The Institutional and Cultural Challenges of Corporate Social Responsibility: Case Study in Indonesia

Abstract

Performing CSR programs in developing countries has distinctive challenges form their practices in developed countries. The majority of companies face the higher expectation of public to the positive social change of their CSR program, particularly in form of community development. Many companies, both multinational as well as local companies, have tried challenge themselves to make the social innovation through their CSR initiatives. However this is not easy. The companies are always in dilemma of how to achieve better company performance with confronting to the institutional aspects as well as challenged by the culture of the local communities where the CSRs are conducted. This chapter tries to elaborate the institutional and cultural challenges of CSR implementation in Indonesia.

1. Introduction

Corporate Social Responsibility (CSR) has become a debate and interesting discussion among governments, academics, and businesses [1, 2, 3]. The discussions have begun to drive how CSR does not only an ethically normative pressure to business [4, 5, 6] but it being to be a new direction and shifting in business management in this modern era [7, 8]. Businesses are request to do not only focus on persuing profit, but also generate positive impact to the wider society and environment [9].

Scholars had employed different methods to reveal the CSR phenomenon. For example, from the perspective of stakeholder theory, CSR is seen as the business response ‘s compliance to the expectations of its stakeholders [10, 11], while CSR is viewed in the context of the global sustainable development movement as a commitment of the corporation to participate in sustainable development initiatives [12, 13], meanwhile Bansal [14] submitted that the concepts of duty and sustainability are of different concern and may generate ambiguities in business practices. This statement does, however, give us insight that corporate activities do not escape external pressure. Corporations need to tackle the stresses of their day-to-day activities as their response and perception conformity. Furthermore, Rathert [15] also mentioned that CSR is a measurement tool on how they get legitimation from the local people as well to expose their roles and contribution of global interests.

Studies of CSR practices in developing countries had shown the different characteristic practices from developed countries of their counterparts [16]. Visser [17] even argued that CSR’s Carrol pyramid has not worked in developing countries. He demonstrates a trend that CSR is related to philanthropic rather than legal and ethical obligation in developing countries. CSR is viewed as community projects of companies in developing countries. The public in these countries expect Corporations to take an active role in solving certain social issues [18]. Though their contribution to public standards is seen from the corporate viewpoint as a way to legitimize the localstakeholder [19].

Accordingly, this study underlines the drivers of CSR in developing countries from the institutional and cultural aspect perspective. CSR studies from an institutional or cultural perspective may be very popular in the literature but there is no study yet to be discussed in one of the discussions on understanding the CSR phenomenon, particularly in developing countries. By using the two approaches in one discussion, it is expected to increase our understanding of the CSR drivers of corporations in developing countries, particularly in Indonesia.

2. Theoretical foundation and model of the study

2.1 Institutional logic of corporate Social Responsibility practices in developing countries

Institutional theory is one of the common theories to understand the organization’s behavior [3, 20] including why a corporation participates in social activities [2, 21]. Institution refers to formal and informal laws within a neoclassical system. This is also associated as tools for monitoring and sanctioning. The company must use the rules and limitations arising from monitoring and sanction mechanism as a justification for its rational and logic reasons to carry out their activities. These reasons are affected by the institutional context in which they operate. This context could include public opinion, social norms and values, rules, regulations and the political interests of local governments, as well as introduced knowledge from the education system [22].

Scott [23] identifies three institutional factors: regulation, cognitive, and norm. Different dominant power of that institutional factor will create different isomorphism models. The regulatory factor reflects the element such as laws, rules, sanctions and government regulations in which an organization operates. The high pressure of this element creates coercive isomorphism. The cognitive factor explains the influence of knowledge in a community and how people behave and interpret particular phenomena. Pressure from cognitive elements in host countries will create mimetic isomorphism. Finally, the normative factor reflects the values, beliefs, norms and assumptions that guide individual behavior in a country.

