Continue with 3 companies, PT Astra International, PT Antam and PT Bukit
Asam with the same amount of numbers, it is 4 persons. Besides, PT Holcim
shows 3 persons for the amount of Audit Committee of minimum numbers.
4.2.1.2Dependent Variable (Sustainability Report Indicator)
Table 4.5
GRI G3 INDEX IN 2009 -2014
COMPANY GRI G3
2009
GRI G3
2010
GRI G3
2011
GRI G3
2012
GRI G3
2013
GRI G3
2014
PT TELKOM 0.911392405 1 0.721518987 0.924050633 1 1
PT ASTRA 0.240506329 0.759493671 0.82278481 0.784810127 0.82278481 1
PT ANTAM 1 0.987341772 1 1 1 1
PT HOLCIM 0.746835443 0.784810127 0.810126582 0.620253165 0.949367089 0.962025316
PT BUKIT
ASAM 0.569 1 1 1 1 1
MINIMUM 0.240506329 0.759493671 0.721518987 0.620253165 0.82278481 0.962025316
MAXIMUM 1 1 1 1 1 1
MEAN 0.746835443 0.987341772 0.82278481 0.924050633 1 1
70
Figure 4.4
The Compliance with GRI G3 Index in 2009
The results of mean from 5 selected companies of GRI G3 ratio in is
0.746835443 or 74.68% for the average value in 2009 (see on table).
There are 2 companies that achieve less than average value, it is PT Bukit
Asam with amount of 0.569 or 56.90% and PT Astra International with amount of
0.240506329 or 24.05% (see on table and figure).
There are 2 companies that achieve more than average value, as; PT
Telkom and PT Antam with the amount of 0.911392405 or 91.13% for PT
Telkom and 1 or 100% for PT Antam.
PT Antam is the best value of GRI G3 index in 2009 with value of 1 or
100% as the maximum index. Besides, the minimum value is achieved by PT
Astra International with the value of 0.240506329 or 24.05%.
Figure 4.5
The Compliance with GRI G3 Index in 2010
00.20.40.60.8
11.2
PT TELKOM PT ASTRA PT ANTAM PT HOLCIM PT BUKITASAM
Co
mp
anie
s R
atio
GRI G3 2009
0
0.2
0.4
0.6
0.8
1
1.2
PT TELKOM PT ASTRA PT ANTAM PT HOLCIM PT BUKITASAM
Co
mp
anie
s R
atio
GRI G3 2010
71
Year 2010, the result of mean from 5 selected companies of GRI G3 ratio
is 0.987341772 or 98.73% for the average value (see on table).
There are 2 companies that achieve less than average value, it is PT
Holcim with amount of 0.784810127 or 78.48% and PT Astra International with
amount of 0.759493671 or 75.94% (see on table and figure).
There are 2 companies that achieve more than average value, as; PT
Telkom and PT Bukit Asam with the amount of 1 or 100% for PT Telkom and 1
or 100% for PT Antam.
PT Bukit Asam and PT Telkom have the best value of GRI G3 index in
2010 with value of 1 or 100% as the maximum index. Besides, the minimum
value is achieved by PT Astra International with the value of 0.759493671or
75.94%.
Figure 4.6
The Compliance with GRI G3 Index in 2011
Year 2011, the result of mean from 5 selected companies of GRI G3 ratio
is 0.82278481 or 82.27% for the average value (see on table).
There are 2 companies that achieve less than average value, it is PT
Telkom with amount of 0.721518987or 72.15% and PT Holcim with amount of
0.810126582 or 81.01% (see on table and figure).
0
0.2
0.4
0.6
0.8
1
1.2
PT TELKOM PT ASTRA PT ANTAM PT HOLCIM PT BUKITASAM
Co
mp
anie
s R
atio
GRI G3 2011
72
There are 2 companies that achieve more than average value, as; PT
Antam and PT Bukit Asam with the amount of 1 or 100% for PT Telkom and 1 or
100% for PT Antam.
PT Bukit Asam and PT Antam have the best value of GRI G3 index in
2011 with value of 1 or 100% as the maximum index. Besides, the minimum
value is achieved by PT Astra International with the value of 0.759493671or
75.94%.
Figure 4.7
The Compliance with GRI G3 Index in 2012
Year 2012, the result of mean from 5 selected companies of GRI G3 ratio
is 0.924050633 or 92.40% for the average value (see on table).
