Starting the discussion about the topic “Ethic Is Important for Every Company to Run its Business“, the Merriam-Webster dictionary (http://www.merriam-webster.com/dictionary) was consulted to define the words of ethic, company and business:
Ethic: rules of behavior based on ideas about what is morally good and bad
Company: a business organization that makes, buys, or sells goods or provides services in exchange for money.
Business: the activity of making, buying, or selling goods or providing services in exchange for money
From above definition, it is obvious that the word company and business are closely related: that company as a business organization which is making money. However, ethic seems to be an alien concept from money. It is evaluated through an abstract measure: moral.
Morally judgment of good or bad although are sometimes subjective, has a common ground of understanding. It is universally accepted that donating for education or health of others to be good, conversely, cheating from the less knowledgeable side for self-interest to be bad.
In addition to moral, ethic is also rules of behavior, which means ethic is a stricter concept and sometimes related to professional field of work. There are Medical Ethic, Engineering Ethic, Legal Ethic, for example.
However, ethics is different from law which command direct legal consequences. There is different tolerance in the level of morality of the communities which make the gray area of ethical dilemma. “Just because it’s legal, doesn’t meant it’s ethical” is a phrase depicting the above idea. The legality of an issue may not be the right answer as its moral side. One in status of this dilemma had to consult individuals in position of responsibility to help ensure the organization’s needs are being appropriately met.
This writing was developed based on the literature study from several related references and sources with an example from the company which has a good implementation of the business ethics in their operation.
In the 1847, American Medical Association established their first code of conduct. However, the concept of “business ethic” had not become common in the U.S until 1970 (Fountain, 2012). But, long before that, the concept of corporate social responsibility CSR) has been evolving from the impulses of philanthropies until the progressive era of corporate responsibility.
The driving force of the shifting are:
- The doctrine of corporate responsibility has evolved over time to require more expansive action by companies. Ethical and legal philosophies had matured to support broader action by managers.
- CSR is profoundly durable and successful ideology.
There are 4 big periods of time in which this paradigm shift will be discussed, they are:
II.1.1 The classical economic
This period is strongly dominated by the Adam Smith’s Wealth of Nations ideology: the simplicity and resonance of self-interest. In this classical capitalism, a business is considered to be socially responsible if it maximizes profit while operating within the law, because an “invisible hand” will direct economic activity to serve the good of the whole.
II.1.2 The early charitable impulse
This period includes colonial era, in which the businesses were small and the merchants practiced thrift and frugality. Company took a negative view of philanthropy and the use of company funds for charity or social works was the same as to take the money from the pockets of shareholders. those actions invited lawsuit because the business charters granted by states required that profit be disbursed to shareholders.
Despite the profit maximization of the capitalist businesses, charity was still a coexisting virtue. Those philanthropy actions were endowed individually by the business owners or millionaires. Among the first philanthropist was Steven Girard who made the charitable bequest in his will of $6 million for a school to educate orphaned boys from the first grade to high school. At that time, a high school education was still only for children of the wealthy. John D. Rockefeller and Andrew Carnegie were also noted as the most generous in the period.
II.1.3 Late nineteenth and early twentieth centuries
During this progressive era, three interrelated themes of broader responsibility emerged:
- Managers were trustees, on whom lies the welfare of the stockholders, workers, customers and communities;
- Manager had an obligation to balance these multiple interest, be the coordinators who settled competing claims;
- Many managers subscribed to the service principle, a belief that individual managers served society by making each business successful.
II.1.4 1950 to present
This period witnessed the forming of contemporary understanding of corporate social responsibility. An influential statement of the idea was made in 1954 by Howard R. Bowen in his book Social Responsibilities of the businessman: managers felt strong public expectations to act in ways that went beyond profit maximizing. He also laid out he basic arguments for social responsibility:
- Managers have an ethical duty to consider the broad social impacts of their decisions;
- Businesses are reservoirs of skill and energy for improving civic life;
- Corporations must use power in keeping with a broad social contract, or lose their legitimacy;
- It is in the enlightened self-interest of business to improve society; and
- Voluntary action may head off negative public attitudes and unwanted regulations.
