97shardjono_csr & Wellbeing14112009sdn

& CORPORATE SOCIAL RESPONSIBLITY & WELLBEING

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CSR: Introduction   •

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Corporate social responsibility (CSR) has blossomed as a framework for the role of business in society . It’s become a standards behavior (Socio Economic Behaviour) to which a corporation must subscribe in order to impact society in a positive and a productive manner.  The impacts: emergence of social enterprises, business ethics, environmental practices, a human rights approach to recruitment, employment conditions, and in the investment (M,M,M scheme of investments) and rising up the implementation of Good Corporate Governance (GCG).  Corporations are no longer defined as entities with a mandate to pursue profit and power relentlessly, regardless of the potential harmful consequences. Instead, they are expected to use their extensive resources to soften their self-interest image by presenting them selves as humane, benevolent, and socially responsible.

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CSR & Wellbeing - Saebani Hardjono

Multinational corporations are perceived as the key to development

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Corporate governance Mainstream concept: • Corporate governance has to do with those legal and organizational structures that look after their internal integrity of a corporation. • It concerns: environment protection, corporate transparency, corporate responsibility, equitable distribution of wealth and income, labor laws, and many others. Islamic perspectives: • Corporate governance is premised on the nature of preference formation caused by the internal dynamics of organization and interactive decision-making within institutions through shuratic process. Its relationship with the environing factors, premised CSR and & Wellbeing - Saebani on an epistemolology 13/11/09 3 Hardjono carried by θ-values to yield an episteme of action and

The Evolution of CSR  

CSR is defined as denoting corporate activities beyond making profits, such as protecting the environment, caring for employees, being ethical in trading, and getting involved in the local community, poduce or sell goods that good for people.   Main issues: human rights, community involvement, human resource management, socially responsible investing, and social reporting.     Robert Davies simplifies this: CSR means a set of standards of behavior to which a corporation subscribes in order to have a positive and productive impact on society.   Put simply, CSR is the framework for the role of business in society.   In western conceptualization: CSR comes in many forms. As a result: its operation is open to a great deal of interpretation and argument. CSR has been evolving constantly and incorporating different approaches, depending on circumstances and needs.  

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The classical creed pronounces CSR  

CSR as an all together pernicious (harmfull) idea: because the corporation’s role is limited to providing goods and services in a way that maximizes their owners’ wealth.   Milton Friedman, argues that having managers extend their social responsibilities beyond serving their stockholders’ interests is fundamentally a misconception of a free economy’s character and nature. He asserts categorically that solving social problems belongs to government and social agencies, not business. Indeed, his argument reflects the prevailing worldview of neoclassical economics, which has long been entrenched (firmly established belief) in the notion of the self-interested economic man.   The escalating socio economic problems brought about by globalization have raised new questions as well as expectations about corporate governance and social responsibility.   As a result of the continued discontent with the restrictive and misleading worldview that is deeply rooted in self-interest, as well as the secularist and hedonistic individualism underlying the western economic worldview. CSR emerges as a doctrine to broaden the spectrum of corporate responsibility to include both a social and an environmental dimension.

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Tawhidi: domain of [Qur'an (Ω ), Sunnah (S)] ↓ (Ω ,S)→ discursively determining → determining the → deriving inferences → The combination of the formalism of and further learning Socio-economics and specifying the by revision and Strategic variables under explanatory extension of the Specified rules of the power of the decision-making Maqasid as -shari’ah unity of processes identifying unity of organizational knowledge in systems behavior followed by measurement     Summary form of the phenomenological model of unity of knowledge of corporate relations  

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Tawhidi principles of CSR: in Spending and Charity. •

“Believe in God and His Apostle, and spend (in charity) out of the substance) whereof He has made you heirs. For, those who believe and spend (In charity),for them is agreat Reward. (Surah Alhadiid:57:7).

• Such acts of belief are formed in a specific ways, by combining the knowledge of Quran with the Sunnah of the Prophet Muhammad. Hence in this way, the above verse establishes the inseparability of Sunnah from the Quran, to be one inseparable, complementing comprehension of belief.

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THE TAWHIDI STRING RELATION (TSR) PRIMAL PROCESS MODEL OF TAWHIDI UNITY OF KNOWLEDGE   At the outset, the focus of attention is on deriving and formalizing a process model of generalized system as explained below: ______1_______ _6__

_____2______ __3__ __4__ ____5_____

Ω →F {Φ }→f* {Φ *}→f1 {θ }→f2 {X({θ })}→↓→f3 New {θ }→ Stock Of Derivi (1) Of continuity→ Ω =H of Primal ng Simil W(θ ,X(θ )) in repeated processes know knowknowar Primal→Derivation→Process of→Postledge ledge proevaluation→Evolution→Continuity→Closure ledge flows flows cesse . by discursio n 13/11/09

s

CSR & Wellbeing - Saebani Hardjono

In the very largescale universe

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Corporate Spending in charity In general, it is for the good cause, social justice, and for the common good.

• Neo-clasical preference choice: 

 

The concept of charity and good cause married by the idea of submitting to humanistic interests rather than to truth. Political hegemony to social justice. The social distributive justice and social justice as a separate entities on matters of resource allocation.

