Corporate social responsibility and sustainable development social capital and corporate development in developing economies

They will be of interest to those working in a multitude of fi elds, across fi nance, governance, corporate behaviour, regulations, ethics and sustainability.For a full list of titles in t

Many diff erent companies can signifi cantly contribute to the integrated goals and targets of the United Nations’ sustainable development goals, such as poverty reduction by 2030 Poverty is not only about people living on less than $1.25 per day, but more fundamentally, it is their lack of capabilities and access to partici-pate in productive economic activities If companies can contribute in order to provide access and the necessary skills, then individuals will have the capabilities

to achieve their aspirations, including earning a higher income

Corporate Social Responsibility and Sustainable Development supports Sen’s

assertions that poverty can be alleviated if the capability of individuals is improved Beyond that, this book shows that sustainable development goals can be achieved when the company’s CSR programs and social capital development in improving people’s capabilities are combined with necessary fi nance access and market access for the poor The theoretical model developed from the journey of Astra International, one of the largest public-listed companies in Indonesia, is replicable for other companies aspiring to be sustainable in developing countries The model shows a virtuous cycle between the corporate aim, CSR programs, social capital and corporate sustainability

This volume is of great value to academics, practitioners and policy makers interested in the themes of CSR, social capital and sustainable development of developing countries It also appeals to professionals in industry associations, development agencies and international organisations, as well as NGOs that are concerned with the achievement of sustainable development goals by 2030

Risa Bhinekawati is a corporate sustainability advisor and a lecturer who is very

passionate about improving sustainable development in developing countries She is now a lecturer at Podomoro University, Indonesia, and also serves as an Advisory Board Member of Women in Global Business, Indonesian Chapter

Corporate Social Responsibility and

Sustainable Development

Focusing on the studies of academicians, researchers, entrepreneurs, policy makers and government offi cers, this international series aims to contribute to the progress in matters of fi nance, good governance and sustainability These multi-disciplinary books combine strong conceptual analysis with a wide range of empirical data and a wealth of case materials They will be of interest to those working in a multitude of fi elds, across fi nance, governance, corporate behaviour, regulations, ethics and sustainability.

For a full list of titles in this series, please visit www.routledge.com/Finance- Governance-and-Sustainability/book-series/FINGOVSUST

Finance, Governance and Sustainability:

Challenges to Theory and Practice Series

Series Editor:

Professor Güler Aras, Yildiz Technical University, Turkey;

Georgetown University, Washington DC, USA

Sustainable Markets for Sustainable Business

A Global Perspective for Business and Financial Markets

Edited by Güler Aras

Sustainable Governance in Hybrid Organizations

An International Case Study of Water Companies

Linne Marie Lauesen

Transforming Governance

New Values, New Systems in the New Business Environment

Edited by Maria Aluchna and Güler Aras

Strategy, Structure and Corporate Governance

Nabyla Daidj

Corporate Behavior and Sustainability

Doing Well by Being Good

Edited by Güler Aras and Coral Ingley

Corporate Social Responsibility and Sustainable Development

Social Capital and Corporate Development in Developing Economies

Risa Bhinekawati

Cosmopolitan Business Ethics

Towards a Global Philosophy of Management

Jacob Dahl Rendtorff

First published 2017

by Routledge

2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN

and by Routledge

711 Third Avenue, New York, NY 10017

Routledge is an imprint of the Taylor & Francis Group, an informa business

© 2017 Risa Bhinekawati

The right of Risa Bhinekawati to be identifi ed as author of this work has been asserted by her in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988

All rights reserved No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers

Trademark notice: Product or corporate names may be trademarks or

registered trademarks, and are used only for identifi cation and explanation without intent to infringe

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

Library of Congress Cataloging in Publication Data

Names: Bhinekawati, Risa, author.

Title: Corporate social responsibility and sustainable development: social capital and corporate development in developing

Corporations–Environmental aspects–Developing countries |

Management–Environmental aspects–Developing countries.

Typeset in Times New Roman

by Sunrise Setting Ltd, Brixham, UK

Dedicated to leaders of Astra International

Mr William Soeryadjaya (1922–2010) and

Mr Michael Dharmawan Ruslim (1953–2010)

Their legacy in building responsible business that brings prosperity to Indonesia has inspired me to undertake

my PhD study and write this book

This page intentionally left blank

List of fi gures xi

Roles of companies in developing countries 3

Lessons from a responsible company in a developing country 4

Implications for sustainable development goals 7

Structure of the book 10

Extended roles of companies in developing countries 16

The concept of corporate social responsibility 18

Strategic corporate social responsibility (CSR) 20

The importance of stakeholder management in

strategic CSR 22

CSR in developing countries 23

Conclusion 26

References 26

Social capital as a form of capital 32

Defi nitions of social capital 34

Contents

viii Contents

Bonding, strong ties, bridging, weak ties and structural holes 36

Social capital investment 37

Benefi ts from social capital investment to corporate sustainability 40 Conclusion 41

References 42

4 Theoretical linkages between sustainable development,

corporate social responsibility, social capital and

Considerations for qualitative case study 54

Research sampling and unit of analysis 55

Data collection and data management 58

Data storage and management 62

Data reduction and data displays 63

Data analysis 68

Discussions and drawing conclusions 70

Issues of qualitative case study 70

References 71

Why Indonesia? 74

The roles of companies and CSR in Indonesia 75

Mandatory CSR but lack of government law enforcement 77

Research and knowledge gap on CSR in Indonesia 78

References 80

Why Astra? 83

The journey from small business to very large public company 84

CSR as a strategic business investment 89

CSR and corporate self-regulation 94

CSR and stakeholder management 95

Taking lessons from Astra’s strategic CSR programs 99

References 100

Contents ix

8 Empowering micro and small enterprises to build supply

MSMEs and poverty alleviation in Indonesia 104

Evolution of the company’s MSME program 105

Sustainable development and the MSME development

program 110

The MSME program formulation and implementation 113

The MSME program and social capital development 116

Social capital and corporate sustainability 121

Conclusion 126

References 128

Vocational education and lack of skilled workers in Indonesia 130

Evolution of the company’s vocational education program 131

Sustainable development and vocational education program 136

Vocational education program formulation and implementation 140

Vocational education program and social capital development 143

Social capital and corporate sustainability 147

Conclusion 150

References 151

Palm oil plantations and sustainable development challenges in

Indonesia 153

Public roles of a palm oil company in sustainable

development 154

An overview of the company’s CSR program surrounding its

palm oil plantations 155

Evolution of the company’s CSR program in palm oil

plantations 158

Sustainable development and empowerment of smallholder

farmers 161

Smallholder program formulation and implementation 164

Smallholder farmers’ program and social capital

development 166

Social capital and corporate sustainability 172

Conclusion 177

References 179

x Contents

11 Building theory on corporate social responsibility

Sustainable development and CSR 181

CSR program formulation and implementation 183

CSR program and social capital development 189

Social capital contributions to corporate sustainability 196

Theory development: virtuous cycle of sustainable development,

CSR, social capital and corporate sustainability 200

References 204

12 Conclusion: a replicable model for corporate social

A theoretical model from empirical evidence 208

Implications to corporate practices for sustainable development 212 CSR and eradication of hunger and improvement of healthy