There are 2 companies that achieve less than average value, it is PT Astra
International with amount of 0. 784810127 or 78.48% and PT Holcim with
amount of 0.620253165 or 62.02% (see on table and figure).
There are 2 companies that achieve more than average value, as; PT
Antam and PT Bukit Asam with the amount of 1 or 100% for PT Telkom and 1 or
100% for PT Antam.
PT Bukit Asam and PT Antam have the best value of GRI G3 index in
2012 with value of 1 or 100% as the maximum index. Besides, the minimum
0
0.2
0.4
0.6
0.8
1
1.2
PT TELKOM PT ASTRA PT ANTAM PT HOLCIM PT BUKITASAM
Co
mp
anie
s R
atio
GRI G3 2012
73
value is achieved by PT Astra International with the value of 0.620253165 or
62.02%.
Figure 4.8
The Compliance with GRI G3 Index in 2013
Year 2013, the result of mean from 5 selected companies of GRI G3 ratio
is 1 or 100% for the average value (see on table).
There are 2 companies that achieve less than average value, it is PT Astra
International with amount of 0.82278481 or 82.27% and PT Holcim with amount
of 0.949367089 or 94.93% (see on table and figure).
There are 3 companies that achieve the same value of average value, as;
PT Antam, PT Bukit Asam and PT Telkom with the amount of 1 or 100% for PT
Antam, 1 or 100% for PT Bukit Asam and 1 or 100% for PT Telkom.
PT Telkom, PT Bukit Asam and PT Antam have the best value of GRI G3
index in 2013 with value of 1 or 100% as the maximum index. Besides, the
minimum value is achieved by PT Astra International with the value of
0.82278481 or 82.27%.
0
0.2
0.4
0.6
0.8
1
1.2
PT TELKOM PT ASTRA PT ANTAM PT HOLCIM PT BUKITASAM
Co
mp
anie
s R
atio
GRI G3 2013
74
Figure 4.9
The Compliance with GRI G3 Index in 2014
Year 2014, the result of mean from 5 selected companies of GRI G3 ratio
is 1 or 100% for the average value (see on table), as the same value from the
previous year.
There are 1 company that achieve less than average value, it is PT Holcim
with amount of 0.962025316 or 96.20 % (see on table and figure).
There are 4 companies that achieve the same value of average value, as;
PT Astra International, PT Antam, PT Bukit Asam and PT Telkom with the
amount of 1 or 100% for PT Astra International, 1 or 100% for PT Antam, 1 or
100% for PT Bukit Asam and 1 or 100% for PT Telkom.
PT Astra International, PT Antam, PT Bukit Asam and PT Telkom have
the best value of GRI G3 index in 2014 with value of 1 or 100% as the maximum
index. Besides, the minimum value is achieved by PT Holcim with the value of
0.962025316 or 96.20%
0.94
0.95
0.96
0.97
0.98
0.99
1
1.01
PT TELKOM PT ASTRA PT ANTAM PT HOLCIM PT BUKITASAM
Co
mp
anie
s R
atio
GRI G3 2014
75
4.2.2 Classical Assumption
1. Normality Test
The purpose of the normality test is to determine whether the regression
model variables are normally distributed or not. A good regression model is to
have normal or nearly normal distribution. In this research, to detect whether
normally distributed data or not, it can be done with using graph analysis namely
histogram graph Normal Probability Plot (P-P Plot) and statistical analysis
namely kolmogorov-smirnov test.
Figure 4.10
Source: Processed from secondary data (SPSS VER 21.0)
76
Figure 4.11
Source: Processed from secondary data (SPSS ver 21.0)
According to the result of normality test using graph analysis namely
histogram graph showing a form of bell in histogram graph and Normal
Probability Plot (P-P Plot) showing dots distribution along diagonal line, indicate
that regression model has meet the normality assumption. However, graph
analysis can emerge different interpretation among reader, so that statistical
analysis test is needed to ensure the interpretation mistake for reading the graph.
Table below will show the result of statistical analysis namely kolmogorov-
smirnov test:
77
One-Sample Kolmogorov-Smirnov Test
Unstandardiz
ed Residual
N 30
Normal Parametersa,b
Mean .0000000
Std.
Deviation
.08031428
Most Extreme
Differences
Absolute .132
Positive .068
Negative -.132
Kolmogorov-Smirnov Z .726
Asymp. Sig. (2-tailed) .668
a. Test distribution is Normal.
b. Calculated from data.
