OUM BUSINESS SCHOOL (OUMBS)

SEMESTER MAY / 2023

BBCG3103

CORPORATE GOVERNANCE

STUDENT NAME : Wan Zulhilme Bin Wan Zahid

MATRICULATION NO : 850923036249002
IDENTITY CARD NO. : 850923036249
TELEPHONE NO. : 014-8415774
E-MAIL : [email protected]
LEARNING CENTRE : KELANTAN LEARNING CENTRE
PART I

1.0 INTRODUCTION

Corporate social responsibility is a type of business self-regulation with the aim of

social accountability and making a positive impact on society. Some ways that a company
can embrace CSR include being environmentally friendly and eco-conscious; promoting
equality, diversity, and inclusion in the workplace; treating employees with respect; giving
back to the community; and ensuring business decisions are ethical.

CSR evolved from the voluntary choices of individual companies to mandatory

regulations at regional, national and international levels. However, many companies choose
to go beyond the legal requirements and embed the idea of “doing good” into their business
models.

There is no one way a company can embrace CSR, but one thing is certain – to be
perceived as genuine, the company’s practices need to be integrated into its culture and
business operations. In today’s socially conscious environment, employees and customers
place a premium on working for and spending their money on businesses that prioritize CSR.
They can detect corporate hypocrisy.

The "do good, feel good" phenomenon — we've all experienced that warm feeling
from acts of altruism and charity at some point in our lives. Successful business leaders not
only realise the importance of giving back to society, but they also consider the social and
environmental responsibilities of their business with the ultimate goal of sustainable global
development. This concept of business operations grounded in economic performance with a
simultaneous consideration for the bigger picture is stylised as Corporate Social
Responsibility (CSR), an idea which has been gaining traction and recognition in Malaysia.
There have been more Malaysian businesses adopting a socially conscious approach in the
form of CSR initiatives and philanthropic efforts in recent years. Clearly, CSR is not a
passing fad and is here to stay.

There are a vast array of causes to support as a business, ranging from human rights to
eco-efficiency; the challenge lies in finding one that matches your business's purpose and
values. Finding a cause that aligns with your passion is a great place to start. Here are some
ideas for SMEs and start-ups to kick start their CSR program, as exemplified by selected
socially responsible Malaysian businesses.
 1) Volunteering

Contrary to popular belief, CSR does not always come at the expense of taking a hefty
chunk out of your business’s budget. Volunteering at your local old folk’s home or soup
kitchen is an amazing way to give back at virtually no cost. You'll find that volunteering is
one of the most rewarding things you can do as a team, cultivating a sense of teamwork and
solidarity amongst your colleagues.

2) Socially and environmentally conscious donations

Besides the aforementioned benefit of tax deductibles, charitable giving is also a way
to network and build alliances with other organisations. By donating to a charity of your
choice, your business stands to gain invaluable connections and future opportunities for
collaboration. Looking for alternatives to direct donations? Other charitable avenues to
consider include charitable trusts, gift annuities and pooled-income funds. Note: donations
must be made to a government-approved charitable organisation or directly to the
government in order to qualify for tax deductions.

3) Providing academic/research scholarships to disadvantaged students

Ever wanted to help a budding scholar out? A corporate scholarship program might
just be the answer to your business's CSR needs. Take a page from Google's books by
offering merit or need-based scholarships to university students; not only will your business
be doing a good deed, but it also stands to nurture and empower a new generation of talent
through educational opportunities. A suggestion would be to take this a step further by
supplementing your scholarship program with a mentor support system for your scholars, so
as to provide them with career guidance and better prepare them for their entry into the
workforce. Another CSR initiative worth considering is funding research projects or making
socially conscious investments.

2.0 THE STAKEHOLDER THEORY AND INSTITUTIONAL THEORY

A theory is defined as a set of principles that form the underlying structure that can be
referred to in a discipline of study. Accounting, being a human activity, considers such things
as the behaviour of people and their needs in regard to information that is financial in nature.
It also considers why an organisation might choose to divulge or give information to a
particular group of stakeholders. The theories of accounting date back to the early 1920’s
when researchers were basically relying on observation. All through this period, there has
been an attempt to prescribe how assets should be valued for the sake of external reporting,
predict on what basis managers should be paid or motivated, predict the power of different
stakeholders, and how the organisation aspires to be judged by the community.

There are several theories in accounting. The two of them namely the stakeholder
theory and institutional theory. It will show the major principles of each particular theory, its
effectiveness, and weaknesses. For purposes of organisation, three subheadings will be used.

