By: Azman Muammar, B.Eng

Abstract

 Ethic has wide view of perspective to meet with many business case in the world. Applying ethic in business should followed by great consciousness to all of stakeholder in company. Neglecting ethic in real business world would make numerous negative effect that also can make huge effect on business continuity in the future. .

 

 

I. Introduction

 

Ethic is principles or standards that govern the conduct of communities, groups,  organization and individual. It is more than morality which is primarily concerned with general outcomes of good and bad, or right or wrong. (Pricewaterhousecoopers).

Nowadays business climate, where company compete rapidly to attract customer’s attention and gained new talent, where reputation as important thing that influence financial outcomes, where social and environmental issues  becoming directly influence to company’s operational continuity, companies are being pressured both implicit and explicitly to take into account about ethic program into business mission and strategies to be implemented.(Rees, 2006).  In order to perform true commitment to corporate responsibility, firm was needed to consider and review more seriously to their policies and practices to be aligned with across wide spectrum of their operations.

Recently, good corporate governance which is popularly applied by many government in the world, also impact to urge company to play the rules, acting in responsible manner, and paying more attention on business ethics and integrity (Rees, 2006). Moreover, the evolutionary notion of business strategy and due to the increasing pressure either from employees and public in general, had been encouraging company to be more commitment on addressing social responsibility, instead of making profit. As a indicator for measuring socially responsible item, recently company were evaluated on their performance to increase shareholder values, but these days, company were also evaluated on how their company’s operation affect positively to the others stakeholders at large.  That included consumers, creditors, supplier, employees, government, the community, and natural environments (Spillane, 2007).  The way company translating various social issues in their operating areas either individually or collectively, are known as corporate social responsibility (Koestoer, 2007). Some call it socially responsible investing that related to sustainable development in long term (Spillane, 2007).

 

II. Corporate Social Responsibility Practices in Indonesia

 

As the increasingly demand for more ethical business process in international global business, therefore pressure is applied to industry to perform business ethic through many new public initiatives and laws. The effect is making driving force of corporate social responsibility implementation increase simultaneously. In Indonesia, such corporate social responsibility term in earlier 90’s was quite foreign to local companies (including state owned companies), although it is commonly practiced  for many company in Indonesia to do charitable activity. Different with multinational company which had already adopted of corporate social responsibility policies deriving from their headquarter after major report on Nike case, Levi Strauss manufacturing plants related to labour and human right issues, in 1992.

Following on that case, various progressive action was taken into account, including the establishment of National committee on corporate governance that working mostly on establishing a code of conduct for good corporate governance, and also encouraged many public activist to form corporate forum on corporate social responsibility triggered by various social issues and natural disaster. Unfortunately, due to the national guidelines on community development that are still in progressed and revised, multinational companies tend to adopt international guidelines as it used and adopt also through national guidelines with several adaptation that fit to Indonesian’s national culture.

As we explain above, corporate social responsibility should emphasize on sustainability for a long run, embracing internal as well as external-oriented policies. However, there is organization still translating corporate social responsibility terminology  only on common basis rather than fit it into their business strategy and goals, so it was not surprising that still there is company notion that corporate social responsibility practice is similar to charitable or community development activities (PIRAC,2002) or seen as tools for avoiding external pressures or public relation gimmicks (BWI, 2006).

In addition, several environmental incident as effect on lack of corporate social responsibility practices such as on Newmont Minahasa-mining company or Buyat case which produced metal pollution to water, The Freeport-mining company case in Papua, and  recently case was sidoarjo mud flow case or namely Lapindo Brantas case in east Java that still exist until today  and suffering many people and environments. 

Due to earlier stage of corporate social responsibility concept in indonesia, it is needed more efford and commitment from management, to consistently running  policy setting and enforcement covered with good and accountable program development, also monitoring program which is conducted in effective way in order to ensure its success.

            In addition, many companies often still constrained in implementing corporate social responsibility because some factor such as avaibility of corporate social responsibility expertise and company structure didn’t meet with corporate social responsibility concept instead of another factor, like unwillingness to take part in social responsibility. Anyway, they are several factor that is identified important to determine the success of corporate social responsibility implementation (Malkasian, 2004), such as :

  1. the intensity of its motives for being socially responsible
  2. the vision of its leadership at headquarter and locally
  3. the time and enery willing to spend to understanding stakeholder issues

Looking to be more understand to what communities needed is very crucial for companies, particularly for those operating in remote areas, in the areas of mining, oil/gas, forestry, or other natural resources related industries  (Kemp, 2001, :31), such as Lapindo Brantas Co, it is due to possibility of appearing high tension between communities and mining companies that can’t be solved unless there was genuine intent to respect local culture. (Kemp, 2001).

