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Legal implication of regulating CSR in local regulation...
2. Федеральный закон от 24.07.2007 N 209-ФЗ (ред. от 28.12.2013) «О развитии малого и среднего предпринимательства в Российской Федерации» (с изм. и доп., вступ. в силу с 01.07.2014).
3. Инструкция Банка России от 03.12.2012 N 139-И (ред. от 16.02.2015) «Об обязательных нормативах банков» (Зарегистрировано в Минюсте России 13.12.2012 N 26104).
Dodik Setiawan Nur Heriyanto, S. H., M. H., Eko Rial Nugroho, S. H., M. H., Lecturer, Faculty of Law, Islamic University of Indonesia E-mail: dodiksetiawan@uii.ac.id
Legal implication of regulating CSR in local regulation (study on local law of Kutai Kartanegara, No. 10, year 2013, About corporate social responsibility)
Abstract: This paper will analyze conflicting contents between Kutai Kartanegara’s Local Law No. 10, Year 2013, on Corporate Social Responsibility with the upper legislation on CSR In Indonesia and also will make short recommendations on how to challenge the local law. By using legal normative approach as the research methodology, this study found that none of higher law regulating CSR giving a mandate to enact local law on CSR and some of its substance contradict with the basic values of CSR as business ethics.
Keywords: CSR, Business Ethics, and Local Regulation.
A. Introduction
As the region that has abundant of natural resources, Kutai Kartanegara regency becomes a source of destination for many investors specifically in the field of exploration of coal and natural gas. It could be seen from the number of company existed in this region tends to increase every year. In 2010 the total number of the company amounted to 802 companies, while in 2011 the total number of companies amounted to 1,170 [1].
The enactment of Kutai Kartanegara’s Region Local Law No. 10 of 2013 on Corporate Social Responsibility (hereinafter called as Kutai Kartanegara Local Law) was a government policy in order to provide a clear setting of the operation and management in social and environmental responsibility of the companies in the district of Kutai Kartanegara [2]. Local Government of Kutai Kartanegara considered the creation of the rule is expected to accommodate the interests of the public and delivering strict sanctions to companies that do not have intention to organize CSR [3]. None of the higher law obliged the local government to set a specific local law on CSR. After what have been done by Kutai Kartanegara region, the euphoria of drafting local regulations regarding CSR are now just left alone without being offered a clear and present evaluation from the central government. This euphoria is now critize by the investors as one of the challenging effort in investing money in Indonesia.
Basically, Indonesian Limited Liability Company Law does not delegate any area to form a local regulation on CSR and infact gives technical regulation on how to implement CSR by Government Regulation Number 47 of 2012 on Social and Environmental’s Corporate Responsibility (hereinafter called as Government Regulation). Hence, the researchers are interested to investigate whether or not there is a conflict between the rules on CSR at the local level and the higher level. Futher-more, we also will emphasize the legal effort to harmonize the setting CSR in the Kutai Kartanegara Local Law.
B. Local Government Competency in Regulating CSR
According Indroharto, the nature of government competency is “simple express”, means that clear in the intention and purpose, tied to a specific time and restricted by written and unwritten law. It can be general (abstract) i. e. in making rules, and also be concrete i. e. in making government decisions [4, 70].
Given by the Constitution of the Republic of Indonesia in 1945 (hereinafter as 1945 Constitution), regions have the competency to establish local law. Local law created and agreed by the Head ofLocal Government as the excecutive power and the Local House ofRepresentatives (DPRD) as the legislative power. Under article 18 Paragraph 6 of the Constitution stated that: “The local government is entitled to the right to establish Local Law and other regulations to implement its autonomy and its duty of assistance”.
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This constitutional guarantee is further elaborated in Article 236 of Law No. 23 of 2014 on Local Government, which states that:
1. To elaborate local autonomy and the duty of assistance, Local Government enacted Local Law.
2. Local Law referred in Paragraph (1) created by House of Representative with the agreement of Head of the Region/Local Governement.