2.1 Stakeholder Theory

According to Freeman and Reed (1983), a stakeholder is any person or group of

persons who has an effect on the accomplishments of an organisation’s goals or is affected by
such accomplishments. The stakeholders can further be divided into two; primary and
secondary. Without the continuous involvement of the former, a company cannot survive. For
the latter, the company can still survive (Clarkson, 1995).

The stakeholder theory is further divided into two; ethical and managerial branch. The
ethical branch argues the right to be treated fairly should be enjoyed by all stakeholders. The
organisation should endeavour to give information to all stakeholders as soon as it is required
without withholding anything. The managerial approach suggests that information should be
given only when the organisation deems it prudent. The core belief of the manager’s
approach is that information is a vital tool to manage stakeholders so as to win their
acceptance and support. Further, the same information can be used to manipulate the
stakeholders so as to avert disapproval and distract opposition.

The theory considers the organisation as part and parcel of the society. The major
strength of this theory, especially the manager’s approach branch, is that it specifically
considers how the different stakeholders should be best handled and managed so that an
organisation not only achieves its objectives but also survives. Freeman and Reed (1984)
assert that the task of those in management is to assess the benefits of living up to the
expectations of shareholders and achieve the objectives of the firm. If all stakeholders are
well coordinated, through voluntary exchanges, then each stakeholder will endeavour to give
his best making it better for everyone (Freeman and Reed, 1984).
 It has been found out that particular groups of stakeholders are more effective than
others in regards to disclosure of social responsibility demands (Nue, Warsame and Podwell,
1998). Companies have been found to be more responsive to demands of stakeholders which
are financial in nature and statutory requirements from governments but not from
environmentalists or secondary stakeholders as defined by Clarkson (1995).

2.2 Institutional Theory

According to this theory, organisations take up practices and structures that have
passed the test of legitimacy and have already been taken up by other organisations.
According to Carpenter and Feroz (2001), such practices can be transmitted through three
main ways namely pressure, coercion and imitation. Organisations tend to borrow norms and
structures from other organisations based on consideration of social legitimacy more that the
effectiveness of such norms and structures.

DiMaggio and Powell (1983) argue that the tendency to conform makes organisations
similar without necessarily improving them. Governments and organisations with unclear and
unreliable goals take legitimacy as an excuse to illustrate economic and social correctness
while in actual sense, such organisation or governments as the case might be are simply
ineffective.

This theory has been faulted for various reasons. It relies on a form of training
professional accountants that entrench bureaucracy. Secondly, it stifles innovation. An
accounting or management practice in one firm can not necessarily work well in a different
firm. Thirdly, with the replication of practices, norms and values, negative values are also
transferred. Systemic corruption and inefficiencies in one firm are directly implanted into
another firm.

In summary, the paper has covered three accounting theories. In choosing the theory
to adopt, organisations are guided by their goals and objectives. A non-profit organisation
may choose a theory that is not profit oriented and vice versa. Other organisations may try to
blend the theories and adapt to keep abreast with the dynamics of the society. Each theory has
its own strength and weaknesses as we have seen and it is therefore upon the organisation to
weigh and see the theory to employ based on its goals and objectives. Basically, an
organisation aspires to remain legitimate and meet the expectations of all stakeholders.
3.0 THE RELEVANCE AND IMPORTANCE OF STAKEHOLDER THEORY
AND INSTITUTIONAL THEORY TO THE PRACTICES OF CORPORATE SOCIAL
RESPONSIBILITY IN MALAYSIA

3.1 Stakeholder Theory Practices of Corporate Social Responsibility in Malaysia

In this era of globalization, Corporate Social Responsibility (CSR) has managed to

integrate itself into the corporate culture and has evolved as an integral aspect of corporate
performance reviews. It is a voluntary concept to be adopted by organizations. It integrates
the social and environmental dimensions of a business in its operational activities. CSR and
stakeholder theory both highlight the significance of conducting business operations by
taking into consideration the larger societal benefits.

The scope of CSR has now evolved to become a more inclusive concept involving
various stakeholders, and ensuring that businesses are operating in an ethical and sustainable
manner. With customers becoming more socially and environmentally aware, companies
increasingly getting more customer-centric. A key tool towards superior customer service is
to integrate CSR in bringing about radical changes and benefits to the company; and the
overall socio-environmental arena.

