Importance of Social Responsibility Disclosure

Importance of Social Responsibility Disclosure 1.0 Introduction Though some of the country around the world is rich in resources, but there are still have a possibility that ran out of the resources. Beside that, there are also a large number of countries around the earth that lack of resources. Because of this, as a people living in this earth, we should protect the resources from exhaust. We should not be so selfish and should cherish the resources, so that other people could also enjoy use of the resource. As a big community, we should not think ourselves interest only, we should also think for others. Think that everyone can has a chance to use the resources and also how to value the resources so that others have a chance to use it. We can start doing social responsibility to ensure that the limited resources are not run to waste. As an opening of this introduction, we begin by defining social responsibility. Social responsibility can be defined as a theory from the perspective or ideological whereby a specific entity, being the person, organization, government, corporation, non-profit organization and etc., has a responsibility to make good decision and take sustainable action that will develop benefit of the society and enhance the welfare and interests of the public. In another meaning, we also can define social responsibility as whatever a specific entity done, the intention is to improve the welfare or the interest of the society. Although it is not mandatory for the entity to accomplish social responsibility, but the entity should also has some conscience. In addition to protect their own benefit, the entity should also concern the society’s welfare and interests. In the beginning of the introduction, we have defining the social responsibility. Now we will look on what is corporate social responsibility. Corporate social responsibility is the social responsibility that implements by an organization. Corporate social responsibility is about how a company using their own knowledge intelligently to earn profit for the company beside that still can protect the interest of society. They are not only being concerned with their own benefit, but they also concern with the interest and welfare of the society. Corporate social responsibility also gives a picture of how a company supervises their business processes to generate an overall positive impact to public. The initiation of corporate social responsibility involves several issues that related to company’s concern behavior in its social atmosphere except the company’s economic sphere which the company traditionally associates with. To implement corporate social responsibility, the organization must take in mind of the society welfare in beside to fulfill its own benefit in doing the business. The organization should not be self-interested in consider that the interest of the organization is their main objective. They should not think that increase stock price and short-run profit is the most important thing to the company. Service the society also an important objective and it is as important as the profit of the company. The company also should concern with the society ethically other than earning profit and increase stock price. The company’s stakeholders are not only the shareholders and investors, but also include the employees, customers, government, communities, suppliers, and special-interest group. So the company should also concern other stakeholder’s interest and what they are desired for. Commonly, the company using their own policy as a built-in, self-legalize instrument which incorporate into their business model to monitor the business processes and activities, so that their business obedience to the law and regulation, ethical standard, and international norms. It also ensures that the company not only pays attention to their profit and stock price but also the interest and welfare of the society. Implement social responsibility not only bring benefit to the society, but also give benefit to the company. Because implement social responsibility can add value for the positive image of the company. Public listed companies in Malaysia nowadays are required by Bursa Malaysia to disclose their social responsibility in their annual report. They can built their own corporate social responsibility report or refer to Bursa Malaysia’s corporate social responsibility framework. The report is not mandatory to follow, it is just a reference. When operate in businesses, there are several main areas that firms should concern and responsible for. It is because the businesses will give some impact on these main areas. According to Vinsign website, there are six main areas of social responsibility, which is community and environment, the employees, governments, consumers, providers of finance and other organizations or groups. For example, the firm should concern about environmental issue, such as rainforests disappearing and they can take action by reducing using paper or do not waste any paper when doing businesses or help the government to plant more trees. For employees’ issues, they should treat every employee fairly and should concern about their safety during work, welfare, training and development. Corporate social responsibility disclosure discloses information on what the firms have done for the sake of the community. It also shows the disclosure of firms’ action on what they have been contribute to the welfare of the society and what they will do in the future for the welfare and interest of the society. Usually the disclosure is disclosed in a social responsibility report and publishes in company’s website or annual report of public listed companies. For public listed company in Malaysia, Bursa Malaysia has ruled them to disclose their social responsibility disclosure in their annual report. It is mandatory for them to disclose in annual report recently and most of them comply with the rule to create a good image to the society and government. Corporate social responsibility disclosure is very important to company’s stakeholder. The stakeholders of the company always take note to the disclosure because the disclosure shows what the company plan to do and have done for the welfare of the society. A recently report shows that most of the investors are invest in firms