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Corporate Social Responsibility: A Form of Good Corporate Governance Implementation and Sustainable Development

Nowadays, the challenges and competition faced by corporations are getting heavier. Corporate Social Responsibility (CSR) is one of corporate strategy phenomenon that accommodate the needs and interests of its stakeholders. CSR have a relation with Good Corporate Governance (GCG) enforcement. CSR and GCG implementation will give positive impacts on the business environment and enhance the confidence of stakeholders, especially investors of the company. CSR arises since the company has awareness about its existence and the long-term sustainability is more important than company profitability. This paper will explain the readers about corporate social responsibility as a form of good corporate governance implementation and sustainable development and share the benefit of its implementation. The readers are expected to know about the relation between them.

Corporate Social Responsibility (CSR) Corporations around the world are struggling with a new role, which is to meet the needs of the present generation without compromising the ability of the next generations to meet their own needs. The company has a social responsibility to operate the role with an ethical, responsible for the society impacts and their natural environment. This approach became known as corporate social responsibility (CSR) or corporate citizenship . Corporate Social Responsibility (CSR) is a business operation that is committed not only to increase the company's financial profit, but also to build socio-economic region holistically and sustainable. From these definitions, we can see that one of the aspects in the implementation of CSR is the continuing commitment of local community welfare surrounding them and society at large by acting responsibly and contributing positively to the communities company operates in. This involves working closely with employees, their families and the local community. The International Organization for Standardization (ISO) team as the parent of international standards organizations invite parties to bear guidelines and standards for social

responsibility. The need for ISO to work on an SR standard was first identified in 2001 by ISO/COPOLCO, committee on consumer policy. In 2004, ISO held an international, multistakeholder conference on whether or not it should launch SR work. The positive recommendation of this conference led to the establishment in late 2004 of the ISO Working Group on Social Responsibility to develop the future ISO 26000. ISO 26000 is a standard providing voluntary guidance on social responsibility. ISO 26000 is only guidance, not a requirement to be fulfilled because it is not designed as a standard management system and standard for certification. In Indonesia, the application of corporate social responsibility (CSR) has regulated in UU No. 40 2007 about company liability on article 74 which mentions the social responsibility to be borne by any corporations. CSR is one of the government's efforts to balance the economic growth and equitability. But today, many companies are more aware and realize that CSR implementation is not just an obligations as defined in the act but also can be used for sustaining their business and get long-term beneficial as a means to be able to win the competition in the industry through formation of perceptions in the consumers mind as a good company, caring on the environment and society. CSR can be implemented based on some levels. There are four levels which should be run by the company business such as: economic, legal, ethical, and philanthropic [2]. a) Level I: Economic Companies must realize the social responsibility by producing goods and services to societal members that can generate profits.

b) Level II: Law The society expects that the company operates its business according to the applicable law and legal framework which are promulgated by federal, state, and local governments c) Level III: Ethics Corporate responsibility not only simply complying with legal regulations, but also meet the applicative or customs norms and culture. d) Level IV: Philanthropy Corporate giving is a freely determined by the corporate, despite of requests fromcommunity stakeholders about this are increased.

In conducting its business operations, companies should prioritize economic responsibility (level I). The company must operate efficiently and maintain its sustainability for a long term so that it can give the community more benefit. The company also had to run its business activities within the framework of applicable law (level II) and ethically (level III). Then, philanthropy (level IV) is the last priority for the company. When a company's CSR activities include charity activity (philanthropy), this concept should be more focused on relationships with stakeholders to achieve the statutory objectives (level II) and ethics (level III). Based on this accountability, company could avoid a lawsuit society, strengthen the reputation and increase stakeholder confidence. Many factors and influences have led to increasing attention being devoted to the role of companies and CSR. The ability of global companies should undertake activities that were previously carried out by the local government, pressure from social activists, increasing the dynamic environmental changes and increased penalties on capital markets that provide penalties for companies that did not operate the business according to ethical standards. This increase is encouraging CSR become important in a company. Essentially, Corporate Social Responsibility has been widely adopted by companies voluntary. CSR is implemented based on the company awareness for its business continuity, so that CSR should be part of corporate strategy. There are at least three important reasons why the business community to respond and develop corporate social responsibility in line with its business: a. The company is a part of society therefore the companies should consider the interests of society b. Public relations and business circles should be a symbiotic mutualism relationship. They should give benefit to each other c. Social responsibility activities is one way to reduce or even social conflict