 

III. Lapindo Brantas Mud Flow Case

On 28 May, 2006, a mining site namely the “Banjar Panji 1 exploration well” in East Java exploded and it started disaster of spurting mud in East Java, its happened after another disaster which just began two days prior to in Yogyakarta and Central Java, Indonesia. The mining site is operated by PT Lapindo Brantas, owned collectively by three main national conglomerates who also holds power in Jakarta (capital city of Indonesia), and a mining company from Australia (Santos). These three conglomerates are  Jusuf Kalla, now served as Vice President of Indonesia and own Bukaka company,  Aburizal Bakrie, now served as coordinating Minister of Social Welfare and own Bakrie-linked company, and Medco Group a company owned by a Opposition party politician and Former president- Suharto-linked families.

Thousands of people have been forced from their homes since May 29th. Since then villages were submerged, farmlands destroyed, factories and schools were closed and the sources of livelihoods of the people lost. Infrastructures around the area were also damaged and disturbed transportation of goods and people from and to Surabaya (capital city of east java) from Southern direction. The gas pipeline was damaged that caused lost billions of Rupiah for the Electricity Company and the National Gas Company. The livelihoods around the mudflow areas almost totally disturbed.

The disaster was mainly caused by human error. The Lapindo Brantas Banjar Panji I gas exploration well had reached a depth over 3,000 m when the mudflow started. The police investigating the cause of the disaster said that there was a blow-out in the well-shaft and that the company failed to cap the hole properly. The experts said that the company had not installed casing around the well to the levels required under Indonesian mining regulations.

The impact of the mudflow is severe and immediate. These include the effects of the spread of hydrogen suphine containing toxic gas and the spread of intestinal diseases. In early August 2006 there were about 1,500 people hospitalized because of the toxic gas and diarrhea. 

IV. Conflicting Problem

Problem exist whenever deciding who will responsible for this disaster, company or government. Commonly,based on fact, due to company’s activity, so company must be responsible for all of effect caused from the operational. Lapindo argued that prior to eruption, there were 6.3 Richter earthquake had triggered the mud flow eruption and therefore company should be exempt from paying compensation damage to the victims. If then the cause of the incident is natural, then the government of Indonesia has the responsibility for the damage instead. This argument was further recurrently echoed by Aburizal Bakrie, the Indonesian Minister of Welfare at that time, whose family firm controls the operator company PT Lapindo Brantas.

According to the latest research that conducted by geologist, they disregarded that the natural cause and mentioned that the earthquake is merely coincidental. The earthquake possibly have generated a new fracture system and weakened strata surrounding area of the Banjar-Panji 1 well, but it does not support the formation of a hydraulic fracture to create the main eruption vent 180 m away from the borehole. Apart from that, there was no other mud volcano reported happened on Java island after the earthquake and the main drilling site is 300 km (186.5 miles) away from the earthquake’s epicenter which was estimated to have only magnitude 2 on Richter scale at the drilling site (the same effect as of a heavy truck passing over the area).

The mudflow still continues, but the responsibility to the affected people has been delivered to the hands of the government and not by the company. This disaster that was caused by human error is now becoming a political scandal. Those who are associated with the company have high political leverage both in the Parliament and in the Executive body. Pressures by the local communities and the NGOs to the Parliament and the Government seem to be in vain, since the big political parties in the Parliament (Golkar and PDIP) have close links with the owners of the company. Bukaka group is owned by the Vice President Jusuf Kalla who is also the chairman of Golkar Party or Party of Functional Groups with dominant votes in the Parliament; Bakrie Brothers (the holding company of Lapindo Brantas) is owned by the Bakrie Family, the family of the Coordinating Minister of Social Welfare, who is also a chairman of Golkar Party; Medco Group is owned by Arifin Panigoro Family; Arifin Panigoro is one of former chairman of PDIP Party or Indonesian Democratic Party-Struggle (one of the biggest party in the Parliament) and has close relationship with Former president-Suharto family. Although Arifin Panigoro is from PDIP (the opposition party in the Parliament), the political party could not do any significance action to approve demand of affected people about the disaster considering that Arifin Panigoro is also a big contributor to the party financing.

