Journal of Critical Reviews

ISSN- 2394-5125 Vol 6, Issue 4, 2019

Review Article

CORPORATE (CSR) AND SOCIAL CONFLICT POTENCIES IN MINING AREAS COMMUNITY: EMPIRICAL EVIDENCES FROM INDONESIA

MOH. DULKIAH1*, LILIS SULASTRI2, IRWANDI3, AVID LEONARDO SARI4 1234UIN Sunan Gunung Djati Bandung, Indonesia *Email: [email protected]

Received: 21.07.2019 Revised: 19.08.2019 Accepted: 23.08.2019

ABSTRACT Mining companies are business units that are required to carry out Corporate Social Responsibility (CSR). The implementation of CSR is one mechanism to improve the company's brand image in the community and also reduce the potential for conflict between the company and the people who live around the operational area. This study aims to look at the relationship between the implementation of CSR with the potential for social conflict, both vertically and horizontally in communities around mining areas. The study was conducted using qualitative methods, in several mining areas in Indonesia. The existence of corporations in the midst of society also has a broad impact on complex aspects both economically, socially, politically, culturally and environmentally. This can trigger conflicts in the community. The results found that the implementation of CSR programs conducted by the company can reduce the potential for conflict in the community, both vertically and horizontally. Keywords: CSR, community, mining areas, social conflict, Indonesia.

© 2019 The Authors. Published by Advance Scientific Research. This is an open-access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/) DOI: http://dx.doi.org/10.22159/jcr.06.04.10

INTRODUCTION from the corporation because of its importance for the socio- Mining activity is one of the many production activities carried out economic development of a society. Because investment in in Indonesia. Mining business activities have two different sides, CSR can be correlated to the company's image, economic namely prosperity, energy and mineral fulfillment for the prosperity, competitive advantage, customer loyalty and community, but also have environmental and social impacts minimize the occurrence of corporate and community social (Prayogo, 2010; Situmeang & Siwi, 2017; Irwandi & Chotim, conflicts (Rahim et al., 2011; Firdaus, 2014). 2017). As awareness in order to account for the production Initially, CSR was in the form of corporate awareness without activities carried out by the corporation, long ago the practice of any formulation of policies regulated in the legal form. Several Corporate Social Responsibility (CSR) has been born (Ambadar, large corporations in the world from the beginning have 2008). routinely paid attention to the welfare of employees, as well as Every business operates in the community providing assistance to people who live around their (Akinyomi, 2012). The corporation is a social institution and part operational areas. Then, various studies and measurements, as of the community. Therefore, giving and returning relationships well as awards for awards were sparked to appreciate the are observed between the company and the community. As part of responsibility carried out by corporations on the environment the community, companies must do several things to improve the and society. The study and study of CSR practices began to be community as corporate social responsibility (CSR). initiated by looking at it from various perspectives (Sukada et Corporate social responsibility (CSR) is one of the most dynamic, al., 2007). complex and challenging problems in modern business In Indonesia, there are indeed that require all management (Rahman, 2013). Modern business managers are business activities related to natural resources to be listed in constantly faced with the appropriate contribution dilemma for article 74 of Number 40 of 2007 concerning limited developing the environment in which they live to operate, and liability companies. However, this is also meeting the requirements of a small but strong group of considered to still have shortcomings, for example, does not shareholders (Singh, 2006). Good corporate social responsibility include the amount of value that must be paid by the company in practical terms must be considered from the perspective of how as a responsibility for the exploitation of natural resources to local/regional managers of these multi-national companies the community (Ambadar 2008). These deficiencies have led operate in the region (Nickles et al., 2005). to conflicts between companies and communities living CSR refers to business decision making related to ethical values, around mining areas (Situmeang & Siwi, 2017). compliance with legal requirements, and respect for people, Social change with the entry of a corporation certainly creates communities, and the environment. In this light, there is a various social phenomena, one of which can be in the form of tendency for CSR to be seen by consumers as an obligation taken conflict. Interaction between mining corporations and the by entrepreneurs in running their business, making policies, surrounding community can be in the form of constructive making decisions, or following action steps (Ali & Ikhlas, 2012). interactions (associative) or interactions that actually bring CSR has different meanings for different stakeholders but each other down (dissociative). In fact, it is not uncommon for generally refers to saving people, communities and environmental interactions between corporations and the surrounding ways that go beyond what is legally demanded from a company community to turn into conflict, both latent and open (Prayogo (Salehi & Azary, 2009). 2011). There are high expectations of corporate social responsibility Several studies on corporate conflict with the community, for