lives (Goals 2 and 3) 213

Implications to management theory 217

Implications to policies on CSR and sustainable development 218

Limitations and further research 219

References 220

4.1 Theoretical framework: the interrelationships between sustainable

development, CSR programs, social capital and corporate

sustainability 48 7.1 The vision of William Soeryadjaya about Astra’s role in Indonesia 85 7.2 Astra’s corporate social responsibility (CSR) framework 91 7.3 Organisation structure: Astra’s corporate foundations 92 7.4 Performance of companies within the Astra group regarding

compliance with Astra Green Company (AGC) and Astra

Friendly Company (AFC) standards, 2002–2011 95

7.6 Astra’s net revenue, net income and market capitalisation,

1997–2011 99 8.1 The linkages between driving forces, CSR programs, social

capital and corporate sustainability of the micro, small

8.2 Organisational structure of YDBA’s executive offi ce 116

8.4 Training of youth dropouts as mechanics by YDBA 126 9.1 The linkages between driving forces, CSR programs, social

capital and corporate sustainability of the POLMAN program 137 9.2 The organisational structure of Polman Astra 142 9.3 Graduates of Polman Astra from 1999 to 2015 14810.1 Summary of, and linkages between, driving forces, CSR

programs, social capital and corporate sustainability in

10.3 Performance of LKM Mitra Surya Sejahtera (SRL1), 2008–2011 17510.4 Performance of LKM Benteng Kayu Mangiwang

11.1 The virtuous cycle of the linkages between sustainable

development, CSR programs, social capital and

corporate sustainability of Astra’s CSR programs 20112.1 Theoretical model: the linkages between sustainable

development, CSR programs, social capital and

1.1 Large company’s contributions to sustainable development goals 8 2.1 The United Nation’s sustainable development goals 2030 16

4.1 Operational defi nitions of sustainable development,

CSR programs, social capital and corporate sustainability 46

5.2 Illustration of interview questions for the smallholder farmers

5.5 Illustration of the link between concepts, code labels and

5.6 Illustration of manual coding to categorise evidence from

interviews (similar technique to code documents and archives) 65 5.7 Illustration of actual manual coding process 67 7.1 Translation of Astra’s corporate philosophy into Astra’s ways

8.3 Training modules of Dharma Bhakti Astra Foundation 119

9.1 Comparison of aim, philosophy and vision of Astra and YABI 139

9.3 The POLMAN program: target skills, sources of competence

9.4 Total graduates of Polman Astra from 1999 to 2015 148 9.5 Student application and acceptance to Polman Astra, 2009–2015 14910.1 Responsibilities and actions of Astra Agro Lestari (AAL)

Tables xiii

10.2 Value of AAL’s transactions to the local economy 15710.3 Comparison of aim, philosophy and vision of Astra and AAL 16310.4 Interrelations between Astra, AAL and Astra corporate

foundations 16410.5 The PALMOIL program – assessment aspect, component

(bonding and bridging) of Astra’s CSR programs 19011.4 Social capital development: resources embedded in the social

11.5 Social capital development: collective actions of Astra’s

11.6 Economic performance generated from the enhanced social

11.7 Social performance generated from the enhanced social capital

11.8 Environmental performance generated from the enhanced

One of the most used words relating to corporate activity at present is the word sustainability Indeed, it can be argued that it has been so heavily used, and with so many diff erent meanings applied to it, that it is eff ectively meaningless Certainly, there is no specifi c defi nition of corporate sustainability and each organisation needs to devise its own defi nition to suit its purpose and objectives, although all seem to assume that corporate sustainability and corporate social responsibility are synonymous and based upon voluntary activity which includes environmental and social concern

Thus the term sustainability currently has a high profi le within the lexicon of corporate endeavour; indeed it is frequently mentioned as central to corporate activity without any attempt to defi ne exactly what sustainable activity entails This is understandable, as the concept is problematic and subject to many varying defi nitions – ranging from platitudes concerning sustainable development to the deep green concept of returning to the ‘golden era’ before industrialisation – although often it is used by corporations merely to signify that they intend to continue their existence into the future Indeed, their accounting leads them to the assumption that cost reduction equates to effi ciency and therefore continued exis-tence This is true even when their cost reduction sacrifi ces future capability at the expense of present cash fl ow by the elimination of technical experience and exper-tise in the manner categorised by many people This represents a misunderstanding

of the meaning of sustainability as mere continued existence

The sustainability discourse is of course signifi cantly diff erent and has tions in terms of managing corporate behaviour Sustainability implies that society must use no more of a resource than can be regenerated This can be defi ned in terms of the carrying capacity of the ecosystem and described with input–output models of resource consumption Viewing an organisation as part of a wider social and economic system implies that these eff ects must be taken into account, not just for the measurement of costs and value created in the present, but also for the future of the business itself This approach to sustainability is based upon the GaiaTheory – a model developed by James Lovelock in the 1970s and which now has widespread acceptance – in which the whole of the ecosphere, and all living matter therein, is co-dependant upon its various facets and formed a complete system According to this hypothesis, this complete system, and all components of

Foreword

At this level, measures of sustainability would consider the rate at which resources are consumed by the organisation in relation to the rate at which resources can be regenerated Unsustainable operations can be accommodated for either by devel-oping sustainable operations or by planning for a future lacking in resources cur-rently required In practice, organisations mostly tend to aim towards less unsustainability by increasing effi ciency in the way in which resources are utilised

An example would be an energy effi ciency program

It is no longer questioned that the activities of a corporation impact upon the external environment and that therefore such an organisation should be account-able to a wider audience than simply its shareholders This is a central tenet of both the concept of corporate governance and the concept of corporate social responsibility Implicit in this is a concern with the eff ects of the actions of an organisation on its external environment and there is a recognition that it is not just the owners of the organisation who have a concern with the activities of that organisation In addition, there are a wide variety of other stakeholders who justi-

fi ably have a concern with those activities, and are aff ected by those activities Those other stakeholders have not just an interest in the activities of the fi rm, but also a degree of infl uence over the shaping of those activities This infl uence is so signifi cant that it can be argued that the power and infl uence of these stakeholders

is such that it amounts to quasi-ownership of the organisation

This leads to a consideration of the performance management system, and an important feature of all approaches to performance management is the alignment

of organisational objectives, measures of performance and strategic decision-making towards the promotion of value creation at all levels of the business It is rec-ognised therefore that the link between the aims/objectives of an organisation and performance measures needs to be made clear In addition, the multiple nature of objectives can generate the need for multiple performance measures Furthermore,

as objectives tend to be confl icting, the measures used can require trade-off s and composite measures A concern for sustainability makes this more complex and requires additional measures to be incorporated into the management system The making of signifi cant decisions is an area that has already been aligned with the shareholder objective in fi nance theory and the concern for shareholder value This suggests that it is the management of shareholder value which is the over-arching criterion for the management of performance by a fi rm, but there has been

a rapid growth in reporting requirements and changes in existing requirements, with less emphasis on earnings and more on soft data and a greater emphasis on disclosure There has been a shift from an economic view of income to an infor-mational perspective with a recognition of social implications of an organisation’s activities and a shift from treating fi nancial fi gures as the foundation of perfor-mance measurement to treating them as part of a broader range of measures

xvi Foreword

Indeed, companies are no longer the instruments of shareholders alone but exist within society and so therefore have responsibilities to that society, and there is therefore a shift towards the greater accountability of companies to all participants Recognition of the rights of all stakeholders and the duty of a business to be accountable in this wider context therefore has been a relatively recent phenomenon, and the economic view of accountability only to owners has only recently been subject to debate to any considerable extent Interestingly these changes are refl ected all over the world and no longer led from the West