CSR studies with institutional context are more predominant with the mainstream logic of CSR practices in Western developed economies, in which CSR tied to particular efficient National Business Systems configurations [24, 25]. These practices are not similar to a phenomenon in developing countries. Some studies in these countries revealed the unsynchronized character of social responsibility with the practices developed in those countries. In Indonesia, for example, Famiola and Adiwoso [19] stated that Indonesia’s CSR tends to be compulsory with various government-designed regulations to push businesses with their social responsibility. Nevertheless, the model of isomorphic mimicry is more prevalent in explaining companies’ CSR behavior in this country.

Furthermore, the CSR practices in developing countries with the socialism background, also show similar pattern, the cognitive factors more powerful to direct the character of CSR within these countries. For example, in Russia, this country’s choice of CSR is more affected by the cultural system in those countries. The public placed their high expectations of the role of businesses as their caretaker and worked on issues such as healthcare provision, education and housing [26]. Similarly, CSR researches in China found similar issues that CSR in this country is a long history as a reflection of local culture to develop harmony within society [16, 27].

The question is what the institutional challenge of CSR logic is in developing countries, particularly Indonesia.

2.2 Culture context and corporate social responsibility

Past studies indicate that in developed countries culture plays a significant role in CSR activities [24, 28, 29]. There are various issues illustrated when it comes to understanding the CSR and culture phenomena. Nonetheless, of literature as a whole, we find two mainstreams of studies that describe the relation between culture and CSR more dominantly.

First, the relationship between CSR activities and religious beliefs [28, 30, 31]. Studies on this subject consistently find the positive impact on CSR practices of religious values [30]. While the CSR definition of different religions does have different characteristics [28, 31]. The crucial issues of these studies showed religious beliefs play a major role in the ethical analysis of business decision-making and social responsibility expressed by the CSR activities of the company. For example, Zolotoy [30] found that using religious principles as corporate decision-making guides would minimize unethical risk managers Furthemore Su [32] states that more positive attitude and environmentally friendly behavior is shown by a manager with a religious denomination. In many cases, when a religious manager uses the religious values and principles as the guideline for the business decision-making, it will reflect the social responsibility of the company [33].

Second, studies focused on the link between CSR and the National Cultural Model of the Hofstede [34, 35, 36, 37]. Studies on this topic focused particular attention in four natural Hofstede cultures [38] and how their impact on CSR motivation: power distance, individualism, masculinity and avoidance uncertainty.

Power distance refers to the extent of society that is willing to accept inequality and power distribution. Culture of individualism explains the degree of an individual’s interdependence within a society, and how they maintain their relationship. Masculine culture defines a community’s propensity to accept the degree of competition which drives its concept of success and achievement. While the culture of avoidance of uncertainty refers to the extent to which people within the community deal with the fact that the future is unpredictable.

The studies in this topic show dynamic findings. A research by Peng [34] found that the atmosphere of high individualism and ambiguity avoidance has a positive association with the motivation for CSR. Power distance and masculinity show the negative influence. Whereas Thanetsunthorn [36] studies revealed that companies operating in countries with individualistic and masculine societies appeared to have low interest in conducting CSR. Thus, businesses that work in uncertain avoidance will participate more in CSR with environmental concerns. In his next study contrasting culture in Eastern Asia and Europe, Thanetsunthorn [39] found that CSR activities would take low interest in companies operating in high-power distance, individualism and masculinity countries. By comparison, businesses operating in countries with lower rates of ambiguity tend to have a high degree of participation in CSR activities with the society and climate.

Accordingly, the next research question of this study is how the national culture in Indonesian context could explain the CSR practices within this country?

2.3 The translation institutional and cultural logic to CSR: a research model

Institutional theory does not only highlight the written factors that affecting the choice of individual or organizational behavior in the form of regulations and the strength of government policies in regulating organizations which is operating in their area. Social factors such as culture, traditions and norms that present in a society are also understood having an important role in creating organizational behavior.

