Freeport's Lesson
Freeport's Lesson
Due to extensive news coverage, the rioting by indigenous
Irianese last month at PT Freeport Indonesia earned the American
Freeport-McMoran Copper and Gold subsidiary a bad image
worldwide. The incident also brought home the stronger message
that a business has social and moral responsibilities to a local
area and its people.
Freeport's turbulent experiences show that it is no longer
enough to be a good corporate citizen in the eyes of the
government. A big company should behave like a decent neighbor to
its local community. This is especially so with a venture like
Freeport which, due to the nature of its extractive business,
needs a large concession area. Otherwise not even security
officials will be able to protect such a company from acts of
hostility by its surrounding community.
True, Freeport and its chairman rank among the top 25 tax
payers in Indonesia. Yet the local tribespeople -- most of whom
still live a Stone Age existence -- simply do not care much about
the large royalties, fees and taxes paid by the company to the
government. The blunt reality discernible by their simple way of
thinking is that since 1973, Freeport has extracted a great deal
of wealth from their land but has contributed very little to
their development. And in so far as Irian Jaya is concerned, the
impact of Freeport's ignorance has been exacerbated by the
tribespeople's perception that the central government in Jakarta
has not returned to them a fair share of the revenues from
Freeport's operations.
It is hard to understand why it has taken almost 24 years and
mass rioting to rudely jolt Freeport into realizing that setting
up a modern and prosperous enclave amid the jungles of primitive
tribespeople requires extra effort and patience to help develop
the local community. Its smooth, peaceful operations over the
previous 23 years, facilitated by the full support of its private
security personnel, seems to have blunted the business common
sense of Freeport's top executives, who after all come from a
country which often boasts of being the world's conscience of
environmental and human rights.
They took their prosperous corporate operations for granted,
assuming that as long as Freeport fulfilled its contractual
obligations and had the support of the central government and
local administration that there was no need to worry about the
company's moral and social responsibilities to the people. They
apparently did not realize that even primitive tribespeople would
not forever tolerate what they perceive to be an unjust
distribution of wealth.
Now that Freeport has been taught a lesson, admittedly a
costly one, it should act immediately to realize its social and
moral responsibilities to the local people. Social development,
however, does not mean simply pumping money into the local
community. That would only create short-lived, artificial
prosperity. Nor does it mean giving special preferences to local
suppliers at the expense of quality and long-term development of
sound entrepreneurship.
What is urgently needed is well-managed programs to develop
local businesses, human resources and infrastructure and to
protect the environment. This requires serious, long-term
commitment and a great deal of patience because what the local
people really need is social, technical and business competence.
Only competent people can comprehend the meaning of modern,
competitive business and become good, supportive hosts to modern
business operations.
Other businesses or investors, notably those in resource-based
ventures, should also learn from Freeport's experience. They
should do away with the arrogance that appears to come with the
securing of licenses from the government, as though the licenses
give them the right to do whatever they like. They should
implement from the outset their social and moral responsibilities
to their surrounding communities. Good behavior is always good
business.