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espite objections from various business associations, the Constitutional Court ruled in April this year that corporate social responsibility (CSR) remains mandatory for Indonesian firms as stipulated in Article 74 of Law No. 40/2007 on limited liability companies.

In their petition filed with the court, the business organizations argued that CSR should be voluntary rather than compulsory. They believed that Article 74 of the law, which obligates firms to allocate funds for CSR programs, would add unnecessary costs to businesses.

What is wrong with CSR, the corporate sector, and the law?

One of the approaches to understand CSR is a philanthropic one. This approach focuses on corporate giving. CSR as regulated in Law No. 40/2007 is based on this approach. The idea underlying the adoption of the approach is that corporations are economic entities whose operations can have two sides of a coin: one side has a positive impact on human life while the other side can lead to the destruction of our planet and negative impacts on various stakeholders, such as the surrounding community and the environment

Companies seeing CSR from a philanthropic perspective often consider CSR a burden or an additional cost to their financial performance. This perception is consistent with the neoclassical economy theory stating that the social responsibility of a business is to increase profits. Corporations in Indonesia used this same argument when filing an objection to Law No.40/2007 with the Constitutional Court.

Another approach is viewing CSR from the stakeholders' perspective. In this perspective, corporations are regarded as being closely related to those directly affecting and affected by their decisions. They, often called primary stakeholders, include suppliers, employees, investors and customers. Their interaction with corporations is carried out through market mechanisms.

In addition to the primary stakeholders, corporations have also to pay attention to so-called secondary stakeholders, that is those in society indirectly affecting and affected by their decision. They include local communities, NGOs, business groups, media, social activist groups, foreign governments and central and local governments. Consequently, decisions made by the corporations should positively satisfy the two groups.

Under the stakeholder approach, corporations need to take the interests of people, the community and the environment into consideration when making decisions; otherwise they will face some problems with stakeholders. Every company has many groups of stakeholders. They have their own interests and powers to influence the company. In some cases, they establish a coalition to force the company to meet their particular needs. In order to be regarded as "good" by its stakeholders, a corporation should perform in economic, social and environmental aspects. This new concept of corporate performance is often called Triple Bottom Line (TBL).

There is no guarantee that corporations can perform as well as expected by their stakeholders. In fact, there is always a gap between what stakeholders expect and what actually happens. It is the job of corporations to manage the gap. How well companies manage the gap varies from one to another.

There are several ways that lead companies to narrow the gap. First, they may voluntarily address the stakeholders' concerns through CSR programs. Second, the firms are pressured by stakeholders to narrow the gap. Third, the firms are legally required to narrow the gap.

Since the TBL idea was introduced in 1994 and the trend of business considering the interests of stakeholders has been gaining a foothold, the term of corporate performance has been extended to include not only the financial aspect, but also social and environmental aspects. The inclusion of these two aspects in corporate performance indicates a rising awareness that the responsibility of corporations is not only to generate economic welfare (profit) but also to save people (society) and the planet (the environmental).

This understanding is in line with the concept of CSR as efforts by a company to meet multiple responsibilities, including economic, legal, ethical and discretionary aspects. The last two Ps of TBL, i.e. people and planet, can be referred to as the last three aspects of the CSP definition.

As a performance measure, the TBL itself basically has two root phrases: economic or financial (CFP) and social performance (CSP/CSR). The relationship of the two phrases has been the subject of debate in the last three decades. Management literature says that social responsibility is an important duty of corporations. Given the importance of CSR, the relationship between CSR and CFP is an important issue. In fact, CSR needs some funds for implementation and thus will affect CFP.

Under the stakeholder perspective, CSR is a matter of good business practice, meaning that corporation should care about their stakeholders via a variety of interaction with them. A multi-dimensional approach is needed to have a comprehensive CSR that can mirror a good interaction between companies with its stakeholders. The multi-dimensional approach includes seven dimensions of CSR: community and society, corporate governance, customers, employees, the environment, human rights and controversial business activities.

Seen from this redefinition of CSR, a company that carries out a CSR program just to comply with Law No.40/2007 will be rated low in CSR performance as it overlooks its ethical obligation to protect its customer and employees.

In conclusion, to implement CSR as stipulated in the Law No. 40/2007, the government needs to draft a governmental regulation on CSR by adopting the re-definition of CSR. This will make corporations obligated by the law to conduct CSR feel happy, since by conducting CSR they are regarded as implementing good business practices and having a good business performance - a performance resulting from maintaining good interaction with customers, suppliers, employees and shareholders and ethical behavior.