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CHAPTER 2

THEORITICAL FOUNDATION

2.1 Definition of CSR

The definition of CSR are varied and broad, but with the common purpose and

mission in achieving social and environmental prosperity. The European

Commission (2001) described that the definition of CSR has several important

implications. CSR is understood as an idea where a company combines social

and environmental issues in their operations and execute policies considering

voluntary stakeholders. Another definition by Atkisson cited in Rahendrawan

(2006) stated that CSR is a broad and intangible term, which is often being used

to determine an organization‟s activity outside its core business, related to

environment and social behavior.

On the other hand Anatan (2010) defined CSR as responsibility to other parties

such as goverment, local comunities and business; but company also gives

commitment to act legally, ethically and improving quality inside company.From

definition of CSR, the author could grasp a clearer perspective about the

necessity of sustainability and cooperativeness from the parties involved in

implementing CSR actualization, to achieve beneficial result for the society and

environment. In the American Conference on CSR (2002) CSR was generally

referred to business that linked to ethical values, legal requirements and aspect

for people, and the environment for decision making processes in companies.

2.2 The Concept of CSR

Corporate Social Responsibility is a familiar term for corporation and enterpises

around the world today. The concept and framework itself established by the

European Union and reffered as a firm‟s accomplishment in social benefits and

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economic gains accordingly to targets set; achieved by applying estimation and

responses to every other issue beside economics, technical and its own legal

requirements (Husted 2003). The current condition of the corporate world in

providing voluntary and philanthropic activity for the society and environment

have been limited which leads to a sense of public disappointment. CSR is not

prioritized by corporation and enterprises because their main focus is to generate

large sums of revenue for the stakeholders.

These problems need governments support to provide protection and solutions as

the party responsible for maintaining the viability of the community; impacted by

corporation and enterprises doing business practices in their territory or area. The

role of governments in relation to these companies is not required only as the

regulator or controller, but rather as those who act as partners. The role of

governments is required not only for policy makers but also as a facilitator and

dynamic factor for business to implement social responsibility towards society

involved. The implementation of CSR must accent on sustainability, embracing

external oriented policies (inside out policy) and internal (Anatan, 2010).

2.3 Scope of CSR in Term of Field of Work in Economics, Environment and

Social Walfare

Corporations in the field of natural resources exploitation, chemical process

manufacturing, and diesel/nuclear power plants; posses a greater CSR obligation

than corporations in the fields of trades and services. For instance, the mining

and petroleum industries cause not just green house effects –which most

environmental proctection agencies and/or organizations are critical about–, but

these corporations are often pushed and encouraged to rehabilitate the hazardous

environment to be eco-friendly again; from the effects of their operations in

converting rainforests to mine fields. The processing plants which create

industrial waste are required to develop a method of decomposing or exterminate

the remainings of its waste completely to avoid environmental contamination.

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The diesel and nuclear power plants have a positive effect for the society in

creating electricity, but they also possess the negative effect of the creation of air

and waste pollutions. These power plants are required to emit only a certain

amount of CO2 in the air, whereas for the nuclear waste are to be processed and

buried in the ground because it cannot be exterminated completely.

The result of the rapid industrial development is causing an environmental

awarness not just in individual societies, but in nations as well. The Kyoto

Protocol is established to balance this issue of environment preservation where

the mainpoint of the protocol is the commitment of developed nations to

maintain an eco friendly environment. CSR defined by European Commission

(2001) as a concept to develop awareness responsible of behavior that leads to

sustainable success, where the company merge both social and environmental

concerns in their business activities, as also voluntarily include those in their

interaction.

CSR strategy involves organizing the changes in a company through a socially

responsible method to implement with their employees; as well as other related

matters like the human capital investment, safety, health, and management

change; because environmentally responsible practices in the fields mentioned

above are related to the management of natural resources and its utilization in the

external production phase. The CSR strategy could also be laid out in the

company‟s external Involving local community that comprises of a broader

stakeholder such as customers, suppliers, business partner, public authorities in

addition to non governmental organizations that is a representative of local

communities and existing environment. This condition is strongly supported by

the statement by Milton Friedman (1970); and was defined by the most famous

definition of CSR intern of maximizing corporate shareholder profit by classical

economics means.

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2.4 CSR Condition in Indonesia

In Indonesia, the CSR activities had mostly begun to exceed only in the recent

years. Demands from the society and the democratic development have shifted

the currents of globalization and free markets; which raise awareness on the

importance of the industrial world, set to implementation corporate social

responsibility (CSR). Although CSR principles had long set out in legislation

within the scope of corporate law and regulation in Indonesia; the

implementations are still lack in awareness of CSR.