While implementing CSR as a part of their corporate culture, organizations face many
challenges. Three key challenges faced by organizations have been discussed here, which
necessitate the need for applying stakeholder theory in implementing CSR successfully.

i) The interrelationship between stakeholder theory and CSR

The stakeholders are a critical aspect of the success of CSR initiatives as seen in
Figure 3.1. Organizations would not be able to achieve their CSR goals without the
participation, expertise, know-how, and loyalty of their various stakeholders. One important
aspect of CSR is that the business is accountable to all its stakeholders who have a valid
interest in it and the business decisions impact their interests.
 Figure 3.1: Interrelationship between stakeholder theory and CSR (Freeman and
Dmytriyev, 2017)

Still, there are similarities between the two concepts. CSR emphasizes the benefit to
society at large whereas stakeholder theory works on building relationships and value
between a business and its various stakeholders (Freeman & Dmytriyev, 2017). Though there
are certain differences between the two concepts, they can be aligned to work for the
betterment of the company and society.

The various challenges in implementing CSR initiatives can be mitigated by aligning

the concept with stakeholder theory as this enables leaders to have a more pragmatic
approach considering the interests of all its stakeholders and planning their actions
accordingly. Stakeholder theory addresses the issue of a lack of awareness of the benefits of
CSR. CSR aligned with stakeholder theory generates the maximum benefits in the form of
societal development as well as creating a motivated workforce, better company branding,
larger sales and profitability, satisfied customers, etc. Thus, CSR is an integral part of
corporate responsibility which involves the participation of various stakeholders for its
successful implementation.

ii) Case example of CSR and stakeholder theory: McDonald's Malaysia

(Gerbang Alaf Restaurants Sdn Bhd)

McDonald's Malaysia (Gerbang Alaf Restaurants Sdn Bhd), one of the oldest
companies in operations in the global food industry in Malaysia, is seen as a pioneer in
implementing CSR initiatives. The various stakeholders at McDonald’s have an impact on
consumer perception. To address its stakeholders’ interests and fulfil its social
responsibilities, the company has undertaken various CSR initiatives. The company considers
its employees as its key stakeholder and works on improving its interests through career
development programs, providing training and development, and good compensation. It
works on improving customer satisfaction by providing them with affordable and healthy
food choices.

Its CSR initiatives include affordable products through standardization and having a
robust supply chain, boosting employment for the local workforce. It addresses the interests
of its shareholders by having stable business operations and increasing profitability and
revenues. In addition, McDonald’s undertakes community development support and
environmental programs for the betterment of the larger community. For instance, the
company initiated a global program called Scale for Good to overcome global societal
challenges. These initiatives show that the company takes its CSR responsibility towards its
various stakeholders seriously.

3.1 Institutional Theory Practices of Corporate Social Responsibility in Malaysia

One notable feature of corporate social responsibility (CSR) is its fundamentally

contested and socially constructed nature. While CSR has been typically seen in terms of
voluntary and firm specific phenomena in prior research, what constitutes responsible or
irresponsible corporate behaviour depends very much on the wider institutional setting and
how it defines and regulates legitimate corporate action. Corporations are embedded in wider
societal and political arrangements and participate in local, national, and transnational
polities. While CSR research widely acknowledges the importance of stakeholder salience
and institutional context in shaping CSR, the role of institutions and processes of institutional
change for CSR has remained under-explored. A second, less studied, aspect of the
comparative, and therefore collective, character of CSR concerns the importance of norms,
conventions, and expectations of appropriate conduct that originate outside of firms’
organisational field. Such norms and standards of behaviour often relate to differences
between countries in formal regulatory institutions or in normative or cultural conventions
regarding business conduct.

Researchers have recently shown particular interest in the intersection of CSR and
institutional theory. The study of institutions brings light to how responsible and irresponsible
behaviour of corporations is framed by wider social and political frames. Apart from mapping
out new conceptual space in the understanding of CSR, an institutional perspective beyond
the immediate organisational fields of individual companies has recently generated interest
through the developments in the world economy in the late 2000s. The so-called ‘financial
crisis’ has not only surfaced novel forms of corporate irresponsibility but in fact has
unmasked the pivotal role of private corporations for a host of issues hitherto seen as core
expectations on governments. The institutional embeddedness and governance mechanisms
with which business and societies are mutually interdependent have given rise to novel ways
of thinking not only about CSR, but in fact about the role of the institution of the modern
(global) corporation.

While institutions shape how firms respond to a variety of social and environmental
issues, research has shown that companies are not passive actors in processes of institutional
entrepreneurship and development, particularly in contexts characterised by weak,
underdeveloped, or unenforced institutional arrangements. The presence of such ‘institutional
voids’ presents particular opportunities and challenges for understanding and enacting
corporate responsibilities.

Multinational companies face particular difficulties in developing and implementing

approaches to the management of their social responsibilities when operating across diverse
institutional environments.

