Csr in Indonesia

IMPLEMENTATION OF MANDATOY CSR IN INDONESIA

Corporate Social Responsibility is becoming popular issue in Indonesia since the last decade. The issue is driven by concern from public which represented by several NGOs, invasion of many Western businesses as impact of globalization (Rosser & Edwin, 2010) and several crucial environmental issues emerge from corporations activities in Indonesia e.g: Lapindo Mud in 2006 (PPLH Bali), PT Freeport case. There are many views regarding the meaning of Corporate Social Responsibility as each corporation apply it according to their specific circumstances in order to show company’s responsibility toward their activities (Marrewijk, 2003, Matten & Moon, 2008). Mandatory CSR involve a set of regulations that companies’ are expected and required to follow. In 2007, Indonesia is become the first country that apply mandatory CSR by the imposition of 2007 Corporation Law No.40 by government. Many concerns emerge from corporations and public since the implementation of this regulation. This essay will discuss regarding problems of mandatory CSR implementation in Indonesia. This essay will view existing arguments about mandatory CSR and recommendations to reduce problems during its implementation.

The imposition of Article 74 2007 Limited Liability Corporation Law No. 40 require corporations which is particularly working in natural resource area to implement CSR. This regulation also requires companies to reserve special fund allocated for CSR activities. Many skeptical arguments from businesses arise since its implementation as it perceived as a new problem for business. Lack of legal certainties, clarifications and monitoring mechanism from existing regulations may attract ethical misconduct from corporations (Uriarte, 2008). Lingga & Kiroyan, 2007 also suggest that mandatory CSR may trigger capital flight from foreign investor, as it is perceived as burden to reserve some fund at company’s cost. This reserved fund may...