Corporate Social Responsibilities Strategies in Malaysia

Corporate Social Responsibilities Strategies in Malaysia – Chapter 7

(This article is presented here under expressed permission from

Authorpreneur Asia [the book’s publisher])

ABSTRACT 

Globalization and the proliferation of information technologies has enabled environmental and human rights activist to reach all corners of the globe thus raising awareness amongst citizens around the world. Consequently the role the corporation play in society has come under intense scrutiny to ensure that in the quest for profits, the corporation does not exploit the environment and respect basic human rights of the citizens in the society it operates in. To illustrate the importance of the above, Bursa Malaysia, the stock exchange of Malaysia, has issued a Corporate Social Responsibility (CSR) framework (Bursa Malaysia,2006)  for Public Listed Companies (PLC) in Malaysia and has required reporting on CSR with effect from 31 December 2007 by all listed companies in their annual report. The above mentioned framework is based on four main focal areas for CSR practise – the Environment, the Workplace, the Community and the Marketplace, in no order of priority.  The object of this paper is to look critically into CSR in Malaysia and the Corporate Social Responsibilities strategies in Malaysia. Corporate Social Responsibility as defined by European Commission (2001) is “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”. This paper will look into the major developments in Corporate Social initiatives in Malaysia and what it holds for the future.

 

ORGANIZATIONS AND ITS SOCIAL RESPONSIBILITY

 No man is an island and neither is the business organization. The business organization does not operate in a vacuum and rely on society to absorb its products and supply its resources. In essence, the business organization requires the environment that it operates in to be healthy and prosperous as well, for it to prosper. Corporate social responsibility is an obligation of the organization to act in ways that serve both its own interest and the interest of its stakeholders (Huff et. al., 2009). In simpler terms, a good social environment is imperative for any corporations to operate successfully.

Matsushita (1988) epitomized the symbiotic relationship between business and the society it operates in with his quote about the mission[1] of Matsushita Electric in 1932;:

“The mission of a manufacturer is to overcome poverty, to relieve society as a whole from the misery of poverty and bring it wealth. Business and production are not meant to enrich only the shops or the factories of the enterprise concerned, but all the rest of society as well. And Society needs the dynamism and vitality of business and industry to generate its wealth. Only under such conditions will business and factories truly prosper, but their prosperity is secondary. Our Primary concern is to eliminate poverty and increase wealth. How? By producing goods in abundant supply. No matter what the condition of society, a manufacturer must sustain his effort in making large volumes of goods. This is his true mission.”

He added that only when the above is realized poverty will vanish from the earth.  Today the strategic thoughts of Matsushita has been proven to be a stroke of genius and an enduring one Today, the company, now known as “Panasonic”, is a multinational conglomerate with 634 consolidated companies and 366,937 employees worldwide[2]. Its main management strategy today remains true to its roots and a check on Panasonic’s Management Basic objective at its corporate website[3] confirms it.

“Recognizing our responsibilities as industrialists, we will devote ourselves to the progress and development of society and the well-being of people through our business activities, thereby enhancing the quality of life throughout the world.” (Matsushita,1929) .

In light of recent corporate scandals, Corporate Social Responsibility actions, especially in the transparency of reporting and the corporate effect on the environment, has become closely monitored. Rankings such as the Corporate Social Responsibility Index by the Boston College’s Carroll School of Management  and Reputation Institute is now being published annually to monitor which corporations are performing well in discharging their corporate responsibility.

A good simple working definition was postulated by Mallen (2004) who informed that Corporate Social Responsibility is about how corporations manage their business processes to produce and overall positive impact on society. Locally, Chou & Chandran (2007) defined Corporate Social Responsibility as corporate actions that aim to lead to economic survival, social responsiveness and sustainability of the environment and stakeholders in the long term. Corporate Social Responsibility is now considered essential for any sizeable corporation and many companies internationally and locally has placed Corporate Social Responsibility high on its list as part of their strategy in business. Corporate Social Responsibility strategies such as sustainable production and supply chain strategies have been embraced by major corporations as a competitive strategy.

In a study reported by MIT Sloan Management Review and The Boston Consulting Group, Hannaes Knut et. al. (2011) reported that companies are recognizing the benefits of driving resource efficiencies via waste and energy reduction. They quoted Walmart Canada as expecting to save $140 million over the next 5 years through waste, energy and packaging reductions. In short corporations can be socially responsible and improve productivity at the same time. This paper shall look into some of the local Malaysian Corporate Social Responsibility initiatives later in this paper but will now explore the general framework of Corporate Social Responsibility.