Lacking of CSR Implementation concern in Indonesia generally based on

responsibilities for the environmental sustainability, the economics growth and

social well being of society; are not just the responsibility of big company,

although in essence the majority of company doing CSR are big or multinational

company. In the other words, even small company should take responsibility for

their CSR aspect. In Indonesia, the implementation of CSR has long been

strongly influenced by the internal policies applied and the Chief Executive

Officer (CEO) decisions; so that they‟re CSR policies might not automatically be

in accordance with their business vision and mission. This meant that if their

current CEO has a high sense of social responsibility, then their CSR programs

would most likely be implemented. But if the CEO does not have the similar

awareness about the implementation, their CSR program would merely be

symbolic to maintain and boost the company's image to employees and public in

general. The –apparently– lack of will to regulate the CSR activity in Indonesia

resulted in no fewer violations occur, and had caused damage to the existing

environment. The State Law of Environmental Management Chapter IX Article

41 Point 1 stated that “any person who knowingly performs unlawful acts that

result in contamination or destruction of the environment can be punished with

imprisonment of ten years and a maximum fine of five hundred million rupiah."

The condition where companies might set and cause an environmental pollution

do not directly allege the absolute criminal liability, and pose yet no deterrent for

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the perpetrators of illegal actions that harm people and cause environmental

damages.

One example obvious and popular is the conflict between PT. Freeport Indonesia

with the Papua natives. The use of indigenous land, destruction and

environmental destruction, the destruction of the economy, and the existence

population is a reality condition that the Papua people experienced; as a result of

mining operations due to the presence of PT. Freeport Indonesia. The disastrous

damages inflicting the communities from their environment condition could be

observed further in the Lake Wanagon case; which appeared three times in

publications (June 20, 1998; 20 to 21 March 2000), triggered by a gigantic waste

disposal capacity which did not comply with the existing environmental carrying

capacity (Rudito and Famiola, 2007). Both of the points mentioned constitute

only a small picture of the phenomenon triggered and caused by the failure of

CSR that emerged in Indonesia; as there are many more similar examples of

cases nationwide.

On the other hand, there are also success stories of CSR implementation program

in Indonesia. The many manifestations of CSR can be explains through varied

forms of corporate activity such as program development and/or community

development, community services, and community empowerment programs.

Although the activity appear to be simple and rather narrow the scope of the

problem; but the positive impact to the targeted community would largely

acclaimed to the bigger general effects.

The HM Sampoerna Corporation is one of the cigarette giants in Indonesia, who

came along with a strategically designed and beneficial Corporate Social

Responsibility programs. Sampoerna is also concern with education issues and

women activity which were accomodated in it's non profit organization named

Putra Sampoerna Foundation (PSF). As one of the largest company in Indonesia,

Sampoerna would also bear a great responsibility for waste generated from the

effects of cigarette production for many years. Sampoerna has a high awareness

for social responsibility in society; therefore their CSR activityare what the

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perfectly designed bridge to establish good relations with both the environment

and community. This condition is very important to be maintained as it affects

the company's own existence that will correlate strongly with the positive image

of the company in the wider society.

Sampoerna itself has good variety of CSR programs and applied to its full

potential as a form of responsibility to all the people of Indonesia in varied fields.

Discourse of social responsibility carried by Sampoerna is improving living

conditions in both living and working environments of their employees, and the

farmers‟communities that have been the backbone to tobacco industry.

Realizations conducted in a number of key areaare poverty alleviation,

education, environmental conservation and natural disaster management.

Sampoerna Foundation is a non-profit organization first obtained the certificate

ISO 9001 in 2008, with certified quality management system fitting to the

international standard. Sampoerna Foundation has been trusted by more than 250

companies, organizations or associations to carry out their CSR; by applying the

principles of openness and accountability in all of its activities.

In addition, to increase the awareness of their commitment level of corporate

attention to environmental sustainability and social and also economics life of

society; it is necessary to conduct and uphold an evaluation tool to assess the

company's success in implementing the CSR program. The results of the

assessment conducted by an independent appraisal agency; can serve as basis for

the award in the form of award for communities‟ participation facilitated by

company. One of the best breakthroughs in environmental management and

awareness is the PROPER evaluation program; held by The Ministry of

Environment since 1996. Further discussion of this PROPER program will be

presented later in this writing.

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2.5 CSR Related Standard

Several researchers shared the paradigm that globalisation has brought a sort of

“social protections” to the entirety of the international scheme of

competitiveness, priorities, and even the globalisation itself. The phenomenon

has somehow weakened both national and state controls over labour conditions

in some countries. An ISO standardization influences the individuals perception

and good reputation, which signals social responsiblity issue compliance and

enhacement in leverage to organizations network; especially since worldwide

organizations and member states participate is involved in CSR matters (Braun &

Gearhart, 2004; Webb, 2005). The aim of the CSR and GC management system;

both altogether define, comprehend and improve the balance between

entrepreneurship and ethical practices (Castka et al, 2004).

Table 2.1 CSR Standard by Castla, et al (2004)

Reference name Description

Series ISO 9000 and ISO 14000 ISO 9000 this standard is International Organization for

Standardization International quality assurance standard

series ISO 14000 is International Organization for

Standardization International environmental systems

management series.

ISO CSR management system

standard (2002)

This standard is International Organization for

standardization it‟s applicable to management of operations

and is applicable to organization of all sizes from all

sectors.

