T

he corporate social responsibility (CSR) bill the House of Representatives is now deliberating could repeat the mistake of the 2007 Law on limited liability corporations if it insists that CSR be stipulated as mandatory for companies.

The 2007 Corporation Law stipulates a four-paragraph article which made CSR legally compulsory for companies engaged in natural-resource extraction. But that article has never been enforced as the government regulation needed to elaborate the technical details on its enforcement was never enacted.

But the non-enforcement of that CSR article could have been a blessing in disguise because had it been fully enforced, the impact would have been quite confusing and even harmful to taxpayers because the law treats spending on CSR as an operational or production cost, thereby deductible from taxable income.

Allowing companies to deduct CSR spending from their taxable income would simply turn CSR into a cost-sharing initiative and not a profit-sharing program, which is the true principle of CSR. Accounting CSR as a production cost could provide companies with many loopholes to misuse CSR programs more for their own benefits, such as corporate image or brand promotion, than for the community in general.

The mainstream thinking on CSR is that merely abiding by the law is no longer sufficient to secure smooth business operations, as firms are now required to expand their social responsibility and do more to protect the environment and empower the communities around their operational areas.

However, the CSR concept is not about philanthropy, which only creates a sense of artificial prosperity. Nor is it about throwing money around or simply writing a check for a foundation. The core of CSR is the process of empowering local communities through programs that gradually transfer business, technical and social competence.

CSR requires companies to share a portion of their profits for programs to empower the people, or at least the local communities around their areas of operations. Making CSR compulsory but accounting spending on CSR programs as part of production costs (hence tax deductible) nullifies the meaning of the concept. Making CSR mandatory may shift the focus of attention to the amount of spending, not the outcome.

The emphasis on the CSR principle certainly differs from one company to another, depending on their areas of operations. Environmental concerns, for example, are the top priority for businesses engaged in the extraction of natural resources. However, labor rights are the main concerns for such labor-intensive industries as shoe and garment manufacturing.

Enforcing CSR principles through special legislation as the House intends to do with a special CSR law could be counter-productive and even cause a new source of uncertainty in the business world. We think the House’s legislative initiative simply reflects the muddled thinking about CSR among politicians. Making CSR mandatory only makes doing business in Indonesia unnecessarily more complicated, especially if regional governments join the fray and come up with their own standards or guidelines on CSR.