3. Local Law referred in Paragraph (1) contains:
a) to hold local authonomy and the duty of as-sistace; and
b) to elaborate the higher law.
4. Beside substantive provision referred under Paragraph (3), Local Law could contain local character substances in accordance with the law.
Based on the Constitutional and higher regulation’s mandate above, the Local Government of Kutai Kartane-gara had the authority to draft local regulation on CSR. However the substance of this local law should in accordance with the guidelines regulated in article 14 of Legal Drafting Law [5] that highlighted the local law could be made under conditions: on behalf of implementation of regional autonomy and the duty of assistance, accommodate local conditions, and/or further elaboration from the higher legislation.
Kutai Kartanegara Local Law on CSR was not made neither on the basis of implementation of regional autonomy and the duty of assistance or elaboration from the higher legislation. Technical direction on how companies share their profit to social and enviromental accountability was regulated in details in Government Regulation. Thus, the only reason of Kutai Kartanegara Local Government created this law was merely about to accommodate the local character.
None in Indonesian Nat. Law are giving narrow interpretation of the local character as substantive requirement to create local law. It means that local government has a freedom to create their local law since it is not contrary to the higher law and public policy [6, 132]. This both measurements should be fulfilled during the creation oflocal law.
Further exploration on this study shows that the substance of the arrangement Kutai Kartanegara Local Law was not a delegation ofhigher delegation and implementation of local autonomy and the duty of assistance as well but rather to accommodate local character. In fact, this local character could be shown from this regency incomes dependency from investment on natural exploration [7, 307]. This region has ranked number one of the richest city in Indonesia that comprises coal, gas, oil, and other natural wealth [8]. As the popular mining source,
coal production growth in this region was maintaining to average 33.84 % every year [8]. Thus, Kutai Kartanegara regency has the authority to draft Local Law on CSR substantially to emphasise local conditions in the region.
С. Background of the Enactment of Kutai Kartanegara Local Law on CSR
Under its academic report, the enactment of Kutai Kartanegara Local Law had three reasoning backgrounds such as [2]:
1. Philosophical reason
The local government used the article 33 of 1945 Constitution as the philosophical basis in the drafting of local law on CSR. Promoting general welfare is a constitutional mandate that should underlies the entire establishment of legislation in the field of economy. Then the local government argued that the company’s commitment in implementing and running the CSR program is a support for the creation of sustainable development. In addition, the presence of CSR in the company’s policy is an investment for growth and sustainability of the company. CSR policy is no longer understood as a means of cost (cost center) but rather as a means of profit. Thus, the enactment of the Kutai Kartanegara Local Law was not only creating a balance relations and corporate sustainability, but rather indirectly supporting the government’s efforts to realize the goal of promoting the constitutional mandate: general welfare of the nation.
2. Juridical reason
The local government analysed the higher laws regulated CSR and none of them prohibited their strong commitment to oblige CSR for companies in their region. Both Indonesian Limited Liability Company Law and its technical regulation (Government Regulation) were not mandating local government to form a local regulation on CSR. Thus, by using a contrario reasoning, local government of Kutai Kartanegara concluded that they have possibility to use Legal Drafting Law to produce local law since it is not violation of the higher law and sets the local character.
3. Sociological reason
Companies that stood up and operated in the region should be offset by the proper CSR programs implementation based on the capability of the company. Between the company, community, and environment are closely related and have mutualistic relations. To achieve the harmonious relationship, local government asked by the society to make necessary guidance in the application of CSR standards in the frame of local regulation. The substance of the CSR was setting
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up the public interest and environmental preservation because both of this areas are always be harmed when the company operating their business. CSR standards set out in the Kutai Kartanegara Local Law could be hold in a variety of activities, not just limited to social and economic programs. There are other areas that can be targeted for corporate social responsibility such as education, cultural preservation society, protecting the environment to remain stable, and etc. [9]. Such programs are practically worthwhile for the society and the environment and also will indirectly imply good corporate image.