2.6 Measurement of CSR

2.6.1 Global Reporting Standard (GRI) Framework

GRI is a standardized Global reporting initiative concerning the organizational

reports on social portraits, environment, economics, and dimensions of their

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activities, products, and services (Castka, et al 2004). GRI is a network-based

organization; as a network-based organization, it aims to achieve success through

corresponding and a commonplace in financial reporting (GRI‟s Sustainability

Report, 2006). GRI website explains that the Sustainability Reporting

Framework enables all company and organizations to criterion and reports their

sustainability performance. By reporting their accountability as clearly and

transparently, organizations can increase the trust that stakeholders have in that

also strengthening their position in the global economy.

A global network of some 30,000 people, where many of them are experts on

sustainability issues; as they all contribute to the work. GRI‟s governance boards

and secretariat simply perform as a coordinative element in many activities of its

network partners. GRI framework is being exploited because it is the most

comprehensive framework among the others framework; based on a triple-

bottom-line reporting economics, environment, and social. GRI has positioned a

different approach to a guided corporate social responsibility reporting using

more than 2,500 company and organizations.

Table 2.2 Measure GRI 3 Guidelines Framework by Sustainability Reporting

Guidelines (2007)

Performance Detail information

Economics Performances

Indicator

Economics performance, market presence, indirect

economics impact.

Environmental Performance

Indicator

Materials, energy, water, biodiversity, emission,

effluents, waste, land, products & services,

compliance, transport, overall.

Social Performance Indicator Employee retention, labor / management relations,

occupational health & safety, training & education,

diversity &equal remuneration for women and

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men, investment & procurement practices, non-

discrimination, child labor, forced &compulsory

labor, security practices, indigenous right, local

communities, corruption, public policy, any

competitive behavior, compliance, customer health

and safety, product and safety labeling, marketing

communication, customer policy, compliance.

For company CSR disclosures the activity that were referred to by the words

count. Verbs used by each company to describe their activity are varies and have

more synonym. Furthermore both singular & plural versions and words with both

uppercase and lower cases were counted. The procedure has already been done in

the content analysis; as relied by frequency shown in the subject‟s importance

(Krippendorff, 2004).

GRI Framework has strengths and limitations as viewed byte EPA (Environment

Protection Agency). It shows strengths in creating a consistent information

reporting method with different facilities; allowing for comparison of various

organizations worldwide. The flexible means can be implemented profitably;

where it can reduce any redundancy among other reporting guidance rules

documents, and is also suitable for measuring performance from individual

facilities or groups of facilities which received pollution prevention assistance.

On the other hand, GRI Framework has limitations to be performed in countries

like Indonesia. First, there has been no specific emphasize on a certain important

area for each aspect of detail. Second, some of GRI Framework aspects might

not applicable in Indonesia. Thirdly in business environment in Indonesia may

not meet the scope and basis.

2.6.2 SA 8000

The Social Accountability International (SAI), is based on social accountability

international standards listed in the website. SA8000 standard is based on the

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Universal Declaration of Human Rights, establishment of standards is intended as

a universal tool that can be accessed across different product lines and the sector

as a benchmark that would be the company's social responsibility. The SA 8000

provides a standard, transparent, measurable and verifiable for the certification of

the company's performance in nine key areas: freedom of association, child

labor, forced labor, health and safety, and the right to collective bargaining,

disciplinary practices, working hours, remuneration, discrimination, and also the

managerial system.

In addition, there are some implementing SA 8000 Social Accountability has

become a mandatory requirement for social performance accountability are clear,

first, with a management system which ensures that certain companies have met

the required performance can be significantly reduced costs in managing the

different social needs, fair and safe working environment, and the second has a

continuous and regular audit of the need of holding a third party, and the

company's reputation is in a position that would be better on both ethical and

social standards.

2.7 The Criteria of Company Doing CSR

2.7.1 Company Financial Performance

Those who should carry out CSR programs are profitable company and company

which consciousness would take responsibility for their conducts of

accountability to the surrounding environment voluntarily. In real condition,

business firms in generally good financial condition are more likely to voluntary

reveal CSR information; as the potential cost and financial implications of these

disclosures is expected to be relatively less than those of firms in unhealthy

financial conditions (Cormier and Magnan 1999, as cited in Karim et al. 2006).

Those facts indicated that profitable company is disclosing more CSR

information than less profitable company.

In real condition, companies with low profit can effect resources explore to doing

CSR activities. Robin (2005) stated that this condition does not need preclude or

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business condition from good practices in society to operates. The strategic

scenario of CSR is a concept which originally introduced by Baron (2001), the

situation proves a clear relationship between the profitable companies with the

sustainability of CSR policies in their strategy of implementation.

2.7.2 Based on Types and Sizes of Industry

The number company who are doing more, or less, CSR programs depended on

the characters and nature of their business activity which may cause harm to the

natural environment; and types of industry that will be affected in their area of

the business. in which they operate and working conditions, regardless of the size

of their company. Firm‟s engagement in CSR will vary according to the industry

(Sweeneyand Coughlan, 2008; Moore, 2001; Griffin and Mahon, 1997), where

industries related on chemical ingredients will receive higher attention and

pressure, regarding the environmental and working conditions affects despite

their size. A bigger particular opportunities or connections to apply CSR mostly

are attached to family-owned firms or companies; due to their special ownership

structure (De´niz and Cabrera Sua´rez, 2005).