The measurement of performance is, however, crucial to the management of that performance, and in order to be useful, a performance indicator must be mea-surable, relevant and important to the organisation’s performance Such indicators must also be meaningful to anyone seeking to evaluate performance and the cost

of obtaining the information must not outweigh its value Often it is not a simple process to identify good performance indicators and a comparative measure against the performance of other organisations can give misleading signals and can cause resources to be focused on the wrong things

The theoretical discourse of managing according to the creation of shareholder value gives primacy to the shareholder and assumes that all other stakeholders will benefi t from the creation of that value without any of the proponents being specifi c

as to how they will benefi t or to what extent Practitioners, however, recognise that these other stakeholders are important to the long-term success of their business, and all fi rms which manage according to shareholder value creation recognise the importance of other stakeholders and seek to manage their performance in recog-nition of the most important of these stakeholders For every company, customers and employees are recognised as being signifi cant stakeholders Thus all fi rms which purport to manage according to shareholder value creation in actual fact use some kind of balanced scorecard which seeks to take into account the other major stakeholders in their management of performance In this respect also theory and practice diverge as shareholders are not necessarily awarded primacy, at least according to the strategic management of the organisation Certainly, when considering sustainable development multiple stakeholders need to be considered Although all companies purport to recognise the importance of various stake-holders to their management of performance, this is often only at the level of strategy, and it is often not carried forward into operational practice It is readily assumed that the management of value created by the organisation is only perti-nent insofar as that value accrues to the shareholders of the fi rm Implicit within this view of the management of the fi rm is that society at large, and consequently all other stakeholders to the organisation, will also benefi t as a result of managing the performance of the organisation in this manner From this perspective there-fore, the concerns are focused upon how to manage performance for the share-holders and how to report upon that performance This view of an organisation has, however, been extensively challenged by many writers, who argue that the way to maximise performance for society at large is both to both manage on behalf

of all stakeholders and to ensure that the value thereby created is not appropriated

by the shareholders but is distributed to all stakeholders Others argue that

Foreword xvii

organisations maximise value creation not by a concern for either shareholders or stakeholders but by focusing upon the operational objectives of the fi rm and assuming that value creation and equitable distribution will thereby follow The shareholder theory of the fi rm is often also referred to as agency theory,

as the role of the management of a fi rm is to act as the agents of the shareholders (the principals) The separation of ownership and control that is apparent in large modern-day (joint stock) companies – presently the most common way for a business to be organised – is another signifi cant change since the days of Adam Smith and John Stuart Mill It is this separation that leads to what is known as the principal-versus-agent relationship It is also argued that within this role it is only appropriate for managers (the agents) to use the funds at their disposal for pur-poses authorised by shareholders (the principals) Consequently, as shareholders normally invest in shares in order to maximise their own returns, then managers,

as their agents, are obliged to target this end In fact, this is arguing that as an owner a shareholder has the right to expect his or her property to be used to his or her own benefi t

But it has been suggested that it can be morally acceptable to use the shareholder’s money in this way if it is to further public interest The ethical and moral accept-ability of this suggestion is questionable Kant’s principle states that a person should be treated as an end in his or her own right rather than as a means to an end

By using shareholders’ money for the benefi t of others it is argued that the holders are being used as a means to further others ends This defence of shareholder theory is as ironic as it is compelling given that the exact same principle is often cited to defend stakeholder theory Increasingly also, in the modern world, the separation between private and public in this way is being blurred as companies exhibit a return to earlier times with a concern for more than just creating fi nancial value – a recognition that value is not always expressed in fi nancial terms This is particularly apparent in developing countries where such things as poverty allevi-ation, social exclusion and environmental degradation are much more serious issues

Assumed within agency theory is a lack of goal congruence between the cipal and agent, and that it is diffi cult to confi rm the agent’s actions In other words, left to their own devices, the agents will prefer diff erent options to those that would be chosen by the principals The agent would make decisions and follow courses that further their own self-interest as opposed to that of the principal – an overly simplistic conception of human behaviour In addition to self-interested motives, altruism, irrationality, generosity, genuine concern for others and other motivations also characterise multifaceted human behaviour

The term ‘corporate social responsibility’ is in vogue at the moment but as a concept it is vague and means diff erent things to diff erent people The broadest defi nition of corporate social responsibility is concerned with what is – or should

be – the relationship between the global corporation, governments of countries and individual citizens More locally, the defi nition is concerned with the relation-ship between a corporation and the local society in which it resides or operates Another defi nition is concerned with the relationship between a corporation and

Relatively recently, many people have recognised that the activities of an isation impact upon the external environment and have suggested that such an organisation should therefore be accountable to a wider audience than simply its shareholders Such a suggestion probably fi rst arose in the 1970s and a concern with a wider view of company performance is taken by some who are concerned with the social performance of a business, as a member of society at large – in other words that business was recognising the need to adapt to a new social climate of community accountability, but that the orientation of business to fi nancial results was inhibiting social responsiveness Consequently, it is possible to state that companies are no longer the instruments of shareholders alone but exist within society and so therefore have responsibilities to that society, and that there is therefore a shift towards the greater accountability of companies to all participants Again it is possible to state that this concern has always been more prevalent in developing countries and our focus has shifted beyond a narrow Western-centric view of the business world

Recognition of the rights of all stakeholders and the duty of a business to be accountable in this wider context therefore has been largely a relatively recent phenomenon, although mirroring past behaviour The economic view of account-ability being due solely to owners has only recently, however, been subject to debate to any considerable extent Some owners of businesses have always rec-ognised a responsibility to other stakeholders and this is evident from the early days of the Industrial Revolution Thus, there is evidence from throughout the history of modernity that the self-centred approach of accounting for organisa-tional activity only to shareholders was not universally acceptable and was unable

to satisfactorily provide a basis for human activity

Implicit in this concern with the eff ects of the actions of an organisation on its external environment is the recognition that it is not just the owners of the organisation who have a concern with the activities of that organisation In addition, there are a wide variety of other stakeholders who justifi ably have a concern with those activities, and are aff ected by those activities Those other stakeholders have not just an interest in the activities of the fi rm but also a degree of infl uence over the shaping of those activities This infl uence is so sig-nifi cant that it can be argued that the power and infl uence of these stakeholders

is such that it amounts to quasi-ownership of the organisation It is in this arena that corporate concern with such things as poverty alleviation and sustainable development are taking place Indeed the performance of businesses in a wider arena than the stock market and its value to shareholders has become of

of society would need to be satisfi ed that the benefi ts outweigh the detriments implying a greater welfare for the society while remaining within the bounds of justice This can be summarised as the basic requirements that relate to social welfare and justice This obviously has a strong resonance with stakeholder ideas Social contract theory has been criticised most usually because the contract is taken to be either implied or hypothetical: there is no actual contract Members of society have not given any formal consent to such a contract, and would be surprised to learn of its existence It is considered that although the contract is

fi ctional, this does not undermine its underlying moral theory

Much of the broader debate about corporate social responsibility can be preted as an argument between two positions: greater corporate autonomy and the free market economic model versus greater societal intervention and government control of corporate action There is clear evidence that the free market propo-nents are winning the argument They point to the global spread of capitalism, arguing that this refl ects recognition that social wellbeing is dependent on economic growth Opponents concede this hegemony but see the balance shifting

inter-in their favour through, for example, greater accountability and reportinter-ing Some opponents suspect the corporate team of cheating on their environments, both ecological and social, while others object fundamentally to the idea that a free market economy is benefi cial to society

