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  • 1. Issues in Social and Environmental AccountingVol. 4, No. 2 December 2010Pp 104-114 The Impact of Management on CSR Hasan Fauzi Faculty of Economics Sebelas Maret University Indonesia Kamil M. Idris College of Business Nothern University of MalayiaAbstractThe purpose of this study is to investigate the difference in the CSR perceived by the actors inthe Indonesia economy represented by managers working in state-owned companies (BUMN)and non state-owned companies. The unit of analysis in this study is Indonesian managers. Thepopulation of this study is all Indonesian managers working in the Jakarta stock exchange’slisted companies and in state-owned companies. Based on the mean difference analysis, theresult is that there is no difference of CSR perceived by managers working in SOC and POC.The rank of CSR dimensions perceived by managers is as follows: (1) corporate governance,(2) customer, (3) employment, (4) community and society, (5) environment, (6) human rights,and (7) controversial business.Keywords: CSR, Management, Indonesia, corporate governance, customer, community andsociety, employment, human rights, controversial business, BUMNIntroduction Knirsch, 2005). Therefore, corporate performance can reflect the performanceThe extended corporate performance of management. This understanding is inincluding financial, social, and environ- line with the concern of Thomas andmental performance, often referred to as Simerly (1994, 1995) and Simerlysustainable corporate performance, can (2003), who investigated the role ofbe affected by management intervention. managers in improving corporate socialThis is true because sustainable perform- performance.ance will take place when there are ac-tive leaders or managers within the com- Law No. 19/2003 on BUMN stipulatespany to champion sustainable approach that actors in Indonesian economy in-to managing the company (Szekely & clude state-owned companies, private-Hasan Fauzi, Ph.D. is senior lecturer (Lektor kepala, equivalent to Associate Professor) at Faculty of Economics,Sebelas Maret University, Indonesia and Director of Indonesian Center for Social and Environmental AccountingResearch and Development (ICSEARD) of Sebelas Maret University, email: hfauzi@icseard.uns.ac.id. Kamil Md.Idris, Ph.D. is Associate Professor at College of Business, University Utara Malaysia, email: kamil@uum.edu.my. Theauthors are very grateful to some reviewers including Prof. Mustaffa M.Zein of UiTM Malaysia, and Prof. Ku NoorIzzah Ku Ismail of Universiti Utara Malaysia and others for their direction and helpful suggestion on final stage ofresearch project and to some anonymous referees for comments
  • 2. H. Fauzi, K.M. Idris / Issues in Social and Environmental Accounting 2 (2010) 104-114 105owned companies, and companies under tigate whether there are any differencescooperative scheme. In terms of owner- in CSR as perceived by managers work-ship, they can be classified into two ing in state-owned companies and noncategories: state-owned companies and state-owned companies; and to deter-non state-owned companies. Therefore, mine the ranking of CSR dimensions bymanagers in two categories of compa- managers in state-owned and non-state-nies may perceive CSR differently. This owned companies.is because only Law No. 19/2003 regu-lates CSR for the private sector compa-nies while state-owned companies are Literature Review and Hypothesesgoverned by five different sets of laws. DevelopmentIn terms of business, the two categoriesof companies are the same, but in terms The sustainable corporate performanceof mission set by their owner, they are including financial, social, and environ-different. Government as the owner of mental performance can be affected bythe BUMN has set some missions of management intervention. This is truepublic service offering (PSO) for the because the sustainable performance willcompanies (Fauzi et al., 2009). Detailed take place when there are active leadersregulation on CSR for BUMN has been or managers within the company toestablished through Ministerial decree of champion sustainable approach to man-BUMN minister. Under this situation, aging the company (Szekely & Knirsch,managers of state-owned companies are 2005). Therefore, the term of corporateexpected to perceive CSR more favora- or organization performance can indicatebly than their counterparts in non state- a reflection of the performance of man-owned companies. However, the study agement. This understanding was paral-of Fauzi et al. (2009), using the disclo- lel to the one of Thomas and Simerlysure approach to measuring CSR, found (1994). Thomas and Simerly (1995) andno difference of CSR between the two Simerly (2003) also had the same con-categories of managers. The finding is cern by investigating the importance oftherefore consistent with the data indi- the role of top managers in improvingcated in Table 1-2 and 1-3 previously. corporate social performance and theThis further justifies why a study to ex- relation between management functionalamine the perceptions of CSR amongst background and corporate social per-managers in public and private sector formance. To this point, understandingcompanies needs to be carried out. has been gained that top management can highly play role in determining cor-This study attempts to answers the fol- porate social responsibility or perform-lowing research questions: ance. The generalization is supported byAre there any differences in CSR as per- the recent investigation by Brownsceived by managers working in state- (2003), explaining quality of top man-owned companies and non state-owned agement teams as one of the determi-companies? How do managers in state- nants of corporate social performance.owned and non-state-owned companies Furthermore, corporate social responsi-rank the CSR dimensions? bility value can be predicted by the CEO visionary and integrity (Galbreath,The objectives of the study are to inves- 2006).