Conflict of interest possibly happened to this Lapindo Case. Instead of the people involved, also government had to think it dilemma. Another perspectives that made this case dilemma are through the fact that East Java is rich of mining resources: natural gas and oil. The reserves of oil and gas range from the mainland of East Java to the northern parts of Bali, both inland and offshore. The multinational companies such as Exxon Mobil (US) and Santos (Australia) and Petrochina (China); Monsanto (US) on agriculture and Philips Morris on tobacco plantation have put strong feet in these areas. Once the government takes wrong decisions regarding the Lappindo Brantas, this might also affect to the companies operating in the area. Bakrie Group has close relationship with Exxon Mobil and Medco Group has close relations with Santos. 

Recently, untill now there is no independent court has established once and for all whether the mudflow is a natural disaster or the result of a drilling accident. Similar with, also Indonesia‘s President Susilo Bambang Yudhoyono seems to be torn between two conflicting interests: the interests of the people and the interests of Lapindo Brantas Inc., which is a subsidiary of Energi Mega Persada, a company controlled by the Indonesian welfare minister Aburizal Bakrie.

However, Government agreed to finance the cost of repairing or rebuilding infrastructure, which could run into billions of dollars, instead of ordered Lapindo Brantas to pay US$ 435 million in compensation to victims and for efforts to halt the mud. (Antara, 2007)

Later on, no such information were provided to the the public how that amount of money was arrived at, or if Lapindo Brantas has actually agreed to provide that amount of money at that time. And there is no sign that infrastructure work in the area will get underway anytime soon. As the people of communities getting suffered and hold many heavy demonstration to catch a large of public attention, therefore finally Lapindo Brantas agreed to provide money payment as compensation to the affected people stage by stage. Similar with that, the government has trouble securing approval from the House of Representatives for funds to finance the construction of major infrastructure submerged by the mudflow , because majority of legislators keep asking the government to demand Lapindo Brantas to bear all the costs, including for rebuilding infrastructure. Legislator didn’t want to approve government proposal to finance the rebuilding infrastructure program because it should goes to Lapindo Brantas as the operator.

Legislator also asking explanation from the President Yudhoyono on why he could not press welfare minister Aburizal Bakrie to at least take care of the the 3,500 displaced families and pay compensation sooner for 11 buried villages. Later on, these issues were performing as cabinet reshuffle to fall down Aburizal Bakrie from minister position. Although  it didn’t happen.

Lapindo, meanwhile, continues to claim that the mudflow was not caused by its drilling.

 The mudflow in numbers

Average amount of mud flowing from the volcano

over 300 days: 150.000m³/day

Distance of the mud to the city limits of Sidoarjo (population 1.5 Mio.)

3.8km

Number of patients registered at Sidoardjo hospital as affected by gas (hydrogen sulphide – H2S) from the mud volcano

1,500

Estimated area covered by mud

Approx. 360 (3,6km²)19 – 600 ha (6km²)

Estimated thickness of the mud layer (Feb 2007)

10m 21 – 18m22

Estimated number of displaced people

11,00023-50,00024 (average estimation: ~ 15,000

Source: http://mudflow-sidoarjo.110mb.com/index.htm

The mudflow in US$ dollars

US$ 

 

277 million

December 2006 estimation of compensation costs: In December 2006 the Indonesian president Yudhoyono said Lapindo Brantas will have to pay around US$ 277 million in compensation to 6,000 families in four villages.  

422 million

March 2007 estimation of compensation costs: In March 2007, Yudhoyono said again that Lapindo should pay the compensation in cash for more than 13,000 families, based on new data provided by the National Team for the Lapindo Mudflow on March 22.

144 million

December 2006 estimation of costs for stopping the flow: In December 2006 the Indonesian president Yudhoyono said that in addition to compensation, Lapindo Brantas also will have to spend some US$ 144 million to stop the mud flow.

330,800

February 2007 estimation of costs for stopping the flow: The costs for the concrete ball method of stopping the flow are estimated to be much lower than any other method at $330,800.