To be effective the code of ethics must be more than a written document, it must be practiced and evident in the behavior of the organization from top management to employees at the bottom. The initiative of ethic from the top management have to be communicated frequently, openly, honestly and put in to practice by every individual within the organization. Individuals tend to follow their leaders.
Corporate responsibility topics had developed far beyond environmental initiatives or community support. It is owned by each and every employee in individual level, whether it is a dedication to recycling effort, contributing to community causes, providing feedback to staffs and supervisors on business improvement ideas, or even whistleblowing system realization. It is no longer acceptable where best practice “code of conduct” be sit on shelves but not in daily practices. Organizations nowadays have to move further then the policy itself. Knowing how the policy is practiced, enforced, updated and how compliance is measured and reported are the true sign of ethic and corporate responsibility in action.
To be sustainable, business needs people to buy its products and/or services. From this point of view, ethics has relevance to determine a business would be accepted by the market and sustainable. Ethic was basically connected with the manner those are keeping social equilibrium (Rudito, 2016). It was at the common set of knowledge about human judgment to their behavior which a community or people would impose their result of judgment, whether a business when doing their economic function were distracting the equilibrium or maintaining it.
When the purpose of a business is only generating profit, it would easily deal with a breach in ethical limits. As the movie “the new ruler of the world” depicted, that businesses in the search of maximum profit were exploiting the cheap labor from under-developed society. The labor who are exploited were often the ones with no other options due to their skill and family needs; their denying of cheap paychecks would lead to worse conditions.
In term of upskilling, that society are too constrained by the imminent needs which had to be fulfilled by their current time consuming and energy exhausting but low paying job. To the businessmen, the position of the worker is easily replaced due to high number of those equally low-skilled workforces in the area. Government intervention of setting a floor price for those workforce market would unfortunately result in the migration of those business owner to other country which still provide cheaper labor. At this point of view, it is the condition which was cornering the low paying workers.
In ethical point of view, business is not a quest for profit only, but also for value creation and sustainability. As long as the value creation for the stakeholder being the main goal, the company would automatically reject the idea of workforce exploitation, because it violates the value creation to the unfortunate workforce (which is also stakeholder of the company).
Cheap labor actually is not a solution for economic activity. Jobs may be the only income for poor people, so low wages would drive up inequality and undermine social cohesion. The impacts are making the cycle of non-productivity: underpaid worker consume less, so reduce the domestic market, the demand for goods and services decline, impoverished families are unable to spend as much on health and education.
Figure 1 Supply Chain pressures create precarious employment (Oxfam International, 2004)
On the other hand, in his book Give and Take: A Revolutionary Approach to Success, Adam Grant introduced three generic types of people: givers, takers and matchers. While givers denote they who are predominantly do favors for the sake of others, takers prioritize their own purpose on the cost of people around them. And then, the matchers lie in between of givers and takers. The matchers embrace fairness, do giving and taking in a balance manner, and tend to pay back the good or bad consequences they received to the person causing it.
After all, most people are matchers: their core values emphasize fairness, equality, and reciprocity. When takers violate these principles, matchers in their networks believe in an eye for an eye, so they want to see justice served. (Grant, 2013)
Management is the position who has the role (embedded as their duties and rights) to set the framework of control and manage key processes, organizational risk and continual improvement. The management system is important to the operation of every business because it guides the behavior of the personnel. Corporate values and behavior describe how an organization intends to operate on a day-to-day basis in the pursuit of its purposes. According to the International Sustainability Rating System (ISRS) Book of Knowledge (accessed on 15 March 2015), that the business can grow profitably, balancing the priorities of production, HSEQ and costs, by minimizing the losses to the business and undertaking all activities the “right way.”