Drawing to a national culture model developed by Hofstede [38], we argue that the cognitive dimension of institutional theory can be explored in more detail with the components of Hofstede’s national culture. We focus on selecting four cultural components that have been examined in previous studies discussing the correlation of CSR and national culture: 1) power distance; 2) collective (low individual); 3) Masculinity and 4) Avoidable uncertainty.

According to the Hofstede cultural analysis, Indonesian national culture is presented in below Figure 1.

Figure 1.

Indonesia National Culture scoring. Source: https://www.hofstede-insights.com/country/indonesia/.

Name of company	Position of informants	CSR Program
Multinational 1	Corporate Shared Value Manager	Enhancing skill capacity of farmers that is integrated in their supply chain
Multinational 2	CSR Manager	Empower Farmers
Multinational 3	Sustainable Development Manager	Clean water access to a community in remote areas
Multinational 4	Head Corporate Affair	Sustainable Agriculture and nutrition improment for children in rural areas
Local private 1	CSR Manager	Empowerment of cow farmer
Local private 2	CSR Manager	Empowerment program for Small Farmers and women’s empowerment
Local private 3	Chief Marketing Officers	Inspiring and support young people to take park of change to their community
State Owned 1	CSR Manager	Women empowerment
State Owned 2	Senior Manager of Community Development	Empowering SMEs

Table 1.

List of informants.

Indonesia has a high-power distance score, which means Indonesians are hierarchically dependent, leadership is a directive and expect high management controls. This power distance component of Indonesia’s national culture might correlate with the regulatory dimension. We will examine this two-aspect relationship and explore whether the high-power distance as Indonesia’s national culture is reflected in the government’s efforts to regulate CSR, and what is the challenge in the implementation?

Figure 1 also reveals that Indonesia has a low individualism score, which means Indonesia is a society of collectivism. Indonesians also have the character to consider the quality of life more as caring for others than as competitive (low score for masculinity/feminine). In addition, Indonesia also gets a low score for avoidance uncertainty, which means most Indonesians tend to avoid conflict in order to maintain harmony within their society. These facts will be examined to what extent CSR decision making in Indonesian companies is affected by them.

Referring also to the results of previous studies, CSR also has a strong relationship in developing countries, such as the implementation of traditional cultures, such as the influence of the application of religious and other beliefs, such as the influence of Islamic cultural values on CSR in Turkey [40] Confucian in China [16] and Buddhism in Thailand [41] or Christianity in Brazil [42].

Every citizen in Indonesia has to have one of the foundations of believing in God and mention their religious denomination of Indonesia’s five recognized religions: Islam, Christianity, Hinduism, Buddhism, Confucian. Then that difference of belief is united in the context of a national ideology named Pancasila. As previous findings, we assume that these two-dimensional dynamics will heavily color the normative dimension of the institutions in Indonesia: the values of religion and Pancasila.

In this study, therefore, our argument and exploration will capture all the issues and we are working with the research model below (Figure 2).

Figure 2.

Research model of institutional and culture challenges of CSR.

3. Methodology

3.1 Data collection

Qualitative approach is employed in this research. With this approach, we have more opportunities to explore the subject-object relationships in depth without interfering with reality construction [43].

Three approaches are used in this study. The first we do is literature review of CSR practice in Indonesia. The purpose of desk research is also to select the correct companies to be approached as the key data resources for the analysis. We observe media coverage and other research papers to pick the companies that are suitable for finding our objects for the theoretical sampling. We list the companies in three categories: 1) subsidiaries of a multinational corporation; 2) large national companies (Indonesian companies) 3) state-owned companies. We have also tested their CSR achievements by considering the corporate success in social and environmental activities relevant to the Indonesian government’s assessment (read PROPER).

We also recognize their international reputation for multinational corporations, such as their role in Dow Jones sustainable indexes. Nine of these were chosen as our primary target companies. It consists of four multinational companies, three local private companies and two state-owned companies as presented in Table 1 below.