664,800

May 2007 estimate of costs for stopping the flow: The costs for the Japanese proposal to use a counter-weight technique

1.2 million

Loss to fisheries industry: The Marine Resources and Fisheries Ministry has estimated a financial loss of 10.9 billion rupiahs (US$ 1.2 million) to the fisheries business in Tanggulangin and Porong subdistricts

823 million 

Total cost for repairing the damage (March 2007): At the beginning of march 2007, the government’s estimate of the total costs had increased to Rp 7.6 trillion, more than half for compensation.

435 million 

Amount Lapindo is demanded to pay up: President Susilo Bambang Yudhoyono ordered PT Lapindo Brantas to pay US$ 435 million to victims and for efforts to plug the mud flow (May 2007) 

1,2 billion 

Estimated personal wealth of Aburizal Bakrie: The American business magazine Forbes in September 2006 listed Aburizal Bakrie as the sixth-richest man in Indonesia, with an estimated personal wealth of US$ 1.2 billion.

22 million 

Net profit of Energi Mega Persada (2006): In 2006 the company realised sales with a total value of Rp 1,647 billion (US$ 181 million), resulting in a net profit of Rp 203 billion (US$ 22 million).

38.2 million 

Net profit of Medco Energi Internasional (2006): Over the year 2006, Medco Energi Internasional realised sales with a total value of US$ 792.4 million and a net profit of US$ 38.2 million.

485  million

Net profit of Santos (2006): In 2006 the company realised annual sales of A$ 2,769 million (US$ 2,087 million), resulting in a net profit of A$ 643 million (US$ 485 million).

Source: Financing of the three Brantas PSC Companies, June, 2007.

 

V.  Solving Action

According to Lapindo’s case, we can make general assuming that, the decreasing of environmental quality is caused by humans themselves who have not seen themselves as a part of both an economic subject and an ecosystem. The business activities that pay the most attention to profit-making frequently cause the environmental problems.

Company in term of doing business, were created to make profit and not merely focused to social entity.  Therefore, all of its strengths are used to make the biggest profit. However, the corporation should take social corporate responsibility for its surroundings because corporations can not be separated from the series of rules for social interactions, which include moral rules. As a consequence, the corporation should not only rely on economic, legal, and political points of view but also on humanistic and ethical points of view. 

As the suggestion that might be done such as law enforcement to investigate the case, demanding PT Lapindo to take full accountability for resolution of the hot mud problem, audit all the exploration and exploitation activity and the last is revise all legislation related and make it more community safety orientation instead of business orientation.

VI. Legal Perspectives

 

According to explanation on discussion held by the Regional Legislative Council (DPD) and Radio Smart FM and then published in ANTARA newspaper, several environmental law expert at Airlangga University made opinion about legal perspectives of Lapindo mud flow disaster.

Gas exploration of Lapindo Brantas that causes mud flow, might violate 12 of indonesian law  as it has caused disaster to the people. Beside violating Law No.23/1997 on the environment, Lapindo has also violated the Law on Industry which clearly stipulates that all industrial operations must avoid environmental problems to the best they can.

Lapindo also violated Law No.5/1990 on conservation and Law No.5/1960 on agrarian affairs as the company has converted an agricultural conservation area into a hotmud terrain and failed in preserving the quality of land. As for information, the salt content in the hotmud is 4000 times above normal standard, therefore made the land not productive anymore.

Similar with, Lapindo has broken Law No.24/1992 on Spatial Layout as it has changed the function of agricultural conservation into a mining area without revising the original use of the farmland. Moreover, Lapindo Lapindo failed to comply with Law No.22/ 2001 on oil and gas, and Law No.11/1967 on mining, because it did not conduct exploration of agricultural products based on an environmental concept. As it has caused damaged on roads and distrupted traffic, Lapindo also could be charged for violating Law No.38/ 2004 on roads and Law No.14/1992 on traffic.

Lapindo also must responsible for decreasing quality of water and deterioration of the people’s health with will violate the Law No.23/1992 on health and Law No.7/2004 on water resources.

Moreover, Lapindo also facing law No.15/2003 on anti-terrorism, because Lapindo is considered to have been involved in environmental terrorism.  Under this law a person or group of people found guilty of causing suffering to huge number of people and large scale destruction deserve a criminal sanction.