The goals of this Special Issue are to

(a) Stimulate innovative research on the social and political embeddedness of CSR within a
variety of local, sectorial, national, and international settings;

(b) Develop conceptual tools for understanding the intersection of CSR with regulatory
institutions, as well as diverse institutions of economic governance or “varieties of
capitalism”; and

(c) Advance our understanding of CSR as a process of governance, whereby responsible and
irresponsible behaviour is socially defined, contested, and sanctioned by various stakeholders
with different degrees of power and influence over corporate decision-making. We invite
theoretical and empirical papers from a variety of traditions in thinking about and studying
institutions. The following is a list of indicative, but not exhaustive, topic areas:

 CSR in cross-national comparison: institutional diversity and CSR; varieties of

capitalism and corporate responsibility; implicit vs. explicit forms of CSR
  CSR and state regulation: the implications of liberal or interventionist forms of state
intervention for defining the social space of CSR; framing of CSR in the context of
different forms of statehood; CSR as a substitute for formal regulation; the role of
CSR within “institutional voids” or areas of limited statehood
 Diffusion of CSR: understanding the spread and form of CSR initiatives; regulative,
normative, and mimetic forms of isomorphism
 Standard setting: standard setting with regard to social, environmental or governance
standards; use of social branding and labelling; regulation of social and environmental
disclosure
 Stakeholder power and influence: local actor constellations and power dynamics; the
role of unions in implementing CSR initiatives; forms of influence by NGOs, media,
or other civil society actors
 Reputation as a governance mechanism: role of responsible and irresponsible
behaviour in shaping reputation;
 Historical perspectives on CSR: origins of CSR in different countries or sectors; long-
term changes in the relationship between the state, civil society and corporations.

An increasing trend is observed among Malaysian corporations in disclosing social

and environmental information. However, it is unclear as to why Malaysian companies
produce Corporate Social Reports voluntarily. Extant literature reveals a gap in identifying an
appropriate theory to adequately explain CSR. This study investigates the applicability of
Institutional Theory to enable an understanding of the Malaysian CSR phenomenon.
Interviews with senior management of Ten Malaysian Companies practicing CSR provide
grounded qualitative data to determine motivations that influence CSR. This exploratory
study provides evidence that Institutional Theory demonstrates a feasible explanation of CSR
practice in Malaysia.

4.0 CONCLUSION

Companies striving to measure success beyond bottom line financial results may
adopt corporate social responsibility strategies. These strategies may target environmental,
ethical, philanthropic, and fiscal responsibility that extend beyond the products they sell.
CSRs aim to make the world a better place beyond transacting with customers and may result
in company-specific benefits as well.
 It is now recognized that poverty reduction and sustainable development will not be
achieved through government action alone. Policy makers are paying increasing attention to
the potential contribution of the private sector to such policy objectives. The concept of CSR
is sometimes used as shorthand for businesses’ contribution to sustainable development. A
number of core development issues are already central to the international CRS agenda.

They include labour standards, human rights, education, health, child labour, poverty
reduction, conflict and environmental impacts. CSR is often associated with large companies
and particularly with multinational and global enterprises. The international CSR agenda is
dominated by OECD-based NGO’s, investors, consumers, business and business
associations.

CSR has even on occasion attracted criticism for being insensitive to local priorities
and the basic livelihood needs of people in developing countries, particularly where CSR
codes of conduct are perceived as barriers to market access for some producers. But the CSR
agenda needs to be locally owned if it is to make a significant contribution to local
development priorities – and it must be relevant to local enterprises, whether large or small.
This means creating a space to explore the relationship between business and society at a
regional, national or local level and finding the appropriate language for these discussions.

(3,186 Words)

References:

Brown, N & Deegan, C. (1998). The public disclosure of environmental performance

information- a dual test of media agenda setting theory and legitimacy theory.
Accounting and Business Research, 29, 21-41.

Carpenter, V.L & Feroz, E. (1990). The decision to adopt GAAP: A case study of the
commonwealth of Kentucky. Accounting horizons, 4, 67-78.

Clarkson, M. (1995). A stakeholder framework for analysing and evaluating social

performance. Academic of management review, 20, 92-97.

DiMaggio, P. J & Powell, W.W. (1983). The iron cage revisited: institutional isomorphism
and collective rationality in organisational fields. American sociological, 48, 147-160.
Freeman, R. E. (1983). Strategic management a stakeholder approach. Advances in strategic
management, 1, 31-60.

Nue, D., Pedwell H & K Warsame, H. (1998). Managing public impressions: environmental
disclosures in annual reports. Accounting Organizations and Society, 25, 265-282.

PART II
ONLINE CLASS PARTICIPATION