Implementing the business ethics is best exercised by including it in strategic approach. This idea is surely in the contrary with the Friedmanism (Friedman, 1970) which claimed that the sole social responsibility for business is to use the resources to maximize profit while obeying the law. However, it is now considered benefits of paying in advance the responsibility of doing the activities the “right way”. Those benefits would consist of:
- Improved company reputation and the confidence of stakeholders through strategic communication,
- Gained competitive and financial advantage through improved efficiencies and reduced costs,
- Increased leadership involvement and engagement of the employee,
- Complied to statutory and regulatory requirements,
- Encouraged more honest and fairer relationship with suppliers by integrating them into organization’s business system.
Badak LNG was founded on November 26th, 1974 as a producer of liquefied natural gas (LNG) and liquefied petroleum gas (LPG). Badak LNG was established as a limited liability company. Badak LNG is headquartered in Jakarta and has a plant site as its sole production facility which is located in the Municipality of Bontang, East Borneo. All of Badak LNG’s operational area is located within the jurisdiction of the Republic of Indonesia. Badak LNG also maintains a Representative Office which is located in Balikpapan.
Figure 2 Badak LNG Terminal
Badak LNG is a nonproﬁt entity, whose assets are fully owned by the Government of the Republic of Indonesia, under the Ministry of Finance. Supervision of the management of assets is carried out by PT Pertamina (Persero), based on the Decree of the Minister of Finance No. 92/KMK/06/2008 dated 2 May 2008 on the Determination of Ex-Pertamina Assets Status as State Property.
The management of production, commercial, and ﬁnancial planning activities with respect to Badak LNG’s operations is carried out by a separate entity called the Joint Management Group (JMG), a body consisting of PT Pertamina (Persero), Total E&P Indonesie, VICO Indonesia, and Chevron Indonesia.
its date of establishment the composition of shareholder was: Pertamina, Huffco Inc. and JILCO (Japan Indonesia LNG Company) with share composition of 55%, 30% and 15% respectively. And in 1990 there was a change in shareholders’ composition becomes:
|PT. Pertamina (Persero)||55%|
|Total E&P Indonesie||10%|
|Japan Indonesia LNG Company||15%|
In 1980, expansion project of train C and D construction was executed due to the increase of LNG demand from Japan. Then in 1988, LPG product had been also exported to Japan. To cope with increasing demand for LNG from Japan, Taiwan and Korea, train E was built in 1987 – 1989, and train F was built in 1991 – 1993. The expansion of Badak LNG Plant was still continuing with the completion of Train G in 1997 and Train H in 1999. From its total 8 train, the production capacity of Badak LNG reaches ± 22 ton LNG / year.
Entering 2000s, Badak LNG had been developed to be a capacity of the largest production volume in the world. Until 13 December 2001, Badak LNG had been exporting 4500 cargos. The LNG terminal capable of handling LNG loading to 3 tankers simultaneously after completing its third loading dock by the end of 1999, as a way to increase the service level to the buyers.
The supply chain of the LNG business carried out by Badak LNG starts from the extraction of natural gas from wells by gas producers. Badak LNG acquires its gas from Muara Badak, supplied by TOTAL, VICO, and Chevron Indonesia. The gas subsequently is transported through pipelines to gas processing facilities, of which Badak LNG is one. The liqueﬁed natural gas (LNG) is subsequently transported using ships and ISO tank containers according to the speciﬁcations stated in the purchase contract with the buyers, until the cargo reaches the receiving terminal of the buyer’s choosing. The buyer subsequently converts the LNG back to gas prior to further distribution.
Figure 3 LNG Supply Chain (Badak LNG, 2014)
Badak LNG has been an LNG Plant which is categorized significant to international society of LNG industry, and become a vital asset for national LNG supply chain. With the experience of more than 34 years, Badak LNG is ready to overcome the challenge of 21st century.
Experiencing the constant growth of demand volume, from 1977 until 1999, the growth strategy seems to be effective to be implemented. However, facing the natural declining phenomenon of gas resources production volume after 2001, Badak LNG had its business to be diversified to LNG Academy and operation & maintenance service provider.