D. Congeniality of CSR Settings Between Kutai
Kartanegara Local Law and the Higher Law on CSR and the Basic Concept of CSR
After depth analysis in comparing suitability between Kutai Kartanegara Local Law and the related higher law, there are three important highlight points that this law should be compromise with the higher law regulating CSR and the basic concept of CSR, such as:
1. Contradictio in nomenclature
Nomenclature came from Latin language: nomen (means as name) and calare (means as designation) that refers to the requirements, the basic systems, and procedures relating to the naming standardization of word or phrase to a particular object [10]. The title oflegislation in some certain matters is part of nomenclature. Nomenclature used in the Kutai Kartanegara Local Law was “Tang-gung Jawab Sosial Perusahaan" in Indonesian language or “Corporate Social Reponsibility” in English translation. If we are using legal drafting techniques in naming of the legislation title and nomenclature, the phrases used should be appropriate with the nomenclature used by the higher law. The suitability of nomenclature between the higher law and its bellowing regulations would be resulted legal certainty in interpretation and implementation.
The nomenclature used in the Kutai Kartanegara Local Law was different with the higher law nomenclature that is “Tanggung Jawab Sosial dan Lingkungan Perusahaan" (Corporate Social and Enviromental Responsibility). The higher law guided that the corporate responsibility was not merely in social but affirmed their environmental liability. Though the using of this term was critically debated but the legislator argued that this term was suitable for Indonesian condition that most of the companies only care about the profit and social charity but not for the environmental impact surrounding their business operation even the state has its specific enviromental law. The Government Regulation also ascertains that corporations that operated in natural resources
exploration should also focused on the environmental liablity [11] during and after its operation.
In addition, the Legal Drafting Law stated that the title of the legislation local law must reflect the substance or its content [12]. The substance of Kutai Kartanegara Local Law is not only regulated about the form of social responsibility but also its liability in the enviromental side. i. e. article 10 of this law invoke the corporation to do one of the model of CSR such as partnership and enviromental preservation. For this reason, the nomenclature used should be accordance with the higher law: Corporate Social and Enviromental Responsibility.
2. The law governing CSR should not legal obligatory basis
a) CSR is essentially a derivation of business ethics on a voluntary basis
CSR is essentially derived from business ethics. Business ethics arises from the business interaction with humans that complement each other to meet their basic as a result of the complexity of human needs that are growing and infinite [13, 42].
Ethics has been variously defined, inter alia, as: the study of morality [14, 7], inquiry into the nature and grounds of morality where the term morality is taken to mean moral judgments, standards and rules of conduct [15, 5] and/or as set of rules to control human behavior and values that guided into a good life [16, 5].
More philosophically, Suseno clarified that ethic is a science not merely a doctrine. It gives us the norm how we should live in morality basis. This morality is a part of instructions on how we should live. Moreover, this argument also supports Dafts statement that ethic is “the code of moral principles and values that governs the behaviors of a person or group with respect to what is right or wrong" [17, 326].
Business ethics is as the application ofethical values to business behaviour [18]. Ethics needed in business area when businessman as humans started to realize that the increasing business margin led them increasingly marginalized in their values of humanity. Thus it was commonly believed as a myth that business is business. Business is just devoted to profit as much as possible (profit-oriented) [19, 189-202]. In this regard, Richard T. De George calls the myth of amoral business that has rolled an image, that business should not be (do) is confused (or intervened) with morality values [13, 7].