Good Corporate Governance (GCG) and its correlation between CSR GCG is a system that regulates and controls the company in order to create value added to all stakeholders. Stakeholders is individual or group among community, national, global that influence and influenced to the corporate activity as a society because they have a legitimacy, power and their own interests. There are five guiding principles for the corporate governance of the business, namely Transparency, Accountability, Responsibility, Independency, and Fairness which are explained as follows:

Transparency: openness of information on matters material and relevant information relating to the Company for the benefit of stakeholders. Accountability: refers to the separation of roles and responsibilities between the Board of Commissioners and Directors. Responsibility: as shown by the risk management application that provides an early warning system in conducting business activities and responsibilities towards social issues, environment and development.

Independence: done to ensure that the Company is professionally managed without a conflict of interest and free from influence or pressure from other party who does not comply with prevailing regulations and unfair business practices.

Fairness: refers to the consistency in paying attention to fairness and equality to meet stakeholders rights arising under the agreement and prevailing regulations. GCG is closely related to the responsibility principle. The company is not only

concerned with the continuity of the company in the interests of shareholders but also with the application of the principles of good corporate governance responsibility, companies must also consider the interests of stakeholders. CSR policies give benefit not only for the company, but also for the community and the environment. We can divide corporate responsibilities into two categories, internal and external. Internally corporate responsibilities involve transparency, accountability, etc. (GCG concept) whereas externally corporate responsibilities concern in the place where the company is located within thinking the stakeholders. CSR FOR COMPANY SUSTAINABLE DEVELOPMENT CSR implementation is increasingly important with the emergence of the concept of sustainable development which defined by the World Commission on Environment and Development (WCED). WCED reports that sustainable development is a development that meets the needs of the present without compromising the ability of future generations to meet their own needs [3]. Implementation of CSR is intended to strengthen the company by building cooperation between stakeholders which is facilitated by the concerned company with arranging society development programs in order to adapt with the environment, communities and stakeholders associated with the company locally, nationally and globally. Sustainable development has become a global issue that must be understood and implemented. If we examine more deeply, CSR can be considered as future savings for the company to get profit. The profits which are earned by the company not only in financial but

they will also get the trust of local communities and other stakeholders. Actually this trust is a capital base so that the company can continue to perform its activities. Sustainable development is also not only limited to the environmental issues but also there constituent parts, namely economic sustainability development, social responsibility development and environmental protection. In the CSR application, companies are no longer faced with the responsibility rests on the single bottom line, i.e. the value of the company (corporate value) which is reflected in its financial condition but the company's responsibility should be also based on the triple bottom line (profit, people, planet) covering the financial, social, and environmental [1]. Refers to the all kinds of corporate activities which related with CSR implementation, there will be possible impacts on the environment, social, and economic aspects (positive or negative). To identify, predict, evaluate, and mitigate the possible impacts, we can use EIA method to help manager to take decision and make commitment whether or not to proceed with the activities. EIA (Environmental Impact Assessment) is an assessment of the possible impacts that a proposed project may have on the environment. Using EIA is definite possibility to develop environmental management plan and this plan ensures about monitoring impact and planning alleviation. At any stage of project with help of environment assessment plan we can produce environment cost benefit analysis to ensure reduce cost of a particular projects. We can define some parameters which involved in EIA, such as physic-chemical (land, water, atmosphere, etc.), biology (habitats and community), and social science (social life, cultural, population, etc.). In Indonesia, EIA is known by AmDAL (Analisis mengenai Dampak Lingkungan).

Diagram 1. EAI Indicators


CSR Benefit From the explanation before, we know that there are advantages derived from the corporate social responsibility implementation, i.e. for company itself, for the community, the state or government and the environment, describes as follows: 1. For the company a. Assuring the company existence. Company can grow up, sustain and get positive image from the community b. Company may gain the capital easier because they have already had positive image and good access in capital market c. Good risk management. Risk management is one of the most important things of corporate strategy. Reputation painstakingly established over the years can be destroyed in an instant through incidents such as corruption scandals or allegations of environmental destruction. Establish a working culture "do things right", be it related to the aspect of corporate governance, social, and environmental - all of which are components of CSR - the firm can reduce the risk of these negative things 2. Community a. Good CSR implementation will increase the company's value-added in an area because it will create new laborer, improve social quality and prosperity in that area. b. Local workers will get protection of their rights as workers. If there are indigenous people or local community, the CSR implementation will appreciate the presence of the local traditions and culture 3. Government Prevent corporate misconduct such as bribery in the state or law apparatus that triggers high levels of corruption. In addition, the state would enjoy a reasonable income tax (which is not obscured) by the company.

