Labour practices and decent work disclosures in Indonesia

Abstract

This thesis examines the extent of voluntary Labour Practices and Decent Work Disclosures (LPDWD) in Indonesia Stock Exchange (IDX) listed companies’ annual reports and the factors influencing that level from an isomorphic institutional theory perspective. Labour issues in Indonesia are considered important given that there is a distinctive gap in the power relationship between companies and their workers, placing workers in a far weaker position vis a vis the companies.223 annual reports for the 2007 financial year are analyzed using the LPDWD component of the 2006 Global Reporting Initiative (GRI) guidelines as the benchmark disclosure index checklist. The 2007 data sample is a normal base year before the 2008 Global Financial Crisis (GFC) and is considered as a critical year for companies to respond to Indonesian CSR-related regulations issued 2006 and 2007 and prior to any potential negative influences of the 2008 GFC. The descriptive results show a low level of voluntary disclosure (17.7%), suggesting that Indonesian companies are not clearly communicating labour responsibility issues as a key precondition of Corporate Social Responsibility (CSR).The low disclosure level by Indonesian listed companies might be a reflection of the lack of details in the CSR reporting legislation. Alternatively, companies may be attempting to shy away from controversial issues. The implication for the government is the need to provide an explicit reporting framework. Not only will the link between the labour-related regulations and the reporting regulations allow the government to more easily monitor and enforce disclosures, it will also address those issues where companies are avoiding disclosures.Multiple regression results reveal that government ownership and international operations are positively significant predictors of ‘labour’ communication. This highlights that there is some coercive and mimetic pressure on voluntary LPDWD practices in Indonesia. Company size and economic performance are also positively significant. In contrast, leverage, industry type, goal factor, independence of board, foreign company ownership, and age of business are not significant factors.Pearson correlation test shows that there is a positively significant link between media pressures and IDX listed companies’ labour disclosures, within the specific framework of coercive isomorphism. The most apparent effect of media is on employee benefit issues as these issues are mostly emphasized in both the media and the companies’ annual reports. Overall, Indonesian companies seem to be window-dressing their annual reports to avoid communicating controversial issues especially where they do not perform well.The overall results of this thesis suggest that the variability of labour disclosures in Indonesia is partially explained by isomorphic institutional theory, particularly by its coercive and mimetic variants. The sources of coercive pressures are government ownership and media exposure while the source of mimetic pressure is international operations.