SUSTAINABILITY ACCOUNTING AND REPORTING

“IMPLEMENTATION OF CORPORATE SOCIAL RESPONSIBILITY BY

GUDANG GARAM TBK.”

Supporting Lecturer:
Prof. Drs. Hasan Fauzi MBA, Ph.D., Ak

ARRANGED BY:
Desy Margaret Teacher F1318020
Devin Yulfikar Subiyanto F1318021
Dewi Saraswati Adya Pramudita F1318022

PROGRAM S1 ACCOUNTING TRANSFER

FACULTY OF ECONOMICS AND BUSSINESS
UNIVERSITAS SEBELAS MARET
SURAKARTA
2018
FACTUAL SUMMARY

A company established with the main purpose to seeks profit as much as possible and avoids
loss or pushes it to the minimal point. Either it engages in services or producing goods. As one of
the subjects of economy, a company plays the important role in producing goods and services,
creates employment, and contributes the biggest tax to the country. These are the positive sides in
the establishment of company both nationally and internationally.

On the contrary, the negative side of the establishment of company that specially engaged in
industrial sector which has caused many environmental problems. This condition is aggravated by
the lack of the company’s response to the public concerns about environmental issues, the welfare
of the surrounding community, and others. This is due to the dominance of the company’s mindset
that still focused on profit (profit orientate).

However, some companies already have awareness of their position in the midst of society.
They begin to place themselves as a legal entity that obliged to adapt the social culture of the
neighborhood which it located and be accountable as a legal subject in general.

As one of the legal entities, company have a responsibility towards the environment where it
located. This responsibility usually called as Corporate Social Responsibility (CSR). Sadly, in
practice, many companies implementing CSR only for voluntary purpose without any commitment
or follow up from the company. They considered the CSR as a cover for promotion to achieve
their positive image in the eyes of the public.

In Indonesia itself there is Law of the Republic of Indonesia No. 40 Year 2007 about Limited
Liability Company where Article 1 Paragraph 3 state that Social and Environmental Responsibility
shall be a commitment of Corporation to take parts in sustainable economic development in order
to develop life quality and beneficial environment either for a Corporation itself or site community
or public. This article can be interpreted that the company has social responsibility (CSR) to the
internal, such as the employees, and to the external, such as the environment of the company
located.

In the implementation of CSR, company may face a situation that require them to choose to
carry out legal responsibility and/or economic responsibility. But basically company still has to
pay attention to the interest of the environment and the society. With this principal, company has
to implement the concept of CSR which prioritizing the public interest. The public interest here
means the interest of the company in seeking profits without overriding the values and norms that
contained in the society.

One of the companies that has social responsibility to the society is a company that engaged
in cigarette manufacture. Since a long time ago the cigarette manufacture has been one of the
industries that become the driving force of the economy in Indonesia, especially a state revenue
for cigarette customs. Where the manufacture itself is the type of company that runs its industrial
activities by processing and utilizing the natural resources.

Regardless of the implementation of CSR which considered as a support for the positive image
of cigarette company in the eyes of public only, many demands are put forward by the community
as a social responsibility to the related company. From this problem, we are interest in bringing up
the topic about the response of the company to the public demands regarding the social
responsibility toward the impact of the consumption of company’s production. Here we are
focusing into one of cigarette manufactures which is Gudang Garam Tbk.

Company’s Profile

Gudang Garam Tbk is one of leading cigarette manufactures in Indonesia which has been
established since 1958 in Kediri, East Java. Starting from a home industry that produces high-
quality clove cigarettes. Variations in clove cigarette produced by Gudang Garam Tbk range from
“Sigaret Kretek Klobot (SKL)”, “Sigaret Kretek Linting-Tangan (SKT)”, to “Sigaret Kretek
Linting-Mesing (SKM)”. The company grows and develops along the organizational governance
and is based on the philosophy of “Catur Dharma”.

The first clove cigarette products produced are SKL and SKT. Gudang Garam opened the first
branch to meet the increasing market demands. As the more developed the clove cigarette industry,
the home industry changed the status from an Individual Company to a Firm. The company
changed the status again from a Firm to a Limited Liability Company (LLT). Then Gudang Garam
Tbk developed the “Sigaret Kretek Mesin (SKM)” and producing new type of cigarette, namely
mild clover cigarette that marked by the establishment of the Directorate of Gempol Prodution in
Pasuruan, East Java.
 Indonesia is a large and diverse consumer market with a population of around 260 million
people. It is estimated that 67.0% of adult men in Indonesia are smokers. Based on Nielsen's market
research at the end of 2017 Gudang Garam has a domestic cigarette market share of 21.4%. Gudang
Garam has provided employment for 35,272 people at the end of 2017 who are directly involved
in cigarette production, marketing and distribution. Gudang Garam has 67 area offices with 281
distribution points in Indonesia with a sales fleet of more than 7,000 vehicles.

PROBLEM STATEMENTS

Based on the background that has been described, the problems are as follows:

1. How the implementation of Corporate Social Responsibility (CSR) in cigarette manufacture

in Indonesia?
2. What Gudang Garam Tbk has been done in the implementation of CSR in the company’s
activities?
3. What is the response of Gudang Garam Tbk to the public demands regarding the CSR toward
the impact of the consumption of production?

ANALYSIS OF PROBLEMS

Regulations of Corporate Social Responsibility

According to World Business Council for Sustainable Development (WBCSD), Corporate

Social Responsibility is the continuing commitment by business to behave ethically and contribute
to economic development while improving the quality of life of the workforce and their families
as well as of the local community and society at large.