As actors in this world with both positive and negative impacts, corporations are best seen not as inherently immoral or moral but as collections of human beings who act together as agents with moral consequences for good or ill [20, 40-41]. The voluntary nature of CSR is
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often interpreted by business to mean that, since CSR activities are not binding, they are always optional and therefore can be determined solely by business [21, 4]. As derivation of business ethics, therefore, CSR is morally binding and forming voluntary behaviour for corporations while they are freely to decide their own CSR activities without threatened by the legal sanctions.
b) Imposing sanction for corporations under Kutai Kartanegara Local Law is in contravention to the basic concept of CSR as derivation ofbusiness ethics
Based on article 33 of the Kutai Kartanegara Local Law ruled that for companies that are operated within its region and does not excecute CSR will be charged by administrative sanction [22]. This administrative sanction includes: first, written warning done by the government based on the factual basis and the company report [22]. If this warnings do not obeyed by the corporation, the local government by its authority will enforcing them from: restriction on business activity, suspension ofbusiness activity, revocation ofbusiness activities, and/or limiting the investment facility [22].
Imposing such administrative sanctions for corporation that is not excecuting CSR activities is clearly incompatible with the spirit of business ethics as moral obligation. Netither Indonesian Company Law or Government Regulation (the higher law) obliged them to do CSR but none sanctions clearly regulated on that legislations.
In addition, Kutai Kartanegara Local Law also strictly ruled such forms of CSR programmes. It means that the government does not give flexible space for the company to decide the type and the size of the CSR activities [22, ar. 16-22]. As separate legal entity, government does not have the right to influence the company policy. Government Regulation gives CSR framework for companies on how to do and how much should spend for CSR even this measurement is based on the voluntarily basis.
Corporations still have legal obligation to follow legislations that relates toward their business activities. The legal dimension of corporate social responsibility thus refers to obeying local, national and international law regulating competition (procompetitive legislation) and protecting: worker’s human rights (equity and safety legislation); the consumer (consumer protection legislation); and the natural environment (environmental protection laws) [23]. Such Indonesian national regulations that should be respected and followed for corporations, inter alia:
1. The area of organisational governance that stipulated in Law No. 28 of 1999 on State Implemen-
tation of Clean and Free of Corruption, Collusion and Nepotism.
2. The area of environmental protection that regulated in Law Number 23 of 1997 on Environmental Management.
3. The area of labour practices that regulated in Law Number 13, Year 2003 concerning Labor.
4. The area of the consumer protection that stipulated in Law No. 8 of 1999 on Consumer Protection.
5. The area of fair business practices that regulated in Law Number 5 of 1999 on the Prohibition of Monopolistic Practices and Unfair Business Competition.
6. The area of human rights protection that regulated in Law Number 39, Year 1999 on Human Rights.
7. The area of social and economic development that regulated in Law Number 25, Year 2004 on National Development Planning System, Act No. 16 of 2006 on the Extension System of Agriculture, Fisheries and Forestry, and so forth.
Thus, though CSR concept is based on the voluntarily basis but in other side corporations bound to legal obligations stipulated under legislations related to their business conduct. It means that Kutai Kartanegara Local Law should be more generally regulated about the guidance of Corporate Social and Enviromental Responsibility without regulated sanctions. Harmonizing the business activities with the effort to improve the local character of the region will be resulted economic to create eco-cultural powerful region.
c) Reward Systems
Sentencing administrative sanction is not appropriate with the basic concept of CSR. Thus, this study recommends the local government adopting the reward systems for corporations that succeed in excecuting CSR programmes in the region. This reward system now becomes a general practice in the business area and most of them given by non-profit institutions.
Reward is a form of award or bonus given for individual achievement [24, 4] or legal entities. Reward could be a stimulation to produce satisfaction [25] and to provide continuosly action. Punishment or criminal sanction is a form of negative reward. But in positive side, reward could be in various forms such as: compliment as the simplest one.