Source: Processed from secondary data (SPSS ver 21.0)
The result of Kolmogorov-Smirnov test on table also shows that the value
of Kolmogorov-Smirnov 0.726 with the level of significant probability 0.668, the
value of p > 0.05. So the residual data is distributed normally. Therefore,
regression model used in this research has met the normality test assumption.
2. Multicollinearity Test
The aim from multicolinearity test is to test whether the regression model
found a correlation among the independent variables. A good regression model
should there is no correlation among independent variables. In this research, to
detect the presence or absence of multicolinearity can be done by calculating
value of variance inflation factor (VIF) of each independent variable.
Coefficientsa
Model Unstandardized Coefficients
Standardized Coefficients
t Sig. Collinearity Statistics
B Std. Error
Beta Tolerance VIF
1
(Constant) 1.109 .165 6.710 .000
BOC -.007 .010 -.131 -.762 .453 .920 1.087
AC -.589 .263 -.388 -2.239 .034 .911 1.098
SIC .022 .018 .212 1.207 .238 .886 1.128
a. Dependent Variable: SR
78
Based on table above, the result shows that there is no value of variance
inflation factor (VIF) of each independent variable, which is less than 0.1 or more
than 10. So, it can be concluded that there is no multicolinearity.
3. Heteroscedasticity Test
The aim from heteroscedastisity test is to test whether the regression
model occur the variance inequality of the residual from one observation to
another observation. A good regression model is homocedastisity or there is no
heteroscedastisity. In this research, heteroscedastisity test can be viewed with
using the chart Scatterplot between the predicted value of dependent variable
(ZPRED) and residual (SRESID).
Figure 4.12
Source: Processed from secondary data (SPSS ver 21.0)
79
From result of figure (4.12), shows that there is no clear pattern, as well as
the dots spread above and below zero (0) on the Y axis. So, it can be concluded
that there is no heteroscedastisity (homocedasticity).
4. Autocorrelation
Autocorrelation test aims to test whether a regression model there is a
correlation between data in variable. A good regression model is a regression that
is free from autocorrelation. In this research, autocorrelation test use the Durbin
Watson.
Model Summaryb
Model R R Square Adjusted R
Square
Std. Error of
the Estimate
Durbin-
Watson
1 .636a .404 .335 .08482 1.920
a. Predictors: (Constant), BOC, SIC, AC
b. Dependent Variable: SR
Source: Processed from secondary data (SPSS ver 21.0)
From the nominal in the table of Durbin Watson, the nominal is 1.920. To
get a conclusion from the test, it needs to compare the displayed statistic with
lower and upper bounds in a table. With value of n = 30, k = 3, so the value of dL
and dU can be seen from the table of Durbin Watson. The value of dL = 1.214 and
value of dU = 1.650 and value of d = 1.920
Positive Autocorrelation Detection:
1.920 < 1.214 there is positive autocorrelation (incorrect)
1.920 > 1.650 there is no positive autocorrelation (correct)
1.214 < 1.920 < 1.650the test does not convince or inconclusive
(incorrect)
80
Negative Autocorrelation Detection:
The results show that it can be concluded for the regression analysis that
there is no positive autocorrelation and there are no negative autocorrelation, and
it can be concluded that there is absolutely no autocorrelation.
4.2.3 Multiple Regression Analysis
Multiple regression analysis used to test the effect of two or more
independent variables toward the dependent variable. In this research,
Independent variables is Good Corporate Governance components which
elaborate into size of Board of Commissioners (BOC), size of Independent
Commissioner (IC) and size of Audit Committee (AC), and Dependent Quality
Sustainable Report Disclosure which correlate with GRI G3index
Coefficientsa
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig. Collinearity
Statistics
B Std.
Error
Beta Tolerance VIF
1
(Constant) 1.163 .119 9.792 .000
BOC -.016 .008 -.335 -2.145 .042 .940 1.064
SIC -.484 .180 -.414 -2.685 .012 .964 1.037
AC .015 .013 .189 1.197 .242 .916 1.092
a. Dependent Variable: SR
Source: Processed from secondary data (SPSS ver 21.0)
The result of multiple regression analysis has been explained in table. The
result of multiple regression analysis with using significance 5% obtained the
following equation:
2.080 < 1.214there is negative autocorrelation (incorrect)
2.080 > 1.650there is no negative autocorrelation (correct)
1.214 < 2.080 < 1.650the test does not convince or inconclusive
(incorrect)
81
Y = 1.163 -0.016X1 -0.484X2 +0.015X3 +ε
From the multiple linear regression equation above, it can be explained for each
variable as follows:
1. Constant at 1.163 units stated that if there is no influence or change into size
of Board of Commissioners (BOC), size of Independent Commissioner (IC)
and size of Audit Committee (AC), then the value of firm value will be 1.163.
