www.theinternationaljournal.

org > RJCBS: Volume: 02, Number: 03, January-2013 Page 54

Corporate Social Responsibility in Malaysia: The Role of Corporate Sector in
Supporting the Community and the Environment

Abdullah Sarwar & S.M. Ferdous Azam,
PhD Candidate, Faculty of Economics and Management Sciences,
Department of Business Administration, International Islamic University Malaysia

Abstract

In this competitive era of global business entity, no company can ignore the public interest. Companies
have to realize that in order for them to ensure continued existence, their practices will have to be
altered in such a way that they not only focus on the conventional quest of profits but also take into
account the social and environmental spectrum. Hence, our interest in this paper was to find out the
business motivation behind engaging in CSR activities; the areas that CSR revolves around, whether,
CSR is truly beneficial to both businesses that practice it and the community as a whole and how
corporations in Malaysia view CSR. This study reveals that the Bursa Malaysia has set guidelines for
Malaysian Public Listed Companies (PLC) to help them in the practice of CSR. However, companies
should not take this as to improve their image, but an inherent and vital business practice that promotes
ethical values, social responsibility, and awareness to environmental problems, social issues and so
forth. Bursa Malaysia strongly urges Malaysian PLCs to adhere to CSR not because they are legally
bounded to but because value the importance of CSR. Therefore, companies should practice CSR to
assist the community in order to advance both economically and socially in the global economy.

Introduction

In the last two decades there has been a tremendous change in the relationship between the corporate
sector and society. The evolution of this relationship has brought about this new concept of Corporate
Social Responsibility (CSR) (Cochran, 2007). In fact, no longer can businesses act as independent
entities ignoring the public interest. Companies have begun to realize that in order for them to ensure
continued existence, their practices will have to be altered in such a way that they not only focus on the
conventional quest of profits but also take into account the social and environmental spectrum
(Pomering & Dolnicar, 2008). Globalization, in particular, has triggered a sense of responsibility for
many multinational firms to penetrate developing markets. These multinational companies now have to
handle extremely sensitive issues such as corruption, oppression, fraud, baffled human rights and child
labor to cite a few (Pirsch, Gupta & Grau, 2007). However, most of the time, these issues,
unfortunately, result in firms dealing with impossible dilemmas.

What is Corporate Social Responsibility (CSR)?

CSR is about more than environmental responsibility or having a recycling policy. CSR is about
considering the whole picture, from the internal processes to the clients, taking in every step that any
business takes during day-to-day operations (Teoh & Thong, 1984). Mohr, Webb and Harris (2001:
45) defined CSR as a corporation's commitment in minimizing or eliminating any harmful effects and
maximizing its long-run beneficial impact on society. CSR can also be defined as the process of
assessing an organizations impact on society and evaluating their responsibilities (Andrew, Gul,
Guthrie & Teoh, 1989). According to Mathews (1997), CSR begins with an assessment of a business
and the relationship it has with its key stakeholders. There is an enormous pressure exercised by the
general public who rejects unethical business practices and organizations who act irresponsibly, on
businesses. Advances in social media (giving everyone a voice) mean that negative or destructive


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practices quickly fuel conversations online (Saleh, 2009). Consequently, organizations are accountable
for their actions like never before.

World Business Council for Sustainable Development (2012: 3) defines CSR as 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. While The European Commission advocates CSR as Being socially responsible means not
only fulfilling legal expectations, but also going beyond compliance and investing more into human
capital, the environment and relations with stakeholders.

Hence, it is important to distinguish between social obligation and social responsiveness.
Companies are increasingly moving from legally bounded social practice that defines their social
obligation to voluntary social practice, which stems from their own will to be socially responsive
(Beattie & Jones, 2001). Furthermore, Clarke, J., & Sweet (1999) have pointed out that, socially
responsive businesses make additional commitment to improve the social and economic status of the
various stakeholders (employees, customers, suppliers, shareholders, and the society in general), while
still complying with the legal requirements. As such, CSR takes organizations beyond compliance with
legislation and leads them to honor ethical values and respect people, communities and the natural
environment (Hamid, Fadzil, Ismail & Ismail, 2007).

The pre-60s era was characterized by a virtually non-existent CSR, as the social responsibility
of business was not widely considered a significant problem, and governments were more preoccupied
by conflicts and wars (Park & Adnan, 1994). However, the authors further explained that, in that
period, social responsibility has become an important issue for businesses in both theory and practice.
In effect, a number of environmental disasters combined with poverty and social ills have raised a huge
awareness among governments and businesses around the world (Mathews, 1997). The application of
the CSR concept became widespread across all continents starting in the 90s and even further
acceleration occurred at the beginning of the new millennium after the big corporate scandals such as
Enron and WorldCom, which shook the western world (Bratton, 2002). Nowadays, People are much
more sensitive to the delicate nature of the earths ecology than they were in the 60s, while
simultaneously becoming more mindful of human rights (Gillan & Martin, 2002).