Resolving these arguments would seem intractable if not impossible because they assume divergent philosophical positions Probably there is no defi nitive answer, since any attempt to do so would itself involve make value judgements, although it is possible to highlight the environment in which these arguments roam It is always possible to fi nd evidence of the relationship between economic growth, as manifest through corporate profi tability, and socially responsible behaviour in an eff ort to resolve this seemingly dichotomous position, as the cre-ation shareholder value is often not through the operational activities of the fi rm but rather through the externalisation of costs, which are passed on to customers, employees and other stakeholders including society at large Examples of this practice exist and it seems that companies adopt a philosophy that any stakeholder does not matter in isolation

There is, however, a growing body of evidence which shows a link between corporate socially responsible behaviour and economic profi tability, which is

xx Foreword

reinforced by much of the research into socially responsible investment funds This evidence suggests that there is a positive relationship between the two if a longer term view of corporate performance is recognised One of the problems of shareholder value management – exacerbated by the unfounded belief in the validity of Agency Theory as a mechanism for motivated managers to optimise performance – is that the techniques are essentially short term, in the belief that summative short-term value maximisations will ensure value maximisation in the longer term This is, of course, a mistaken belief as much of the evidence accumu-lating demonstrate

There is much still to explore in this area of business behaviour, especially in the context of less studies parts of the world where cultural diff erences may impact upon corporate behaviour This book is therefore timely, in that it is investigating

an important area of study from a very interesting part of the world Moreover, it does this primarily through a detailed case study rather than a survey Conse-quently, the fi ndings are more detailed and expose areas which would not other-wise be considered It is therefore an important book in the fi eld and one which will be considerably referred to by scholars of this topic

David Crowther Professor of Corporate Social Responsibility, UK

June 2016

References

Hobbes T ( 1651 ); Leviathan; many editions

Rousseau J ( 1762 ); Du Contrat Social, translated as The Social Contract ; many editions

This book is a slightly revised version of my PhD thesis at the College of Business and Economics, the Australian National University in Canberra The study answers intriguing questions about the actual roles of companies in developing countries by showing why and how, since 1957, one of Indonesia’s largest listed public companies has been striving to solve social issues in fulfi lling its business needs through CSR programs and social capital development The theoretical model developed from the journey of the company is replicable for other companies aspiring to be sustainable in developing countries

I would like to acknowledge all those who have made this book possible First and foremost, I thank God the Almighty for countless blessings during my PhD journey followed by the publication of this book I would like to thank the Depart-ment of Foreign Aff airs and Trade of the Australian Government for granting me both the ‘Australian Leadership Award’ and the ‘Allison Sudradjat Award’ to support my living and education expenses in Canberra, Australia I express my heartfelt thanks to Astra International for providing me with the knowledge and access to documents and interviews with its internal and external stakeholders on the cases of small enterprise development, manufacturing polytechnic and palm oil smallholder farmers’ development I am so inspired by the collaborative actions between Astra and thousands of its ‘grass root’ partners in achieving their aim ‘to prosper with the nation’ Indeed, the study of Astra has shown that mutual rela-tions and trust between companies and communities can improve the dignity and prosperity of society in a developing country

I would also like to thank my primary supervisor, Dr Royston Gustavson, and the Chair of my supervisory panel, Dr Andrew Bradly, for their dedication and commitment in guiding me and providing me with valuable insights for more than

fi ve years of my PhD journey I am very grateful to Professor David Crowther for his encouragement and support for publishing this book; Professor Güler Aras;

Ms Kristina Abbotts and Ms Eleanor Best of Routledge for their support; and to the anonymous reviewers for their suggestions and comments on the manuscript

I would also like to acknowledge Ms Maura Kwik for copy-editing important parts of this book Finally, on a very personal level, my sincere gratitude goes to

my husband, Adhyasa Yutono, and my son, Rifqi Adhyasa, for keeping me vated along the way Thank you all for enabling me to go this far

Acknowledgements

5R/5S Resik (clean), Rapih (tidy), Ringkas (simple), Rawat

(well-maintained), Rajin (diligent) Astra’s simple management

principles to be adopted by MSMEs

AAL Astra Agro Lestari, subsidiary of Astra in agribusiness

ADM Astra Daihatsu Motor

AFC Astra Friendly Company, Astra standard for stakeholder relations

and social responsibilities

AGC Astra Green Company, Astra standard for environment, health and

safety responsibilities

AHASS Astra Honda Authorized Service Stations

AHM Astra Honda Motor

AGIT Astra Graphia Information Technology, information technology

business of Astra

AMV Astra Mitra Ventura, Astra venture capital company, in charge of

MSME fi nancing

AOP Astra Otoparts, automotive spare parts business of Astra

AOTS Association for Overseas Technical Scholarships

BNSP Badan Nasional Standardisasi Profesi = National Body of

Professional Certifi cation

BoD Board of Directors

BoC Board of Commissioners

CDO Community Development Offi cers, AAL fi eld offi cers in charge of

PALMOIL program

CSR Corporate social responsibility

CEO Chief Executive Offi cer

CPO Crude Palm Oil

FTA Federal Technical Academy, the embryo of POLMAN Astra

FM Federal Motor

GRI Global Reporting Initiative

HBBA Community of car service stations assisted by Astra

HDI Human Development Index

IGAs Income Generation Activities, smallholder palm oil development of

Astra Agro Lestari

ISO International Organization for Standardization

JAVADA Japan Vocational Ability Development Association

Acronyms and abbreviations xxiii

KOBBA Cooperative of motorcycle service stations assisted by Astra LPB Lembaga Pengembangan Bisnis = Business Development Services,

established by YDBA and its partners to develop capacities of MSMEs in nine provinces of Indonesia

LKM Lembaga Keuangan Mikro or Micro Finance Institution

MNC Multinational corporation

MSME Micro, small and medium enterprise, interchangeably referred to as

SME

NGO Non-governmental organisation

PDCA Plan, Do, Check, Action = Astra’s planning cycle

PIC Person in Charge

QCC Quality control cycle

QCD Quality, cost and delivery standard of Astra

QCDI Quality, cost, delivery and innovation (usually for MSME, Astra

only requires QCD)