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CORPORATE SOCIAL RESPONSIBILITY (CSR) AND SOCIAL CONFLICT POTENCIES IN MINING AREAS COMMUNITY: EMPIRICAL EVIDENCES FROM INDONESIA

example, studies conducted by Prayogo (2010), Hoelscher & of industrialization has not only exploited natural resources Rustad (2019); Barnea & Rubin (2010), Fajri (2012) and others. but also degraded the environment. In this case, the local However, previous research forgot about the relationship community is the host as the 'owner' of the potential and between CSR and the company's brand image in the community assets of natural resource wealth but is the exploited party. and the relationship of CSR with the potential for social conflict in Even based on field research by researchers in the East communities around the company's operational area. Kalimantan region, one of the provinces in Indonesia which This study aims to look at the relationship between the has the highest number of mining industries, researchers implementation of CSR with the potential for social conflict, both found a conflict of interest between corporations and local vertically and horizontally in communities around mining areas in communities on the work aspect. Local communities are Indonesia. urging that the corporation can accept workers from the local community. But on the other hand, the corporation has quite METHOD strict recruitment standards for workers, especially in terms This study uses qualitative methods (Taylor et al., 2015; Patton, of education and competency. While prospective workers 1990; Creswel, 2009). The subjects in this study were the people from the local community have a low level of education and receiving CSR programs from mining companies in Indonesia. limited expertise. This problem is getting stronger because Data collection is carried out by researchers to obtain data and each is determined to emphasize its interests. The CSR team as information that is relevant and useful regarding this research. a representation of the company often becomes the Data collection is done through observation and in-depth foundation for resolving this conflict because it is considered interview techniques. to have a closeness with the local community. Data analysis was carried out through three stages namely data Conflicts of interest occur between corporations and local reduction, data presentation, and verification (Miles & Huberman, communities, especially in the economic aspects. Both the 1984). The purpose of this data reduction is to sharpen, classify, corporation and the local community each strive to win the direct, and discard unnecessary data. The second is the interests, especially the economic interests of the local presentation of data in the form of compiling all information and community towards the corporation (Achwan et al., 2005). data obtained into a series of words that are easy to read into a Thus, it causes an unbalanced relationship where exploitation report. Presentation of data in the form of narratives, diagrams, of natural resources such as natural resources, land, and and matrices. Verification is the last step which is a conclusion environmental impacts occur where local communities are from the results that have been processed at the reduction stage. located. In this case, the local community as an offensive party, the community tends to be often identified with the exploited, RESULTS AND DISCUSSIONS also identified with poverty, especially in terms of equitable CSR and Social Conflict in Indonesia (Corporate Interests vs. Local distribution of the economy and the right to justice. While Communities) corporations, on the contrary, the position of the corporation In Indonesia, the existence of corporations in an area has become here can be seen as a defensive party who has economic a black mark, for example, extractive industries (oil, gas, coal, power and is seen as a party that causes conflict. Corporations sand, tin and other mining). In the records of conflict incidents also tend to be more oriented towards pursuing profits and involving corporations such as mining, for example, which business activities (industry), with minimal contribution to occurred in the intervals of 1998-2003 namely such as Kaltim local communities and even it creates economic inequality. Prima Coal (KPC), Unocal, Kideco Jaya Agung, Kelian Equatorial The aspect of regulation in Indonesia itself also provides Mining, Tinto Harun, Indomuro Kencana, Expans Tomori Sulawesi, flexibility for corporate activities in conducting business Permata Karya Graha Sakti, Meares Soputan Mining, Prima which has been regulated since Law No. 1 of 1967 and Law No. Lestari, Pulau Indah Teknik, Inco, Newmont Minahasa Raya and 11 of 1967 concerning Foreign Investment (PMA). In practice, Nusa Tenggara, Freeport Indonesia, Newcrest Halmahera and this regulation causes pollution cases such as PT. Newmont, Exxon Mobil in Aceh. Firm criticism continued to emerge from Freeport, and others. This problem is inseparable from the various parties from non-governmental (NGOs) as policies issued by the Government where the policy well as the community which eventually led to conflict. Although, orientation turns out to only benefit certain parties which are the concept of CSR began to be known in Indonesia in the 1990s, only based on economic orientation. which began with the activities of providing funds and assistance In addition, there are still corporations that make CSR a part of from corporations to the poor. the costs incurred by reactive actions to anticipate community Most companies think that giving a donation is a tangible and environmental rejection. Some corporations do try to manifestation of CSR. Another action that is considered the make CSR at a higher level and make it as a brand building and implementation of CSR is the welfare of its employees, paying image. However, CSR efforts are still rarely used as a foothold . This means that in general the implementation of CSR in as part of corporate strategic planning. Indonesia is still very conventional, -term, and based on the Many aspects that cause conflicts occur between corporations motivation to solve the problem for a moment. In short, and communities such as differences in knowledge or corporations in Indonesia, in general, are only at the boundary of understanding that lead to conflict, differences in values and carrying out charity obligations and are not an integrated differences in interests (Mitchell, 2003). Therefore, as an guideline or reference in the corporate strategic plan. This alternative strategy to reduce the adverse effects of corporate phenomenon is a complex problem that cannot be separated business activities, we need what is called Corporate Social because it is associated with a negative influence on the lives of Responsibility (CSR). local communities and the surrounding environment. The existence of the World Meeting in Johannesburg in 2002 What is increasingly highlighted today is the increasing intensity which was attended by world leaders, has resulted in the of conflicts between corporations and local communities. For concept of social responsibility which was preceded by the example, cases of pollution and pollution were found in Unocal previous concepts of economic and environmental companies, BP, BHP Arutmin, Newmont Sumbawa, Banpu, Berau sustainability. These three concepts are the basis for Coal and Kaltim Prima Coal (Prayogo, 2004). The perspective of companies or corporations in carrying out their social environmental conflict states that social conflict also includes responsibilities (Corporate Social Responsibility). CSR is a environmental conflicts that occur in local communities. The strategy to overcome these problems because corporate existence of these interests continues to exploit the natural business activities have a major influence on the sustainability environment where local communities are located. The existence