Second, we conducted in-depth interviews and spoke to key staff appointed to oversee CSR in selected firms. Appointment for the meeting was about 1 hour. We ask our interviewee about their CSR initiatives as well as question them in developing CSR programs, particularly for a program that aims to give the targeted community a high and sustainable impact.

As a model defined in Figure 2, we explored their experiences regarding the challenges they faced with CSR regulation and cultural factors in Indonesia. What is the implication of Hofstede model of Indonesia national culture to the institutional logic of CSR practices in Indonesia?

The cultural elements we will concentrate on are four topics that stand out as characteristics of Indonesia’s Hofstede-based national culture: high power distance, collectivism (low individualism), and religion values.

3.2 Data analysis

All collected data both literature analysis and interview’s results were combine together to get our comprehensive understanding of CSR practices in Indonesia.

First, the outcomes of all the interviews were translated into transcripts. Such transcripts have been read several times while we consider the thematic problems that our informants have highlighted. In this way we could have a thorough explanation of the phenomena and the building of ideas that formed the basis of the research. We noted particular contexts and identified certain themes and trends in the data. We then created initial codes and categorized the data [44].

To guarantee the reliability of the analysis, we used NVivo to code the data and build the database. We compared our initial codes to tests from NVivo. We ensure there were no major variations between our initial review and the findings of the NVivo code. To support our points, during the interviews we quote several significant claims made by the participants.

4. Findings and discussion

In Indonesia, CSR is mandatory by definition, in view of the Indonesian constitution. Indonesian constitution states that “ national economic and social welfare must be regulated by the government to the biggest society’s wealth.” There is some legislation created to support these claims, such as Indonesian Corporate Law No. 40 and Indonesian Investment Law No. 25 of 2007. This legislation applied to CSR as mandatory in nature. Nevertheless, every company has a duty under Article 15 of Investment Law No. 25 of 2007 to carry out corporate social and environmental responsibility [45].

CSR policy in Indonesia is stringent enough from the standpoint of power distance practices. In doing their social responsibility, the government makes regulations for the business. Nevertheless, the implementing regulations are challenging. We had found some facts. First, Law overlapping. First, Overlapping in law. Even the government had regulations that could push companies to run their social responsibility, due to the overlapping of the policy some companies found some dilemma. Some statements underlined these problems below.

“I think we produce so many regulations and sometimes one regulation is overlapped with the other and non-synchronized with the other” (State-owned 1).

“We find that the overlapping regulations are due to the Indonesian regional autonomy law. Different perceptions and concerns between the local and central governments” (Local company 2).

Second, the high cost of bureaucracy due to corruption needs to be given serious attention, some experiences of our respondent are highlighted in below quotes:

“We generally have to follow so many stages of bureaucracy to get permission for our programme. Sometimes, when our CSR tried to collaborate with the local agendas community association in charge until we got the permission, we have to contact too many people from low level of government to regional government. Otherwise, we could pay someone internally to get access” (State-Owned 1).

“Even all government offices stated that they always say no to briberies and in war with corruption. But we often find the condition when the permission need several days to be processed. As you now, our CSR based on the company’s budget year, we need a quick response and progress. The government officer may not specifically or directly indicate that they request for money, but without the fund, there is possibility that they could delay our programme for quite some time and long and this is ineffective for us” (Multinational company 4).

“Frankly speaking, we dislike dealing with bureaucracy, we are going to choose a program that may not be in touch with some boundary of administration. That’s why our choices help microenterprise renew their booth carts, or make soccer school for unfortunate kids. Because such programs do not need authorisations from them” (Multinational 1).

This situation often leads to a dilemma among companies: whether the company should consistent with its code of conduct and commit to anti-corruption practices or succumb to bribery as global commitment. Corruption has become a chronic problem in Indonesia nowadays. The model of ‘petty corruption’ or small scale of corruption [46, 47] as indicated above is a common practice among low-level government officer.