Wes Hanson, the president and CEO of Noront Resources Ltd., stated that CSR

programs really represent the future of mining companies. The mining industry,

more than other fields, has becoming more aware of the problems and

understands the impacts of what it has left in the past. It is suffice to say that

companies who are using and exploring a huge number of natural resources and

human resources; will have more responsibilities to uphold the CSR in their

business activity.

2.8 Internal Reasons for CSR

To implement CSR programs and policies, company must have a very clear

vision and mission in the long term of perspectives, related with the purpose for

company benefit as well. In broad outline, there are two forms of approach as to

CSR, which are the traditional and new approaches. In the traditional approach,

CSR conducted by company only viewed as a mere obligation fulfilling; whereas

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in the new approach, CSR also serves as both method and mean to achieve

business goals. As an addition, the United States governments has circulated a

certain discourses that should a company participates in social issues, not just the

company will appear good to the consumers, investors and financial analysts; but

they will also harvest good reputation from the Congress, or even from inside the

courtroom whenever it got involved in any legal suit or case (Kotler & Nancy,

2005).

2.8.1 Corporate Image

Statement by Rio D. Praaning Prawira Adiningrat (Secretary General, PA

International Foundation; an internationally renowned CSR consultant

firm) proves that many company consider CSR only as a financial burden,

and it makes them more hesitative that this condition can actually be seen

reverse, as it could be used in contributing the increasing profitability and

strengthens the company’s position with the community. Adiningrat later on

laid out the two ways to address this particular case of corporate mindset.

Firstly, those companies should try to picture being in the headlines of major

national or even international media; related with complaints against them for

exploiting the environment and the people surrounding their facilities or projects.

That could be a situation which might imply a serious loss of money, reputation

and share value. However, the circumstance can be avoided through a link

between the company‟s profitability and the social environment where it works.

This chain of thoughts lead us to one positive mindset; that if a company

conducts researches on how it can profit itself of optimal local support (human

resources), local good food, local clean water and whatever else it requires to

perform well; it may not have to spend any additional cost at all which equals to

no additional burden of expense.

After strategically conducted a targeted investing in both local and regional

society, the company can harvest the benefit of both the products and a very

positive relationship with the surrounding local and regional society. This

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achievement will eventually create a better psychological environment inside and

outside the company, both among workers and in civic society, concerning

loyalty and dedication.

2.8.2. Business Ethics

CSR in the context of capital investment must be interpreted as an instrument for

reducing unethical business practices. Therefore an opinion stating CSR is

identical with volunteer activity and inhibits the investment climate should be

denied. CSR is an array of means to minimize the negative impact of the

production process in general business practices, especially with its stakeholders.

Therefore, it is appropriate to apply CSR as an obligation that are mandatory and

must be executed by the company while it is operating which correspond to the

governments‟ dedication as an agent representing the public interest. It is only

fitting for the governments who have the authority to make arrangements or

regulate CSR; to uphold and monitor CSR implementations.

Ambadar (2008) explains some motives and expected benefits to company with

CSR. Firstly,the company could prevent from being in a negative reputation by

conducting less environmentally destructing activity. Second, company with

strong ethical frameworks can help managers and employees to manage issues of

employment demand in an environment in which company work or operate.

Thirdly, the company earns the respect of the core group of people who demand

its existence, especially in term of providing employment. Lastly, the ethical

behaviour of company around the society canbe saved from unnecessary

interference; resulting in company to continue operating normally.

2.9 External Reasons for CSR

2.9.1 CSR Rules and Regulations in Indonesia

CSR in Indonesia must be implemented as mandatory; as support by the law and

to Law of Limited Company Article 74 No. 40/2007. By the law, either industry

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or cooperative possesses the obligation to complete it. Upon this context, the

CSR has become the main menu for the corporate, despite the obligatory mean as

stated by the regulation.

The research is purposed to acknowledge the CSR application CSR appropriated

to the corporate vision and the instruction based on the Law of Limited Company

Article 74 No. 40/2007 upon limited company, and to acknowledge any risen

obstacles faced by the corporations upon the implementation. The data and

findings in the research were analyzed in qualitative approach, which is

secondary of definition, theory, and substance from literature and regulation; and

primary of observation, interview, and field study, in which they were analyzed

with the relevant theory, code, and experts‟ opinion. The research could then

conclude the various applications of corporate social responsibility campaigns

related to resolving social problems or issues.

The provisions of the legislation caused a certain fear in investment to a number

of people especially local business. The Law of Limited Company Article 74 No.

40/2007 contains four points that had increased the polemic. Pros and cons of the

law still continue even until today. Most of the members of the Indonesian

Chamber of Commerce Employers Association (Apindo) are very strongly

against the presence of the particular article. The common question that always

arises is that, why should CSR be organized and become a corporate liability?

The problems beside the CSR activity of the general obligations, company as

established in formal legislation are the order of business, and the tax on profits

and environmental standard. If the set continued but contrary to the principle of

voluntary, CSR will also give a new burden to business; especially if it does not

undermine the financial side of a company.