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of the local community and surrounding nature. CSR makes which describes corporate responsibilities that include comparative advantages inward (internal sides) and outward economic responsibility, legal responsibility, ethical (external sides) to enhance its image and reputation. CSR is used responsibility and philanthropic responsibility (Carroll, as a strategy to gain legitimacy from the community so that 1991): corporations can still carry out their business activities and also become a bridge to overcome conflicts that arise in the community.

A. CSR as a Form of Corporate Social Responsibility Strategy Actually there is no standard concept that can be used as a reference in the implementation of CSR at the local and global levels. At present, at the international level, several CSR implementation initiatives have been recorded. The initiative was proposed by international organizations (such as the Global Reporting Initiative), state organizations (such as OECD countries), and non-governmental organizations

(such as Caux Roundtables), and others. For example, according to Griffiths in a book entitled Human and Environmental Rights: Gambar 1 The Pyramid of Social Responsibility The Need for Corporate , states that in the UK of Sumber: Carroll (1991) the 350 large companies that are members of The Financial Times Exchanges (FTSE), only 79 companies report on The picture above describes CSR responsibilities that must social impacts and the environment of his business practices. be balanced that not only has economic responsibility but also involves legal, ethical and philanthropic aspects. In addition, researchers also observed the implementation of Economic responsibility is the responsibility of the CSR which was often in contact with local political interests. corporation to produce goods and services to the public at a The apparatus often feels excluded if its implementation is not reasonable cost and provide benefits. Legal responsibility involved. In fact, several cases occurred precisely this here means that the existence of a corporation cannot be apparatus which could worsen the atmosphere of conflict separated from the applicable regulations and legislation between the corporation and the local community, where the governing business activities aimed at controlling allocation of funds that should have been given to the local environmental changes and consumer safety. Ethical community was actually used more for the interests of the responsibility means that a corporation is established not apparatus. only legally but must also be ethical. And finally, In Indonesia, CSR is regulated in Law No. 40 of 2007 concerning philanthropic responsibility, the existence of corporations Companies which states that: contributes to improving the quality of life and becoming a 1. Companies that carry out their business activities in the good corporate citizen. Corporations are required to fields and/or related to natural resources are required to contribute to improving people's lives, not just supplying carry out Social and Environmental Responsibility. goods and services (Hadi, 2011). One of the breakthroughs 2. Social and Environmental Responsibility as referred to in in the development of the concept of CSR if a corporation paragraph (1) is a Company obligation that is budgeted and wants to be sustainable, it is necessary to pay attention to calculated as a Company expense whose implementation is 3P, which is not only profit (Profit) oriented, but also must carried out with due regard to propriety and fairness. be able to make a positive contribution to the community 3. Companies that do not carry out the obligations referred to (people) and play an active role in protecting the in paragraph (1) are subject to sanctions in accordance environment (Planet). These three concepts are also called with the provisions of the legislation. Tripple Bottom Line Concepts as corporate social 4. Further provisions regarding Social and Environmental responsibility inseparable from the vision, mission and Responsibility are regulated by Government Regulation. business strategy of a company that requires thorough handling. (Enklington, 1997). In addition, another regulation concerning CSR is Law No. 25 of 2007 concerning Investment. Article 15 (b) states that "Every investor is obliged to carry out corporate social responsibility." B. The Role of CSR in Resolving Vertical and Horizontal