120821 nk canberra ausaid - partnering for development


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Speech at AusAID Conference in Canberra.

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120821 nk canberra ausaid - partnering for development

  1. 1. PARTNERING FOR DEVELOPMENT Toward sustainable business and communities in developing countries Noke Kiroyan Arguably, the phenomenon of companies functioning as development agents in theeconomic sense can be traced as far back as the Dutch East India Company (known under itsDutch acronym VOC in Indonesia) that operated in the seventeenth and eighteenthcenturies in the archipelago that, in the twentieth century, became the independent nationof Indonesia. Of course, being the object of massive exploitation of people and resources bythis private company, present-day Indonesians would protest that rather than beingdevelopment agents, VOC was a precursor to colonialism. However, it is undeniable that ina sense some of the giants in the business world of bygone days, VOC in Indonesia and theBritish South Africa Company in Zambia were performing functions that would nowadays beregarded as belonging to the domain of government (Blowfield, 2010). Currently, discussions about the role of business in development would invariablylead to the topic of Corporate Social Responsibility (CSR) that has unfortunately acquired abad connotation in some quarters due to the misuse of the concept for Public Relationspurposes. I am not saying that companies should refrain from including CSR programs andconcepts in their reputation building scheme, but overzealous publicity-seeking using theCSR platform may backfire as it is regarded as a gimmick. Or worse, people suspect it is asmokescreen or cover-up for corporate wrongdoings. The term “greenwashing” specificallyrefers to excessive showcasing of CSR – particularly in regard to the environment – that hasgiven a bad name to a highly relevant and virtuous practice, if conducted properly. Having said all the above, CSR has been widely practiced as part of strategicmanagement to secure and maintain a license to operate by engaging stakeholders inaddressing the social and environmental impact of companies through transparent andethical behavior. As such, CSR will continue to have a broad following among companiesadhering to best practice and aspiring to contribute to sustainable development. I am going to talk about CSR in these terms, that is engaging stakeholders for mutualbenefit as spelled out in ISO 26000 that defines Social Responsibility as the responsibility ofan organization for the impacts of its decisions and activities on society and theenvironment, through transparent and ethical behavior that:  Contributes to sustainable development, health and the welfare of society;  Takes into account the expectations of stakeholders;  Is in compliance with applicable law and consistent with international norms of behavior; and  Is integrated throughout the organization and practiced in its relationships Page 1
  2. 2. AusAID 2012 Consultative Forum with Business Canberra, August 21, 2012 The seven core subjects in ISO 26000 are Human Rights, Labor Practices, TheEnvironment, Fair Operating Practices, Consumer Issues, CommunityInvolvement/Development, and finally Organizational Governance. The last one underpinsand binds the other six subjects together. I will focus on Community Involvement andDevelopment that explicitly encourages organizations to be actively involved “ininstitutional strengthening of the community, its groups and collective forums, cultural,social and environmental programmes and local networks involving multiple institutions.”(International Organization for Standardization, 2010). This is particularly relevant todeveloping countries like Indonesia. As well, it provides an internationally recognizedinstitutional framework for cooperation between various government bodies in a hostcountry, NGOs, development agencies and individual companies as well as businessassociations in assisting or accelerating economic and social development. Please allow me at this point to discuss at some length a peculiar Indonesiansituation in relation to Corporate Social Responsibility. The current Law on Limited LiabilityCompanies (Law No. 40/2007) contains several articles relating to Corporate SocialResponsibility as understood by the Indonesian Government and Parliament. Particularlyonerous is Article 74 of the Law, the translation of which I will cite in full as follows:  Paragraph 1) – Corporations in the business of and/or whose business relate to natural resources must conduct social and environmental responsibility  Paragraph 2) – Social and environmental responsibility as stipulated under paragraph 1) is a corporation’s obligation that is budgeted and treated as costs of the corporation and implemented with due consideration of propriety and reasonableness  Paragraph 3) – Corporations that neglect their obligations as stipulated under paragraph 1) will be sanctioned under the prevailing laws  Paragraph 4) – Further legislation on social and environmental responsibility will be established under a Government Regulation On July 16, 2007, just a month before the law came into force, having been apprisedof the “CSR provisions” in the law being drafted that would entail companies having to setaside an amount equivalent to 5% of net profit for social and environmental responsibility,Indonesia Business Links initiated a public forum involving thirty influential businessorganizations including KADIN Indonesia, the Indonesian Chamber of Commerce & Industry.The ad hoc coalition petitioned Parliament to withdraw these provisions and enlisted thesupport of prominent personalities. The business organizations were perplexed about hintsthat a special body would be established to manage the 5% collected from companies. Thejoint action achieved some measure of success. In the face of this massive opposition,Parliament relented and amended paragraph 74 but insisted that the compulsory ruling onsocial and environmental responsibility must remain. Importantly, the 5% requirement wasdropped, the end result being the current wording of paragraph 2) cited above.Partnering for Development - Noke Kiroyan Page 2
