Corporate Social Responsibility in Indonesia: Quixotic Dream or Confident Expectation?

During the past decade there has emerged, in North America and Western Europe in particular, a fairly powerful movement to improve the social and environmental performance of large corporations and their affiliates and suppliers in developing countries. By examining the case of Indonesia, this paper looks at how effective this approach has been. Two central questions are addressed. First, do corporate social responsibility (CSR) and accompanying voluntary initiatives have the capacity to really change how TNCs behave in their day-to-day behaviour?

Second, at this stage of its development, and in the context of crisis, is corporate social responsibility relevant to Indonesia?
The discussion proceeds in four main sections. The first refers to historic and cultural factors, which inhibit significant changes in corporate social and environmental performance. The second section examines codes of conduct and how they are viewed in Indonesia. The third section refers to the environmental impact of large business, with particular reference to the mining and palm oil industries. The conclusion sums up the main points of the paper and reflects on the relevance of corporate social and responsibility for Indonesia.

The discussion on codes of conduct presents both civil society and TNC perspectives on the implementation, achievements and limitations of such initiatives. According to the author’s assessment, codes are fundamentally flawed for several reasons: they may serve to place corporations outside of the national regulatory system and bypass the tripartite negotiation system that was one of the major labour reforms of recent years; the process and outcomes of monitoring are usually confidential; monitors usually only see one or two plants chosen by the client; monitoring is often done by accounting firms that have insufficient technical knowledge to deal with the often complex health and safety problems in production plants; sanctions for non-compliance are weak or non-existent; codes are usually designed in the head office, and rarely in consultation with trade unions or others; codes with lower technical specificity are often found in enterprises that are female dominated; codes only apply to a small proportion of a nation’s workers; and corporations often insist that affiliates and sub-contractors improve conditions but provide limited if any resources to support such change.

Some tentative steps have been taken by both the government and some TNCs to improve their environmental performance, but such initiatives tend to be restricted to a few companies. Some government-led voluntary initiatives related to pollution control have attempted to motivate change by naming, praising and shaming corporations. Some successes have been achieved, but consumer activism remains relatively weak, government and company resources for environmental initiatives have been stretched by economic crisis, and only a minority of participating firms have taken significant measures to improve their environmental management systems. Company participation in international certification schemes like ISO14000 remains very limited. Those corporations that appear to have adopted the language of corporate responsibility are generally those, such as mining companies, that have been put in the spotlight by international civil society activism.

When viewed in the context of culture, economic and political development, and turmoil in Indonesia, the author concludes that CSR remains an ideal. The current transformation is bringing instability, fear and violence. In such a context, it is hard to consider something as abstract as CSR. It is timely, however, to begin to put into place the institutions, educational foundations and management training which are needed for business and political reform, and from which CSR may be a spin-off. Any broader application of CSR needs to stem from an indigenous belief in the necessity of such an institution and not represent a mere shrug to another Western fashion. There is clearly a tension between those in the developing countries who see this as yet another imposition of Western values, no matter how attractive, and those in the developed nations who, put cynically perhaps, wish to consume with a conscience.

At this point in Indonesian history, CSR itself can only remain an image projected onto a screen—an outline with little depth. While concepts such as governance and CSR are fashionable, generating a new language and teams of experts, Indonesia’s difficulties are perhaps more basic and to do with simple national survival. Management is a new and emerging skill in Indonesia. The type of process-oriented cultural change within an organization, which CSR requires, infers high levels of skill and an active consultative process between equals—which are not in keeping with the patriarchal top-down leadership that characterizes Indonesian business and management structures in both TNCs and domestically owned firms.

While it is fair to say that CSR makes a positive contribution to the human rights of those working in TNCs, it is also fair to say that it only makes a difference to those few corporations targeted by consumers or who are already thinking ethically and responsibly. Other industries are not so well inclined. Such anomalies, and the somewhat piecemeal approach of the CSR movement, should alert global citizens to the need for a more systematic approach.

That being said, the after-shock of the Indonesian economic crisis has required a re-evaluation of both economic and investment policy, and the way business is run in Indonesia. The previous short-term thinking may have to make way for the type of longer-term pragmatic and visionary thinking required by genuine CSR and supported by Islamic business principles. A lot will depend on how deep the reform process goes. There is a danger, however, that CSR and voluntary initiatives may be a diversion from the real issues of law reform and multilevel political and social development. While CSR may benefit a small minority of Indonesia’s workers and those whose lives intersect with TNCs, the development of and adherence to a fair system of law and institutional reform would benefit all. Without such changes, CSR is likely to remain cosmetic.

Indonesia’s recent history is littered with examples of agencies advocating the latest international trend and congratulating Indonesia for illusory change. It is pertinent to ask whether CSR has anything more to offer Indonesia at this time than what could be offered by overall structural reform. While some would argue that CSR paves the way for political development, the author contends that any effective implementation of CSR requires the machinery of an effective democratic government and civil society. The reverse would have corporations leading the process rather than the other way around.