Giving reward to companies conducting CSR is more effective than giving the sanction. The positive reward will arise the spirit of enterprise to implement CSR. Certain
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award measurement held in Europe has increased the ac-comodative companies in implementing CSR [26]. Local government of Kutai Kartanegara may provide positive reward to companies in their region that has increasing social and enviromental quality by their CSR programmes. These awards could be use by the company for the better corporate image in the public eyes [27, 143]. Moreover, this good reputation will influence the company prospectus during the selling of the shares in the stock market.
E. Further Legal Efforts
Draw back to the previous analysis, Kutai Kartanegara Local Law has inappropriate substances such as: the contradictio of nomenclature, imposing administrative sanctions, and the absence of reward system as effective CSR implementation. Based on this reasons, Local Government of Kutai Kartanegara should make changes to the Kutai Kartanegara Local Law to conform the basic theory of CSR and higher regulations on CSR. For this changing effort, Legal Drafting Law gives the possibility for local government to amend their law by an agreement with local house of representative (as legislative power) [28].
Either the Local Government of Kutai Kartanegara or the local house of representative, until now, there is no effort to change Kutai Kartanegara Local Law. However, the higher legislation gives the central government authority to review this local law by two different authorities: Ministry of the Domestic Affair and the Supreme Court. Reviews conducted by the Ministry of the Domestic Affair is called as the executive review [29] while the review conducted by the Supreme Court referred as judicial review [30]. Two of these mechanisms may lead to cancellation of the local law’s enactment. The Ministry of Domestic Affair gained its authority in conducting a review local law and oversight its conformity to the local autonomy [31, 9]. The Supreme Court as the judicial power strengthens by the Costitution also has the authority to review the local law [32, 3].
Both Ministry of Domestic Affair and the Supreme Court have their own capacity in revoking the local law. According to Law No. 23, Year 2014 on Local Government stipulated that the supervision of the Provincial Local Government starts when the local government (regional level) submitted the local law no later than three (3) days after enactment. Ifthose local law in contradiction with the public policy and/or higher legislations, it can be cancelled by the Governor as the representative of Central Government in regional level. The decision of the Governor to revoke those local law enacted under Governor Decision. At least seven (7) days after the decision issued, the Head of the Region canceled its imple-
mentation and make further cooperation with the Local House of Representative to revoke the local law. Since there is no specific period of time in revoking such local law thus the Governor may revoke the local law anytime even one year after its enactment. However, this effort is merely based on political intention meaning that since there is no effort from the Governor to revoke the local law so the local law could still implemented.
The other way that could be taken is to file judicial review before the Supreme Court. The authority of the Supreme Court to review the local law is regulated under Law No. 4, Year 2004 stated that “Supreme Court has the authority to decide that the legislation below the act or law (undang-undang) [33] is illegaly to be implemented based on the reason of contradiction with the higher law" [34]. This law was created under delegation from the 1945 Constitution to create specific authority of Supreme Court especially in reviewing local law. Thus, the business entity could confront the local law by using the judicial review before the Supreme Court. Once the Supreme Court invalidated the local law, the Local Government should canceled its implementation and make further cooperation with the Local House of Representative to revoke or change the local law.
F. Conclusion
Constitutionally, Local Government of Kutai Kar-tanegara has the authority to enact local law. However, neither Indonesian Limited Liability Company Law nor Government Regulation do not provide a mandate to the region, more specifically, to formulate local law on CSR. The Local Law of Kutai Kartanegara was enacted on behalf ofaccommodating the local character of the region. This local content is critically debated since not the whole ofthe substance reflected the local character of the region.
After in-depth analysis and study, there are three important adjusment of the Kutai Kartanegara Local Law comprimising with the higher law, inter alia: conformity of the nomenclature used with the nomenclaure used by the higher law, the emphasis ofCSR as part of its adherence to business ethics, and the use of reward systems as a form of the company’s most effective compliance in implementing CSR. At least this three points could be use by the other local governments in the drafting of their local law on CSR.