In fact, based on factual situation in the field, Banjar Panji-1 well were existed in Brantas area which is belonged to PT.Lapindo Brantas. But, unfortunately that some of drilling job were not done by Lapindo, but were assigned to another third party, namely PT.Media Citra Nusantara (MNC).

As for Brantas Field operational authorities were under control of PT. Lapindo Brantas, Santos Ltd, PT. Energy Mega Persada and PT. Medco Energy, so these company should be responsible for whole operational effect, including mud flow disaster according to Law No.22/2001 about Oil and Natural gas. Moreover, Lapindo Brantas could be charged for Corporation crime act due to their activity in endangering the public welfare. (Shelley, 2005).

 

VII. Ethical perspectives

 

In order to be successfully running the business, company need to full fill at least three things, according to Richard george, namely, a qualified product, good management, and ethics.(Endro, 1999).  Each other items had its own specialized, but if company only has good and qualified product and is managed well but lacks of ethics, this lack will lead to the collapse of that corporation. There must be an interaction between the corporation as producer and people as consumer, and those are bounded by certain norms or ethics. As a consequence, the interaction between people and corporations will be successful if it is based on those norms and ethics.

Lapindo’s case is related to company responsibility that directly related to environmental ethics. This ethics is a discipline that discusses the norm and moral principles that regulate and underlie human behavior in relation to their environment. As what lapindo did that cause mud flow, show that they are still conducted business based on the egoistic paradigm of satisfying economic need as it similar to Business philosophy that only profit oriented and avoids responsibility for the environment.

This indicates has shown that that business stakeholders still operate under the old paradigm of anthropocentrism which is identified as the main cause of the current environmental crisis (Keraf, 2002). In  anthropocentrism perspectives, said that humans deplete resources for the sake of their own needs without paying attention to preserving nature. Humans are only preferred with nature merely for the sake of their own needs rather than preserving nature for its own value. This attitude toward nature is an egoistic form of species chauvinism, which is in economic terminology called as economic paradigm. It is means that business only has the responsibility to consider cost-benefit ratios and centered merely on the goal of gaining short-term profits and is not aware of and does not care about future effects.(Nugroho, 2001).  

The degradation of environmental quality would not have occurred if the business institutions had applied corporate social responsibility practices (Tjager,2003). Reconstructing ethics to synchronize the value of corporate ethics and environmental ethics will provide guidance for business stakeholders. The reconstruction can change the corporate ethic, which is currently a shallow ecological paradigm based on anthropocentrism and economic perspectives, into a corporate ethic that has a deep ecology paradigm based on biocentrism and ecology centrism perspectives. Therefore, it is important that corporations improve themselves by reconstructing corporate ethics to include the environmental ethic. This reconstruction is important because if the corporation still has the wrong paradigm about the universe, there will potentially be more destruction of  the environment. The main aim of corporate ethics reconstruction is to change the paradigm of the interaction between humans and nature into a corporate ethic that involves environmental ethics. (Djalil,2003) With this paradigm, the application of corporate ethics will provide an action platform from which corporations can respect nature. Corporate ethic were perceived as long-term objectives that include the next generation as stakeholders in the business because they will also need to live comfortably by utilizing natural resources.

  

VIII. Conclusion

 

In today worlds, where values were created from profit, people and planet so it is very fundamental to implement of corporate social responsibility practices. In addition, while many companies are sincerely making efforts to implement good corporate social responsibility practices, there are allegations that corporate social responsibility is “cosmetics” or to gain legitimacy that can influence public opinion about the company. Companies that are merely seeking profit, find the voluntary nature of corporate social responsibility coupled with the weak law enforcement upon ethical misconduct, as a reason for avoidance of implementation. On the other hand, companies that are genuinely endeavoring social justice find this situation very frustrating.

Several barriers prevent businesses from fully implementing corporate social responsibility, driven from the external environment as well as the internal system. Lack of understanding about corporate social responsibility definition is a primary barrier to build understanding between business, government, and civil society. There is a real need of continuous efforts to educate and train business leaders, employees and other stakeholders to be more commitment on implementing corporate social responsibility.

External barriers generally include government related factors (legislation, and governance), customer and community behavior, and the influence of civil society organizations. On the other hand, companies also face internal problems including limited corporate social responsibility’s expertise, unsupportive local management structure and attitude, as well as difficulties in adopting operational standards as mandated by their management boards.

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