The opinion against CSR implementation as a mandatory task was allegedly able

to inhibit the company's investment climate, for both existing and those of

foreign prospective business to come into Indonesia. On the basis of the varied

pros and cons condition, this explanation is to provide an appointed

understanding of CSR in the perspective of legal liability. The obligation of CSR

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has also been applied to state-owned enterprises, as state-owned company have

long implemented CSR by providing assistance to the third party in the form of

physical development; as stipulated in the Decree of the Minister of SOEs and

the Minister of Finance since 1997. Therefore, it is good timing for many

company in Indonesia to take part to think about new concepts or policies related

with the environment in which the company is located.

Law and regulation on CSR were already set up, in which the company's

performance assessment must meet the standardized scheme named PROPER.

PROPER is the Corporate Performance Rating Program in Environmental

Management; which aims to encourage company adhere to environmental

regulation and achieve environmental benefits through the integration of

sustainable development principles in the process of production and services; by

the way the application of environmental management systems, energy

efficiency, resource conservation and ethical business conducts, and its

responsibility to the community through community development programs.

PROPER program was begun in 1996, and was paused for a while due to the

economics crisis in the years of 1997 to 2001. Revived in 2002 with more

complete criteria, it originally only considered aspects of water pollution control;

which then evolved into a multimedia include water pollution control, air, waste

management and implementation of EIA (Environmental Impact Assessment).

The period of 2002-2009 saw the corporate compliance aspects of environmental

management as emphasized. This effort is characterized by its assessment

criteria, based on the observance of the four aspects of multimedia mentioned

above. In the years of 2010-2014 the emphasis will be given to the two goals of

extending PROPER and encourage voluntary efforts in the company; to

internalize environmental concepts in the activity of the production process.In

the 2011-2012 monitor network will be extended to 22 provinces and 400

districts/cities.

PROPER is the monitor and incentive programs and/or disincentives to the

management of activity.The award PROPER, it is an award based program on an

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assessment of performance management of the organization and / or activity in

such as pollution prevention and / or damage to the environment; pollution

counter measures and / or damage to the environment; and pollution recovery

and / or environmental damage.

firstly to adherence color criteria used for ranking the blue, red, and black;

secondly, more aspects of the assessment criteria required (beyond compliance)

for ranking the green and gold Assessment criteria for a more complete PROPER

can be seen on the minister of environment regulation No. 5 of 2011 on

Corporate Performance Rating Program in Environmental Management. In

general PROPER performance ratings are divided into 5 colors with the details

as follows:

Table 2.3 Rating by Secretariat PROPER Environmental Ministry, 2011

Color Description

Gold To the person in charge of business and / or activity that have

consistently demonstrated the superiority of the environment

(environmental Excellency) in the production process, conducted by

business ethically to society.

Green The person in charge of business and / or activity that have made

environmental management is more than required under the regulation

(beyond compliance) through the implementation of environmental

managerial systems, the efforts of implementing social responsibility

(CSR) well, and the efficient use of resources through the efforts of the

4Rs (Reduce, Reuse, Recycle and Recovery)

Blue The person in charge of business and / or activity of environmental

management efforts do not comply with the requirements stipulated in

laws and regulation, and

Red The person in charge of business and / or activity that have made the

required environmental management actions in accordance with the

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2.10 Responsibility in CSR Area

2.10.1 Economics Responsibility

Nowadays, good relationship between CSR and economics benefit is important

conditon that should be mantained. Chamhuri & Wan Noramelia (2004) stated

that the economics theory reflected various degrees of both CSR and financial

performance association by considering market advantages, cost-related

advantages, and reputation advantages. These circumstances proved an

extremely good idea to CSR for its corporate sustainability to join in the

responsibility for what has been done to surrounding.

However, there has been another strong argument about CSR in developing

country; which is seen as most considerably formed by the socio-economics

environment where the company operation and its development priorities.

Amaeshi et al. (2006) argues that, in reality the implementation of CSR in

Nigeria in particular grew weeks to assist in overcoming the economic

challenges the country's development, including in health care, the state of

poverty alleviation, education, and infrastructure development for the

community. Amaeshi also added the opinion that the situation there is in stark

contrast to many Western CSR priorities that occur.

Schimdheiny (2006) questions the effectiveness of imported CSR strategy. Latin

America countries facing tax avoidance and poverty are not included in CSR

conception and methodology originated from many developed countries. On the

other hand, CSR approached developed locally will trigger more social and

provisions and / or legislation;

Black The person in charge of business and / or activity that intentionally

perform any act or omission which did result in contamination and / or

environmental damage.

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environmental concerns like unemployment, deforestation, incomeinequality,

and crime (De Oliveira, 2006 cited Visser 2007).

2.10.2 Legal responsibility

CSR is seems a way to meet ggovernance challenges, while in developing

countries it is perceived as a method to fill in governance gaps due to the

existence of corruption or under-resourced administration failing to give a

variety of social services. Not having good institutions and governance policies

are among the common problems. Many developing countries‟ government‟s

initiatives are involved in setting a living conditions hesitation, proponents of

CSR and the lowest social structure level. Many their strategies believe that

company can take on the role of supporters of CSR (Blowfield & Frynas, 2005),

but has an alternative to government that can be fill gaps in governance and

acceleration of liberal economics.