  • 3. 106 H. Fauzi, K.M. Idris / Issues in Social and Environmental Accounting 2 (2010) 104-114The perceived CSR may come from (including CSR matters) may bemanagers across companies which in thwarted by those assigned the task to ofterms of ownership can be classified into getting the job done (at lower manage-two categories: state owned companies rial level) (Collins et al., 1973; cited inand non-state owned companies. In Ostlund, 1977, and 1978). Specifically,Broader sense, state-owned companies Collins et al. (1973) contended that dif-can be defined as a legal entity created ferent attitude between the categories ofby a government to undertake commer- managers can lead to gap between cor-cial or business activities on behalf of an porate social policy and implementationowner (government). They may also of the policy. Therefore, the corporatehave public policy objectives in addition social policy can be sabotaged by unco-to financial goal. According to the ex- operative employee charged with imple-planation of the Indonesian Law No. 19 menting the policy (Collins et al., 1973;(2003), actors in Indonesian economy Ostlund, 1978). The difference of CSRinclude: state owned companies, private perceived by top managers and operat-owned companies, and companies under ing (middle level or lower level execu-cooperative scheme. Based on the Law, tive) managers can be resulted from twonon state owned companies include both folds: (1) lack of incentive for such man-private owned companies and companies agers, in that successful social programsunder cooperative. In article 66, the are rarely rewarded as straightforwardlyLaw also requires that state owned com- as successful profit oriented activities,panies conduct government’s policy and (2) middle managers may not sharecalled Public service Offering (PSO). In their chief attitude toward the corporateaddition, government (as owner) issue responsibility due to the different valueinstruction for the state companies to they have (Collins et al., 1973; Ostlund,reserve 1-5% of their net profit for help- 1977 and 1978). The last reason is con-ing small-scale companies in the revolv- sisted with the view of Hemingway et al.ing fund form and training activities to (2004) asserting that manager’s personalincrease their management skill. Re- value can influence CSR.cently, in an effort to increase Indone-sian companies’ concern about social The priority difference in CSR areasresponsibility, the Indonesian Law between top and operating managers aremaker approves the Law 40 (2007), also found by Collins et al. (1973) andwhich in article of 74 stipulates that all Otslund (1977 and 1978). For two areascompanies in corporation (PT) in Indo- of CSR: pollution control and minoritynesia (state or non state companies) hiring, for example, operating managers,should conduct social responsibility. as reported by him, felt less enthusiasticGiven the condition, the perceived CSR compared to their chief managers. Inby managers of state companies is ex- contrast, the lower managers are morepected to be better than the one by their enthusiastic to responding to the govern-counterpart in non state companies. ment regulation. In terms of the diffi- culty in CSR areas, the significant dif-The difference of CSR may also be per- ference as perceived by top and lowerceived by across managers in the same level managers occurred in the pollutioncategory of company. Top managers control variable. The perception differ-tasked to make a company’s policy ences in the involvement in CSR had
  • 4. H. Fauzi, K.M. Idris / Issues in Social and Environmental Accounting 2 (2010) 104-114 107been found in the following CSR areas: study, questionnaire-based survey re-equal opportunity of hiring, pollution search design was used. The question-control, employ safety, resource conser- naires that include items of CSR werevation, responding to government’s sent to the respondents who are manag-regulation, reacting to consumerism, ers of state-owned companies (BUMN)community improvement program, for- and private-owned companies using posteign investment, and purchasing from and e-mail services. Due to the fact thatminority-owned companies (Ostlund, the questionnaire instrument of this1977 and 1978). study is adopted from the materials writ- ten in English and that the respondentsThere are two laws explicitly