Professional Documents
Culture Documents
Introduction
Corporate Social Responsibility (CSR) has become
an important issue over the last two decades. Lawyers, practitioners, economists, and civil society have
contributed to defining, developing, and analyzing
the content, nature and implementation of CSR.
One of the controversial issues in this context is how
to regulate CSR. Should it be a legal norm, ethical
norm, or something else? The question can be further elaborated: Should CSR be regulated through
state regulation, code of conduct, or self-regulation?
Should it be regulated in a voluntary way or an
obligation to corporations? These questions have
In contrast, Article 74 of the 2007 Limited Liability Corporation Law No. 40 only requires companies conducting their business activities in and or
related to the field of natural resources to implement
CSR, which is elucidated as the obligation of the
company which is budgeted and calculated as the
cost of the Company. In other words, a company is
obligated to allocate and spend an obligatory
funding for implementing CSR which can be
considered as a corporate cost. Sanctions can be
imposed for failure to comply with such an obligation. This differs from the 2007 Investment Law No.
25, which does not impose any sanction.
Unlike the 2007 Investment Law No. 25, the
adoption of Article 74 of the 2007 Corporate Law
No. 40 has invited strong reactions from various
actors. While civil society is primarily concerned
with the implementation of such regulation, the
business community is more concerned with their
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CSR in Indonesia
Prior to 2007 Corporate Laws No. 40
Identifying the relative influence of implicit and
explicit CSR in Indonesia would necessitate a separate study. The purpose of this article, instead, is
simply to describe the difficulties faced by both
models, on the assumption that each is, at least,
somewhat applicable in that national context.
Indonesia has mandatory and customary norms
pertaining to work safety, labor rights, limited welfare, countering corruption, environmental protection, and consumer protection. These regulations
provide boundaries regarding what corporations
should or should not do, although their implementation is often problematic. In practice, weak law
enforcement mechanisms including the unavailability of judicial mechanisms to hold corporations
responsible, prevalent corruption, and legal uncertainty due to overlapping norms on social and
environmental issues undermine this implementation. Moreover, conflict between economic interests and the protection of stakeholders in areas such
as labor rights or environmental issues is common.
Wishing to attract direct foreign investment, Indonesia, like any other developing country, often offers
preferential treatments to corporations, such as reduced taxes or less strict environmental standards.
Such behavior undeniably impacts societal standards
and the behavior of MNCs.
While the presence in Indonesia of norms to
govern corporate performance may represent the
classical model of implicit CSR as described by
Matten and Moon, it is not certain whether these
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Implications
Legitimacy question: does the mandatory nature of CSR
violate its essence?
The business community in Indonesia has argued that
to give CSR a mandatory nature would be to violate
its very essence: that CSR was originally intended to
be voluntary, relying on the will of corporations.
This argument was supported by Maria Radyati, an
economist acting as an expert at the Constitutional
Court hearings, who argued that CSR derives from
corporate governance which in turn is based on
corporate acceptance. Nevertheless, she admitted
that the way in which CSR develops in a particular
country is dependent on the special characteristics of
that country. The voluntary model for CSR is also
supported by state practices in which this approach is
preferred, according to Juwono, an international law
professor, who likewise has served an expert during
the hearings. These two experts, despite their differences, share similarity in which they admit the
possibility of imposing mandatory responsibility,
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Conclusion
Despite their operational problems in certain
national contexts, using the concepts of implicit and
explicit CSR facilitates a better understanding and
overview of CSR in general, while paving the way
for a discussion of related problems, including
determining its nature namely mandatory versus
voluntary.
Assigning CSR a mandatory nature, while having
partly resolved the problems related to diversity of
standards and providing a greater degree of certainty
than the practice of voluntary initiatives, also opens
up new problems with respect to substance and
procedure. In order to be effective, a law imposing
sanctions in the absence of CSR compliance must be
precise and unambiguous, clearly stating the aim,
beneficiaries, and duty holder, as well as how to
implement the measures in an effective, transparent,
Notes
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Faculty of Law,
Uppsala University,
Uppsala, Sweden
E-mail: prwaagstein@gmail.com
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.