To conform with the basic concept of CSR and its conformity with the higher law, Local Government of Kutai Kartanegara should take the initiative effort to make changes to the local law. Moreover, if there is no such conformity, business entities may asked the cancellation through the Supreme Court since because ofthere was no evaluation decision from the Ministry of Domestic Affair.
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References:
1. Department of Cooperation and Small Business Development Regency. 2011 Company Registration Number Issued by Legal Entity Regency. - Kutai Kartanegara Regency, 2011.
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8. In 2008, coal production in Kutai Kartanegara region was 13,487,541-ton metrics. In 2009, the production increase to 20,883,783-ton metrics of coal and in 2010 was achieved to 29,014,588-ton metrics. See Surga Energi Kutai Kartanegara.// [Electronic resource]. - Available from: http://wartaekonomi.co.id/berita5964/surga -energi-kutai-kartanegara.html (accessed: 13 November 2014).
9. Kutai Kartanegara Local Law, arts.16-22. This law specifies that the area of CSR should be hold in the area of education, health, public assistance, arts and sport, socio-religious programmes, environmental preservation, and other real programmes that raise the live quality of the society.
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28. Legal Drafting Law, art. 56 and 63.
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33. In Indonesia, there is a hierarchy of its national law from the higher to the last: 1945 Constitution, People Consultative’s Assembly Regulation, Law/Act, Government Regulation, President Regulation, Province’s Local Law, and Region’s Local Law. Legal Drafting Law, art. 7.
34. Law No. 4, Year 2004 on Judicial Power, art. 11, paragraph 2 (b).
Esengeldiyeva Actoty, master student 1st cours, Faculty of Law
Karataeva Aygul Muratbaevna, Candidate of Law, professor of the Chair of State and Law Theory and history, Constitutional and Administrative Law, Faculty of Law, Al-Farabi Kazakh National University, Almaty, Kazakhstan
E-mail: karataeva_80@mail.ru
The concept of legal awareness, value, interpretation and content
Abstract: Legal awareness affects the behavior ofpeople with the rule oflaw, along with them, and sometimes in spite of them. For example, we can talk about the regulatory impact on social relations legal awareness, if there is a gap of law or the law itself allows manual mailing standards legal awareness in resolving certain issues. Productive role legal awareness is particularly great in the process of legislative activity. In the course of enforcement this activity is optional (along with the law and with it) factor assessment of the facts and decisions of a legal case.
Keywords: legal state, civil society, legal consciousness, democracy, right and liberty.
Legal awareness is the empowerment of individuals regarding issues involving the law. Legal awareness helps to promote consciousness of legal culture, participation in the formation of laws and the rule of law.
Public legal education comprises a range of activities intended to build public awareness and skills related to law and the justice system. This term also refers to the fields of practice and study concerned with those activities, and to a social and professional movement that advocates greater societal commitment to educating people about the law. Distinct from the education of students in law school seeking a degree in law (which is often simply called “legal education”) and the continuing professional education of lawyers and judges (which is sometimes called “continuing legal education”), public legal education is principally aimed at people who are not lawyers, judges, or degree-seeking law students.
The term “public legal education” (PLE) is related to, and may encompass, several similar terms. The terms “public legal information” and “public legal education
and information” (PLEI) emphasize a difference between educating and providing information. The term “community legal education” is common in Australia and the United States, where it often refers to community-based public legal education activities led by legal aid organizations. The term “law-related education” (LRE) usually refers to public legal education in primary and secondary schools (and sometimes in higher education), as opposed to PLE for adults and outside of school.
Legal awareness — is a form of social consciousness, which is a system of legal opinions, theories, ideas, concepts, beliefs, estimates, moods, feelings, which expresses the ratio of individuals, social groups, the whole society to the existing and the desired rights to legal phenomena, to the behavior of people in the field of law. That is a people’s subjective perception of legal phenomena. Legal awareness has one of the priority components of known theoretical constructs (theoretical body) more complex forms of legal consciousness.
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