OBJECTIVE OF THIS PAPER

The object of this paper is to highlight the Corporate Social Responsibility strategies adopted in Malaysia and the development of Corporate Social Responsibilities in Malaysia.  While this paper is not a definitive study based on empirical research, it will nevertheless be useful as a catalyst for further studies and research on the topic. In essence, this paper tries to identify what has been done and what can be done further. To do this, the theoretical framework of Corporate Social Responsibility and the various concepts and frameworks developed will be reviewed in detail first. This paper will then examine the development of Corporate Social responsibility in Malaysia using an appropriate framework and present to the reader the current state of Corporate Social Responsibility in Malaysia. The paper will also take a look at some of the players in Corporate Social Responsibility in Malaysia and how Corporate Social Responsibility is used as a strategic tool in Business.

DEVELOPMENT OF CORPORATE SOCIAL RESPONSIBILITY CONCEPT.

Corporate Social Responsibility as a concept has been studied and noted for more than a hundred years, way before formal theories and concepts were formulated. Adam Smith (1863) was one of the earliest to note that when traders thrive the public (society) thrives too. Friedman (1962) on the other hand is on the opinion that the social responsibility of business is solely to make profit and advance the interest of shareholders alone.  He argued that business officials are in no position nor have the expertise to determine and solve social problems. While there are no ready formulae or template as to what constitute Corporate Social Responsibility, many authors have put up convincing theories and concepts to try explain it. Watts & Holme (1999) wrote that 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. This definition is very enlightening and concise but it does not contribute any hint as to where one should start.

One of the more often used definition of Corporate Social Responsibility is found in the model proposed by Carroll (1979) where he argued that the social responsibility of the corporation is to meet the economic, legal, ethical and discretionary (philanthropy) expectations of society.   Carroll (1979, 1991) also noted that in order to fully address their obligations to society, they must meet expectations on all the 4 fronts above. Carroll’s definition and model on Corporate Social Responsibility is preferred here as it is felt that it is practicable and most complete. Other definitions tend to be more general and not explicit enough. For example; Maclagan (1999) defined Corporate Social Responsibility as a process through which individual’s moral values and concerns are articulated. Similarly, McWilliams & Siegel (2001) was equally ambiguous when they define it as actions that appears to further some social good, beyond the interest of the firm and that which is required by the law. In fact, this definition can be challenged as in the example of Walmart Canada earlier, socially responsible acts can in fact further the internal interest of the corporation.

In order to understand the nature and motivation for corporations to engage in Corporate Social Responsibility, this paper will use Carroll’s pyramid of Corporate Social Responsibility model. Carroll (1979,1991) represented his four dimensions to Corporate Social Responsibility in pyramid form as depicted in Figure 1 below.

Figure 1: Carroll’s Pyramid of Corporate Responsibility.

 

At the very base of the pyramid, the corporation must be profitable as this will allow it to do achieve the other 3 higher responsibilities. Here Carroll reminded all that the corporation must be profitable in order for it to meet shareholders requirements and its continued sustainability.  He defined a successful firm as one that is consistently profitable (Carroll ,1991). In fact, the corporation owes it to society to be efficient, be profitable and pay taxes so that society benefits as a whole.

Although, presented higher up in the pyramid, the second responsibility of the corporation should be just as important as the first. Corporations are expected to meet federal, state and local governments’ rules and requirements.  Carroll (1991) noted that it is important for the corporation to perform in a manner consistent with the expectations of government and law, to be a law abiding corporate citizen and to define a successful corporation as one that fulfills its legal obligations.

The third responsibility of corporations in the pyramid is to conduct itself ethically in its business dealings and to avoid activities that are shunned by society and respect all stakeholders’ rights. Carroll (1991) explained that the corporation must perform in a manner that is consistent with the expectations of societal norms, recognize and respect norms adopted by society and to prevent ethical norms from  being compromised in order to achieve corporate objectives.

The final responsibility of corporations in the pyramid is to contribute resources to society philanthropically by volunteering donations and human resources for the charitable causes. In essence Carroll (1991) recognizes that the corporation should perform in a manner consistent with the philanthropic and charitable expectations of society by volunteering its services and resources to charitable activities within their local communities to enhance the community’s quality of life.

It must however be noted that that while Carroll’s model is well thought and presented for different set of responsibilities, in reality the responsibilities are not always mutually exclusive. A corporation may comply with labor laws requirements but the practices might still infringe on a social norm or ethics. For example; a new company in a location may offer annual leave days which meets the minimum required under law but might be lower than the industry norm in that location.