  3. 3. AusAID 2012 Consultative Forum with Business Canberra, August 21, 2012 In 2008, the Indonesian Chamber of Commerce & Industry – jointly with theAssociation of Indonesian Young Entrepreneurs (HIPMI) and the Association of WomenEntrepreneurs (IWAPI) filed for judicial review of Article 74 of the law with theConstitutional Court, but the plea was ultimately rejected. The Government Regulation as indicated in Paragraph 4 of the article took five yearsto complete. Finally, it was issued in April this year, basically reiterating Article 74. However,it does provide an important clue on “prevailing laws” mentioned in paragraph 3) of the saidarticle. They are specified as legislation on natural resources or that relate to naturalresources and those that regulate business ethics. A number of laws regulating sectors andactivities are highlighted as examples, among others on state-owned enterprises, forestry,industry, geothermal energy, electricity, mining of minerals and coal, preservation of theenvironment and human rights. An unwanted by-product of the long gestation period of the Government Regulationis that in the absence of the implementing legislation, many regions have taken matters intotheir own hands. Inspired by the original draft of the law, a number of local governmentshave introduced regulations requiring companies to provide the “discounted” amount of2.5% from profit for their version of Corporate Social Responsibility. KADIN Indonesia and like-minded organizations, among others the NationalCommission on Governance, Indonesia Business Links and the Institute for Commissionersand Directors of Indonesia are currently advocating for an amendment of Article 74 byreferring to ISO 26000. The Indonesian Government represented by the NationalStandardization Body is among those that accepted the final version of the internationalstandard officially launched in November 2010. The argument put forward by theorganizations is that Article 74 contradicts the definition of Social Responsibility in ISO26000 that is supported by the government. The battle rages on and the end is not yet insight. Indonesian companies are not against participating in the development ofcommunities. On the contrary, Corporate Social Responsibility in its various manifestationsis recognized as being part of doing business amidst a society in which major segments ofthe population have only just begun to participate in the modern economy and where hugediscrepancies may threaten the social fabric. However, the fact that the multi-faceted andevolving concept of Corporate Social Responsibility was captured within the narrow confinesof a law that is simultaneously punitive and ambiguous is a major cause for worry. TheIndonesian business community now seeks refuge in the international standard of ISO26000 as an acceptable common platform for business and its stakeholders, includinggovernment and the communities. Reverting to the topic of today’s forum, possible areas of cooperation betweenbusiness, development agencies, universities and NGOs could include:Partnering for Development - Noke Kiroyan Page 3
  4. 4. AusAID 2012 Consultative Forum with Business Canberra, August 21, 2012  Public governance training for officials in the regions  Enhanced or alternative livelihoods training for local communities  Skills training for farmers and artisanal miners  Stakeholder management  Conflict resolution When I was in charge of a major coal mining company called Kaltim Prima Coal (KPC)in the early 2000s at the time it was a joint-venture between BP and Rio Tinto, I attemptedto put in practice community development that was geared to economic growth. TheInstitute for Economic and Social Research of the Faculty of Economics, University ofIndonesia, was commissioned to conduct macroeconomic research into the impact of thecompany on the local and national economy. The findings of the research showed that atthe time Kaltim Prima Coal produced a multiplier effect in fiscal terms of 1.9, meaning thatevery dollar spent by the company generated output in all economic sectors of almost twiceits value. In terms of employment, the multiplier effect was 14, in other words, every directemployment by the company generated 14 jobs. My thinking at the time was to conduct community development focused onstimulating local economic growth, including increased capacity building of local businessesto enable them to participate in the company’s supply chain. Combined with the economicactivity of extracting and selling coal my objective was to increase the company’s multipliereffect over time. Every two or three years the multiplier effect would be measured again asa management tool for aligning the company’s core business with well-defined communitydevelopment programs to spur economic development. In October 2003 the mine was sold,so I did not have the opportunity to bring the experiment to a conclusion. Apart from partnerships with business entities, possibilities for partnering exist fordevelopment agencies at a G-to-G level, such as:  Comparative study of community development and capacity building in various countries.  Joint study and promotion of selected economic sectors, e.g. agriculture, mining, cattle breeding and dairy industry, for targeted development efforts in alignment with mutual interests identified in economic partnership agreements. Many other initiatives may be developed by creating synergies between varioussectors of development with business enterprises, local or national government agencies aswell as institutions of higher learning. I hope my presentation may provide some input forfurther work by development agencies in partnership with business.ReferencesBlowfield, M.E., “Business, Corporate Responsibility and Poverty Reduction” in Corporate Social Responsibility andRegulatory Governance - Peter Utting and José Carlos Marques (editors), Palgrave MacMillan, 2010International Organization for Standardization, “ISO 26000: Guidance on social responsibility,” 2010Partnering for Development - Noke Kiroyan Page 4