2. Regression coefficient of Board of Commissioners (BOC) marked negative at
-0.016. It shows that the influence of Board of Commissioners (BOC) on the
quality of Sustainability Report Disclosure is negative, which means that if the
value or number of Board of Commissioners (BOC) is increased by one point,
then GRI index will decrease by -0.016 or on the contrary, with assumption
variables X2 and X3, remain or unchanged.
3. Regression coefficient of size of Independent Commissioner (IC) marked
negative at -0.484. It shows that the influence of size of Independent
Commissioner (IC) on the quality of Sustainability Report Disclosure is
negative, which means that if the value or number of Independent
Commissioner (IC) is increased by one point, then GRI index will increase by
-0.484 or on the contrary, with assumption variables X1 and X3, remain or
unchanged.
4. Regression coefficient of size of Audit Committee (AC) marked positive at
0.015. It shows that the influence of size of Audit Committee (AC) on the
quality of Sustainability Report Disclosure is positive, which means that if the
value or number of Audit Committee (AC) is increased by one point, then
GRI index will increase by 0.015 or on the contrary, with assumption variables
X1 and X2, remain or unchanged.
82
a. Simultaneous Regression Analysis (Test - F)
Test of F statistic is basically indicates whether independent variables
altogether can influence the dependent variable. In this research, F test
done by seeing probability value.
ANOVAa
Model Sum of Squares
df Mean Square
F Sig.
1
Regression .135 3 .045 3.541 .028b
Residual .330 26 .013
Total .465 29
a. Dependent Variable: SR b. Predictors: (Constant), SIC, BOC, AC Source: Processed from secondary data (SPSS ver 21.0)
Based on table above, the result of F test shows that value of F is
3.541 and probability value is 0,028 < 0,05 (sig. (F) < 0.05). This result
indicates that the variable of GRI G3 Index is simultaneously influenced
by size of Board of Commissioners (BOC), size of Independent
Commissioner (IC) and size of Audit Committee (AC)
b. Partial Regression Testing (T-test)
Test of t statistic performed to determine the effect of one independent
variable towards the dependent variable. In this research, t test done by
seeing probability value.
Coefficientsa
Model Unstandardized Coefficients
Standardized Coefficients
t Sig. Collinearity Statistics
B Std. Error
Beta Tolerance VIF
1
(Constant) 1.163 .119 9.792 .000
BOC -.016 .008 -.335 -2.145 .042 .940 1.064
SIC -.484 .180 -.414 -2.685 .012 .964 1.037
AC .015 .013 .189 1.197 .242 .916 1.092
a. Dependent Variable: SR Source: Processed from secondary data (SPSS ver 21.0)
83
Based on table above, the result of t test can be concluded
based on probability value (value Significance < error rate (α=0.05) = Ho
is rejected), which will be explained as below:
1) Size of Board of Commissioners (BOC)
Based on table above, the result of t tests toward variable of Board of
Commissioners (BOC) (measured by the number of Board of
Commissioners) shows that probability value is 0.042 (p < 0.05). It
means that Board of Commissioners has influence to the GRI G3
disclosure. Thus, the first hypothesis (H1), which states that size of
board of commissioners has influence to quality of sustainability
report, is accepted.
2) Size of Independent Commissioner (IC)
Based on table above, the result of t tests toward variable of
Independent Commissioner (IC) (measured by the ratio or percentage
(%) between the numbers of the Independent Commissioner members
as compared to the total number of members of the Board of
Commissioners) shows that probability value is 0.012 (p < 0.05). It
means that Size of Independent Commissioner has influence to the
GRI G3 disclosure. Thus, the second hypothesis (H2), which states
that size of Independent Commissioner has influence to quality of
sustainability report, is accepted.
84
3) Size of Audit Committee (AC)
Based on table above, the result of t tests toward variable of Size of
Audit Committee (AC) (measured by the number of Audit Committee)
shows that probability value is 0.242 (p < 0.05). It means that Size of
Audit Committee does not have influence to the GRI G3 disclosure.