Globalization has increased the awareness of Corporate Social Responsibility in Malaysia. Zinkin and Thompson’s (2003) article on Corporate Social Responsibility noted that adoption of Corporate Social Responsibility by companies in North America and Europe was on the rise. In order for local Malaysian companies or Malaysian subsidiaries of foreign multinationals to meet Corporate Social Responsibility related policies or practices of such multinationals, local businesses realized that they too had to comply if they want to continue supplying to such multinationals. In essence Carroll (1991) recognizes that the corporation should perform in a manner consistent with the philanthropic and charitable expectations of society by volunteering its services and resources to charitable activities within their local communities to enhance the community’s quality of life.

THE GROWTH OF CORPORATE SOCIAL RESPONSIBILITY IN MALAYSIA

In line with economic growth, the corporate sector grew tremendously in the 80s and 90s and Corporate Social Responsibilities initiative followed suit. However, it was not until the late 2000’s that Corporate Social Responsibility really took off in any meaningful ways in Malaysia. In the year 2006, Bursa Malaysia, the stock exchange of Malaysia, issued a Corporate Responsibility framework that was designed to encourage Malaysian public listed corporations to become more engaged in being socially responsible (Bursa Malaysia,2006).   In its CSR 2007 Status Report on Corporate Social Responsibility in Malaysian PLCs, Bursa Malaysia (2008) concluded that in general most of the public listed corporations in Malaysia demonstrated a lack of knowledge and awareness of CSR and that much more disclosure, understanding of the main concepts and how it relates to business operations is required.

The development of Corporate Social Responsibility in Malaysia received a boost in July 2007 when the government launched a series of initiatives to enhance the performance of government linked companies (GLC) and one of the initiatives was to clarify the social obligations of GLCs. This was captured in a booklet called the Silver book which spelt out the obligations of GLCs, how to evaluate their starting position and the resources provided. The Putrajaya Committee on GLC High Performance (2005) stated that the key objectives of the initiative is to understand and make GLCs’ social obligations and the implications of meeting them (ie. Well beyond normal private sector Corporate Social Responsibility practices) by clarifying the trade-offs made between social development and shareholder value creation.

This initiative was and important one as GLCs accounted for more than 36% of the Malaysian stock exchange capitalization then.  The progress of the initiative was monitored regularly together with 9[4] other initiatives and reports were published on a yearly basis. For example, this year the committee was able to report on various initiatives to reduce carbon footprint of GLCs in Malaysia and the various workshops organized for this purpose Putrajaya Committee on GLC High Performance (2011).

In the area of sustainability, Malaysia ranked 3th in Asia by CSR Asia Pte Ltd. for corporate risk disclosure  on environmental, social and government  (Mohamad, 2011) . In another development, Bursa Malaysia’s chief executive officer, Datuk Yusli Mohamed Yusoff, announced recently that Malaysia’s stock exchange plans to have its own Environmental, Social, Governance (ESG) Index in the next few years (CSR Digest, 2009). He said the local bourse would work with an index provider to create the index, and then rate all the companies listed and select the best ones for the ESG Index.

CORPORATE SOCIAL RESPONSIBILITY STRATEGIES IN MALAYSIA

It is acknowledged that Corporate Social Responsibility in Malaysia is mainly driven by government initiatives as shown above via government linked corporations. However it cannot be denied that some multinationals and to a certain extend privately held corporations excelled in Corporate Social Responsibility. The possibilities of a Social

Responsibility index would further this cause and improve participation by the private sector. However the extend of which Corporate Social Responsibility is practiced in general,  remains  in the infancy stage and much needs to be done . Take for example; in the annual report of Brem Holdings Berhad for the year 2011, its disclosure on Corporate Social Responsibility contains a total of four lines only and amongst the items highlighted, they included things like  staff medical benefits, insurance coverage and long service awards. Such items can be considered normal staff benefits and is hardly worth mentioning.  Using Carroll’s (1979, 1991)  model of Corporate Social Responsibility, the company  only meets the first two responsibility of corporations as suggested.

However, there are others like Sime Darby Berhad who has a comprehensive Corporate Social Responsibility framework which merited an entire section of their considerable sized website which can be found at http://www.simedarby.com/csr/. The framework presented includes a policy statement statement, their definition of Corporate Social Responsibility and their strategies which was based in four main pillars of the environment, community, education and sports.  The pillars shown in the website is reproduced here as Figure 2

Figure 2: Sime Darby’s pillars of CSR

Source: http://www.simedarby.com/csr/CSR_at_Sime_Darby.aspx

Multinationals in Malaysia, especially those from Western and developed countries have excellent Corporate Social Responsibility framework. For example; British American Tobacco Malaysia (BAT) has a four page document called Statement of Business Principle which is underpinned by their Business Principles  and Core Beliefs. The Corporate Social Responsibility framework of BAT is based mainly on their business principles[5] of Mutual Benefit, Responsible Product Stewardship and Good Corporate Conduct. In addition to their considerable  list of socially responsible activities BAT practices Social Reporting and mets requirement of the best international standards of AA1000- which is an international accountability standard established by the Institute of Social and Ethical Accountability, a professional body for corporate and social responsibility.  BAT also produces  case studies and monitors social responsibility related benchmarks such as employment of women in various levels in the company,  accidents rates, percentage of waste recycled etc.