SRI Sustainable and Responsible Investment

SRL Surya Raya Lestari, a subsidiary of AAL In West Sulawesi SRL

operated 2 plantations: SRL1 and SRL2

SME Small and Medium Enterprise, interchangeably referred to as

MSMEs

TAM Toyota Astra Motor

TMMIN Toyota Motor Manufacturing Indonesia

UNDP United Nations Development Programme

UT United Tractors, heavy equipment business of Astra

WBCSD World Business Council for Sustainable Development

WCED World Commission on Environment and Development

WKAK Wadah Komunikasi Antar Kelompok = Communications Forum

Among Farmers’ Groups

YABI Yayasan Astra Bina Ilmu (Astra Bina Ilmu Foundation), in charge of

Astra Manufacturing Polytechnic

YFBI Yayasan Federal Bina Ilmu, the embryo of YABI

YDBA Yayasan Dharma Bhakti Astra (Dharma Bhakti Astra Foundation),

in charge of MSME development

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We would like Astra to grow and fl ourish like a shady tree that serves as a shelter for many during rain or shine In a nutshell, Oom 1 would like Astra to become a company that generates benefi ts to society and the country, in line with Astra’s aim:

to prosper with the nation

William Soeryadjaya, Astra founder

The above statement was made by the founder of a major corporation in Indonesia and became the company’s corporate aim Over time, the virtues and the vision of the founder have inspired the next generations of the company’s leaders to take actions in enabling many Indonesians to prosper through their business presence, because they believe that the company can only be prosperous if the nation is prosperous Established in 1957 as a family business, PT Astra International Tbk (Astra) became one of Indonesia’s largest public listed companies employing 221,046 permanent employees across its 198 subsidiary companies in 2015 (Astra International, 2015) From 2009 to 2014, Astra has always been selected as a responsible and sustainable investment (Kehati, 2015) Through its corporate social responsibility (CSR) programs, Astra empowered 8,106 micro and small businesses by 2013 (Widjaja, 2014) and 7,297 palm oil farmers by 2011 (Astra Agro Lestari, 2011) to become its business partners to fully fi nance one of Indonesia’s best manufacturing polytechnics, develop curriculums of secondary vocational schools and train high school dropouts to overcome skilled labour scar-city With the United Nations’ ambitious plan to eradicate extreme poverty and achieve other sustainable development goals by 2030 (UN, 2015) and the demands that companies contribute to these goals, are there any management lessons that

we can learn from Astra? It is this question that sets the tone for the rest of this book This book captures the two main lessons from the company First, through its strategic CSR programs, the company contributes to sustainable development goals by building social capital such as social relationships, capability building for the poor, and collective actions along the company’s supply chain Second, the company’s experience in undertaking CSR for more than 30 years in a developing country has shown that the concepts of sustainable development, CSR programs, social capital and corporate sustainability are actually interlinked

Corporations and sustainable

imple-so, the UN calls for actions by the stakeholders to contribute in balancing the economic, social and environmental conditions of the world Collaboration among stakeholders is fundamental to achieve such ambitious targets But what kind of collaborations can make such impact? Experts argue that social capital or social relationships that generate trust and collective actions among stakeholders are the key to capability building and poverty eradication in developing countries Theoretically, as has also been discussed, corporate social responsibility programs that can generate social capital can then build the corporate sustainability that contributes to sustainable development goals However, experts’ opinions need empirical evidence to show how the process under which such interrelationships among diff erent concepts and collaborations by diff erent stakeholders evolves in real life, especially in the context of developing countries

Hence, this study explores why and how companies can institutionalise tainable development goals into their business operations The study of Astra with three embedded cases will be used to directly answer the questions on how

sus-a compsus-any csus-an dedicsus-ate resources in developing rursus-al sus-aresus-as by supporting smsus-all-holders and building infrastructure surrounding palm oil plantations; develop vocational education at secondary and tertiary levels; provide access for people

small-to have life-long learning opportunities in acquiring skills and knowledge small-to be productive partners of the company; and build economic foundation by empow-ering micro, small and medium enterprises along and outside the company’s supply chain

Poverty, in this study, is not only addressing people living below US$ 1.25 per day, but more importantly, it shows why and how a company addresses a more fundamental cause of poverty, which is lack of capability, access to fi nance and access to markets If the company can contribute in providing the necessary skills and access, then people will have the capabilities to achieve their aspirations, including earning better income This book supports Sen’s (1992, 1999) asser-tions that poverty can be alleviated if the capability of people is improved Beyond that, this book also shows that companies can innovatively combine the improvement of people’s capabilities with necessary fi nance access and market access, so both the company and the community can achieve sustainable devel-opment goals

The theoretical model, which was based on empirical evidence of over 50 years

of company practice and more than 30 years of its strategic CSR programs, can help companies, scholars and states translate development policies into concrete actions It is expected that insights from the virtues and commitments from the company’s leaders in embedding social issues into their corporate aim ‘to prosper with the nation’ can inspire decision makers at the state and company levels in combating poverty and building dignity of people in which they operate Thus, the

Introduction 3

presence of companies can become a blessing for developing countries rather than nightmares for many

Roles of companies in developing countries

Developing countries still suff er from sustainable development issues such as poverty, inequality, social exclusion for the poor and environmental degradation, despite the presence of global value chains and foreign direct investment A recent United Nations Development Programme (UNDP) report reveals that globally, half of the world’s population, or 2.7 billion people, lives on US$ 2.50 a day on average, and 1.2 billion of these live on less than US$ 1.25 a day In total, more than 2.2 billion people are vulnerable to ‘multidimensional poverty’ (UNDP, 2014) Developing countries’ governments are willing to encourage private sector participation to improve the economy and create jobs by providing investment incentives and deregulations, and by relaxing labour and environmental laws, risk-ing the future sustainability of the environment and the society However, the benefi ts of trade, foreign direct investment and global value chains are still cap-tured by multinational corporations (MNCs), while the developing countries only get minimal benefi ts of globalisation, thus contributing to inequality between rich and poor countries (UNDP, 2014)

Many developing countries are categorised as ‘weak countries’, where weak governments lack the capacity to govern corporate behaviour and to deliver public goods (Scherer and Palazzo, 2011) In fact, during the 1980s and 1990s, the enforcement of labour laws across developing countries declined in response to competition for foreign direct investment, because the adherence to codes of con-duct of MNCs only reaches their own subsidiaries, and does not always include their suppliers (UNDP, 2014) Indeed, in developing countries, companies need to

be self-regulated to manage their operations responsibly, including in conducting their CSR activities, because governments do not have the capacity to enforce laws and regulations (Scherer and Palazzo, 2011)

The concept of CSR itself has evolved over time This book uses Carroll’s (1979) CSR defi nition, that ‘the social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organ-isations at a given point in time’ (p 500) In the context of developing countries, Visser (2009) fi nds that economic contributions from companies are the most important because these countries have high unemployment and widespread pov-erty Philanthropic contributions come second in importance, because society expects companies to provide voluntary contributions to society, and sometimes contributions are also considered as common practice within the norm of ‘the right thing to do’ Legal responsibilities have been diffi cult to achieve because the legal infrastructures in developing countries are still underdeveloped, with a lack

of law enforcement by government Lastly, he argues that ethical responsibilities are the most diffi cult to implement because developing countries still suff er from high levels of corruption and poor governance As such, sustainable development becomes central to the CSR agenda in developing countries (Fox, 2004), where

4 Introduction

companies are expected to perform extended roles in providing public goods such

as health, education and infrastructure (Scherer and Palazzo, 2011) Overall, the literature on sustainable development, CSR, and corporate sustainability shows that these concepts are interrelated, but that they need to be clarifi ed Furthermore, experts strongly argue for social capital as an alternative way of explaining and improving the livelihood of low-income people in developing countries, but there

is a lack of empirical evidence to support this argument (Ansari et al , 2012)