Third, the weak low enforcement; Our respondents also highlighted the law’s inconsistency and its strengthening. Some regulation is also created and usually not followed by punishment and sanction for those who have failed to implement the regulation.

“Another problem is inconsistency in term of sanctions and law enforcement. Many regulations made by government do not provide the consequences should the implementation failed. So, it is seen as just an advice or suggestion. I Think the government is in dilemmatic on whether CSR should be mandatory or just a volunteerism (Multinational company 4).

Problems explained above show weak overlapping legislation, high rates of corruption, as well as law enforcement as the country’s main problem. Some earlier studies related to CSR practices and debate among academic and business practitioners in Indonesia had also identified these problems. Due to some conflict between economic interests the difficulty of reducing these practices is quite difficult. Moreover, due to the intention to attract foreign investment, the Indonesian government often gives special treatment to corporations, such as tax-reducing and less stringent environmental standards [19].

Power distance in Indonesia therefore does not become relevant for encouraging CSR practices. This finding is in line with the previous study that high-power distance will eliminate the interest of corporation to work with CSR [34]. We argue, however, that the reason why power distance does not correlate with CSR motivation is not due to the limited opportunity and space for the company to express its interest and sound its social interest, but more about the problem of implementing the regulation as discussed above: overlapping of regulation, bureaucracy and low law enforcement that has created ambiguity in the regulation implementation thus creates uncertainty among the businesses.

Our previous studies found that the intent to implement CSR among Indonesian corporations is increasing [19], and that the trend is also attracting small businesses [48]. This research shows there are several things that might explain the phenomenon. In Indonesia, we argue that the increase in social responsibility initiatives is the conformity of the combination of the collective and feminine character of Indonesian society. The two dimensions of national culture are seen as the main motivation of why companies in Indonesia work with CSR. The character of both cultures matches two normative values of the indonesian people: “gotong royong” (mutual coorperation) and “teposeliro” (being tolerance) that include in Pancasila (Indonesia’s five national principles) articles. Below are some of the quotes of our informants that we sum up as a reflection of this argumentation.

“Togetherness, I think is a major value in our society. Helping each other is actually very relevant to religious values and also the values of gotong royong as a foundation in Pancasila. All companies can do this through their CSR. Apart from that any religion teaches us to help each other.” (Multinational 3).

“CSR is actually a reflection of a tradition that has existed in our society for a long time. Our society is a society that likes togetherness and upholds family values, such as gotong royong, teposeliro. Everything is the same as the spirit of CSR. Corporate CSR is a tangible form of the company’s contribution to show that it is part of society” (State Owned 2).

This finding is quite significantly contradictory with Indonesia ‘s collective character, where previous research Peng [34] found that countries with higher levels of individuals are more capable of encouraging CSR but are consistent with the findings [39]. In Indonesia we see a phenomenon that the collective character of the Indonesian people makes CSR the main reason why it is easily acceptable in society and becomes a corporate culture in Indonesia. However, these findings may differ with Peng [34], since the cultural elements were viewed separately in the previous research.

In the meantime, our findings indicate that Indonesian society’s collective element is not only a single problem but also a synthesis of Indonesian society’s feminine culture. The effort to be integrated into community life is also high when a company feels itself as a community member. Harmonization with society in attitudes in Indonesian society is very significant, and that is also translated by company behavior. So, CSR is not seen merely as acquiring “legitimacy” in the Indonesian sense. Nevertheless, the CSR that the organization carries out is more of an attempt to connect with the society and show its commitment.

Nonetheless, the type of national culture of collectivism also often becomes a challenge for companies to develop and execute CSR programs in Indonesian society. Collective between them is often described as equalizing the same justice. The following comments demonstrate that collectivism in Indonesian culture faces yet another obstacle in Indonesia’s implementation of CSR.