that have involve greatly in social responsibility. With actively involve in the activities of social responsibility, the company can increase their positive image emerge to the society. It can bring advantage to the companies with having increasing number of investors invest in the company and attract more supplier cooperates with them. Some companies disclose their social responsibility voluntarily. According to â€Å"Corporate Social Responsibility Disclosure in Malaysia† written by several author, companies are disclosing their social information for various reasons. The reasons can be classified into three broad categories, which is pressure from the government and market, enhancing corporate image, and top management awareness. Companies also disclosing their social information because of they think that they should informing the public what they have done for the public and will done for the sake of the public. Before companies release the social responsibility disclosure in their report, they have to think about the question of how much information should they publish in the report, how much information are enough to the viewer of the report and which information are useful to the viewer of the report. It is very important for the companies to think about the questions because the interest groups are based on the information to make certain important decision making. Different groups of stakeholder look for different type of social responsibility information. For example, employees and future employees of a company are more concerned with human resource issues in the social responsibility report. The public and government are more concerned on philanthropic issues in the report. The quantities of the information are not regarded as important, qualities of the information disclosed by companies are more think greatly of to the stakeholders. In spite of quantities of the information disclosed, useless information disclose to stakeholder will not help them in certain decision making. According to â€Å"Corporate Social Responsibility Disclosure in Malaysia† written by several author, companies in Malaysia are more concern in human resources issues. Useless or unclear social responsibility information will lead to some problems, such as damage companies’ image, penalties from government and dissatisfied of stakeholders. When this situation happens, the company may lose their intellectual capital and most of the investor decides not to invest in the company since the company cannot fulfill their expectation for the information from the report. Large firm in this research mainly refer to public companies listed in Bursa Malaysia. Bursa Malaysia has built a corporate social responsibility framework for the public company as reference which has mentioned earlier in this research. According to Bursa Malaysia website, it mainly focuses on four main areas, which is environment, community, marketplace, and workplace. Bursa Malaysia encourages public listed companies to involve in corporate social responsibility and disclose it in annual report. Why public listed company been encourages to involve in corporate social responsibility? According to Bursa Malaysia, they believe that Corporate Social Responsibility (CSR) is key to sustainability. Bursa Malaysia say that â€Å"sustainability is a process and it is a business approach used to create long term value by seizing the opportunities and managing risks that emerge from the economic, environmental and social developments†. For example, by protecting the environment, it can help in conserve the natural scarce resources from being destroy or no need to confront with the situation of some resources become extinct. This can help the company to use the natural resources everlasting and the next generation also can enjoy it. Social responsibility involvement are very important to the public listed company and also others small and medium company in Malaysia. It is because social responsibility involvement can help increase competitive advantage of the company compare to others company in same sector. Involve in social responsibility activities can also improve the relationship between the company and the society. Other than become distinctive compare to other company and enhance the relationship with the society, social responsibility activities also can increase public image of the company, increase the stock price of the company, and can help to solve problems that the community faces. Involving in social responsibility activities bring a lot of advantages to company but still many companies are not willing to involve in social responsibility activities and disclose it. It is mainly because most of the companies think that social responsibility is not so important to them, profit of the company are their priority. Unfamiliar with what information to disclose are also one of the reason they rarely involve in social responsibility activities. Most of the companies are not sure which information is important to stakeholders although the company involves in social responsibility activities. 1.1 Problem Statement The problem in corporate social responsibility is that not every public listed company in Malaysia is sincere in voluntary involves in social responsibility. As a large company which listed on Bursa Malaysia, the company is required by Bursa Malaysia to disclose corporate social responsibility in their annual report in recently year. Some of the small company even didn’t implement social responsibility because of the company thinks it is not their obligation to implement it and for small firm, social responsibility disclosure are not mandatory. They are not aware of the advantages that the social responsibility brings to them and importance of the social responsibility information to the society. Some of the company didn’t disclose social responsibility because of they not sure what to disclose and how much information should disclose. Even though some companies have made the respective disclosure, the information they disclose may be irrelevant and as the result it is not useful to the stakeholders. 