Mandated Corporate Social Responsibility (CSR) in Indonesia: institututional and stakeholder perspectives

Indonesia was one of the first countries in the world to implement legislation mandating businesses to undertake Corporate Social Responsibility (CSR). This research examines how CSR legislation has been implemented in three Oil and Gas companies; Foreign Owned Company, National Owned Company and State Owned Compay, operating in Musi Banyuasin district in South Sumatera Province. The phenomenon of research cannot be separated from the decentralization process that began in 1999 where government power has been transferred to local district governments and the local community rights have been acknowledged. An interpretive approach was adopted, using a multiple case study methodology where interviews and focus group discussions were used to collect primary qualitative data. Document analysis of the relevant CSR laws was also undertaken. Analysis reveals that mandated CSR legislation requires Oil and Gas Companies to distribute a share of their wealth to local communities. Whilst the legislation appears to be ‘hard’ in mandating companies in actuality it is ‘soft’ as the institutional environment lack enforcement and the political environment allows companies to negotiate their compliance. The three companies have implemented the legislation differently, depending on these institutional environment and local stakeholder pressures. The IOC was owned by a national political figure, providing political connections to counter the power of local ‘little kings’ in the district. The IOC was thus able to establish and foster a direct link with the ‘marginalized’ groups of local stakeholders without fearing the ‘little kings’ to be a threat to their legitimacy. The FOC viewed the ‘little kings’ as having power, and interacting with them as being essential, as being foreign owned they felt vulnerable to resource nationalism claims. The FOC relied on economic influences, and so provided significant CSR funds for and adopted the development agendas of llocal 'little kings' as the basis to gain their legitimacy. The SOC, due to their state ownership structure, primarily concerned themselves with central government interests. They experienced less pressure from local stakeholders, leading them to lack initiative and direct involvement with local stakeholders and their CSR efforts. As a result the SOC company mainly focused on projects directed by the central government. Thesis concludes that the implementation of CSR legislation in Indonesia has had mixed results to date in achieving its stated goal to improve the welfare of local communities. Specifying the stakeholder groups companies should focus on and providing transparent information about company CSR are necessary to improve the outcomes from legislation. This research makes a contribution to the CSR literature by illustrating how institutional and stakeholder pressures affect CSR implementation in the context of mandated CSR legislation. This research also makes a contribution to the CSR as public policy literature by showing how implementation and enforcement are often weak in developing countries like Indonesia, where weak institutional conditions and lacking transparency frustrate the intentions of CSR legislation.