requiring were not ones in the English countryIndonesian companies to conduct CSR: speaking, to be valid, the back transla-Law 19 (2003) and Law 40 (2007). Law tion technique was used.19 (2003) is applied to state-owned com-panies only, while Law 40 (2007) is for The measure for CSR in this study usedall Indonesian corporations both state the MJRA’s dimensions of CSR. Fol-and non-state owned companies. State- lowing are indicators for each dimen-owned companies are required by two sion:laws, while non-state companies are 1. Community and society:obliged under one law only in CSR im- Public reportingplementation. Under the Law 19 (2003), Charitable donation programstate-owned companies are required to Community relationconduct specific CSR that include two Aboriginal relationkinds of activities: (1) allocating specific Impact on societybudget (2%-5%) for CSR implementa- 2. Corporate governance:tion, and (2) developing related sustain- Management Systemsable environmental activities. Given Governance datathe consideration, the perceived CSR by 3. Customers:managers of state companies is expected Impact on customerto be better than the one by their coun- 4. Employee:terpart in non state-owned companies as Employee datain addition to complying with Law Reporting40/2007, the state-owned companies Employee program and benefitmust follow the Law 19/2003. Diversity Health and safetyBased on the arguments and findings Union relationmentioned above, it is expected that the Other employee datacurrent study’s hypothesis is as follows: 5. EnvironmentH: There are differences of CSR as per- Exposure to Environmental Is-ceived by managers working in state- suesowned companies and non state-owned Management Systemscompanies Public Reporting Impact and InitiativesResearch Method Regulatory Compliance Other Environmental DataTo answer the research questions of this 6. Human Rights:
  • 5. 108 H. Fauzi, K.M. Idris / Issues in Social and Environmental Accounting 2 (2010) 104-114 Exposure to Human Rights Is- by group of respondents (BUMN and sues private-owned company), mean differ- Management Systems ence was conducted using the independ- Impact and Initiatives ent sample t test. There were two proce-7. Controversies Business Activities dures to conduct the test: (1) Levene’s Alcohol test and (2) t-test for equality of means. Gambling The levene’s test was first conducted to Genetic Engineering test if two CSRs from two respondent Tobacco groups (BUMN and private-owned com- Use of animal pany) were same. The last test is to de- termine the difference of the two CSRBased on the dimension and indicators mean.as well as micro level indicators, theinstrument for this variable was devel-oped using a 7-point scale. Scale 1 is Results and Discussionfor “Not Absolutely Very Important”,while scale 7 is for “Absolutely Very Mean Difference AnalysisImportant”. For example, in the firstdimension of CSR, Society and Commu- The objective of this analysis is to testnity, there were 6 (six) items responded whether perceived CSR of managersby respondents using the 7-point scale. working in SOC and POC are different.There were 7 (seven) dimensions of the As indicated in Table 1, the result of theCSR variable. To measure the SCR, mean difference test (md=2.582,composite or index of CSR was com- p=0.387) demonstrated no CSR differ-puted by summing up each dimension of ence perceived by managers of BUMNCSR. and private-owned companies. There- fore, this study rejects the hypothesisTo answer research question as to the and finds that H6 has not been empiricallypossibility of CSR difference perceived supported. Table 1. Summary of CSR Mean Difference Test for Managers’ BUMN and Private CompaniesDescription BUMN Private CompanyMean 205.195 207.778Deviation standard 21.318 19.526Mean Difference 2.582 2.582p-value (sig) 0.387 0.387CSR Ranked by Respondents nity, (2) corporate governance, (3) cus- tomer, (4) employment, (5) environ-As used in this study, there are seven ment, (6) human right, and (7) contro-dimensions of corporate social perform- versial business. Table 4-2 summarizesance or corporate social responsibility. the order of the importance of CSR per-They include: (1) society and commu- ceived by the managers of BUMN and