1.2 Objective The objective of this research is to find out the important of the social responsibility and social responsibility disclosure to different sector among public listed companies. This can understand through the involvement of the public listed company in the social responsibility and their key disclosure areas. The study aims to study how different of industries disclose their social responsibility activities and further to evaluate their awareness to the social responsibility. It also aims to study how willing are the public listed company disclose their social responsibility activities to the society without conceal anything from the society. The higher the willingness that company discloses their social responsibility information, the more the information that company will disclose. Not merely disclose what the company plan to do in the future, but also what the company have done that achieve from previous year social responsibility activities planning. Another objective is to find out the relationship between size of firm and the extent of corporate social responsibility practices. This study is to see whether it is the truth that the larger the firm is, the greater the involvement of the firm in the social responsibility. Whether it is only large firm will involve in social responsibility and disclose it out to the stakeholders or not. 1.3 Contribution The contribution of this research is to increase the number of companies and the willingness of companies to participate in social responsibility practices. From this research, the company will find out the importance of involvement in social responsibility activities and advantages that social responsibility activities bring to them. So that, the public listed company is more wiling to involve in social responsibility activities and disclose the information to its stakeholder. Beside that, the public also can see how corporate social responsibility will improve their living and enhance their welfare and interest. The community will more appreciate what the company has done for them and then will have more and more investor wiling to invest in the company. 1.4 Conclusion In conclusion, corporate social responsibility is about how you should as a corporation. Although, corporate social responsibility in nowadays is still not much concern by the public listed company, but in the future they will identify the importance of social responsibility. From this awareness, the company is more willing to involve in social responsibility activities and disclose the information to the society. From the advantage that the community receives from the social responsibility, they will become more concern with the issue of the social responsibility. Thus, the community acts as a watchdog to concentrate on what the public listed company plan to do and what they have done for the welfare of the society. The company views the community as an important stakeholder, so the company is more willing to improve the community’s living. Community can survive without business but business cannot exist without community. Chapter 2 Background of Study Securities Commission Malaysia (SC) was established on 1 March 1993 under the Securities Commission Act 1993, the Securities Commission is a self-funding statutory body with investigative and enforcement powers. It reports to the Minister of Finance and its accounts are tabled in Parliament annually. The SCs many regulatory functions include: Supervising exchanges, clearing houses and central depositories; Registering authority for prospectuses of corporations other than unlisted recreational clubs; Approving authority for corporate bond issues; Regulating all matters relating to securities and futures contracts; Regulating the take-over and mergers of companies Regulating all matters relating to unit trust schemes; Licensing and supervising all licensed persons; Encouraging self-regulation; and Ensuring proper conduct of market institutions and licensed persons. Underpinning all these functions is the SCs ultimate responsibility of protecting the investor. Apart from discharging its regulatory functions, the SC is also obliged by statute to encourage and promote the development of the securities and futures markets in Malaysia. Bursa Malaysia is an exchange holding company approved under Section 15 of the Capital Markets and Services Act 2007, which is regulate by Securities Commission Malaysia. It operates a fully-integrated exchange, offering the complete range of exchange-related services including trading, clearing, settlement and depository services. Bursa Malaysia today is one of the largest bourses in Asia with just under 1,000 listed companies offering a wide range of investment choices to the world. Companies are either listed on Bursa Malaysia Securities Berhad Main Market or ACE Market. In assisting the development of the Malaysian capital market and enhancing global competitiveness, Bursa Malaysia is committed to maintaining an efficient, secure and active trading market for local and global investors. Corporate Social Responsibility (CSR) is a central management concern at Bursa Malaysia. For Bursa Malaysia, CSR means integrating open and transparent business practices into our business operations which are based on ethical values and respect for employees, communities and the environment. The way they do business is designed to deliver sustainable value to the society at large and to all stakeholders, including their shareholders. On 5 September 2006, Bursa Malaysia launched a CSR Framework as a guide for Public Listed Companiess in implementing and reporting on CSR. The Bursa Malaysia CSR Framework looks at four main focal areas for CSR practise – the Environment, the Workplace, the Community and the Marketplace, in no order of priority. With effect from 31 December 2007, all public listed companies are required to disclose their CSR activities or practices (and of their subsidiaries) and if there are none, a statement to that effect. Listing Requirements (Appendix 9c, Part A (29)). Listing Requirements (Appendix 9c, Part A (29)) is about description of the corporate social responsibility activities or practices undertaken by the listed issuer and its subsidiaries or if there are none, a statement to that effect. Failure to comply with any of these Requirements will amount to a breach in respect of which actions may be taken or penalties may be imposed or both. Corporate Social Responsibility (CSR) Framework for Malaysian Public Listed Companies The Bursa Malaysia CSR Framework is in fact a framework, and not a