Chapter I

1.1 Background

In early 2000s, Indonesia public awareness of the impact of company activities

increased not only for the shareholders, but also for the environment. The collapse of the

New Order regime motivated people to be more courageous and expressive in delivering

the aspirations and demands to the business world. Since that, in reformation era,

community knowledge about the social impact has growing so people become more

critical in responding to any actions taken by the businesses and have more social

control over the business world (Yuripratomo, 2010). This era also raised the awareness

of the importance of implementing social responsibility as one form of corporate

responsibility to the stakeholders and the environment (Masnila, 2007; Beurden and

Gossling, 2008).

Nowadays, the term of Corporate Social Responsibility (CSR) is found in many

accounting literatures and business ethics. The issues of CSR become trending topic

among businesses, entrepreneurs, investors, employees, and even the general public. The

ideas about the importance of CSR emphasizes that the corporate responsibility is not

only economic activity that creates income for the sustainability of business and

shareholders, but also for community and environment (Yuliana et al, 2008).

There is no standard definition of CSR. Many literatures, researchers, and prior

studies identify CSR in different context. For example, Yuliana et al (2008, p. 245)

stated CSR is “the responsibility of business organization to get involved in protecting

the environment and social welfare.” The European Commission's definition of CSR is

“a concept whereby companies integrate social and environmental concerns in their

business operations and in their interaction with their stakeholders on a voluntary basis”

(Anggraini, 2007,p.42). World Business Council for Sustainable Development

(WBCSD) states CSR is “the continuing commitment by business to contribute to

economic development while improving the quality of life of the workforce and their

families as well as of the community and society at large” (Anggraini, 2007, p.42). From

the definitions above, it can be summarized that CSR is as a form of corporate

responsibility to improving the quality of life of the workforce, community, society, and

environment on voluntary basis in all aspects of company operations.

The importance of social responsibility to the sustainability of the company’s

business operation can be seen from the practice of CSR in Indonesia. The practice is

supported by the Government through the Law no 40 of 2007 for Limited Liability

Companies, which is authorized by the President on 16 August 2007. Some changes of

the Law no 40 have been made and one of them is the article no 74 on Social and

Environmental Responsibility. This article stated that the company which operates in the

field or related to natural resources required implementing the social and environmental

responsibility. For those who do not perform in accordance with the applicable rules will

be penalized (Anggraini, 2007).

There are some cases that provide clear evidence regarding the failures of

company’s operations on community and environment. For example, the case of PT

Freeport Indonesia in Papua (see www.minesandcommunities.org/article.php?a=968),

TPST Bojong in Bogor (see http://directory.umm.ac.id/Data%20Elmu/doc/irma.doc),

and the most extreme in PT Lapindo Brantas in Sidoarjo (see http://gebraklapindo.

wordpress.com/intl-media-coverage/lapindo-brantas-responsible-for-mud-flow/). Many

people might become the victims of the failure of company operations in maintaining the

environment. They lost their houses, farms, work fields. Consequently, the company

turned into over budgeted condition, in which they must pay the compensation. The

company even had to stop its operations as a result of community complaint (Marbun

2001 in Januarti and Apriyanti, 2005).

The companies should realize that if they want to maintain the sustainability of

their businesses, they are no longer required to meet the stockholders only (single

bottom line) but also pay attention to the environment and social aspect (triple bottom

line) (Anggraini, 2007; Suranta 2007; Siregar, 2007). From many cases, it can be seen

that the negligence of the company in fulfillment the stakeholders needs has staked their

images in society.

Kotler and Lee (2005) in Masnila (2007) state that company’s participation in

implementing CSR offers many benefits, namely: increasing sales and market,

strengthening brand positioning, improving company image, improving ability to

captivate, to motivate, and to retain employees, reducing operation costs, and also

increasing investors desire to invest. It is important for company to implement CSR

since it provides many benefits for the company. The most benefit is to create a good

corporate image in the community as part of efforts to achieve long-term goals of the

company (Fatt, 2000; Gunawan, 2007).

 According to Garbett (1998) in Fatt et al (2000), companies must try to project

an image that is stable yet exciting, aggressive, yet public-oriented, diversified yet

focused on some specialized areas, and generous to employees yet shrewd in its

investment. The ability to satisfy the needs of the different stakeholders helps to

generate positive feelings towards the company. It is intended to create good corporate

image in the eyes of society. By creating good image, it is expected that people could

fulfill what is desired by the company, such as support every activity undertaken by the

company and willing to use company’s products so that the continuity of the company is

maintained.

There are many activities can be conducted by the company. According to the

committee of Accounting for Corporate Social Performance of Nation Association of

Accountants states corporate social responsibility can be divided into four activities;

they are community involvement, human resources, environmental and physical

resources, and product or services contribution (Masnila, 2007). The activities of

corporate social responsibility can be disclosed as parts in corporate governance section

or in CSR section. All the disclosure about CSR activities in Annual Report can be

named as corporate social disclosure (CSD).

Corporate social disclosure (CSD) can be defined as a provision of financial and

non-financial information relating to an organization’s interaction with its physical and

social environment (Guthrie and Mathews, 1985 in Gunawan, 2007, p.26). CSD

provides information to the public regarding company’s activities that related to the

community. For example, their commitments in reducing hazardous impacts on the

environment, improving waste management, complying with the Environmental Quality

Regulation, making efforts to protect their employees and to other social issues

affecting the public (Bhandari et al, 2009).