“There was jealousy from the unreached people in our CSR program. They often ask for the same activity to be carried out in their area. For us, this is certainly not easy, because apart from having a limited budget, we also have to measure impact” (State Owned 1).

“You have to be smart in choosing the agent of change, people who will support our program. Indonesians like to “ngekor” or follow others. If you want to join a program, they will first see who their friends are (that joined the same program). Often at the beginning of the program it was not easy to find people like this. This person must be able to invite others too and be able to encourage others to continue engaging in our program” (Local private company 1).

“Selection of issues and who is confident in these issues are crucial aspects that we have to be cautious about. We have a plan for giving children the vaccines. Yet several people have refused to believe in vaccination because they received recitation from their ustad. Therefore, we need to also identify informal representatives who can clarify the right facts to the public” (Local private 2).

In addition, we do not really see the low level of ambiguity avoidance in Indonesian society as being linked to the essence of CSR and CSR decision taking in Indonesia. As explained earlier, due to the complexity of the regulations, in order to avoid confusion in reacting to the different stakeholders ‘expectations, the company’s CSR choices are more likely to respond to community expectations and seek models for their respective approaches either in the form of charity or community project programs. This result is not in accordance with the findings of Thanetsuthorn [39], that companies operating in countries with high uncertainty avoidance tend to carry out CSR that is more concentrated on the environment and society.

However, Indonesian people’s attitudes and behaviors, which have a low-uncertainty avoidance character, pose challenges to a CSR program’s success or failure. Our study found that group character which is not too straightforward and appears to avoid confrontation sometimes creates obstacles to 1) identify the real community needs and 2) identify potential conflicts and conflict resolution during the program, like the following remarks we come across during data collection:

“Indonesian culture is in general a little closed, it is not easy for us to recognise their needs if we only address them a few times. Nevertheless, we need to be more observant about seeing and understanding them both from their actions and from what is the topic of conversation among them “(Local company 2).

“Sometimes in the program, we cannot avoid conflicts. Conflicts between communities must be examined longer because they sometimes do not want to talk about it. But suddenly, sometimes someone (who has problems with their friend) has disappeared and is no longer active in the program “(Multinational company 1).

Finally, this research also clearly explores the role of religion in taking social actions related to corporate CSR, particularly when making choices about CSR programmes.

It is fascinating and also a obstacle for Indonesia’s implementation of CSR is how to communicate CSR in the most effective way. And when we ask what the firm thinks about the CSR initiatives for the business. There were many answers that were very normative in nature, such as:

“CSR is doing a good thing, we do not expect anything in CSR. In accordance with religious teachings, we must pay attention, do not let the right hand give and the left hand tell”. (State-owned company 1).

This normative response often appears from officers at CSR who may have strong religious observances. This awareness of CSR engagement continues to make businesses less conscious of whether CSR can be a strategic concern for the organization, and to avoid focusing on CSR operations. Except for organizations that are really aware of the need for strategic CSR collaboration.

5. Conclusion

To sum up, in Indonesian society the institutional logic of CSR practice is more influenced by cognitive factors than by regulatory factors. Although Indonesia has sufficiently complex regulations to encourage corporate responsibility that is supported by community character with cognitive values of high-power distance determines CSR in Indonesia. Problems related to overlapping policies, bureaucracy, and corruption make ineffective regulations encourage businesses to have social responsibility.

Indonesian society, which is collective and also tends to be feminine, contribute significantly as a driver of CSR practices. This research shows that the company interprets two cultural features as their form and endeavor to attach themselves to the surrounding community where they operate. This condition cannot only be explained as an effort to gain legitimacy, but rather to build harmony in society. However, the Indonesian people who are collective and tend to have low uncertainty avoidance (avoiding inconvenience and conflict) make CSR implementation more challenging.

This study also sees that the role of religion and the normative values of the Pancasila ideology also provides its color in the practice of CSR in Indonesia. Such principles are yet another challenge in how CSR can be expressed in Indonesian society.