template. This framework does not tell the whole story of CSR and neither does it have all answers. It is a bit like running shoes: One size does not fit all. The CSR Framework is basically a set of guidelines for Malaysian Public Listed Companies (PLCs) to help them in the practice of CSR. As the Prime Minister mentioned in the 2006 budget speech, from now on, all PLCs are required to disclose their CSR activities. Some PLCs may be doing corporate social responsibility even without realising it. The directive from the Prime Minister is really an opportunity for logical thinking about CSR. It is meant to encourage Malaysian PLCs to become more engaged in being socially responsible, and to make the way they approach the process of CSR, part of the way they normally work and think. According to Bursa Malaysia, CSR means it is not about how a firm spends money, but about how the firm makes money. CSR is defined as open and transparent business practices that are based on ethical values and respect for the community, employees, the environment, shareholders and other stakeholders. It is designed to deliver sustainable value to society at large. There is no universal approach to CSR. Companies are free to adopt what suits them. CSR is not about compliance or philanthropy or public relations. It often involves cultural transformation in a company as it integrates CSR concepts into its operations and decision making. Vitally, CSR involves communicating the company’s actions to its stakeholders and encouraging their feedback. The Bursa Malaysia CSR Framework looks at 4 main focal areas for CSR practice. They are: the Environment, the Workplace, the Community and the Marketplace, in no order of priority. The Environment When looking at the environment, CSR can focus on a variety of issues. Most of the people worry about energy, how to use it more efficiently and how to reduce the way its emissions damage the climate. Here in Malaysia, bio fuels have become a topical issue. There are other aspects as well. Companies live amongst some of the richest biodiversity in the world. Protecting the flora and fauna is essential. The Community Companies live within the community. They depend on the community in many ways and the community depends on them. Supporting employee involvement in community issues enriches the community and the company. Supporting education, such as adopting a school, is another possible activity. Companies can be creative in looking at how they can contribute to children, youth development and the under-privileged. The opportunities for company interaction with the community are vast. The Marketplace The Marketplace is where companies find important stakeholders – their shareholders, suppliers, and customers. Companies can interact responsibly with this group in a number of ways, such as supporting green products or engaging in only ethical procurement practices. Helping to develop suppliers and other vendors is another way of contributing. Raising the standards of Corporate Governance within the company so that it meets shareholder expectations is a further consideration. The Workplace Companies draw their employees from society and so everything they do with their staff needs to be socially responsible, whether they are dealing with basic human rights or gender issues. A quality work environment and health safety are obvious considerations, as is the way in which, if companies believe in CSR, they inculcate in their employees, the values which the company holds dear. Ideally, companies should consider all 4 CSR dimensions when crafting their own visions. But that does not mean a company must do everything. For some companies there will be focal areas or initiatives that do not apply. The important thing is that the company uses the framework to help it identify its choices and priorities. Individual CSR initiatives will depend on the nature of each company’s business, its inclinations, and its resources. However, sometimes a company will adopt initiatives that may even have indirect impacts. Like most PLCs, Bursa Malaysia is exploring the framework to see what suits companies best as an exchange. 3.0 Introduction There are some different points of view of the corporate social responsibility definition from several parties. Corporate social responsibility is defined as the duty of the organisation to respect individuals’ rights and promote human welfare in its operations (Manakkalathil and Rudolf, 1995; Oppewal et al., 2006). According to Carrol (2000a), businesses not only have the economic responsibility of being profitable and the legal responsibility to follow the laws or ground rules that guide their ability to achieve their economic requirements, but they also have ethical responsibilities that include a range of societal norms or standards. From this two definition, it can see that individuals’ rights and human welfare is more important than profit earning and organization is try to balance them, so that the interest of public did not deprive. Malaysian Government’s point of view by our Prime Minister, Dato’ Sri Najib Tun Abdul Razak in a corporate social responsibility conference held in June 2003 at PWTC, Kuala Lumpur referred to corporate social responsibility as â€Å"a concept whereby corporation integrate social and environmental concerns in their business operations and their interactions with stakeholders on a voluntary basis†. It is a process of providing information which does not have purely financial implications designed to discharge social accountability. Companies should recognize their corporate social responsibilities not only to their shareholders but also to the society they operate in. This sustainability concept calls for a company to operate in a responsible manner that takes full account of their business impact on the environment, people and the community. Corporate social responsibility can also be defined 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 at large (World Business Council for Sustainable Development, 1999). In general, CSR embraces all organizational activities relating to the organization and society. These may include employees support (safety, job security, profit sharing, employee participation, treating employees fairly and equitably etc.), community support (activity involved in education, health and housing related