Matten and Crane (2005) also suggested that company could as well join the

citizenship scope where well-administered citizenship rights have not been

established by governments; as it being encouraged to step in to the areas where

once only governments acted through both privatization and welfare reform

mechanisms. In other words, multinational companies may cut their expenditure

and pull out investment from a region; if the economicss indicates that they will

be more profitable elsewhere. Ite (2004) states there are also some issues related

to the perceived complicity between companies and governments, as severely

experienced by the Shell company in Nigeria.

2.10.3 Social Responsibility

Chamhuri & WanNoramelia (2004) stated that social issues involved advantages

in terms of training served donations, health and the environment, and health

benefits to placing the importance of protecting and preserving the existing

natural resources, one of them by recycling garbage, noise reduction plan of

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action (in ballot initiative to build a new repair), water treatment and processing

limhag processes, and compliance with regulatory authorities and requirements.

Many companies already have a high understanding for memahamii their

responsibility to the environment, and have begun to set targets for continuous

improvement of their performance to achieve goals.

2.10.4 Environment Responsibility

In current condition there are many companies that have been criticized due to

unfavorable impact to the environment, associated with the waste of natural

resources and contribute less to environmental problems, such as pollution and

global warming. The use of fossil fuels is considered as a major contributor to

global warming, and there is good government and social pressure on companies

to strictly comply with and lack of awareness of existing environmental

standards, and also to voluntarily change the production process causes less harm

to the environment. Other issues related to the environment is acid rain, land

degradation, deforestation, and waste disposal systems / cycles.in the conduct of

the CSR disclosures there are high expectations of corporate responsibility rising

in areas where the company's activities over the coming year. In addition, certain

companies may also involve a review to be conducted on a regular basis of the

cognitive process of transportation, which will increase efficiency and reduce

environmental impacts, as well as liaison with suppliers to implement good

environmental practices in the supply chain, global environment, national, and

locally in a more positive and good, to promote the recycling of raw materials,

enhance and maintain the enthusiasm of staff of similar policies, and also ensure

that the involvement of employees to support the practice and reporting resulting

in an indication of the environmental aspects, and regularly reviewing progress

against targets to be addressed.

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2.10.5 Global Issue Responsibility

Recently there are more corporations who are developing their operations as

adjusted to the global environment perspective; where the business globalization

is seen as the only progressive trend. Meanwhile, there are also suggestions from

many critics on the globalization; that it somehow also opened a trend to the

exploitation in many developing countries and their working force, the

environmental destruction, and the growing of human rights violations.

Somehow there is a doubtful sense in the benefits brought by globalization to the

wealthy, which indeed also stretched the economic gap of the rich from the poor.

The open market phenomenon is seen as an opening to the increase of people‟s

living standard, where a higher rate of wages is applied and there are feasible

developments in developing countries. In this state of mind, there are more of

large corporations which becoming multinational in their operational scope; and

most likely will progress in dealing with various issues driven along with the

growing globalization in business.

It might not be simple to alter from the fact how corporations who are operating

globally may stumble upon tightening societal matters; such as the biased

standards of labor in different places of the world. There are so many other

companies which must bitterly accept the facts of how their global operations are

exploitative as ever, and even have been employing underage children in various

conditions. Despite the niche that there are those globally different social and

legal standards of implying children; these business ventures will have to

strategically draw their decisions wisely by adapting to the current preconditions

in the countries they are operating, or set an international approach which will

forcibly applied therein. The similar paradigm must also be fluently applied to

the matters of workplace safety in different places of the world.

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2.11 Theories Developed in CSR

Figure 2.1 the organization viewed as parts of a wider social system by

Financial Accounting book (Deegan, 2009)

BAPEPAM (Indonesia Capital Market Supervisory agency ) as capital market

regulatory state that its a mandatory to company have to reporting 25 items

disclosures. The disclosure of legitimacy in the social contract theory, provide

evidence that the entity in accordance with the expectations and wishes of the

people. In the perspective of the entity-based system is assumed to be influenced

by and has influenced the society operate. The figure 2.4 had shown the

objectives. Within legitimacy theory, stakeholder theory and social contact

accounting disclosures policies are considered to constitute a strategy to

influenced the organization relationship with the others parties. Organization

makes certain regulation social responsibility disclosures within the annual report

or other corporate report this is will be explain in Stakeholder and Legitimacy

Theory. Moir (2001) added that despite the diverse paradigms, there is one

specific mindset which will appoint to the companies‟ stakeholders, their

employee

Industry

bodies

consumer

goverment

supplier

Intererst

Group investor

public

media

The organization

30

existence as industrial entities, and their shared social contract which elaborate

their CSR campaigns coherently with different institutions.

2.11.1 CSR as a Response to Stakeholder Relationships

Stakeholder theory is mainly concerned with the people involved are not too far

away to a company. It depends on circumstances and whether or not the idea of a

particular relationship that exists between stakeholders and the activities of the

company's situation (and Wigrenm Blomback, 2008). Nowadays , many

company accentuate social needs using strategic communications to preserve and

stakeholder relationships in a cohesive and positive is seen as an intangible asset.