Based on the above discussion and the literature review in chapters 2 , 3 and 4 ,

this book has two broad objectives First, it aims to investigate the actual role of a company in contributing to sustainable development in a developing country Sec- ond, this book aspires to explore why and how the concepts of sustainable devel- opment, CSR programs, social capital and corporate sustainability are interrelated and evolve over time

Lessons from a responsible company in a developing country

This study reveals that companies can signifi cantly contribute to these integrated goals and targets of the UN’s sustainable development goals Taking lessons from

a long history of Astra – an Indonesian company which started as a family ness and is now one of the largest public listed companies in the country – shows that a corporation can survive and thrive if it sees itself as an embedded part of the society The company, the community and the environment are infl uencing each other and the company makes genuine eff orts to ensure that its presence benefi ts its stakeholders, both in good times and in times of crisis Indeed, sustainable development goals can only be achieved when the concerns of people, planet and prosperity are pursued in partnership among the relevant stakeholders The study shows that peace can be achieved if the company can reduce social jealousy and income disparities surrounding the company and along the company’s supply chain

Like many other developing countries, Indonesia provides high market growth opportunities with a challenging business environment This archipelagic country has 255.2 million people (BPS, 2015) Indonesia is currently the sixteenth largest economy in the world, which is predicted to become the seventh largest by 2030

By 2030, the country will have a population of 280 million and a US$1.8 trillion market opportunity in customer services, agriculture, fi sheries, resources and edu-cation (McKinsey Global Institute, 2012) Despite such lucrative opportunities, Indonesia poses challenges for business because of its poverty (UNDP, 2011), weak regulatory system (Mourougane, 2012), lack of skilled labour (World Bank, 2010) and lack of infrastructure (McKinsey Global Institute, 2012) The UNDP’s Human Development Index (HDI) shows that Indonesia’s performance in the dimensions of health, education and wellbeing, still ranked 124th of 181 countries and territories on the HDI of 2011 Furthermore, Indonesia faces severe environ-mental degradation due to logging and palm oil plantation (Edwards, 2005) Indo-nesia also has issues with corruption and an unreliable legal system In 2011, Indonesia ranked 118th of 176 countries on the Transparency International

in damaging the environment and in creating pollution (p 34) Such bad corporate behaviour might be infl uenced by the Indonesian government’s ‘preferential treat-ments’ such as reduced tax and less strict environmental standards to attract for-eign investment (Waagstein, 2011)

Indonesia cannot rely on CSR and codes of conduct to solve issues of tion, environmental degradation or poor labour standards because the priorities of large companies are still maximising profi ts (Kemp, 2001, p 34) In Indonesia, many multinational companies, according to Kemp (2001), have a ‘low cost, high impacts’ mentality, expecting that a code of conduct and charity could improve community relations without having to invest in building the relationships and capacity of local community (p 17) Generally, the understanding of CSR as a concept in Indonesia is still poor and inconsistent (Gillespie, 2012) Furthermore, despite the availability of global standards and guidelines, the reporting and dis-closure of CSR in Indonesia is relatively low (Utama, 2008)

In the context of Indonesia as a developing country, Astra was chosen to be the case study for several reasons that would qualify it as an ‘exemplary case’ (Patton, 1990) First, it has been cited as a good example for its strategic CSR, corporate governance and sustainable contributions to society (Urip, 2010) In earlier years, Astra was considered ‘a pioneer of management modernisation in Indonesia’ (Sato, 1996) Furthermore, Astra and its subsidiary palm oil company, Astra Agro Lestari (AAL), both have been selected as two of twenty-fi ve responsible and sustainable companies in fi ve consecutive years (2009 to 2014) by Kehati SRI Index (Wibowo, 2012) Astra was also recognised as a company that has been empowering micro, small and medium enterprises (MSMEs) in Indonesia by pro-viding knowledge and management transfer and access to capital, thereby contrib-uting more broadly to Indonesian economic development (Prabowo, 2014) Second, Astra has existed since 1957 and has been involved in CSR since 1974, and so extended time series data are available Third, its presence is likely to have social and economic impact at the national level By the end of 2011, the Astra Group operated in and around 1,000 locations, serving around 10 million people across Indonesia (Astra International, 2012), where 70 per cent of its premises are surrounded by poor communities (Istanto, 2010) Finally, Astra has conducted nationwide CSR programs that address social issues generally faced by compa-nies in Indonesia For example, the MSME development program (active since

6 Introduction

1980) addresses the low capacity of Indonesian MSMEs and the weak supply chain; the vocational education development (POLMAN) program (since 1995) addresses issues of education and the skilled labour scarcity; and the smallholder farmers’ development (PALMOIL) program (since 1992) deals with poverty and potential confl icts surrounding the company’s palm oil plantations Therefore, the availability of long-established CSR programs will provide longitudinal data for cross-case analysis Based on these facts, Astra matches the characteristics of

‘purposeful sampling’ (Patton, 1990)

The fi ndings of this qualitative case study reveal that a company can actually play ‘public roles’ or ‘political roles’ in contributing to sustainable development in

a developing country like Indonesia The study fi nds that a company which has a genuine intention to play its economic, legal, ethical and discretionary roles responsibly can actually sustain in the challenging social, economic, political and environmental conditions of a developing country over the long term

This book also shows the interlinkages between sustainable development (as driving forces), CSR programs (as corporate inputs, actions and processes), social capital (as output of CSR programs consisting of social resources, embedded resources, and collective actions), and corporate sustainability (as the outcome of CSR programs, consisting of simultaneous achievements of the economic, social and environmental performance of the company) The theoretical model presented

in Figure 12.1 of Chapter 12 implies that sustainable development is the driving force for a company in a developing country by doing CSR programs By commit-ting to sustainable development, the company aims to have long-term corporate goals that inspire corporate leaders to fulfi l their business needs while solving social issues through CSR programs Hence, the CSR programs become corporate inputs, actions and processes under which corporate resources, competence, and management cycles are integrated Over time, the process of goal setting, imple-mentation, evaluation and modifi cation of CSR programs enables the company and its stakeholders to interact and communicate, thus building social capital The social capital generated from CSR programs increases because of the improve-ments in social relationships and the access to corporate resources that are dedi-cated to the CSR programs The social relationships and embedded resources facilitate the collective actions for the company to achieve a ‘win-win’ sustained stakeholder performance As a result, the economic, social and environmental out-comes of the company and its stakeholders have been improving over time Finally, the achievement of corporate sustainability will loop back to the corporate pur-pose in contributing to sustainable development The more sustainable the com-pany, the more resources they can dedicate to sustainable development

In sum, the case study with three embedded cases of Astra’s CSR programs has been able to illuminate the role of a large company in a developing country and to build the theory on the linkages between sustainable development, CSR, social capital, corporate sustainability and sustainable development The theo-retical model generated from this case study is expected to have implications to the theory and practice of management in Indonesia and other developing countries

Introduction 7

Implications for sustainable development goals

The study reveals that companies can signifi cantly contribute to these integrated goals and targets of the UNs sustainable development goals by 2030 Taking les-sons from a long history of an Indonesian company (which started as a family business and is now one of the largest companies in the country), it shows that a corporation can survive and thrive if it sees itself as an embedded part of the soci-ety The company, the community and the environment are infl uencing each other, and the company takes every eff ort to make sure that its presence benefi ts the other two, in good times, and in the times of crises Indeed, sustainable development goals can only be achieved when the concerns of people, planet, and prosperity are pursued in partnership among relevant stakeholders The book shows that peace can be achieved if the company can reduce social jealousy and income disparities surrounding the company and along the company’s supply chain