• The approach of the Tawhidi : 



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To all affairs of life, focuses on the topic of complementarities, inseperability between belief in Allah and the Sunnah on the one hand; And, spending as a purposeful act of justice, good cause, and common good and socio-economic efficiency, on ther other.

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The IIE-Process of simulation Using the Methodology of Unity of Knowledge

W=W(x1,x2,…,xn,P1,P2,…,Pm)[θ ] = A(θ ).[Π

i=1

n

xiα iΠ

s=1

m

Psβ s][θ

]

x1 = f1(x2, …, xn, P1, P2, …, Pm) x2 = f2(x1, …, xn, P1, P2, …, Pm) ……………………………………. xn =fn(x1, x2, …,xn-1 , P1, P2, …, Pm) P1= g1(x1, x2, …,xn, P2, …, Pm) P2= g2(x1, x2, …,xn, P1, …, Pm ) …………………………………….. Pm=gm(x1, x2, …,xn, P1, …, Pm-1 ) Recursively estimated Z’ = (x1’, x2’, …,xn’, P1’, P2’, …, Pm’)[θ

existing/simulated

]

Determining ordinal θ -values recursively by observing Z’-values and by improving the Z-elasticity coefficients (α ’s, β ’s) of the previously estimated W-function θ W = f(θ ) Z’ where, Zi’=(x

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1, 2, 3, 4, ……….. ,0≤α ≤1 Z ’, Z2’, Z3’, Z4’, ….. 1 ’, x2’, …,xn’, P1’, P2’, …, Pm’)[θ simulated ], i = 1,2,3,4,…. 1 (say) θ

α

Recursively simulated in continuum of IIE-processes CSR & Wellbeing - Saebani Hardjono

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The Islamic methodology approach toward CSR and corporate governance   x (θ ) = {x1, x2, x3, x4, x5, x6, y1, y2, y3, y4, p1, p2, p3, p4  ;p5}[θ ],

(1)

[θ ] means induction of each and all of the variables within {..}.   x1: quantity of labor (L) employed in the cooperative enterprises the Islamic corporate. x2: quantity of capital (K) employed complementary to x1 in the Islamic corporate. x3: output (Q) of the Islamic corporation in compliance with the divine purpose of the shari’ah (maqasid as-shari’ah) x 4: profits (P) of the Islamic corporation, x5: shareholders’ wealth (F) for enhancing corporate productive activities. x6: resource distribution (Rd) signified by weighted distribution of output between capital, labor and shareholders; y 1: y 2: y 3: y 4:

financing instrument of profit-sharing, mudarabah (M1); financing instrument of equity-participation, musharakah (M2); financing instrument of markup pricing in traded goods over time, murabaha (M3) secondary financing (M4) instruments conformable with the shari’ah (Rosly, 2005)

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The Islamic methodology approach toward corporate governance p1:

policy or rule (ahkam) on agency participation derived discursively as in the corporation shura in concert with the learned understanding of interrelations between the x(θ )-variables in accordance with simulated θ values across specific learning processes (shura discourse combined with tasbih). This variable can be measured as frequency of shura meetings held. p2: number (ratio) of extension of enterprises into widening sectors and projects of interconnection; p3: number (ratio) of extension of enterprises into widening sectors realized by sectoral linkages; p4: human resource development along lines of perpetuating the internal broader perspective of the maqasid as-shari’ah in respect of choices, organization and wider system of applications; p5: intensity of revealing transparency and disclosure in corporation accounts, investment financing and shareholders’ profitability.  

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The social wellbeing function

Derived from the episteme of oneness and completeness of the divine laws. W = W(x1, x2, …, xn, P1, P2, …., Pm ≥(θ)); ..........................................(1) with dW/dxi = ∑(∂W/∂xj).(dxj/dxi) + ∑(∂W/∂Ps).(dPs/dxi) > 0, for each (∂W/∂xj) > 0, increasing relationship between ‘the good things of life’ (Qur’an, 55:60) and Wellbeing; (dxj/dxi) > 0, complementarities as the sign of unity of knowledge by ‘pairing’ (Qur’an, 13:1-5); (∂W/∂Ps) > 0, and (dPs/dxi) > 0 the endogenous nature of policies and operational instruments in the relations between state variables and policy variables. i,j = 1,2,..,n; s = 1,2,..,m  x= ( x1, x2, …, xn ): socio economic var. P= (P1, P2, …., Pm): policy variables

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The interactive and integrative phenomena by strong circular causation as follows   x1 = f1(x2, …, xn, P1, P2, …, Pm) x2 = f2(x1, …, xn, P1, P2, …, Pm) ……………………………………...... xn =fn (x1, x2, …,xn-1 , P1, P2, …, Pm)

(2)

P1= g1(x1, x2, …,xn, P2, …, Pm) P2= g2(x1, x2, …,xn, P1, …, Pm ) ……………………………………...... Pm=gm(x1, x2, …,xn, P1, …, Pm-1 ) x = (x1, x2, …,xn), denotes e vectors of socio-economic variables. P = (P1, P2, …, Pm), denotes the vector of policy variables and instrument.  