Long before the declining natural gas resources been issue to its capacity growth, Badak LNG had also invest heavily in building the Operation Excellence, Good Corporate Governance, SHEQ, and Corporate Social Responsibility. Badak LNG conforms to the statutory regulation and beyond proved from the achievement of PROPER Gold award from the Ministry of Environment and Forestry, meaning that a company has been implementing comprehensive, sustainable environmental management. PT Badak NGL also achieved certification of ISO 9001, ISO 14001, ISO 17025 and Level 8 of ISRS8 (DNV’s International Sustainability Rating System).
|” To be a world-class energy company that leads innovation.”
Badak LNG strives to be a company that is able to meet the energy demands of many countries in the world, by always striving to discover novelties from those existing or previously known, in the form of ideas, methods, and tools, which will bring about an improvement towards a better future
|“To produce clean energy with the best performance standard in order to yield maximum return for stakeholders. ”
Badak LNG produces clean energy, both during the processes and as the results, based on the internationally-accepted performance standards to be environmentally friendly, while maintaining its product quality to meet customer requirements, so as to provide optimal contribution to stakeholders
Delivering the best quality, reliable and competitive results through personal commitment, focus, as well as continuous and sustainable improvement
- Delivering the best quality performance every time (Best Quality),
- Acting prudently and avoiding rework (Reliability).
- Setting the best standards as the rule of thumb (Competitiveness).
- Being responsible for all tasks (Commitment).
- Establishing a scale of priority in executing the jobs (Focused).
- Making continuous improvement to upgrade the work results (Continuous Improvement).
Walk the talk through honesty, transparency, and putting corporate above personal interests.
- Walk the talk.
- Being Honest.
- Providing accurate and correct data (Transparency).
- Putting the company business above personal or working unit interests.
- Putting the obligations above the rights.
Building and maintaining positive corporate image and showing equal respects to mankind.
- Being proud of own job and duties.
- Showing high self-confidence.
- Being courteous.
- Positive thinking and showing equal respects to others.
- 4. Innovative
Seeking for superiorities and consistently learning even from failures in order to step ahead.
- Seeking for opportunities to gain superiorities (strive to be the best).
- Learning from failures and mistakes (learn from the experience).
- Proactively responding to the changes.
- Improving competency to keep up with the job requirements.
- Safety, Health and Environment (SHE)
Referring to the aspects of safety, health, and environment in performing all work and business activities.
- Putting safety, health, and environment for workers in the main priority.
- Performing HIRA (Hazard Identification and Risk Assessment) in any activity.
- Performing tasks in accordance with the Standard Operating Procedures.
As the business entity which operate in the gas industry in Indonesia, Badak LNG is obliged to do the corporate social responsibility and environmental by the Limited Liability Company Law No. 40/2007 and Government Policy 47/2012. Beyond that obligation, Badak LNG actively involves in wide range of corporate responsibilities initiatives, such as:
III.3.1 In environmental:
- The Company continuously strives to improve the condition of the environment to reduce the causes and mitigate the impacts of climate change. To reduce the sources of climate change in the form of emissions, the Company continued to utilize solar panels and LED (light emitting diode) lights in its office buildings, housing complex, and public facilities within its operational areas. Certain innovations to reduce ﬂare gas emission from plant operation have also been utilized. To mitigate the impacts of climate change in the form of abrasion due to rising seas, the Company has planted mangroves along the coastline of Bontang. The Company also minimizes climate change impact on the destruction of coral reef, a main habitat for marine creatures, by installing bio reef tech (a type of artiﬁcial reef technology), for which it involved the participation of the ﬁshermen community.
- As a company engaged in the natural gas industry, Badak LNG is fully aware that the natural resource that it requires to run its operations is not renewable. Therefore, although it is essentially an energy-generating company, Badak LNG’s operations certainly also require energy, and thus energy consumption within the Company must be properly managed to be as efficient as possible. The Company has therefore run various efficiency measures in terms of the utilization of raw materials, energy, and water, as part of its long-term commitment to continuous improvement, which has been made manifest in numerous process and technological improvements and cost reduction initiatives.