CSR functions as a condition for obtaining a license to operate Social Conflicts from both the government and the community. Because however, the corporation will be difficult to operate when the Theoretically, corporations are important development local community does not support its existence (Jalal, 2007). In agents. The implementation of CSR programs is to minimize addition, CSR is a corporate management strategy the negative impact of the corporation experienced by (Suharto, 2008). However, detailed guidelines governing how related parties. For example, unfair treatment of labor, mechanisms and procedures for implementing CSR are not consumer losses for products that do not comply with available and Community Development regulations are still in standards, pollution, and declining environmental quality. the form of a draft that will be submitted by the Department of According to Thurow (1966), capitalism is not only related Energy and Mineral Resources (ESDM). to economic affairs (economic rational) but also the need to include social and environmental aspects for community The corporation is holding its business is actually sustainability (Wibisono, 2007). It is from this concept that responsible not only to the shareholders of the company (high builds what is called community development as part of productivity, large profits, high stock values, internal CSR. achievement) but also to other stakeholders, those who are The corporate strategy of carrying out CSR programs interested in the existence of the corporation. Below will be through community development practices aims to manage explained about the role of CSR in the Carroll’s CSR Pyramid and reduce the gap and social impact between the

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corporation and the local community. Community development CONCLUSIONS must be based on the principle of community empowerment and be able to express the values of justice, equality, The existence of corporations in the midst of society also accountability, opportunity, participation, cooperation, and has a broad impact on complex aspects both economically, ongoing learning processes. Through community development, socially, politically, culturally and environmentally. This can it is hoped that corporations will strive to integrate policies and trigger conflicts in the community. CSR approach as an programs related to social, environmental and labor and human alternative strategy to reduce the adverse effects of rights commitments into the company's operational system. So corporate business activities and as a formula in resolving it is also able to build a life in order to improve the welfare of conflicts. Community development is a part of CSR that the community. In the past, CSR implementation was mostly requires synergy and involvement of roles between still limited to funding in the field of education such as the corporations, communities and also the government. This is granting of a company scholarship to school students ranging where critical thinking is needed to be able to filter the from elementary schools to undergraduate degrees. But now, developing business world, which requires business people forms of CSR implementation can vary, from providing and corporations to conduct their business more assistance to victims of natural disasters and greening to responsibly. Corporations are not only required to fulfill improve environmental quality. their profit targets economically but also to contribute both There are at least three important reasons why the business physically and socially to the community and the community must respond and develop their CSR in line with environment. The CSR program investment issued by the their business operations (Daniri, 2007), among others: first, corporation is an effort to strengthen social capital which corporations are part of the community and therefore it is can later lead to what is called positive peace, which is not natural that in running its business it needs to pay attention to only limited to reducing conflict but also allows for cohesive the interests of the community. Second, business people and collaboration and cooperation. the community should have a symbiotic relationship with REFERENCES mutualism. Third, social responsibility activities are one way to 1. Achwan, R., Nugroho, H., Prayogo, D., & Hadi, S. (2005). minimize and even avoid social conflicts. 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