Thus, the third hypothesis (H3), which states that size of Audit
Committee has influence to quality of sustainability report, is not
accepted.
4.2.4 Coefficient Determination Test (R2)
Determination Coefficient Testing done to determine the magnitude
contribution of independent variables toward the dependent variable with sees the
value of R2.
Model Summaryb
Mode
l
R R Square Adjusted R
Square
Std. Error of
the Estimate
Durbin-
Watson
1 .636a .404 .335 .08482 1.920
a. Predictors: (Constant), BOC, SIC, AC
b. Dependent Variable: SR
Source: Processed from secondary data (SPSS ver 21.0)
Based on table above, the result shows that the correlation coefficient (R²)
for 0.636, which means that the correlation between the dependent variable with
the independent variables are strong based on the value of R is above 0.5.
Adjusted R Square value or coefficient of determination is 0.335 or 33.5%. It
means that magnitude contribution of independent variables toward the dependent
variable is 33.5%, while 66.5% firm value can be explained by other variable that
is not included in this regression analysis.
85
4.3. Interpretation
Based on multiple regression analysis as described in the previous section,
the interpretation of the results is presented in three sections. The first section
discusses the influence of Board of Commissioners to the quality of Sustainability
Report Disclosure (H1). The second section discusses the influence of Board of
Independent Commissioners to the quality of Sustainability Report Disclosure
(H2). The third section discusses the influence of Audit Committee to the quality
of Sustainability Report Disclosure (H3). The explanation is as follow:
1. The influence of Board of Commissioners to the quality of Sustainability
Report Disclosure
The results using multiple regression analysis obtain results that Board of
Commissioners has influence of the quality of Sustainability Report Disclosure. It
can be seen from the calculated value by hypothesis testing where the significant
level of Board of Commissioners is 0.042 at significant level 5% which means
value 0.042 < 0.05. Thus, this research can be accepted by hypothesis (H1), which
states that Board of Commissioners influence of the quality of Sustainability
Report Disclosure.
Regression coefficient value is -0.016, which means that there is negative
relationship between Board of Commissioners to the quality of Sustainability
Report Disclosure. If the number of Board of Commissioners is increased, quality
of Sustainability Report Disclosure will decrease.
2. The influence of Board of Independent Commissioners to the quality of
Sustainability Report Disclosure
The results using multiple regression analysis obtain results that Board
of Independent Commissioners has influence to the quality of Sustainability
86
Report Disclosure. It can be seen from the calculated value by hypothesis
testing where the significant level of Board of Independent Commissioners is
0.012 at significant level 5% which means value 0.012 < 0.05. Thus, this
research can be accepted by hypothesis (H2), which states that Board of
Independent Commissioners influence of the quality of Sustainability Report
Disclosure.
Regression coefficient value is -0.484, which means that there is
negative relationship between Board of Independent Commissioners to the
quality of Sustainability Report Disclosure. If the number of Board of
Independent Commissioners is increased, quality of Sustainability Report
Disclosure will decrease.
3. The influence of Audit Committee to the quality of Sustainability Report
Disclosure
The results using multiple regression analysis obtain results that Audit
Committee does not influence to the quality of Sustainability Report
Disclosure. It can be seen from the calculated value by hypothesis testing
where the significant level of Audit Committee is 0.242 at significant level 5%
which means value 0.242 > 0.05. Thus, this research cannot be accepted by
hypothesis (H3), which states that Audit Committee influence of the quality of
Sustainability Report Disclosure.
Regression coefficient value is 0.15, which means that there is positive
relationship between Audit Committee to the quality of Sustainability Report
Disclosure. If the number of Audit Committee is increased, quality of
Sustainability Report Disclosure will decrease.
87
CHAPTER V
CONCLUSION
5.1 Conclusion
In the concept of corporate governance, companies are required to comply
with the principles that will build good corporate governance, as: Transparency,
Accountability, responsibility, independence and Fairness. Thus, before the
companies practicing the Sustainability Report, internal management of the
company must be managed well or meet the principles of good corporate
governance relating to the terms of Transparency, Accountability and
Responsibility.
With these principles of the company's obligation, it force the company
disclose the report accurately, on timely, and transparently to all information
about the company's performance, ownership, and stakeholders. With the
realization of GCG, it is expected to bring the company's business development
towards sustainable so it will be easier for companies to disclose the Sustainability
Report with good quality.