4. Environment Indirectly, CSR implementation can prevent over-exploitation of natural resources and keep environmental quality because the company takes more attention to the environment

CSR Applicative Examples As a world-class enterprise, Telkom recognizes its social responsibility to communities and the preservation of environment, in addition to the direct benefits generated by its business activities, as essential to ensure its sustainability into the future. Overall, Telkoms social responsibility and environmental activities covered programs in environment preservation, employment, health and safety, social and community development including partnerships and economic empowerment, development of infrastructures and facilities for the community, natural disaster assistance and programs to help the community, as well as programs related to responsibility to consumers. a. Environment Preservation Telkom run a variety of programs related to environment preservation summarized in Telkoms Go Green Action, which is a program that covers; carbon emissions mitigation, energy efficiency, use of renewable energy, paperless office concept, waste management, water treatment and recycling, and an effort to plant one billion trees. b. Employment, Health and Work Safety Competence Development: strengthened human resource competencies through education and training in competence conversion as well as competence development, both directly or indirectly related to Telkom business strategies and operations. Health Care: Telkom provides health care and health insurance for employees and retirees and their direct family members Work Safety: Training on work safety which carried out Simulation of Earthquake and Tsunami Emergency Response, etc. c. Social and Community Development A variety of activities carried out in Telkoms partnership program are aimed at encouraging economic growth and development in communities. The objective of this program is the community's economic activities, either directly or indirectly related to Telkoms main business such as: Indigopreneur training, empowering teachers by giving train which focused on character development and strengthening content of interactive material IT used for teaching purpose, etc.


In the reporting process, there are some reporting standards to show the sustainable performance of the company which is implementing social corporate responsibility. One of them is known as Global Reporting Initiative (GRI). GRI set the basic principles that should

be contained in the sustainability report, such as: balanced, comparable, accurate, on time, clear and reliable. Sustainable development can be achieved if the companies manage the impact of their operations on the 3rd level of impact, as follows: a. Economic Economic impacts caused by the operation of the company which will affect the stakeholders and economic systems at local, national or global levels. GRI classify 2 types of economic impact, direct and indirect impacts. GRI defines the direct economic impact as a change in the productive potential of the economy that may affect the welfare of the community or the stakeholders and long-term development prospects. Indirect economic impacts are additional consequences that arise because of directly financial transactions and cash flow influence between the organization and its stakeholders. b. Social GRI divide social impact into four different indicators, such as labor practices and decent work, human rights, society and product responsibility. c. Environmental. GRI describes the company's operations impacts on 3 different impact structures, the impact caused by using production inputs, production output, and biodiversity aspects which also has a very close relationship with the inputs because all input was derived from natural resources. Sustainability report is important to be carried out by the company that runs the CSR. By using this report, we can view and evaluate the economic, social and environment performance and it is also a form that company complies with regulations as well as a form of corporate accountability to stakeholders. Furthermore, the people who will impose sanctions or rewards to the company based on their result.

Corporate Social Responsibility (CSR) program is the company's commitment to support the creation of sustainable development. This is a form of the concept of good corporate governance implementation. This concept includes a variety of activities and the goal is to develop communities that are productive and engaging the community within and outside the company, either directly or indirectly. Although the company only gives a small contribution to the social community, this program is expected to develop and increase their

prosperity. This program is not only give advantages for the community, but also for others, such as government, the company itself, environment etc. The important thing that we should notice before implementing CSR is assessing the environmental impacts (EAI) which consist of some aspects (economic, social, and environment) in order to mitigate risk and reduce the negative impact from industrial CSR activities that probably happen. There is also a sustainability report called Global Reporting Index (GRI) which is use for reviewing, analyzing and evaluating the economic, social and environment performance. Sustainability report is important to be carried out by the company that runs the CSR. This report is designed to be used by various organizations in different size, sector, and location.

[1] Berkovics, Dalma. Cannibal with Forks: The Triple Bottom Line of 21 st Century Business. Capstone Publishing, Oxford. 1999. [2] Carroll, Archie B. The Pyramid of Corporate Social Responsibility: Toward the Moral Management of Organizational Stakeholders . Business Horizons. 2001. [3] Rudito, Bambang. Business Ethic and Laws Course Material. 2013.