The Impact of Corporate Social Responsibility on Company's Image and Actual Business Performance - Case Study Example

Running Head: CORPORATE SOCIAL RESPONSIBILITY Student’s Name: Course Code: Lecture’s Name: Date of presentation: Table of Contents Table of Contents 2 Abstract 3 Background Information 3 Objectives of study 4 Literature Review 5 From Philanthropy to Corporate Responsibility 6 Level of Corporate Responsibility in Malaysia 7 Discussion 8 Controversial issues and challenges of CSR among companies in Malaysia 12 Conclusion 13 References 14 Abstract Corporate Social Responsibility (CSR) has lately emerged to be a form of sustainability domination with the benefits to the economic, environmental and social progress. According to a research study carried out by ACCA Malaysia, 43 percent of the company’s studied showed some form of social responsibility while 26 percent were planning to engage in some form of CSR in future. Majority of the reported CSR activities were mostly in form of charities. This clearly shows the rise in trend in CSR awareness among major corporate organisations in Malaysia. This research paper aims at analysing the degree to which corporate social responsibility activities contribute to the corporate image and increase in sales. CSR refers not only satisfying all the statutory requirements, but also going a step beyond in investing further into human resource capital, environment and in the general society. Background Information Corporate social responsibility is a rapidly growing, key business concept. It is an issue that has drawn worldwide attention. Due to the increased demand for improved transparency and corporate citizenship, CSR started to embrace not only economic, but also social ethical and environmental challenges. It is now globally expected that companies should not just be profitable, but should be excellent corporate citizens (Chapple, 2001). The social responsibility can be carried out in a systematic manner with better understanding of needs and concerns of the potential target population. According to (Turker, 2009.), a company is expected to come up with policy guidelines and frameworks designed using a combination of economy instruments, communication strategies, and regulations which significantly impact the environmental and social wellbeing of the general public in their area of operations (Hashim, 2009). According (Lu & Castka, 2009)CSR, especially within multinational firms is being associated with international development, whereby it is seen as a channel through which these companies can contribute to the welfare of developing countries. In developing countries such as Malaysia, the significance of CSR has been recognised by most of the major corporations to ensure a long term economic growth and success. (Hashim, 2009), asserts that majority of multinational firms have incorporated CSR into their goals, policies strategies, programmes, commitments and projected developments blue prints towards a sustainable social and environment development. Organizations have been compelled to examine potential CSR projects and activities with respect to their potential and ability in growth not just the social benefits to the immediate community but also the accompanying economic benefits, consequently, ensuring value for all the stakeholders. By embracing CSR, customers, suppliers, employees, and other business associates gain more trust and confidence in the organization and therefore, boost sales volume leading to profit optimisation (Turker, 2009.). Larger firms have extra resources to increase the level and extent of their CSR projects and activities, thus gaining a bigger influence in the society. (Zulkifli, 2006) concludes that, in order to sustain their business influence and main economic operations, such firms get more concerned with CSR thus further reaping the benefits of accrued. This paper seeks to analyse the impact of CSR on general company’s image and actual business performance. Objectives of study 1. To analyse the impact of CSR on general company’s image and actual business performance in terms of sales, among state-run organizations, multinational companies, and other local Malaysian Firms; both small and medium scale enterprises in Malaysia. 2. To point out the challenges and controversial issues faced by companies when carrying out corporate social responsibilities in Malaysia. Literature Review The concept and framework of CSR was established in the 21st century by the European Union in a guided effort aimed at promoting social responsibilities to the business environment. By definition, corporate social responsibility describes “a deliberate company’s of, and in response to, issues and challenges that exceed the narrow technical, economic and legal requirements of an organization… in order to accomplish social benefits along with the traditional economic gains sought by the organizational entity.” (Husted 2003). Literature concurs with the fact that CSR has an instant positive impact on employees. In 2001, the European Commission defined CSR as “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 is in light with the fact that “responsible activities leads to a sustainable business economic success”. CSR in any company can be viewed in two ways: internal and external (Chapple, 2001). 1. Internal level: this involves the adoption of socially accountable practices towards the own employees and staff. This relates to issues human capital development, proper management of change, promotion of health and safety aspects. Environmental responsible activities involve provision and proper management of the natural resources necessary in production. 