According to Januarti and Apriyanti (2005), the good image of the company will

be created in society if they can be responsible and show concern for the external

environment which is reflected in the CSD for example the allocation of funds for waste

water treatment programs, education, training, and other benefits. While the research

conducted by Gunawan (2007), finds that the majority of companies in developing

countries, on the early stage of conducting CSR activities, aim to create a good

impression for their companies. In another research conducted by Gunawan (2010,

p.68), she states that disclosing positive information may indicate that companies try to

create a good image for what they have achieved in conducting CSR. It is also supported

by Fatt et al (2000) who state that as the public becomes more aware to environment,

social issues and the business philosophies, it is important for companies to establish a

corporate identity that is socially and environmentally conscious.

In contrast, Saputra (2010) argues that many CSD performed by the company,

such as supporting the construction of school, hospital, house of worship and others do

not always succeed to raise the company image. For instance, the case of Lapindo

Brantas, in which CSR that have been taken are failed to restore its negative image, even

if Lapindo has made up the losses in the society. It is might occur as a result of company

actions that might arouse anger in the society.

 Prior studies in corporate image and CSD, for example, Achda (2006) in Suranta

(2007) states that there is a positive relationship between CSD and the increasing

appreciation of the international and domestic community to the companies. Therefore,

the implementation of CSR should not be considered as a cost solely, but rather as a

profitable long term investment. Bhandari et al (2009) state that CSD may gain an edge

in capital, labor, supplier and customer markets compared to their silent peers. A

disclosure on these matters may enhance reputation specifically within CSD themes, for

example, an image of environmental responsibility by improving the access to clients

and buyers through "green" procurement policies. CSD helps to strengthen the

stakeholder relations that promotes corporate transparency and supports greater

confidence and trust among the stakeholders.

In a service industry, such as corporate banking, the management of corporate

image (CI) has been suggested to be an important strategic issue for most banks

(Vegholm, 2009). According to Worcester (1997) in Vegholm (2009), developing a

strong image is not an optional activity; rather, it is an important part of a bank’s

strategy. It is regarding to customer trust to the bank, a place where they can save their

money. Since there are inconclusive findings, this study aims to find out whether there is

a positive influence between corporate image and CSD in Indonesian listed companies.

There are many ways to measure corporate image. Previous researchers use

questionnaire to find out positive correlation between variables to corporate image. In

research conducted by Fatt et al (2000), they use four factors that related to measure

corporate image, which are the public’s needs satisfaction, Customer’s needs
satisfaction, Employee’s needs satisfaction, and Investor’s needs satisfaction. They build

questionnaire that is distribute to correspondence in order to get information about what

is desired, needs, and wants by the stakeholders related to corporate image. Gunawan

(2010, p.68) said the more awards received by company, the most information will be

disclosed. Based on her journal and since no previous studies can be found uses awards,

this study is conducted by calculating total number of awards received as the

measurement of corporate image and content analysis method to measure CSD.

Based on backgrounds have been explain above, the research will be conducted

by title:

“CORPORATE IMAGE AND CSD”

1.2 Formulation of the Problem

Based on the background and previous studies, this paper addresses the issue

whether the corporate image has significantly influence to the extent of CSD.

1.3 Purpose and Benefits of Research

The purpose of this research is to find the positive significant influence of

corporate image to the extent of CSD.

The benefits in conducting this study are, for:

1. Academic

This study can be as reference materials and comparison for subsequent studies

relating to the disclosure of social responsibility. This is due to the lack of

 previous studies that tested direct influence of corporate image to CSD using the

total awards received by the company as a measurement of corporate image.

2. Company/management

The result of this study is expected used as reference that can help the

management to create good image in public through CSD and realize how

corporate image has significantly effected to CSD. So, it is important for

management to maintain good image by disclosing information relating to

corporate social activities.

3. Government

The result is expected used as consideration for the government as rules maker to

make any guidelines of CSD. So, it will motivate the company to practice and

disclose their CSR activities although the practice of CSD still voluntary in

Indonesia.

1.4 Systematic of Research

As an illustration, discussion and preparation of this paper divided into 6

chapters, in which each chapter will discuss the following matters:

CHAPTER 1: INTRODUCTION

In this chapter will highlight the background of research

regarding to corporate image and disclosure of social

disclosure, and also about the motivation in conducting the

 research that compared with previous researchers. This

chapter also explains formulation of problem, purpose of

research, advantages of research, and systematic of

research.

CHAPTER 2: THEORITICAL FRAMEWORK

This chapter discusses in the theories and supporting

theoretical views related to corporate image, corporate

social responsibility (CSR) and social responsibility

disclosure (CSD). This chapter also describes the

conceptual framework and hypothesis of the research.

CHAPTER 3: RESEARCH METHODOLOGY

This chapter will explain the methodology of the research

that will be used that is Structural Equation Model (SEM),

variables and scale of measurement, definition of

operational variables, sample of research and method used

to determine the sample, methods used for data collection,

and methods used for data analysis.

CHAPTER 4: RESEARCH RESULTS

 This chapter contains descriptions of research results. This

description includes data description, descriptive index of

disclosure of social responsibility and descriptive statistics

of each variable. In addition, this chapter will also

describe the results of testing and data processing

based on the number of population used from the object

investigated by using SEM 6.0 for windows.

CHAPTER 5: ANALYSIS AND DISCUSSION

This chapter contains discussion of test results and

processing data that has been described in previous

chapter. The discussion carried out by comparing the

results with the theoretical views in chapter 2. It is also

compared with studies by previous researchers about

Corporate Image and CSD.

CHAPTER 6: CONCLUSION, MANAGERIAL IMPLICATIONS,

LIMITATIONS, AND SUGGESTIONS.

This chapter contains a conclusion; summary of the result

on this research, managerial implication, limitation in

conducting research, and suggestion for the parties who

will conduct advanced research.