In the Regulation of Financial Services Authority No.51/POJK.03/2017 about Application of

Sustainable Finances for Financial Service Institutions, Issuers, and Public Company has quite
clear in explaining concerning the application of CSR in companies in various industries.

Based on ISO 26000: Guidance Standard on Social Responsibility, the characteristic of Social
Responsibility is the willingness of the company to consider the social and the environmental
aspects in decision making process and be responsible for the impact of the decisions and its
activities that affect the society and the environment. ISO 26000 covers 7 core subjects, namely:
organizational governance, human rights, labor practices, the environment, fair operating practices,
consumer issues, and community involvement and development.

Corporate Social Responsibility of Gudang Garam Tbk - The Concept of CSR of Gudang
Garam Tbk.

As one of companies that engaged in cigarette manufacture, Gudang Garam Tbk aware of
their position in the midst of society as a legal entity, Gudang Garam Tbk view the application of
social responsibility as an opportunity to ensures that the company and communities can grow
together and support each other.

As an application of this view, they apply the concept of “Catur Dharma” as a basis of
developing CSR. These are the concept of Catur Dharma:

1. Meaningful and useful life for general public is a fundamental happiness

2. Work hard, tenacity, honesty, healthy, and faith is a prerequisite for success.
3. Success cannot be separated from the role and corporation with others.
4. Employee are the major business partners.

With this philosophy, they aware of their position as a company in the midst of society and
being part of wide community in carrying out in their production activities.

Implementation of CSR of Gudang Garam Tbk to Community Environment

Regular programs that run by Gudang Garam Tbk, based on the documentation of 2017
Company Sustainability Review, include:
1. Beliefs – company participates in cultural tradition activities and provides assistance in the
form of restoration of public facilities.
2. Special Relief Programs – company participates in emergency response by collecting
donations and provides assistance to reduce the post-disaster burden.
3. Sport, Education, and Healthcare – company sponsors the national sports activities, school
constructions and scholarships, and employees participate in blood donor activities
organized by the Indonesian Red Cross.
4. Healthy Living Condition – educating and encouraging the surrounding community to pay
attention to the surrounding environment and maintain healthy life.
Public Demands on the Responsibility of Gudang Garam Tbk for Production Results

The view regarding CSR on cigarette manufacture only as a cover in promoting to achieve
the positive image of company in public’s eyes also felt by the company. Where there are various
demands on the company’s responsibility as one of companies that engaged in cigarette
manufacture.

As discussed above, one of the CSR policies implemented in the company includes sports,
education, and health services such as blood donor. Though there is more important responsibility,
which is the effect of smoking on human health, both active and passive smokers.

Many companies that engaged in the cigarette manufacture have a tendency to deny the
effects of smoking on health. It is difficult to find a cigarette manufacturer that provides health
benefits for consumers who are sick due to smoking. Plus, cigarette manufacturer seems to turn a
blind eye to the increasing of underage smokers. Instead they make the young generation as their
target of marketing.

Cigarette manufacturers, including Gudang Garam Tbk, each year impose various
advertisement for their products and sponsors as a marketing expense. But there are no cigarette
advertisements that educate smoker about the ethic and manners of smoking. Many smokers smoke
in public places. Even they do not hesitate to ignite the cigarettes in front of the children, which
indirectly makes them a passive smoker. This is worsening by their habit to carelessly throwing
the cigarette butts and it causing the environment pollution.

With the many problems posed by the cigarette manufacturer, it raises the public demands
for the responsibility of the company on the effects of smoking on the consumer’s health, both
active and passive smokers. Some of the demands on the responsibilities of cigarette manufacturer
on environment as follows. First, the responsibility of the health of their own consumers, either
active or passive smokers.

Second, manufacturers give counseling concerning the ethics and manners of smoking to
smokers. As mentioned before, people, especially women and children, many become passive
smokers because of their surrounding where many smokers do not care about ethics and manners
when smoking. The smokers’ ethics and manners should be an important matter for the
manufacturer, including Gudang Garam Tbk.

Third, cigarette manufacturer should not ignore the fact that their product is bad for health.
Conversely, they must provide a guidance to the smokers about the correct consumption of
cigarette. Some things that can be focus of it is the smoker’s minimum age and the consequences
they get when consuming.

SOLUTION

From the discussion above, some conclusions are obtained, which:

1. The view regarding CSR on cigarette manufacture only as a cover in promoting to achieve
the positive image of company in public’s eyes also carried out by Gudang Garam Tbk. Judging
from the application of CSR that is not related to the public demands for problems that have been
caused by consumption of the company's production. Gudang Garam Tbk should making CSR
policies relating to the responsibility for their manufactured goods. The responsibility here can be
in the form of medication for smokers who suffer from smoking-related illnesses such as lung
cancer.
2. Overall, Gudang Garam Tbk has directly contributed to the community. It can be proved
by the increasing of quality of life of people around the company. Gudang Garam Tbk also makes
a major contribution to country revenues for cigarette customs, which directly enhances the
economy.

RECOMMENDED SOLUTION

1. The positive image of a company is important but this should not be the main reason for a
company to run CSR. Awareness of the importance of CSR should be increased for the company.
In preparing and implementing CSR, Gudang Garam Tbk should listen more to the public
suggestions and issues the occur in the community.
2. Government should make specific guidelines about everything that concern Corporate
Social Responsibility, as an example the financial report guidance of Indonesia that uses Statement
of Financial Accounting Standard (PSAK). Likewise, guidelines for CSR can be recorded so that
companies have clear guidelines in determining CSR policies.
 3. Government and companies should work together to educate the community about CSR.
Government can provide training on CSR to the community so that the community can also
become a supervisory agent for the implementation of CSR by the company.