2. External level: this levels involves the extension of CSR beyond the company’s perimeter and includes a wide variety of stakeholders such as suppliers, business associates customers, government authorities and organization s representing the local society. This also includes environment. Economic theory shows the extent of association between a CSR and financial performance of a company by considering the market advantages, cost- related benefits, and company reputation advantages (Turker, 2009.). Within the organization, CSR is involves issues dealing with employment, capacity building, participation of workers, equal opportunities for all staff, and integration of all employees towards industrial dynamics. The formulation of the respective internal level CSR policies is dependent on the existing authority human resource strategies, safety and health strategies, the necessary drive on social responsibility restructuring, and the diversity of the workplace (Chapple, 2001). On social platform, CSR includes benefits given in terms of safety and health training, environment protection activities, donations, charity walks, medical care, sports and others. Environmental related CSR activities seeks to conserve and protect the natural resources through activities such as general cleanup activities, forestation and reforestation programmes, noise reduction, protection of water catchment areas and general compliance with the relevant environmental legislations (Ahmad, 2003). Majority of corporate firms reaffirm the significance of CSR activities towards environment and take them critically by setting benchmarks for continually boosting their involvement. From Philanthropy to Corporate Responsibility Prior to 1970s, companies used to share their profit with the societal community via philanthropic charitable activities. This means that CSR activities were carried out after profit was made i.e. after- profit obligation. The effect of this was that companies were not compelled to behave responsibly during periods of economic recession. This however shifted in 1980s and 90s when CSR was adopted as a passive tool to public relation especially in improving the corporate image and performance (Chapple, 2001). This has developed to be a tool through which companies would mitigate possible impacts of the actions onto the society and environment especially those in mining and oil and gas industries. In the recent past, companies have adopted strategic corporate responsibility, where a firm strives for sustainability in a manner that its CSR activities become an integral part of the day to day company business (Andrew, 1999). Level of Corporate Responsibility in Malaysia Although Malaysia is not a member of OECD, the degree of CSR awareness and engagement is not at ignorance level. This can be attributed to role of leadership taken by the government in ensuring that the country becomes competitive for both local and multinational investors. The consumers are now becoming better informed and educated in articulating their grievances and dissatisfaction through associations such as Consumer Associations of Sabah and Penang (Andrew, 1999). After conducting their election; the general Malaysian population have seized a dominant ‘Rakyat Voice’ in claiming better public services and infrastructure from government institutions such as medical care, schools, and religious buildings. It is obvious that companies can no longer hold CSR lightly if they are to realise business success in conjunction with all the “greater stakeholders” i.e. members of the society. According to (Hashim, 2009), Malaysia has been experiencing an increase in the number of registered companies in the recent past. We can therefore assume that there are increased contributions towards the economy of Malaysia and perhaps in social corporate responsibility as well. Fig. 1: Company’s Contribution to CSR, from philanthropy to corporate responsibility. Listings Discussion This paper considers four different levels of company’s in Malaysia. These levels include state corporations, Multinational Companies, Local Malaysian Corporation, and small and medium- scale enterprises. 1. Malaysian State corporations State corporations or Government- Linked Corporate (GLC) refers to those companies that the Malaysian central government has control over in both hiring of Board members and monitoring of daily progress. According to a study carried out by (Zulkifli, 2006), state controlled or linked corporations possessed a significant CSR policy, as a strategy towards sustainable national economic development. These government- linked corporation practised CSR activities targeting improved standard of living for the local Malaysian population as well as promoting s sustainable national development. In the conclusion, (Andrew, 1999), noted that state corporations were “good performers” in relation to their CSR practices. The government of Australia has embarked on a deliberate campaign to promote CSR, which has led to the development of a framework called “the silver book”. Through a management authority; Khazanh Nasional Berhad, the Malaysian government monitors the implementation of CSR by state corporations. The main target is to mitigate on poverty by increasing both income levels and employment opportunities as well restructuring the Malaysian society so as to mitigate on the existing social imbalances (Zulkifli, 2006). In 2006, Putraja Committee on GLC High Performance (PCG) initiated a GLC Transformation Manual, which stipulated the guidelines through which GLCs can chip in in more responsible manner and create a positive effect to their business and the general society as well. 2. Multinational Corporations These are companies that operate in more than one country. They therefore create a bigger impact and are faces with a lot of pressures from the various stakeholders. For instance, countries composing of largely socially responsive population will most likely claim more CSR activities from these multinational firms. It is therefore likely that these firms will initiate the same practices even in countries where they are not compelled or obligated by legislations to do so. This is a likely reason attributed to the high commitment shown by large multinational firms as compared to locally listed companies (Turker, 2009.). 