This book is expected to provide contributions for practitioners, academics and policy makers who have interest in achieving the 17 sustainable development goals with its 169 associated targets in an integrated and indivisible way Lessons from the cases within the case studies of a long history of a company’s roles in poverty eradication surrounding palm oil plantations, small enterprise development, and vocational school development can directly address 11 of 17 goals, including poverty, hunger, wellbeing, education, infrastructure, inequalities, human settle-ments, consumption and production patterns, peaceful and inclusive societies, and global partnership

Contributions to practice

From its long experience of living its corporate life in Indonesia, leaders of the company have been learning that the company cannot be prosperous if it does not play roles in addressing social issues in fulfi lling its business needs The compa-ny’s CSR programs are built around the social issues and they are institutionalised into the company’s visions, missions, strategies, structure and management cycle The company believes that it should share its expertise and wealth to build social capital with its stakeholders, including its CSR program benefi ciaries The social relationships and the capability building of small enterprises, smallholder farmers and vocational school students have enabled these CSR benefi ciaries to act collec-tively with the company in achieving its economic, social and environmental objectives During the process, both the company and the CSR benefi ciaries reap sustainable benefi ts from the relationship By practicing this model, the company has been contributing to the Millennium Development Goals as well as the sus-tainable development goals of Indonesia

As summarised in Table 1.1 , the study shows that a large company’s operation

in a developing country can directly address 11 of 17 goals of sustainable opment including poverty (Goal 1); hunger (Goal 2); wellbeing (Goal 3); inclusive and quality education (Goal 4); sustained, inclusive and sustainable economic growth with productive employment (Goal 8); resilient infrastructure and inclusive,

devel-Table 1.1 Large company’s contributions to sustainable development goals

Sustainable development goals

of the United Nations

Company roles and contributions for sustainable development goals

Goal 1: Poverty eradication • Inclusive supply chain by empowering MSMEs, by

providing special access for underprivileged students to higher vocational education ( Chapter 9 ), and by develop- ing smallholder farms surrounding palm oil plantations ( Chapter 11 )

Goal 2: Alleviation of hunger;

improvement of food

security and nutrition

• Indirect contribution by the company: When poverty is eradicated through the company’s CSR programs, hunger will be alleviated; food security and nutrition of poor people will improve

Goal 3: Improvement of health

and wellbeing

• Indirect contribution by the company: When poverty is alleviated through the company’s CSR programs; health and wellbeing of poor people will improve

Goal 4: Development of

inclusive and equitable

quality education; promotion

of lifelong learning

opportunities

• Providing formal higher vocational education for the public ( Chapter 10 ); informal education for MSMEs and smallholder farmers ( Chapters 9 , 11 )

development

• Collaborating with CSR benefi ciaries to improve infrastructure in remote areas of the country ( Chapter 11 ) Goal 10: Reduction of

inequalities within and

among countries

• Economic development in remote areas of the country

by building capacities of MSMEs ( Chapter 9 ); special scholarships for higher vocational education ( Chapter 10 ); empowering smallholder farmers ( Chapter 11 )

Goal 11: Development of

inclusive, safe, resilient

and sustainable human

settlements

• Empowering MSMEs to employ people from surrounding community ( Chapter 10 ); smallholder farmers to aff ord decent settlements ( Chapter 11 )

Goal 12: Development of

sustainable consumption

and production pattern

• Improving capabilities of MSMEs and smallholders to have fi nancial literacy; providing fi nancial institutions and schemes that are suitable for MSMEs and smallholders ( Chapters 9 , 11 )

Goal 15: Protection,

restoration and promotion

of sustainable use of the

natural environment

• Developing and applying corporate policies on green company at corporate and fi eld levels ( Chapter 8 ); empowering CSR program benefi ciaries to adopt and implement the policy ( Chapters 9 , 10 , 11 )

Goal 16: Promotion of

peaceful and inclusive

societies for sustainable

development

• Establishing corporate institutions in charge of CSR programs ( Chapters 8 , 9 , 10 , 11 ); Establishing grassroots institutions that allow MSMEs and smallholder farmers to participate in the company’s supply chain ( Chapters 9 , 11 ) Goal 17: Implementation and

revitalisation of the global

partnership for sustainable

development

• Embracing sustainable development principles and stakeholder engagements into corporate strategy ( Chapter 8 ) and CSR implementations ( Chapters 9 , 10 , 11 ) Source: Adapted from UN (2015); fi ndings of the study

Note: MSMEs are micro, small and medium enterprises

Introduction 9

sustainable industrialisation (Goal 9); inequalities within country (Goal 10); tainable consumption and production patterns (Goal 12); climate change and its impacts (Goal 13); peaceful and inclusive societies for sustainable development (Goal 16); and global partnership for sustainable development (Goal 17)

Overall, for the practice of management in developing countries, this study provides justifi cations for the companies in contributing to the achievement of sustainable development goals of the country in which it operates by playing their

‘political roles’ and shows how a company’s mitigation of social issues helps it in achieving its sustainability objectives in a developing country (Fukukawa, 2014)

As found by Porter and Kramer (2006), companies struggle to justify investment

in CSR to serve rationales like moral obligations and sustainability, especially in balancing the short-term cost with long-term results of CSR investment This is especially the case with companies playing extended roles in building the capabil-ities of low-income people along their supply chain (Scherer and Palazzo, 2011) The study has generated empirical fi ndings on the corporate motivations, structure and governance that enable companies to generate sustainable value for them-selves and prosperity for society, which can be useful for large companies and

multinational companies operating in developing countries (Ansari et al , 2012)

The fi ndings also illuminate the actual roles of corporate leaders from chief utive offi cers (CEOs) to fi eld managers in implementing CSR programs that are contextualised to address the needs of the poor who are still by and large lacking

exec-in productive capabilities (Waldman et al 2006)

Finally, for Indonesia, this case study fi lls the need for research on the guiding principles for conducting business in a country with a lack of government capac-ity to govern, while at the same time, businesses also display a lack of understand-ing about CSR (Waagstein, 2011) Furthermore, this case study also answers the need for research on CSR that considers social capital development to bring more

benefi ts to communities (Supriadi et al , 2013), and for CSR research that

incor-porates sustainability wisdom which has been rooted in the country’s cultural tradition (Ketaren, 2014)

Contributions to theory

This book contributes to theory by developing a model showing the linkages between sustainable development, CSR, social capital, corporate sustainability and sustainable development, which was previously unclear For example, this research illuminates the process under which CSR as an input generates corporate sustainability performance as an expected outcome, which is still lacking in the literature (Aguinis and Glavas, 2012), although much research has been conducted

on the ‘business case’ for CSR trying to show the linkage between CSR ment and corporate sustainability (Bansal, 2005) In the area of social capital, this research contributes to knowledge in explaining interrelationships between bond-ing and bridging social in improving the livelihood of poor communities (Ansari

et al , 2012) The study also shows the linkages between the stakeholder theory

and social capital to help managers develop sustainable strategies in both small medium enterprises and large companies (Russo and Perrini, 2010) The study