  • 6. H. Fauzi, K.M. Idris / Issues in Social and Environmental Accounting 2 (2010) 104-114 109private-owned company. As indicated lowed by customer and employment inin the table 2, the most importance CSR the second rank and third rank, respec-dimension is corporate governance fol- tively. Table 2. Rank Means and Mean Ranks of CSR Dimension CSR Dimensions SOC Managers POC Manager Rank Means MeansRanks Rank Mean Means RanksCorporate Governance 2.042 1 2.264 1Customer 2.361 2 2.412 2Employment 3.042 3 2.953 3Community and Society 4.417 4 4.331 4Environment 4.694 5 4676 5Human Rights 5.833 6 5.730 6Controversial Business 6.486 7 6.277 7Further Analysis been established. But Law No. 19/2003 regulates CSR in BUMN only. GivenThe analysis applies to the mean differ- the condition, the CSR perceived byence as used in this study. As a byprod- managers of state-owned companies isuct of the analysis, this study also pro- expected to be better than the one per-vides us with other aspect of analysis ceived by their counterpart in non state-breaking down the CSR. The important owned companies. However, a study byaspect of the analysis is on the impact of Fauzi et al. (2009), using the disclosureeach dimension of CSR on financial per- approach to measuring CSR, finds thatformance. As shown in Table 3, two di- no difference of CSR exists between themensions of CSR: environment and con- two categories of managers.troversial business, demonstrate no im-pact on financial performance. Similar to This study, consistent with the study ofCSR, the CFP construct as used in this Fauzi et al. (2009), finds that CSR per-study contains two dimensions: growth ceived by managers in both SOC andand profitability. Table 4 shows the im- POC is not different. The finding is notpact of each dimension of financial per- as expected due to the fact that in termsformance on CSR. As indicated in the of CSR, BUMNs are required by twotables, only profitability dimension im- acts: Law No. 19 (2003) and Law No. 40pacted on the CSR. (2007), whereas POC is governed by only one law, that is Law No. 40 (2007. The unexpected finding might be due toDiscussion the Indonesian managers’ low under- standing of the relationship betweenAs mentioned earlier, the five of legal CSR and CFP, the low awareness of In-items underlying CSR in Indonesia have donesian managers on CSR, education/
  • 7. 110 H. Fauzi, K.M. Idris / Issues in Social and Environmental Accounting 2 (2010) 104-114 Table 3.Impact of CSR Dimension on Corporate Financial PerformanceCSR Dimension Type of β β Coefficient t-Value p (sig) valueCommunity and Soci-ety (CSRCOM) β1 -0.247 -1.893 0.060*Corporate governance(CSRCOG) β2 0.293 3.005 0.030**Customer (CSRCUS) β3 0.412 2.366 0.019**Employee (CSREMP) β4 0.504 8.760 0.000***Environment β5 -0.166 -1.238 0.217(CSRENV)Human Rights β6 -0.539 -2.399 0.017**(CSRHMR)Controversial busi- β7 0.188 0.888 0.376ness (CSRCTB)Note: * significant at 10% ** significant at 5% *** significant at 1% Table 4. Impact of CFP Dimensions on CSRCFP Dimension Type of β β Coefficient t-Value p (sig) valueGrowth Dimension β1 1.087 1.455 0.147Profitability Dimen-sion β2 2.327 4.933 0.000***Note: *** significant at 1%knowledge, and experience. The low Based on Law No. 19 (2003), under arti-understanding of the relationship be- cle 66, BUMNs are required to conducttween CSR and CFP by Indonesian man- government’s policy called Public ser-agers has been indicated by a number of vice Offering (PSO). In addition, thecompanies in Indonesia (both State and government (as owner) issues instruc-non-state-owned companies) having in- tions for the state companies to reservecompliance status as shown in Proper 1% to 5% of their net profit to helpReport (2009). The low understanding small-scale companies with their revolv-can lead to their low awareness of CSR. ing fund and training activities to in-Education level can also influence the crease their management skill. Further-finding, where 97% of the respondents more, in an effort to increase Indonesianof this study have undergraduate degree companies’ concern about social respon-only. The low education level can also sibility, the Indonesian Law makerinfluence managers’ experience. In ad- passed Law 40 (2007), which in articledition, most of respondents of this study of 74 stipulates that all companies incor-have been in their companies for 10 to porated in Indonesia (SOC and POC)20 years. should conduct social responsibility.