In addition, BAT through the British American Tobbacco Malaysia Foundation offers the following scholarship[6] to :

1. British American Tobacco Malaysia Employees
2. British American Tobacco Malaysia Employees’ Children

3. Leaf Growers and Curers Community
4. SMART programme retailers
5. Retailers Community (as listed below)

  Federation of Sundry Goods Merchants Associations of Malaysia

  Malaysia-Singapore Coffee Shop Proprietors’ General Association

  Malaysian Muslim Mini Market and Provision Shop Owners Association

  Malaysian Muslim Restaurant Owners Association

  Malaysian Indian Restaurant Owners Association

BAT’s model of Corporate Social Responsibility measures up to the model suggested by Carroll (1979, 1991). Firstly it fulfils its responsibility to stakeholder by being profitable and accountable to shareholders. Secondly, BAT has to adhere to many governmental regulations which it does admirably thus fulfilling Carroll second dimension of responsibility. BAT is also very transparent in its Corporate Social Responsibility activities with published achievement of benchmarks and its voluntary social responsibility reporting. This is in line with Carroll’s third dimension which is to act ethically.  Finally BAT’s scholarships above meet with the philanthropy responsibility of the corporation.

Summary

It is clear that Corporate Social Responsibility practices has been growing from strength to strength in Malaysia although it is not as widespread as other developed countries yet.   Carroll’s (1979,1991) four dimensions of social responsibility of the corporation looks to be a good framework to look at the level of involvement corporations are in with regards to Corporate Social Responsibility in Malaysia. Government Linked Corporations, for obvious reasons, and multinational corporations from developed countries are more inclined to do some sort of Corporate Social Responsibility in all four stages and report on such activities whereas local corporations would probably be in the first to stages . It would be interesting to do further studies on a more representative cross section of corporations in Malaysia on the extent of Corporate Social Responsibility activities and the motivation of such corporations to engage in socially responsible activities.  It is clear, however, that Corporate Social is here to stay in Malaysia and will probably be something of a norm in the future with more informed and affluent stakeholders.

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About the Author

Dominic Shum is currently the Principal Consultant for DRC Services. His expertise is in strategic management, finance and planning. He has 23 years of working experience and has held senior management positions in multinationals, listed companies, and SMEs. Among the positions held include board directorship, financial controller, regional business planning manager group finance managers and others.  He graduated from the National University of Singapore with a Bachelor of Business Administration and holds an MBA (with Distinction)  in Entrepreneurial Management from Australia. He is a Fellow member of the Institute of Leadership & Management  (UK),  a Member of Australia’s Institute of Public Accountants (IPA) a Member of the Malaysian Institute of Management and a Member of the Malaysian Institute of Human Resource Managers. He is currently a council member of the Malaysian Charter of IPA in Malaysia.

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[1]           This was announced on the 5^th of May 1932 at the Osaka Central Electric Club auditorium by Konesuke Matsushita.

[2]           As at 31^st March 2011.

[3]           Panasonic’s Management Basic can be found on Panasonic’s website at http://panasonic.net/corporate/philosophy/objective/

[4]     The other nine initiatives under the GLC high performance program includes (i) Enhancing Board effectiveness, (ii) Strengthening Directors’ Capabilities, (iii) Enhance GLIC monitoring and management functions, (iv) Improve regulatory environment (v) Review and revamp procurement, (vi) Optimize capital management practice (vii) Manage and develop leaders and other human capital (viii) Intensify performance management practice and (iv) Enhance operational improvement

[5]     Source: Statement of Business Principles which can be downloaded at BAT Malaysia’s website at http://www.batmalaysia.com/group/sites/bat_7ryj8n.nsf/vwPagesWebLive/DO7SUKM6/$FILE/medMD86G4LZ.pdf?openelement

[6]     Source : British American Tobacco Malaysia Foundation webpage at  http://www.batmalaysia.com/group/sites/BAT_7RYJ8N.nsf/vwPagesWebLive/DO7SUKR2?opendocument&SKN=1