3. Local Malaysian Listed firms Currently, a lot of studies have not been carried out to establish the scope of CSR among the local firms. This has been attributed to inadequate public awareness and also lack of proper laws and regulations implemented in Malaysia and other developing nations (Hashim, 2009). Organizations are also not under any obligation to disclose information relating to social and environmental programmes that they are engaged in. Area in which Malaysian Engage in CSR activities 2001 2012 1 Provision of employees wellbeing 91.8 91.8 2 Response to customer complaints 83.5 87.9 3 Guaranteeing product safety 76.7 83.4 4 Contribution to welfare organizations 60.0 80.2 5 Donation to sports and games 35.6 70.9 6 Donations to educational institutions - 24.7 7 Giving out of loans to small scale enterprises - 35.5 (Source; Rashid, ZA, & Ibrahim, S 2012, ‘Executive and management attitude towards corporate social responsibility in Malaysia,’ Corporate governance, vol. 2, no. 4, pp. 14) According to the Chairman the Institute of Corporate Responsibility (ICR) Malaysia, the industry regulators such as Bursa Malaysia and Securities Commission have put a lot of pressure on firms such that CR is now part of boardroom and management agenda of not just the large corporations but also to small ones. Examples of CSR activities in Malaysia and their impacts on company image In the year 2010, the following companies in Malaysia engaged in the respective CSR commitment and activities, according to the Chairman (ICR), Datuk Johan; 1. Telekom Malaysia Bhd assumed the responsibility of nurturing local small scale entrepreneurs in the effort to achieve long term economic growth. This involved offering training programmes to selected beneficiaries on matters dealing with procurement (Lu & Castka, 2009). 2. Petronas Gas Bhd took up CSR incentives that geared towards offering education through PBPP program. The program aimed at offering education to the population in areas of English language, mathematics, and science. The mission was to satisfy the expected training and education essential in creation of a formidable human capital (Andrew, 1999). 3. Conversely, Digi.com Bhd concentrated on internal level CSR activities. This involved the creation of a conducive, working environment to help them take pleasure the balance of life. Controversial issues and challenges of CSR among companies in Malaysia Although companies have aggressively engaged themselves in strategic partnerships with relevant stakeholders within the environment that they operate in, there still remains some challenges that hinders closer interaction between corporate. This includes; (a) Development and adoption of a common standard of practise to be adopted by all levels of firms. This has been attributed to the varying levels of income among different levels of firms. (b) Getting appropriate responses to challenges of globalization; key drivers for CSR need to be the market chains relating to global market place. (c) Lack of interest and thus effective participation of the local community in both contributing and joining the CSR programs of companies (d) Issues and Transparency: companies especially the local listed firms in Malaysia exhibit lack of transparency and accountability as demonstrated by their unwillingness to disclose information concerning their ongoing and even past CSR programmes. (e) Biased perception towards CSR initiatives: most government agencies and private companies define CSR as donor -focused rather than local in approach. Consequently, they find it hard to decide on whether they need to engage in long run or on medium term. Conclusion Organisations have come to conclude that the major benefit of CSR is to improve the reputation and general view of the company and a highly motivated worker. For organizations to sustain their efforts and operations; shareholders, employees and customers need to be given then most attention. Although, companies may be compelled by economic pressure to engage in CSR, the need to promote a healthy relationship with the immediate community, good image and extended profit margins contribute a lot in CSR practices. References Ahmad, N. R. (2003). Awareness of the concept of corporate Social responsibility among Malaysian managers in selected public listed companies. Bangkok, Tailand. Amran, A., & Nejati, M. (2011). Social Responsibility of malaysian Small Businesses: Does it influence Firm Image? IJAS Conference, Germany (pp. 2-8). Berlin : Germany. Andrew, B. G. (1999). A note on corporate social disclosure practices in developing countries: The case of Malaysia and Singapore. British Accounting 21, 371-376. Chapple, W. (2001). Corporate social reponsbilities (CSR) in Asia: a seven country studyof CSR website reportig. Business and Society, Vol. 40, PP. 92-117. Hashim, M. (2009). A Review of the Role of SMEs in the Manufacturing Sector in Malaysia. Malaysian Management Review, 16, 34-42. Lu, J., & Castka, P. (2009). Corporate Social Responsibility in Malaysia- Experts' Views and Perspectives. Corporate Social Responsibility and Environment Mnagement, 16(3), 146- 154. Turker, D. (2009.). Measuring Corporate Social Responsibility. A Scale Development Study. Journal of Business Ethics, 85(4), 411-427. Zulkifli, N. a. (2006). “Realising corporate social responsibility in Malaysia, a view from the accounting profession”. Journal of Corporate Citizenship,Vol. 24, Winter, , pp. 101-114. Read More