Running the CSR principles into business practices leave companies vulnerable

to negative social perceptions of stakeholders, especially when bad news occurs

in the environment. People have their own perceptions of appropriate corporate

behavior and business depends on their goodwill to maximize profits and

maintain the company's reputation (Spangler & Pompper, 2010) .In a paradigm

of CSR responsibilities, it is often that stakeholders set a requirement for MNEs

to respond to both local and global issues. Logsdon and Wood (2005) stated that

a diverse characters of stakeholders and conflicting value systems, will indeed

require complex CSR strategy responses.

2.11.2 CSR as the Result of Social Contact

Results 2000 Social Responsibility Report of the Anglo-Swedish-based

multinational pharmaceutical Astra Zeneca stated goal of social sustainability is

to provide a better standard of living for all members of society. Our social goals

can be more clearly identified by considering all registered customers as

stakeholders, shareholders, employees, and society at large as well as in both

positive and negative impacts. Moir (2001) states that a compelling reason to

follow and execute syatu peusahaan CSR activities, can be explained because the

appropriate response is expected by the public; other than the possibility that the

company also believes such action should take their social contract to society and

the environment involved. Another opinion is also the implementation of CSR

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and also regarded as a firm indication of adjustment to social norms and social

macro instruction contract (Donaldson and Dunfee, 1999, as cited in Moir, 2001)

involving the company and the surrounding communities. Strong similarity to the

social contract theory also appears in his elaboration of the concept of focusing

on others.

2.11.3 CSR as a Form of Legitimacy

Theories by Degaan (2008) legitimacy theories cannot use to define the

management behavior, good or bad in legitimacy can impact in the society, by

having good legitimacy organization can get more profit and increase

shareholder. Distinguishes between legitimacy, which is considered to be a status

pre condition and legitimating which considered being the process that leads to

an organization being legitimate. In the theory of legitimacy, is considered to be

a resource that can be used depending on an organization's survival (Dowling &

Pfeffer, 1975; O'Donovan, 2002).

CSR can also be interpreted as the company's efforts to improve, get externally,

or maintain legitimacy (Moir, 2001). The Company may take action to prove and

legitimize their business practices, although it can occur in cases where people

are given legitimacy and power companies; with the assumption that they will

eventually act responsibly in a manner beneficial to the community associated

(Moir, 2001). This situation provides a discourse to discuss both of the firms‟

legitimacy gain and maintenance. The legitimacy is becoming an issue which is

closer to our preferred perceptions of social contracts as stated by Moir (2001),

which indicates a rather difficult possibility this situation to distinguish between

different goals and reasons for going on behind each CSR activities undertaken

by the company concerned., observing at how the legitimacy will be implored

urgently from implementers to affect business, there are also relations which

relate back to the stakeholder theory. In many other cases, the boundaries of

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these theories are proven difficult to differ clearly; whilst they are also not not

directly exchangeable in nature.

2.11.4 Triple Bottom Line Reporting

This means that company is not longer faced focus in economics aspect, but also

focus in social and anvironment aspect. Robins (2005) said that the company is

experienced in dealing with social and environmental problems, in fact the

company is positioning itself on a more practical level. The 'Triple Bottom Line

(TBL) has affected a larger part of this state, where Robins (2005) emphasize a

different business approach uses a balance between environmental and social

consequences of business operations; in addition to the financial strategies that

are targeted by the company. A company is required to evaluate both of its

environmental and human aspects; which also involved certain recognition and

assessment of non-business risks which will implicate the firm. To be sustainable

a company must financially secure, meet the social expectation to keep the good

their business operating and also minimize negative impact from environment.

Figure 2.2 Sustainability Triangles

Social

(People)

Environment Economy

(Planet) (Profit)

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2. 12 CSR by Categories of Company

Blomback and Wigren (2008) stated that CSR can applied differently in various

companies depends by types; which implied how the CSR comprehension in

different environments can also result significantly. There are four identified

reasons which are frequently cited by major corporations, to differentiate what

identification they chose as good corporate citizenship. These were their chosen

strategies to boost both their corporate and brand reputation, to protect their

operating license, to attract good employees, and to pose themselves in a

competitive stand of market position. This standpoint shows that they can be

relied upon to exert a continuing influence (Robins, 2005).

Various company types also clearly influences the level of doing CSR. This

paradigm somehow intensified the attention to the subject, and required an

inclusion firms‟ types differentiation. However, the recent contributions opened a

new swift to distinguish various kinds of CSR; depending on their primary sizes.

The study was conducted to examine the responsibilities of local firms by small

firms distinguished. Although, it still seems that the big companies are not

involved or can not benefit directly from such activities. Similarly, Blomback

and Wigren (2008) states that there is little research on how small companies

perform various types of CSR activities we usually focus on a somewhat larger

company.