10 Introduction

also fi lls in the research gaps on how the social capital develops and evolves over time in improving social structure and welfare of the people (Granovetter, 2005); the connections between the ‘micro-macro’ relations, such as the process through which corporate actions and social structures becomes interrelated (Frank and Yasumoto, 1998); and the linkages between social capital development and the improvement in the livelihood of poor people and social structures (Portes, 1998)

Contributions to policy

This book can help policy makers in governments and in companies, in both developed and developing countries, in establishing development policies and mechanisms to govern corporate contributions in achieving sustainable develop-ment goals The companies should be encouraged to develop social capital in terms of building social relations among stakeholders; providing access to knowl-edge, fi nance and markets; and enhancing collaborations to co-create value with its CSR benefi ciaries within the company’s supply chain The policies should acknowledge and reward companies that can genuinely solve sustainable develop-ment issues while achieving their economic, social and environmental goals simultaneously Lessons from this study have shown that it is possible for compa-nies to be profi table by contributing to sustainable development goals

Since 2007, Indonesia has made CSR mandatory for companies operating in the country, but there is no government mechanism to evaluate and monitor how companies implement CSR programs This research is expected to help the gov-ernment as well as companies in Indonesia to develop policies for social inclusion through CSR programs, thereby benefi ting the country, the businesses, and the society in the long term

Structure of the book

This book consists of 12 chapters Chapter 1 is the Introduction, outlining the strategic fi t between the roles of companies and sustainable development Chapter 2 reviews the concepts of sustainable development and corporatee social responsibility Chapter 3 discusses the concepts of social capital and corporate sustainability Chapter 4 integrates the concepts of sustainable development, corporate sustainability, corporate social responsibility, and social capital in the context of developing countries The research approach is discussed in Chapter 5 Chapters 6 to 10 explore the interrelations between the roles of companies in sustainable development, its CSR programs, social capital development, and cor-porate sustainability Chapters 6 and 7 discuss the selection of Indonesia as a large development country, and the roles of PT Astra International (Astra) as the con-text of the study Chapters 8 to 10 explore the case study in detail Findings from empowerment of micro, small, and medium enterprises along the company’s supply chain are reported in Chapter 8 ; vocational school development program

in Chapter 9 ; and poverty eradication surrounding palm oil plantations in Chapter 10 , respectively Chapter 11 presents cross-case analysis and theoretical

Introduction 11

development from the three cases in terms of public and private roles of nies in contributing to sustainable goals, as well as on the linkages between the concepts of sustainable development, CSR programs, social capital and corporate sustainability

In conclusion, the replicable model generated from the cases is discussed in Chapter 12 This fi nal chapter also explores the implications of the study to the practice, theory and policy related to the roles of large companies in achieving sustainable development goals through CSR programs and social capital develop-ment The last part of the conclusion touches study limitations and further research opportunities

Note

1 ‘Oom’ is a Dutch word for ‘uncle’ Many Astra employee refer to William Soeryadjaya

as ‘Oom’ His statement is displayed in the Astra museum in Jakarta, Indonesia

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The sustainable development goals of the United Nations, which are aimed at improving the livelihood of people by 2030, especially in developing countries, require company participation in achieving them Experts argue that the corporate social responsibility (CSR) programs of companies can contribute to sustainable development goals Hence, the purpose of this chapter is to explore the roles of companies in contributing to sustainable development goals of developing coun-tries through their CSR programs This chapter presents a review of the literature exploring the concepts of sustainable development and CSR in developing coun-ties, and whether it is possible for companies to be responsible and yet sustainable

in such a challenging business environment This literature review reveals laps in the concepts of sustainable development and CSR that need to be clarifi ed There are also gaps in the literature on the ‘public roles’ of companies in contrib-uting to sustainable development goals, such as poverty eradication in developing countries

Sustainable development issues in developing countries

In general, developing countries off er the highest market growth opportunities for business due to their expanding economies (IMF, 2006) However, developing countries – which are defi ned by Sullivan and Sheff rin (2003) as ‘nations with an underdeveloped industrial base and low HDI 1 relative to other countries’ (p 471) – are vulnerable to the social and environmental impacts of globalisation, eco-nomic growth and investment The 2014 Human Development Report issued by the United Nations Development Programme (UNDP) reveals serious challenges facing sustainable development in developing countries Globally, 75 per cent of the world’s poor live in rural areas where agricultural workers suff er from poverty, low productivity, seasonal unemployment and low wages Half of the world’s pop-ulation (2.7 billion people) lives on US$ 2.50 a day, including 1.2 billion who live

on less than US$ 1.25 a day In total, more than 2.2 billion people are vulnerable

to ‘multidimensional poverty’ (UNDP, 2014, p 19) Poor people and poor tries are vulnerable as they lack social cohesion and are excluded from govern-ment social security systems (UNDP, 2014)

and sustainable development

CSR and sustainable development 15

Sustainable development, which is defi ned as ‘development which meets the needs of the present without compromising the ability of future generations to meet their own needs’ (Brundtland, 1987, p 8), involves the ‘simultaneous pursuit

of economic prosperity, environmental quality, and social equity’ (Elkington,

1997, p 397) There are sizeable challenges in maintaining sustainable ment in developing countries because of a widening gap between the rich and the poor, and between the ones who have and do not have access to opportunities like schools, healthcare, electricity, water and other basic necessities (World Bank, 2014) According to the UNDP (2014), major contributors to shocks and threats

develop-to human development in poor countries include economic risks, inequality, health risks, environmental and natural disasters, and food insecurity In developing countries, millions of households are vulnerable to shocks in their income as most

of them work in the informal sector without coverage of social insurance There have been wide inequalities in global prosperity where the wealth of the 3.5 billion

of poorest people is equal to the wealth of the 85 richest people in the world thermore, there have been increasing problems of water scarcity, land degradation, soil erosion, oil pollution and biodiversity extinction due to rapid industrialisation and urbanisation in developing countries (UNDP, 2014, p 21)

Members of the United Nations have strived to improve the conditions of nerable people in developing countries by declaring the sustainable development goals, with 17 goals and 169 targets by 2030, where eradication of extreme pov-erty becomes its goal number one (UN, 2015), as shown in the Table 2.1

To achieve the sustainable development goals by 2030 presents a signifi cant challenge, one of the reasons being because many developing countries suff er from lack of government capacity to provide public goods and to manage corpo-rate behaviour These countries are called ‘weak states’, defi ned as:

countries that lack the essential capacity and/or will to fulfi l four sets of critical government responsibilities: fostering an environment conducive to sustainable and equitable economic growth; establishing and maintaining legitimate, transparent, and accountable political institutions; securing their populations from violent confl ict and controlling their territory; and meeting the basic human needs of their population

(Rise and Patrick, 2008, p 3) Weak governments lack the capacity to govern corporate behaviour and to deliver public goods (Scherer and Palazzo, 2011) In fact, during the 1980s and 1990s, the enforcement of labour laws across countries declined in response to competition for foreign direct investment The adherence to codes of conduct by multinational corporations (MNCs) only reaches their own subsidiaries, and does not always include their suppliers (UNDP, 2014) Generally, in developing countries, compa-nies need to be self-regulated to manage their operations responsibly, because governments do not have the capacity to enforce laws and regulations, as dis-cussed below