  • 8. H. Fauzi, K.M. Idris / Issues in Social and Environmental Accounting 2 (2010) 104-114 111Given the condition, the perceived CSR factor is likely to be the low environ-for SOC is expected to be better than the mental performance as reported byone by their counterparts in non-state- Proper Evaluation team (Proper, 2009).owned companies (POC). In terms of business, the two categories of companies are the same, but in termsIn terms of the order of the importance of mission set by their owners, they areof CSR, the most important CSR dimen- different. The government as the ownersion perceived by managers from both of the BUMN has set some missions oftypes companies is corporate governance public service offering (PSO) for thefollowed by customers and employment. companies (Fauzi et al., 2009). DetailedThis finding supports the view that in regulation on CSR for BUMN was es-the CSR implementation in Indonesia, tablished through Ministerial decree ofmanagers prefer the model based on BUMN minister. To be effective in con-slack resource theory. They (managers) trolling the BUMN’s CSR, it was sug-conduct CSR based on the philanthropic gested that the ministry of BUMN rede-perspective (definition used in Law fine the concept of CSR from focusingNo.40/2007). Given such perspective, on philanthropic to emphasizing onCSR exist because companies have slack stakeholder relationship. With the newresource. If the resource is not avail- redefined CSR, corporations will main-able, there is no CSR. The finding that tain their relationship with all the com-corporate governance is the most impor- ponents of their stakeholders, as a part oftant CSR dimension can also be inter- good business practices (Fauzi, 2009). Itpreted that the most important stake- is expected that by doing so, the per-holders’ components are shareholder. In formance of corporations (financial, so-this case, Friedman’ (1970) view that cial, and environment) will be bettersocial responsibility of business is to (Fauzi, 2009).earn profit has dominated Indonesianmanagers. The next order of importance To increase the understanding of theis the parties related to the market relationship of CSR and CFP, there is amechanism. Environment component is need to redefine CSR. It is suggestedconsidered less important by Indonesian that some important institutions can playmanufacturing companies. That is why an important role for this purpose. Theythe percentage of companies categorized include authority for BUMN (ministryby Proper Committee for Environment of BUMN), banking authority (BankEvaluation as environment compliance Indonesia), capital market authorityis less than 50% (Proper, 2009). (Bapepam), environment authority (ministry of environment), and Indone-Therefore, based on the finding and the sian Accountants Association. The so-explanation above, the Ministry of State cialization will also include CSR report-Owned-Companies was ordered by gov- ing as a consequence of the implementa-ernment to control the BUMN including tion of Law No.40/2007. The target ofthe implementation of CSR. One of the the socialization is to change the viewscauses as to why BUMN’s CSR have of CSR from that of slack resourcenot reach the expected level of satisfac- based to good management perspective.tion is the management’s low under- The latter perspective will guaranty thestanding of CSR-CFP link. The main sustainability of the relationship of CSR
  • 9. 112 H. Fauzi, K.M. Idris / Issues in Social and Environmental Accounting 2 (2010) 104-114and CFP. The next target is to make opment stages in companies covered inCSR reporting mandatory. this study to better know the indifference of CSR between state owned companies and non-state-owned companies. TheConclusion further study is suggested to be qualita- tive in nature to uncover managers’This study attempts to contribute to the views on the CSR dimensions.literature by addressing the followingresearch questions: Is there any differ- There are two drawbacks of this study.ence of CSR as perceived by managers The first is the timing of the survey. Forworking in state-owned companies and the last two years, compulsory imple-non state-owned companies? How mentation of CSR in Indonesia based onwould managers in state-owned and non the Law No. 40/2007 has been in thestate-owned companies rank the CSR process and most Indonesian companiesdimensions? objected to the compulsory implementa- tion of the law. The final limitation isTo achieve the research objective, the the population of the