UU PM (Capital Invesment Law) guarantees to all investors, not only domestic

and foreign, based on the principle of transparency, equal treatment,

accountability, and did not differentiate the origin country, togetherness,

efficiency, equity, environmental friendliness, independence, unity and balance

of progress and economics nationwide. There were about 120 voluntary

companies participated in the year 2003, which covered the earliest index period

of their industrial responsibilities, which showed solid proofs of the increasing

acceptance about CSR obligations. Participation in the global current of CSR

means that these companies were allowing a tracking record method to differ

their responsible business practices; as also enabling them to gain an in-depth

34

analysis to compare the integration of practices across their operatives regarding

the four key aspects like the environment, the marketplace, the workplace, and

the community impacted.

On the other hand, Robin (2005) stated that the ever growing numbers of

participating corporations actually gives a different outlook on how unclear they

perceived the CSR obligation. The varieties of companies conducting CSR

analysis also laid out the phenomenon that there is no specific segmentation by

types to participate in, instead it has been solely based on the core context as they

are parts in the industrially growing world.

2.12.1 Multinational Company

By general definition, multinational companies are corporations which operate in

several countries with other production and/or business services in countries

other than the origin. The basic objective to this setting is to obtain maximized

profits due to a wider market basis, where this situation will preserve their

domestic identification as located in one preferred country. Siwar and Haslina

(2007) stated that recently there is an encouragement to both international and

multinational enterprises to become main players in the business world.

Different varieties of regulations, strategies and campaigns have been applied by

implementations, to contribute continuously to a sustainable development. Best

performances of CSR practices are often seen in the strategies they chose to

apply, although sometimes are not in line with both the environment and social

aspects regarded. There is a duty for every investor who comes to Indonesia;

they must obey for follow the rules and regulation in term condition in Indonesia

because this country still promising not only for investor local but also for

foreign. Natural resources are still a special attraction than fellow ASEAN

country in position of natural resources (SDA) and human resources (SDM).

These condition can be realized when be achieved with balanced benefits of

readiness improving quality of human resources, infrastructure, and also

knowledge.

35

Blomback and Wigren (2008) stated that it‟s not only the smaller enterprises who

can globally change the societal conditions; but larger multinational corporations

can as well take part in their local level. There are also concerns on the unsettled

process of globalization, where multinational companies were seen as only

pursuing maximized profit by sacrificing both employees and the environment.

Meanwhile, there were the increased phases have gone through by MNCs which

focused them better at proving their social responsibilities as enterprises. Crouch

(2008) mentioned how an extraordinary development in the matter is a genuine

result of CSR regulatory climate, as those firms took part voluntarily to alter

their industrial traits. The CSR codes of conduct are seen as guidance for

compatible behavior, with the change being lead by their organizations „superiors

(Aaronson & Reeves, 2002). Diller (1999) stated the challenges which might

block those MNCs in obtaining legitimating by the wider public. MNCs can

always rely and find guidelines to consistently pursue their environmental targets

and the recognition embedded. Shiwar and Haslina (2007) laid out that a higher

demand of CSR practices performed by MNC expected especially in the

concerned and socially responsible countries. Further and intact adaptation to

their local settings can be conducted to better adjust in other places where CSR

implementation is strictly mandatory.

MNCs have been doing more CSR because the level of consciousness and

awareness invested their business area. The obligatory adherence to observe and

obey to rules and law regulation applied. MNC has greater responsibilities than

local company because there is regulation restricting them, which are based on

International Standard, and the fact that they represent a big responsibility of

their brand company image. Those rules and regulation area also applied as

general responsibility for their global CSR campaigns, policies, and practices.

Corporations of larger sizes are somewhat getting closer to metamorphism into

either regional and/or global enterprises. Zadek and McIntosh (2002) mentioned,

that with a growing several hundred thousand of national and regional subsidiary

36

units, about almost seventy thousand multi-national companies have been

globally acknowledged.

2.12.2 Local Company

Operation in local businesses operating has larger economic outlook. Economic

activity will affect the local business environment. in fact it challenges local

companies such as access to capital, the level of consumer spending, and the

overall health of the economy, and to control the environment in which

regulations, and taxes on local businesses that directly affects the felt and

profitability and sustainability of the business is run. Indonesia has legitimate of

proper status for investment grade. The ratings are rising, Indonesia as the largest

economy in Southeast Asia became the target of foreign investors. It is not

separated from the large domestic market and mineral resources. Ministry of

Labor issued a rule against banning chief executive officer (CEO) of local

company from foreign people.

Visser and partners (2007) stated a strong argument about how CSR

implementations in developing countries are simply carved by socio-economic

environment where those companies operate to even grow priorities related.

Factually, there are several developing countries that still experience the lack of

foreign investments to cope with their high rate of unemployment and vast

number of poverty. The United Nation record (2006) monitored that one major

challenge facing CSR campaigns in developing countries; have always been

around the issues like poverty, higher life expectancy for mothers and babies,

increased health rate, balanced opportunities for female citizens, higher

education accessibility, and the healthier environment. Siwar and Haslina (2007)

noted that there were many companies in developing countries refuse to reveal a

more thorough insight on their CSR activities, as faced to the low social

awareness and the weak legal implementations. Quite the contrary to those in

developed countries, there are even very low interest to intrigue a certain

enterprise of changing into a sustainable one regulation and culture in developing

country in Indonesia has many problems in the process run in real condition.