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C orporation as a social and economic organism •

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Herbert Simon (1952): there is internal social process within the organization (firm) that links up with the socio economic variables. Information about the market environment and strategies main incomplete. Hence, agents are not optimally rational. Three kinds of interactions apply: – R1: Intra firm interaction  cohesion (C); ................↓ – R2: C  Diversity of strategies and decision (D);.......(3) – R3: D  C (recursive decision making; ......................↑ – The continuity of R1R2R3 ..................................(4) A corporation (Firm) should be seen as a social and economic organism. In the socio-political: corporation is to be seen as a socially responsible organism, who creating jobs, sustainable development, and goodwill in sales. Corporation needs to exist and grow as dominant supplier: having production levels and acquisition of market shares, determines the residual supply and demand curves of the small enterprise outputs, keeping to pirce its products down.

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Increase corporate productive capacity to stabilize price in benefit for society wellbeing • Circular causation between the variables (LM,KM,Y,Q,D) that can be formulated by means of the relations of expression in the present variables. • The monotonic increasing values of the variables imply the principle of complementarities and that increased product and risk diversifications. • In the midst of pervasive complementarities and participation result in production efficiency that in turn advance to higher factor and total productivities. • Price stability is the result of increased productive CSR & Wellbeing - Saebani 13/11/09 17 capacity attaine d Hardjono by risk and product

CSR Empowering society in participatory or complementary process on Socioeconomic Development  The World Bank(2000) remarks on participatory scope of development:

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“Poverty is more than inadequate income or human development -- it is also vulnerability and a lack of voice, power, and representation. With this multidimensional view of poverty comes greater complexity in poverty reduction strategies, because more factors -- such as social and cultural forces -- need to be taken into account." "The way to deal with this complexity is through empowerment and participation -- local, national, and international….."

  On the same topic UNDP (1999) remarks:   • "Participation in the process must be widened. Knowledge is needed not only of the latest technologies but also of local ecosystems and food chains, local culture and systems of exchange, socioeconomic conditions and political and market stability. This calls for broad collaboration“. CSR presents a discursive process, transparency and institutional participation that alltogether reduce transaction cost and empowering the society.

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Islamic social and economic conduct •

Preference formation toward avoidance of waste in consumption, production and distribution of resources, to lead ecological consciousness, and using an appropriate technology. • One kind of social waste is considered to be the rate of interest, as the cost of unused capital. Shuratic preference formation by discourse has to phase out interest rate regimes and causes spending to arise by resource mobilitation. • Interst rate as a “bad” is replaced by co-operative instruments, like as Mudharabah (profit-sharing), Musyarakah (equity-participation), Murabahah (cost-plus pricing). • There is social obligation of the corporation to pay zakat for CSR & Wellbeing - Saebani 13/11/09 19 Hardjono their wealth and resource tax on its retained earning.

Key principles Islamic responsible social economic conduct Governance is imparted by the knowledge induction of: production, consumption and distribution of resource, income, and wealth that reflect the following key principles (Choudhury, 1989). • Extension of the Episteme of Unity of Knowledge through the IIEprocess. • The Principle of Justice as balance and fairness. • The Principle of Productive Engagement of resources in social and economic activities. • The Principle of Recursive Interaction to form intra- and intersystemic complementarities as the ‘pairing’ feature of unity knowledge exemplified in systemic interelationships (circular causation and continuity of relations).

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CSR in line with the concept of development to bring social wellbeing Goulet defines development as the maximizing of life-fulfilling activities. Such activities are seen to bring about both material and social wellbeing. •

CSR concerns with co-operative institutions that established between the dominant and small-scale producers and enterprises. Thus the power structure of governance becomes shared and equitable.

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CSR encourages co-operative institutions lead to collective and shared decisions between participants.

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Freedom of choices by the participants is encouraged.

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CSR persuades an environmental consciousness and the survival of the progeny as an important ethical issues in the development process.

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CSR supports human resource development in enabling CSR & Wellbeing - Saebani to deliberate on their perspectives of human Hardjono

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References • • • •

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Choudhury, Masudul A., & M. Ziaul Hoque, (2006), Corporate Governance In Islamic Perspective, Corporate Govenance, 6:2. Choudhury, Masudul A., & M Nurul Alam, (Corporate Governance In Islamic Perpective, Corporate Governance, London, Ebg, Ashgate Publisher. Choudhury, Masudul A., & M Shahadat Hossain, A Development Planning Application of Relational Epistemology And Tawhid. Choudhury, Masudul A., & Sofyan S. Harahap, (2007), Decreasing Corporate Governance In Ethico-Economic General Equilibrium Model of Unity of Knowledge, Corporate Governance, 7:5. Choudhury, Masudul A., (1993), Comparative Development Studies, St. Martin’s Press. Choudhury, Masudul A., (2004) An Advanced Exposition of Islamic Economics And Finance, The Edwin Mcllen Press. Weyzig, Francis, (2009), Political and Economic Arguments for Corporate Social Responcibility: Analysis and a Proposition Regarding the CSR Agenda, Journal of Business Ethics (2009) 86:417-428.

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