Now, whether this is all done genuinely or it is just a new strategic marketing tool that
businesses are using to sell even more products and gain even more customers is to be verified.
Leaders who are truly socially responsible and are engaged in CSR believe in a way to make Earth a
better place to live and run some businesses. By engaging in voluntary CSR activities, these leaders
fully recognize that their organizations do not exist for the sole purpose of financial gain but also for
the welfare of the entire society (Cochran, 2007).

Practice of CSR in Malaysia

The Bursa Malaysia CSR framework is a set of guidelines for Malaysian Public Listed Companies
(PLC) to help them in the practice of CSR. In fact, as of 2006, all Malaysian PLCs have been required
to disclose their CSR activities (Bursa Malaysia, 2012). The fundamental aim of the framework is
promote active engagement in CSR. According to Abdul Hamid and Atan (2011), CSR should not be
considered a mere altruistic concept that companies only seek to improve their image, but an inherent
and vital business practice that promotes ethical values, social responsibility, awareness to
environmental problems, social issues and so forth. Bursa Malaysia strongly urges Malaysian PLCs to
adhere to CSR not because they are legally bounded to but because value the importance of CSR
(Rahim, Jalaludin & Tajuddin, 2011). Furthermore, Bursa Malaysia encourages Malaysian PLCs to
take their own initiative to practice CSR-related business (Che Zuriana, Kasumalinda & Rapiah, 2002).
The Bursa Malaysia CSR framework looks at four major areas (Bursa Malaysia, 2012):


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The environment: Bursa Malaysia puts a significant weight on the protection of the
environment from which we get our resources.
The community: Businesses depend on the community for both inputs and outputs, the
importance of the relationship they have with the communities they belong to cannot be
overemphasized. Bursa Malaysia encourages Malaysian PLCs to find ways to contribute to the
community as a whole.
The marketplace: The marketplace is where we find the most important stakeholders.
Therefore, it is essential that companies develop strong ties with them by producing green products for
instance or engaging in ethical procurements only.
The workplace: Businesses owe society a lot as they get their highly qualified workforce from
it, thus a good employee treatment is required in return. Basic human rights must be guaranteed.

Problems of CSR Implementation

Baker (2010) highlighted four factors that create irresponsible businesses. Though, profit-seeking
companies have as an ultimate goal of financial gain, however, to what degree are these companies
willing to reach this goal? Will these companies try to achieve their objective at any cost? Even if it is
done through unethical practices? The truth is that many companies pursue this path ignoring some key
points that have the potential of destroying the future of these companies. Past studies have highlighted
few of these (Belkaoui & Karpik, 1989; Deegan & Gordon, 1996; Griffin & Mahon, 1997):

The belief that they are protected from consequences: It is like doing the wrong thing on the
basis that it is difficult to see how they could be caught. Many companies, riding the wave to success
and prosperity at the detriment of the environment and the community, overlooking the potential
consequences of their acts. They continuously think they are immune to external controls and as a
result, their immoral and criminal practice persists.
Building a business model that depends on customer ignorance: Customers do not usually
question the origin of the product or service they purchase, and this is seen as an opportunity for
companies to continue getting involved in irresponsible practices. These companies, just like banks
and insurance companies, benefit from the fact that their customers do not understand the complex
details behind some of the products they buy, given the difficulty of understand the details. Therefore,
there is neither pressure on these companies to explain product and service processes to their
customers and consequently, nor pressure on them to change these processes as long as customers are
satisfied with the final product or service. This, fortunately, has not gone without attracting attention.
In the UK, for instance, the government has embarked on a continuous quest to provide the right tools
to force the companies to clean up.
Becoming so absorbed in the micro-reality of your business so you fail to see the bigger
picture: Some people are locked in a world in which they only see what they want to see; they only
believe in what they want to believe in; a world made up of their values and beliefs. These people
become so immersed in this mindset that they get completely detached from the outside world and thus
reach a level at which they would not tell what is conventionally considered wrong from what is
conventionally considered good.
Believing the reality that it is most comfortable to believe: In order to protect their businesses,
some companies just stick to what is practical and what is doable within their goal-seeking frame. As a
result, they ignore what reality tells them to do.

