Developing a CSR model for Indonesian business

Opinion and Editorial - June 26, 2006

Daniel Lindgren, Jakarta

Warren Buffet ones said "it takes 20 years to build a strong reputation and only five minutes to ruin it". If one is to believe one of the world's most successful business leaders there are two important messages in that statement. First, reputation, whilst very intangible, is a highly valuable asset that needs constant nurturing to develop. Secondly, the downside risk is very significant and means even a small mistake can potentially be very costly.

The same applies to corporate reputation, a key corner stone of stakeholder management. Corporate reputation stems from the values shared in common by both the company and all its key stakeholders including the general public. It is built from evidence of behavior in which common values have manifested themselves. Companies therefore invest valuable resources on corporate social responsibility (CSR) activities in an effort to be perceived as good corporate citizens.

However, CSR programs should go beyond the basic premise of good corporate citizenship to be seen as a form of investment. Whilst the aim is to enhance reputation and build public goodwill, ultimately the effort should lead to more sales and increased profitability.

This is achieved through a combination of benefits such as improved relations with governments and unions, reduced barriers for sourcing capital as well as attracting better talent to the company. Ultimately, it can also attract new customers to the business.

But it is not uncommon that society holds some level of cynicism towards CSR related activities. Beliefs can easily be formed that corporations, who produce unhealthy products or pollute the environment, use CSR related activities as a way to "come clean".

At the end of the day CSR is not just about contributing something back to society. "Doing the right thing" is important but "not doing the wrong thing" should be just as high a priority or stakeholders may indeed become cynical. Contribution and compliance go hand in hand. Open and honest communication is therefore vital to build sustainable public goodwill.

This is of course more easily said than done and how to best manage CSR activities is something that puzzles many organizations, especially in a country such as Indonesia where the concept of CSR has yet to fully develop.

TNS Indonesia recently carried out a major study on CSR across 18 countries in the automotive industry. The results for Indonesia, based on 1,000 interviews with general public, are very interesting as it highlights the impact different CSR activities have on building public goodwill. The study covered several aspects of CSR including corporate ethics, social development, environmental policy and philanthropy.

In addition to the standard components of CSR, additional dimensions were added that are somewhat specific to Indonesia. These included perceived involvement in corruption and bribery, support for local communities and effort to create more local jobs.

To better understand how these aspects of CSR are perceived in Indonesia and to what extent they will impact on corporations in the future, an analogy can be made to a typical 5 star hotel. When checking into a hotel most people don't like waiting, so, the faster the check in the more satisfied guests generally become.

In other words, hotel guest tends to be motivated by a fast check in service and would evaluate the performance of the hotel accordingly. On the other hand, clean bed sheets are not evaluated in the same way, it is taken for granted. But whilst clean bed sheets can't delight customers, low performance on this service aspect would most likely cause grave dissatisfaction.

Now think of any complimentary services offered by the hotel. Upon arrival we may receive complimentary fresh fruit or similar token of appreciation. This form of service has the potential to delight us. However, if not provided we are not likely to complain or even think about it. For sure, any mild annoyance we may experience would be a far cry from the feeling of finding unclean bed sheets.

We can apply the same line of thinking to CSR activities carried out by corporations in Indonesia. So what motivates high CSR ratings at this point in time? The study shows that being perceived to generate a sustainable future together with producing safe and environmentally friendly products are generally strong drivers for building public goodwill in Indonesia.

Similar to that of the check in service at a hotel, companies perceived to do well on these CSR aspects stand a good chance of building strong public goodwill. Of course, actual performance can vary greatly between industries and from one company to another.

In contrast, compliance in the form of not being involved with corruption is to a large extent seen as a hygiene factor. Like having clean bed sheets in a hotel the general public expect corporations not to be corrupt. That means compliance in this area does not help to build goodwill, but, non-compliance can create significant negative goodwill. This is the down side effect implied by Warren Buffet.

Similarly, providing for educational support, creating local jobs and supporting local communities are examples of contributions that general public expects corporations to make. The implication here is to ensure enough investment is made to reach an acceptable level of compliance. However, excessive investment is unlikely to generate any "brownie points" and is better directed to other CSR activities.

Another interesting aspect of CSR is perceived ethical behavior including ethical production standards, fair pricing and respect for local culture or customs. These dimensions are similar to that of complimentary hotel services. For general public these issues are relatively less important but visible effort from corporations to focus on these areas can potentially generate a lot of goodwill. For corporations with strengths in this area, effective communication is the key to success.

The study also highlights a couple of areas where CSR investment shows relatively low potential. These include producing recyclable products and reducing emissions. Whilst commendable activities, in relation to other CSR initiatives they are perceived to be less important and command relatively little impact on public goodwill, at least for automotive companies. Given the vast pollution and littering problem Indonesia is faced with it may come as little surprise. Having said that, over time as CSR develops it is likely that these activities will become increasingly more relevant.

In the meantime, corporate communication departments need to be aware that not all CSR activities have impact on public goodwill whilst perceived non-compliance can be detrimental. Like anything else it is an investment that requires ongoing monitoring of performance in order to be managed properly.

The writer is Research Director and Stakeholder Management Sector Head at TNS Indonesia and can be contacted on daniel.lindgren@tns-global.com.