This research examines the influence of size of Board of Committee,
Proportion of Independent Commissioners and Size of Audit Committee, towards
quality sustainability reporting disclosure. This analysis are performed by using
the multiple regression analysis method with the program ‘Statistical Package for
Social Science’ (SPSS) Ver.21.0. Data samples consist of 30 sustainability report
companies listed in the Indonesia Stock Exchange during the period 2009 - 2014.
88
From the test results and discussions in the previous chapter can be
concluded as follows:
1. To clarify whether Indonesian companies disclose the sustainability reports
with following GRI G3 index or not. Based on this research finding, GRI G3
guideline is the most complete indicators in comparison to GRI G1 and GRI
G2. In year 2009 until 2012, it became a trend for Indonesian companies to
disclose their sustainability reports in line with GRI G3 guidelines. Continue
with GRI G4 for the new version as a standard for disclosure the sustainability
report in 2013. But just some of few companies use the G4 as a standard of
disclosure. This research found 8 companies that disclose sustainability
reports by following the guidance of GRI G3 Guideline in the years 2009 until
2014, and become 5 companies which disclose the sustainability report in
accurate and complete from 2009-2014. So, the totals of sustainability report
are 30 reports which taken from 5 companies during 2009 until 2014. The 30
sustainability reports follow the GRI G3 indicators.
2. Based on the multiple regression result, Board of Commissioners and Board of
Independent Commissioners have influence to the quality of sustainability
report disclosure. But Audit Committee has not influence to the quality of
sustainability report disclosure as can be seen from the result of SPSS. This
implies that companies necessarily need concern about the size of Board of
Commissioners and size of Board of Independent Commissioners, as the
components that influencing the dependent variable that connecting to the
quality of sustainability report disclosure, and more concern to the audit
activities for Audit Committee to keep controlling the Board of
89
Commissioners and Independent Commissioner activity in the company,
although it is not give the influence to the sustainability report disclosure
directly.
3. Based on the multiple regression result, Board of Commissioners and Board of
Independent Commissioners have negative influence. It implies that company
should increase the quality and performance of the audit committee, the most
active of Audit Committee the more likely audit committee can reach
solutions of the quality of sustainability report disclosure.
4. Based on the multiple regression result, the audit committee has positive
influence. It implies that company should increase the size and performance of
the audit committee, the most active of audit committee the more likely audit
committee can reach solutions of the quality of sustainability report disclosure.
5.2 Recommendation
Of the conclusions and limitations in this study, the advices that can be
given to improve the Research on the influence of Good Corporate Governance
(GCG) implementation toward quality Sustainability Reporting (SR) disclosure in
the future research are:
1. Future studies should extend the observation period to better describe the
condition of Sustainability Report disclosure in Indonesia.
2. The government could consider introducing special regulations about the
mandatory disclose the sustainability reports regard to GRI index and concern
in each indicators of every point of the GRI index to all listed companies in
Indonesia to make the better quality of Sustainability Report disclosure.
90
3. Low Adjusted R2 of the models tested in this study suggests that other
variables that are not used in this study has a greater influence on the
disclosure of Sustainability Report, so for the future studies it should consider
using other variables also outside of the variables used in the study this.
4. The next research on that tropic should investigate the items of sustainability
reporting conducted based on GRI-G4-Guidelines with those conducted under
ISO 210000 guidelines in order to visualize the comparability of the different
guidelines and their impact on the profitability
91
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Lang, Mark H. and Lundholm, Russell J., (2000), “Voluntary disclosure and
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92
Waryanto. 2010. “Pengaruh Karakteristik Perusahaan terhadap Luas
Pengungkapan CSR di Indonesia”. Universitas Dipenogoro.
93
APPENDIX
Table GRI G3 Index
LIST OF GRI G3 INDICATORS FOR MEASURING SUSTAINABILITY
REPORT
Indicators SR
2009
SR
2010
SR
2011
SR
2012
SR
2013
SR
2014
I.
HR
HR1
HR2
HR3
HR4
HR5
HR6
Social Performance:
Human Rights
Percentage and total number
of significant investment
agreements that include
human rights clauses or that
have undergone human
rights screening.
Percentage of significant
suppliers and contractors
that have undergone
screening on human rights
and actions taken.