supportive activities, philanthropic activities), product/services support (product/service quality, product safety, delivery, research and development etc.), and environmental support such as; sustaining the eco-friendly environment, producing environmentally friendly products, waste management, recycling etc. (Staples, 2004; and Sen a nd Bhattacharya, 2001). In the last decade Corporate Social Responsibility (CSR) is an issue that has increasingly attracted attention from the business, political, and public spheres (Brammer, and Palevin, 2004). In emerging capital markets, such as Malaysia, this issue also tends to be a strategic issue for public listed companies. Malaysian firms incorporate CSR into their corporate governance agenda to become good corporate citizens in the Malaysian capital market. They also seek to increase the pool of enhancement in the recognition and profile of corporate domestic firms who can gain better recognition from the perspective of international and local investors. Furthermore, the push towards better CSR practices is also important to be consistent with the overall national agenda, particularly in achieving Vision 2020, meeting the objective of the National Integrity Plan and as a tool for generating greater economic and capital market growth (Corporate Governance, 2004). Tay Kay Luan (2005a), cited the Malaysian government’s stand on CSR issues is that all organisations in the country should take account of the economic, social and environmental impacts of their activities, and should be encouraged to act and address the key challenges which arise from these impacts on their core competencies. Moreover, the government is taking stand that the existing legal framework and regulations are sufficient to improve corporate behaviour. Gray et al. (1987) define social reporting as â€Å"†¦ †¦the process of communicating the social and environmental effects of organisations’ economic actions to particular interest groups within society and to society at large. As such, it involves extending the accountability of organizations (particularly companies), beyond the traditional role of providing a financial account to the owners of capital, in particular, shareholders. Such an extension is predicted upon the assumption that companies do have wider responsibilities than simply to make money for their shareholders†. Chan (2002), Godfrey et al. (2000), and Gray et al. (1996) describe corporate social disclosure as voluntary reporting of social and environmental information relating to an organisation’s interaction with its community, shareholders, physical and social environment to outsiders through corporate annual reports. Although the disclosure is based on corporate’s voluntary, but it as been motivated to disclose in recent year. According to Godfrey et al. (2006), corporate social responsibility is motivated by legal regulation, management accountability and shareholder activism. Voluntary corporate social disclosure gives information to the public regarding a company’s activities that relates to the community. Companies that operate in a developed world have moved to include sections on social issues within their annual reports. These sections give information on their responsibility towards reducing hazardous impacts on the environment, improving waste management, showing compliance with Environmental Quality Regulation 1989, better efforts to protecting their employees and other social issues affecting the public. The disclosures were towards an increasing trend. However the level of disclosures itself are still low. (Teoh Thong,1984; Foo Tan,1988;Ho,1990 and Shireenjit Zuaini 1 998). The Malaysian government’s incentive to further promote corporate social responsibility (CSR) among public listed companies (PLC) is very encouraging in Malaysia. The honorable Dato’ Seri Najib Tun Razak, Prime Minister of Malaysia, in his keynote speech at the Corporate Social Responsibility Conference on 21 June 2004 had made it clear that CSR helps improve financial performance, enhance brand image and increases the ability to attract and retain the best workplace, contributing to the market value of the company. The growth of public awareness about CSR has put pressure on corporations, profession and governments to increase the amount of social information in corporate reports. More recently, in the 2007 budget speech, the Malaysian Former Prime Minister, Datuk Seri Abdullah Ahmad Badawi has stressed the importance of corporate social responsibility reporting by requiring companies to disclose their CSR activities in the annual report. Corporate social reporting is one approach how companies published or disclosed their corporate social responsibility activities. One way to reduce the gaps between company and its stakeholders is by reporting the activities to the stakeholders or through additional disclosure. Teoh and Thong (1984) pointed out that the philosophy of the top management and legislation were the primary factors contributing to corporate social awareness in Malaysia. More recently, Malaysian executives and managers were found to have positive attitudes towards corporate social responsibility, although the extent of their involvement in corporate social responsibility is lower today than it was a decade ago (Abdul Rashid Ibrahim, 2002). Mohammad Jamil, Alwi, and Mohamed (2001) similarly found that CSR disclosure in Malaysia is generally low, especially with regards to fair business information. This also appears true for environmental information (ACCA, 2002). The level of CSR was again confirmed to be low in recent studies conducted by SRI (2003) and Ramasamy and Hung (2004). Since in Malaysia, corporate social responsibility is voluntary, the choice of social issues reveals the Government’s priority or the particular responsibility which companies have. Therefore by having corporate social responsibility, the company would have better reputation and this would increase its chances to secure contracts from the Government as it is seen as being socially responsible. Companies would be able to attract and retain good employees which would in turn benefit them financially in the long run. Corporate social responsibility may be able to strengthen stakeholder relations as reporting promotes corporate transparency and instills greater confidence and trust