CSR in Supporting the Community and the Environment

All of these factors lead companies into making decisions with unintended negative consequences
(Clarke & Sweet, 1999). Moreover, over time, intentionally thinking, there is no other choice but to


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attach to their current business model; or unintentionally, removed from reality, these companies
continue doing the job they are doing. However, these issues can be effectively addresses with good
leadership combined with a good ethical code put in place (Dowling & Preffer, 1975).
Boehe and Barin-Cruz (2010) suggested a number of theoretical implications for CSR and
international business literature. Firstly, concerning export performance, innovation and CSR product
differentiation are more important predictor variables than quality differentiation. While previous
research has already drawn attention to the importance of innovation for export performance and
internationalization in general, the significant positive effect of CSR differentiation on export
performance constitutes a new finding. Secondly, the effect of a CSR or innovation product
differentiation strategy on export performance seems to be contingent on the market scope: firms that
focus on a small group of developed country markets will be more successful in increasing their export
performance using a CSR or innovation product differentiation strategy than exporters which direct
their exports to a large number of countries or focus on developing economies. Thirdly, an open
question is why some kinds of differentiation strategies (innovation and CSR product differentiation)
have had a positive and significant impact on export performance, while others (quality product
differentiation) had not. A possible explanation is that product quality differentiation may be easier to
imitate than CSR and innovation related differentiation. Fourthly, another open question is why CSR
product differentiation is not significantly related to product quality differentiation or to product
innovation differentiation when exporters predominantly target developed country markets? That CSR
product differentiation may primarily be used when targeting a certain small group of developed
economies where consumers are particularly sensitive to social and environmental issues may be a
possible explanation.

Though speculative, in such specific markets, CSR characteristics might become entry barriers
or minimum requirements for entering the target market: hence, they would cease to be differentiating
product characteristics (Boehe & Barin-Cruz, 2010). A further interesting insight regarding the impact
of different kinds of institutional environments on export strategy is that deteriorating competitiveness
vis--vis low cost competitors is likely to favor novel product differentiation (such as CSR) approaches
which go beyond traditional approaches of differentiation by quality, image, and innovation, among
others (Gray, 2000).

Boehe and Barin-Cruz (2010) conclude that institutional environments of both the developing
country exporters country of origin and the country of export destination are likely to have an impact
on the adoption of CSR practices. However, in the case studied, both impacts are qualitatively
different: while the country of origins institutional environment creates pressures to adopt CSR as a
product differentiation strategy, the destination countrys institutional environment is likely to
influence the nature and content of CSR differentiation.

Conclusion

The problems of underdevelopment, unemployment, poverty, low living standards and
exploitation in many third world countries have lingered for long and still refuse to go away because it
just seems like governments have not put the necessary efforts into eradicating these problems (Rahim
et al., 2011). Therefore, the promotion of social development issues should be taken care of by the
corporate sector mainly or at least in cooperation with the government and other non-governmental
sectors. The corporate sector has a major role to play in CSR. There are a number of decisive issues
that companies must engage in CSR activities, for instance:

1. Now a days, consumers avoiding what they see as socially irresponsible products or the
products of companies that have allegedly not acted in societys best interest.
2. For people investing their own money, several investment management companies maintain
blacklists of ethically or socially irresponsible companies.


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3. Poor social performance will drive away potential investors.
4. CSR activities help to avoid the excessive exploitation of labor, bribery and corruption.
5. Many aspects of CSR behavior are good for business (such as reputation, human resources,
branding and making it easier to locate in new communities) and legislation could help to improve
profitability, growth and sustainability.
6. Companies brand image can easily be harmed or even lost; this is particularly true for
companies whose brand image is closely tied to their reputation. Reputation is mostly built around
such intangibles assets as trust, reliability, quality, consistency, credibility, relationships and
transparency. Therefore, if companies are held responsible for any unethical behavior, then they can
lose their reputation in no time.
7. An increasing number of individuals across the globe are also strongly in favor of CSR and
many of them would quit their socially irresponsible companies, thereof, CSR is an important factor
for employee motivation.
8. Innovation, creativity, intellectual capital and learning are helped by a positive CSR strategy,
thus, its preservation through the positive treatment of the workforce is necessary.

In spite of a number of drawbacks inherent to CSR activities such as rising costs for observance
and operation, additional bureaucracy, and the difficulty to monitor companies CSR activities, CSR
should not be viewed as a drain on resources, because carefully implemented CSR policies can truly
help organizations develop very positive aspects that would outnumber the negative ones. Successful
CSR is sustainable, involving activities that organizations can maintain without adversely affecting
their business goals. CSR is a long-term approach to business that addresses the needs of communities,
people and their employers. CSR provides frameworks for successful enterprise that is harmonious
with its surroundings. CSR is an opportunity to generate honest, authentic good-news stories that a
business and its community can be proud of.

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