study. For nonCSR instrument of Michale Jantzi Re- BUMN population was manufacturingsearch Associates (MJRA) was used. companies listed on ISE (IndonesianThe CSR included: (1) Community and Stock Exchange). Thus, other big manu-society, (2) Corporate governance, (3) facturing companies including miningCustomer, (4) Employee, (5) Environ- companies such as Freeport are not in-ment, (6) Human Rights, and (7) Contro- cluded in the sample as they are notversies Business Activities listed on the Exchange. Such companies may have importantly contributed toThe unit of analysis in this study is Indo- CSR.nesian managers. The population of thisstudy is all Indonesian managers work-ing in the Jakarta stock exchange’s listed Referencescompanies and in state-owned compa-nies. Data are perception and views of Brown, S. (2003) “Determinants of Cor-managers in BUMN and private-owned prate social Performance: An Ex-companies pertaining to the indicators of ploratory Inverstigation of TopCSR. Management Teams, CEO Com- pensation, and CEO Power”. Un-The research questions of this study published Ph.D. Dissertation,have been answered. There is no differ- School and Business and Entre-ence of CSR as perceived by managers prenership, Nove Southeasrternworking in state-owned companies and University.non-state-owned companies, and manag- Collins, J. W., & Ganotis C. (1973) “Isers from both types of companies per- Corporate Responsibility Sabo-ceived corporate governance as the most taged by Rank and File?”, Busi-important CSR dimensions. ness and Society Review, Vol. 73, No. 7, pp. 81-88.Based on the finding of the study, there Fauzi, H. (2004) “Identifying and Ana-is a need for further study on CSR devel- lyzing the Level of Practices of
  • 10. H. Fauzi, K.M. Idris / Issues in Social and Environmental Accounting 2 (2010) 104-114 113 Company’s Social Responsibility proper (accessed on Februari 5, in Improving Financial Perform- 2009) ance”. Journal of Business and Proper Committee (2007) Laporan Hasil Management, Vol. 4, No. 2, pp. Penilaian Peringkat Kinerja Perusa- 109–124. haan Dalam Pengelolaan Lingkun-_________ (2009) “Redefining CSR gan Hidup. www.menlh.go.id/ Concept in Indonesia” Jakarta proper (accessed on Februari 5, Post, (August 5) 2009)_________, Mahoney, L., Rahman, A.A. Proper Committee (2006) Laporan Hasil (2007) ”The Link between Corpo- Penilaian Peringkat Kinerja Perusa- rate Social Performance and Fi- haan Dalam Pengelolaan Lingkun- nancial Performance: Evidence gan Hidup. www.menlh.go.id/ from Indonesian Companies”. proper (accessed on Februari 5, Issues in Social and Environ- 2009) mental Accounting, Vol. 1, No. 1, Proper Committee (2005) Laporan Hasil pp. 149-159. Penilaian Peringkat Kinerja Perusa-_________, Rahman, A.A., Hussain, M., haan Dalam Pengelolaan Lingkun- Adenan, M. (2009) “Corporate gan Hidup. www.menlh.go.id/ Social Performance in Indonesian proper (accessed on Februari 5, State-Owned Companies and Pri- 2009) vate-Owned Companies” in Sigh Republic of Indonesia. (1997) The Law (ed.), Handbook of Corporate No. 23, 1997 on Environment Performance in Emerging Market. Management and its Explana- Singapore tions. www.ri.go.idGalbreath, J. (2006) “Does primary Republic of Indonesia. (2000) The Law stakeholder management posi- No. 17, 2000 on Income Tax and tively affect the Bottom line?”, its Explanations. www.ri.go.id Management Decision, Vol. 44, Republic of Indonesia. (2003) The Law No. 8, pp. 1106. No. 19, 2003 on State-OwnedOstlund, L.E. (1977) “Attitudes of Man- Companies and its Explanations. agers toward Corporate Social www.ri.go.id Responsibility”, California Man- Republic of Indonesia. (2007) The Law agement Review, Vol. 19, No. 4, No. 25, 2007 on Capital Invest- pp. 35-49. ment its Explanations.Ostlund, L.E. (1978) ”Are Middle Man- www.ri.go.id agers an obstacle to Corporate Republic of Indonesia. (2007) The Law Social Policy Implementation?”, No. 40, 2007 on Indonesian Cor- Business Society, Vol. 18, No. 2, poration and its Explanations. pp. 5-20. www.ri.go.idMichael Jantzi Research Associates Inc. Simerly, R.L. (1994) “Corporate Social (MJRA) (2008) www.mjra- Performance and Firms’ Financial jsi.com Performance: An Alternative Per-Proper Committee (2009) Laporan Hasil spective”, Psychological Reports, Penilaian Peringkat Kinerja Perusa- Vol. 75, pp. 1091–1103. haan Dalam Pengelolaan Lingkun- _________ (1995)”Institutional Owner- gan Hidup. www.menlh.go.id/ ship, Corporate Social Perform-
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