Total hours ofemployee
training on policies and
procedures concerning
aspects of human rights that
are relevant to operations,
including the percentage of
employee trained.
Total number of incidents of
discrimination and actions
taken.
Operations identified in
which the right to exercise
freedom of association and
collective bargaining may
be at significant risk, and
actions taken to support
these rights.
Operations identified as
having significant risk for
incidents of child labor, and
measures taken to
94
Indicators SR
2009
SR
2010
SR
2011
SR
2012
SR
2013
SR
2014
HR7
HR8
HR9
S
S01
S02
S03
S04
contribute to the elimination
of child labor
Operations identified as
having significant risk for
incidents of forced or
compulsory labor and
measures to contribute to
the elimination of forced or
compulsory labor
Percentage of security
personnel trained in the
organization’s policies or
procedures concerning
aspects of human rights that
are relevant to operations.
Total number of incidents of
violations involving rights
of indigenous people and
actions taken.
Society
Nature, scope, and
effectiveness of any
programs and practices that
assess and manage the
impacts of operations on
communities, including
entering, operating, and
exiting.
Percentage and total number
of business units analyzed
for risks related to
corruption.
Percentage of employees
trained in organization’s
anti-corruption policies and
procedures.
Actions taken in response to
incidents of
95
Indicators SR
2009
SR
2010
SR
2011
SR
2012
SR
2013
SR
2014
S05
S06
S07
S08
LA
LA1
LA2
LA3
LA4
corruption.
Public policy positions and
participation in public
policy development and
lobbying
Total value of financial and
in-kind contributions to
political parties, politicians,
and related institutions by
country.
Total number of legal
actions for anti competitive
behavior, anti-trust, and
monopoly practices and
their outcomes.
Monetary value of
significant fines and total
number of non-monetary
sanctions for non
compliance with laws and
regulations
Labor
Total workforce by
employment type,
employment contract, and
region.
Total number and rate of
employee turnover by age
group, gender, and region.
Benefits provided to full-
time employees that are not
provided to temporary or
part-time employees, by
major operations.
Percentage of employees
covered by collective
96
Indicators SR
2009
SR
2010
SR
2011
SR
2012
SR
2013
SR
2014
LA5
LA6
LA7
LA8
LA9
LA10
LA11
bargaining agreements.
Minimum notice period(s)
regarding significant
operational changes,
including whether it is
specified in collective
agreements.
Percentage of total
workforce represented in
formal joint management –
worker health and safety
committees that help
monitor and advise on
occupational health and
safety programs
Rates of injury,
occupational diseases, lost
days, and absenteeism, and
number of work-related
fatalities by region.
Education, training,
counseling, prevention, and
risk-control programs in
place to assist workforce
members, their families, or
community members
regarding serious diseases.
Health and safety topics
covered in formal
agreements with trade
unions
Average hours of training
per year per employee by
employee category
Programs for skills
management and life long
learning that support the
continued employability of
employees and assist them
in managing career endings.
97
Indicators SR
2009
SR
2010
SR
2011
SR
2012
SR
2013
SR
2014
LA12
LA13
LA14
PR
PR1
PR2
PR3
PR4
Percentage of employees
receiving regular
performance and career
development reviews
Composition of governance
bodies and breakdown of
employees per category
according to gender, age
group, minority group
membership, and other
indicators of diversity.
Ratio of basic salary of men
to women by employee
category.
Product Responsibility
Life cycle stages in which
health and safety impacts of
products and services are
assessed for improvement,
and percentage of
significant products and
services categories subject
to such procedure
Total number of incidents of
non-compliance with
regulations and voluntary
codes concerning health and
safety impacts of products
and services during their life
cycle, by type of outcomes.
Type of product and service
information required by
procedures, and percentage
of significant products and
services subject to such
information requirements.
Total number of incidents of
98
Indicators SR
2009
SR
2010
SR
2011
SR
2012
SR
2013
SR
2014
PR5
PR6
PR7
PR8
PR9
EC
EC1
non-compliance with
regulations and voluntary
codes concerning product
and service information and
labeling, by type of
outcomes
Practices related to
customer satisfaction,
including results of surveys
measuring customer
satisfaction.
Programs for adherence to
laws, standards, and
voluntary codes related to
marketing communications,
including advertising,
promotion, and sponsorship
Total number of incidents of
non-compliance with
regulations and voluntary
codes concerning marketing
communications, including
advertising, promotion, and
sponsorship by type of
outcomes
Total number of
substantiated complaints
regarding breaches of
customer privacy and losses
of customer data.