- The “Green Electricity” program initiated in 2013 was continued in 2014 with the installation of solar panels coupled with the installation of LED lights. The total fund invested in solar panels installed in 2014 was USD 224,721. This is Badak LNG’s commitment to the sustainability of its application of renewable energy utilisation technologies. The details regarding the reduction in electricity consumption and carbon dioxide emission that have been achieved are provided in the table below
|Location||Installed panel capacity (kW)||Est. Reduction in Electricity Usage (kW/year)||Est. reduction in CO2 emmission (ton)|
- Consulted the BPPT and collaborated with the LNG Academy, the Company developed a mini plant to process some used cooking oil to biodiesel. The research stage of this project has recently been completed, and this will be followed with the preparation of a mechanism to collect raw material (cooking oil) from residential areas, as well as a mechanism to introduce the resulting product to the ﬁshermen community in Bontang, so that they may utilize the product appropriately.
- Ground water quality is monitored constantly by the Company, among others through sampling conducted in production monitoring wells, which is then analyzed to ascertain the quality and quantity of ground water reserves. To detect the presence of pollutants in the aquifer, the Company conducts sampling at pollutant monitoring wells.
- Global warming has been largely and squarely attributed to human activities, and has startedto create a host of environmental issues that are complex and not readily resolvable. Badak LNG therefore sees the extreme importance of participating in controlling its operations so as to help reduce the emission of greenhouse gases (GHG), the main culprit of global warming. Badak LNG also has a substantial interest in reducing and even eliminating the use of ozone-depleting substances.
- Badak LNG manifests its commitment to managing the environment into action through certain environmental management initiatives, which include a series of training for its human resources to be more responsible for environmental management, waste treatment by third parties, as well as research and development to recycle waste.
- the Company implements the SHEQ Management System, which includes a comprehensive concept regarding safety, health, environment, quality and security. The SHEQ Management System is implemented with the aim to protect the safety of all employees, both permanent and contract ones. Badak LNG has adopted an international system to measure, improve, and exhibit performance in safety, health, environment and quality as well as process safety management, in the form of the International Sustainability Rating System Edition 8 (ISRS8).
- Badak LNG’s biodiversity protection zone covers a total area of 22.4 hectares, consisting of 7.4 hectares of Natural Forest and 15 hectares of Swamp Area, representing 1.1% of the total area managed by the Company. In addition, Badak LNG also ensures that its housing complex and public facilities remain green and natural. The Company’s green zone covers an area of 1,125 ha, 56% of its total area. In the operational area of Badak LNG and in Bontang, including Kutai National Park, there are at least 25 species considered as vulnerable or endangered based on the data from the International Union for the Conservation of Nature (IUCN) Red List Species.
III.3.2 In social:
- Badak LNG is carrying out initiatives to preserve the company’s knowledge and experience in the field of natural gas processing, such as training and learning facilities, assisted by experts.
- Badak LNG intensively empowers the community through various programs, such as: coastal communities, mangrove farming groups, cattle business, and etc.
- CSR activities are devised in the Community Master Plan based on the Social Mapping which has been put into effect, while the implementation and monitoring of CSR programs is reported once a year to the President Director & CEO in the CSR Evaluation Report.
- Badak LNG built the LNG Academy in coordination with Politeknik Negeri Jakarta (PNJ) to actively contribute in developing the skilled Indonesian labor in gas industry.
III.3.3 In local economics:
- Badak LNG realizes that its presence in Bontang area is one of the most powerful driving factors for the growth of the local economy. Therefore, the Company strives to bring about as much positive contribution as possible to the local economy by purchasing goods and using services it requires from local suppliers. In addition, Badak LNG also conducted many community development programs aimed primarily at improving the well-being of the community surrounding its operational area. In 2014, the number of suppliers of goods and services actively enrolled in the Company’s database was 870 parties. Throughout the reporting period, there were 2.538 contracts for the procurement of goods and services issued by the Company. A total of 1.566 of these contracts (62%) were acquired by local suppliers of goods and services. They are deﬁned as business entities operating in Bontang with appropriate licenses issued by the Municipal Government of Bontang. Total contract value for local suppliers in 2014 was Rp 396 billion, or 31% of the total contract value in 2014, which was Rp 1.274 billion.