Monetary value of
significant fines for
noncompliance with laws
and regulations concerning
the provision and use of
products and services
Economic:
Direct economic value
generated and distributed,
including revenues,
operating costs, employee
99
Indicators SR
2009
SR
2010
SR
2011
SR
2012
SR
2013
SR
2014
EC2
EC3
EC4
EC5
EC6
EC7
EC8
compensation, donations
and other community
investments, retained
earnings, and payments to
capital providers and
governments.
Financial implications and
other risks and opportunities
for the organization’s
activities due to climate
change.
Coverage of the
organization’s defined
benefit plan obligations.
Significant financial
assistance received from
government.
Range of ratios of standard
entry level wage compared
to local minimum wage at
significant locations of
operation.
Policy, practices, and
proportion of spending on
locally-based suppliers at
significant locations of
operation.
Procedures for local hiring
and proportion of senior
management hired from the
local community at
locations of significant
operation.
Development and impact of
infrastructure investments
and services provided
primarily for public benefit
through commercial, in-
kind, or pro bono
engagement.
100
Indicators SR
2009
SR
2010
SR
2011
SR
2012
SR
2013
SR
2014
EC9
EN
EN1
EN2
EN3
EN4
EN5
EN6
EN7
EN8
EN9
EN10
EN11
Understanding and
describing significant
indirect economic impacts,
including the extent of
impacts.
Environmental:
Materials used by weight or
volume.
Percentage of materials used
that are recycled input
materials.
Direct energy consumption
by primary energy source.
Indirect energy consumption
by primary source.
Energy saved due to
conservation and efficiency
improvements.
Initiatives to provide energy
efficient or renewable
energy based products and
services, and reductions in
energy requirements as a
result of these initiatives.
Initiatives to reduce indirect
energy consumption and
reductions achieved.
Total water withdrawal by
source.
Water sources significantly
affected by withdrawal of
water.
Percentage and total volume
of water recycled and
reused.
Location and size of land
101
Indicators SR
2009
SR
2010
SR
2011
SR
2012
SR
2013
SR
2014
EN12
EN13
EN14
EN15
EN16
EN17
EN18
EN19
EN20
owned, leased, managed in,
or adjacent to, protected
areas and areas of high
biodiversity value outside
protected areas.
Description of significant
impacts of activities,
products, and services on
biodiversity in protected
areas and areas of high
biodiversity value outside
protected areas.
Habitats protected or
restored.
Strategies, current actions,
and future plans for
managing impacts on
biodiversity.
Number of IUCN Red List
species and national
conservation list species
with habitats in areas
affected by operations, by
level of extinction risk.
Total direct and indirect
greenhouse gas emissions
by weight.
Other relevant indirect
greenhouse gas emissions
by weight.
Initiatives to reduce
greenhouse gas emissions
and reductions achieved
Emissions of ozone-
depleting substances by
weight.
NOx, SOx, and other
significant air emissions by
type and weight.
102
Indicators SR
2009
SR
2010
SR
2011
SR
2012
SR
2013
SR
2014
EN21
EN22
EN23
EN24
EN25
EN26
EN27
EN28
EN29
Total water discharge by
quality and destination
Total weight of waste by
type and disposal
method.
Total number and volume of
significant spills.
Weight of transported,
imported, exported, or
treated waste deemed
hazardous under the terms
of the Basel Convention
Annex I, II, III, and VIII,
and percentage of
transported waste shipped
internationally.
Identity, size, protected
status, and biodiversity
value of water bodies and
related habitats significantly
affected by the reporting
organization’s discharges of
water and runoff.
Initiatives to mitigate
environmental impacts of
products and services, and
extent of impact mitigation.
Percentage of products sold
and their packaging
materials that are reclaimed
by category.
Monetary value of
significant fines and total
number of non-monetary
sanctions for non
compliance with
environmental laws and
regulations.
Significant environmental
103
Indicators SR
2009
SR
2010
SR
2011
SR
2012
SR
2013
SR
2014
EN30
impacts of transporting
products and other goods
and materials used for the
organization’s operations,
and transporting members
of the workforce.
Total environmental
protection expenditures and
investments by type.
(Total Items : 77 )
Total:
Note:
Score one (1) = disclousure
Score zero (0) = not
disclosure
104
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