- Badak LNG is a part of the East Kalimantan Pipeline Network Emergency Coordination Plan and the Mutual Agreement of Emergency Preparedness and Response of Industry in Bontang. The company provide firefighting training for external, and allows the use of its firefighting facilities for institutions and companies.
- Developed the expertise in gas industry so excellent that become the cost leader in the international LNG business. Referring to a Benchmark from Shell Global Solutions (SGS) in 2009:
- 1st rank in health and safety aspect (no LTI since Dec 6, 2006)
- 2nd rank in reliability aspect
- The lowest operating cost
- The lowest maintenance cost
- 2nd lowest personnel cost
III.3.4 In human resource:
- Badak LNG always controls the contract and outsource employees by implementing a number of policies to ensure employee welfare (minimum wage and yearly general increase) in all agreements made between the Company and its contractors. Interest of local people to work at Badak LNG through some third party contractors has always been in close monitor by th Company to ensure the worker are treated very well in their tenure.
- Badak LNG believes that in order to recruit and retain the best talents in the ﬁeld, it must have an excellent and attractive remuneration system. Badak LNG has been long known as an employer that offers highly appealing compensation package, not only on the regional level, but also nationwide. All permanent employees of the Company have been ensured to receive a higher amount of basic salary than the amount stipulated by government regulation.
III.3.5 In corporate governance:
- The Ethics Committee was established with the primary task to raise awareness on the Code of Conduct among employees and business partners, as well as other relevant external parties. In addition, the Ethics Committee also monitors, evaluates and develops the implementation of the Code of Conduct, including providing reports on any violation of the code and conducting follow up in accordance with the prevailing regulations. The Ethics Committee consists of a Chairperson, a Vice Chairperson, a Secretary, and eight members from various departments within the Company.
- To ensure that the code of conduct is enforced throughout the Company, a whistleblowing system is in place whereby any employee may report any violation of the code of conduct via a number of designated avenues, including intranet and email to email@example.com. The Decree on the Whistleblowing System Management Policy, No. SK-99/BJ00/2013-077 was signed by the President Director & CEO in September 2013. This decree regulates, among others, the scope and purpose of whistleblowing, the procedures for handling reports, as well as conﬁdentiality, reward and punishment for the whistleblower and the reported party.
Businesses challenge is not to be profitable only, but also to be sustainable. It is where the need for doing the business in ethical and sustainable way came into focus. Companies are also faced to the regulations to fulfill its responsibility both to the community and also environment, besides its embedded responsibility to the shareholder. In this example, Badak LNG is non-profit company, but still the performance is evaluated through the cost efficiency. By striving to be operation excellence, the Company has proved its ability to be provide the superior operation but also maintain the cost efficiency.
Badak LNG as one of the first LNG Plant in Indonesia had experienced a changing era. By the time it was established, the demand for its product increased enormously. Besides focusing on the quantity, Badak LNG was also improving its way to operate in a world-class standard, in terms of safety, efficiency and effectiveness. These aspects of operational excellence made Badak LNG Plant to be recognized by the international gas business.
Despite of the serious threat of declining supply from gas resources in Muara Badak, the management of Badak LNG could maximize their strength to capture the available opportunities to be sustainable. Sharing the expertise of operation excellence in gas industry the generation is also the way to ensure the sustainability of the operation.
Economically speaking, Badak LNG only need to fulfill the obligation to environment and corporate social responsibility required by the law of Indonesia of Limited Liability Company Law No. 40/2007 and Government Policy 47/2012. However, exceeding the requirements has set Badak LNG to be an internationally recognized LNG producer, which in turn has also the impact to the business sustainability in the area. Badak LNG actively contributing in social community development in wide range of area, environmental, green initiative. Internally, the company had also improved internally in well controlled human resource management and good corporate governance.
Ethic and corporate responsibility should be implemented as a mean of mutual obligation between the managements and employees. Management, although has the important role to roll the initiative still need to communicate the message well to the stakeholder, especially employees. As we could see from the discussion, employees of Badak LNG are committed to corporate responsibility initiative because the management representatives are periodically doing the walkthrough and emphasizing the commitment of the management.
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