NEWSLETTER

VOL 7 NO 3.0 SEPTEMBER 2008

KDN NO. PP 12544/10/2008

CORPORATE LAW

Corporate Social Responsibility (“CSR”) – A Brief Overview

IN THIS ARTICLE, AARON GERARD SANKAR AND YONG SHEUE LIH DISCUSS THE IMPORTANCE
AND BENEFITS OF CSR IN A GLOBALISED ECONOMY.

CSR programmes and initiatives have clearly been on the rise and these seem to accord with
increasing public expectation of such activities being undertaken by companies. This article attempts
to outline the potential benefits and to underscore the importance of CSR in the globalised economy.

What is CSR?

There are many different perceptions of what CSR encompasses and likewise, there have been many
attempts to define this concept. The definitions attributed to CSR generally describe it as a concept
where corporations voluntarily integrate social and environmental concerns in carrying out their
business.

Locally, from the perspective of Bursa Malaysia Securities Berhad (“Bursa”), CSR is viewed as

“…open and transparent business practices that are based on ethical values and respect for the
community, employees, the environment, shareholders and other stakeholders… designed to deliver
sustainable value to the society at large.”

Thus, under the concept of CSR, it is anticipated that a corporation incorporates socially responsible
behaviour in the conduct of their business operations, which goes beyond mere compliance with or
fulfilment of applicable legal and regulatory requirements. This is done by placing a degree of
emphasis on practices that take into account the interests of its “stakeholders”1. By implementing CSR
practices, the corporation would balance the larger and general interest of its other stakeholders with
the financial interest of its shareholders.

Arguments For and Against CSR

Compelling arguments against CSR centre largely on the primary aim and responsibility of a business,
being essentially to make profits for its shareholders. It is said that taking on social issues does not fit
with this aim. Further, it is argued that businesses may not be equipped, in terms of expertise, to deal
with societal issues. According to this school of thought, the logical consequence here is that the
corporation would have to expend significant costs in realizing such activities. This appears to flow
from the traditionally accepted position that directors of a company owe no duty to persons other
than the company and its shareholders as a whole. A possible issue that follows from this is whether
directors may potentially breach their duty to act in the best interests of shareholders if they were to
exercise social responsibility in a manner that impacts the company’s profitability.
These criticisms, though valid, appear to have been overshadowed by a majority of those who favour
CSR and the benefits that it could potentially bring. Advocates of the CSR concept argue that there
are real economic benefits to a business in pursuing CSR. It has been suggested that companies who
appear to be responsible to the environment and society in general tend to be more attractive to
investors. Further, a company that adopts socially responsible measures within its organization may
see an overall reduction in its operational cost. Such steps could be in the form of responsible
recruitment practices involving a non-discriminatory policy being adopted and focusing on
occupational health and safety, which would ultimately result in a higher retention rate of skilled
employees. In addition, a reduction in the consumption of resources, whilst having obvious benefits
to the environment, would invariably result in cost savings to the company2. Such actions would also
solidify and enhance the corporate and brand image of a corporation and increase its
competitiveness.

Beyond economic benefits, there are also strong moral arguments for corporations to adopt CSR
policies. The views that have been advanced in this regard seem to centre around the theme that
businesses should “give back” to society. This flows from the fact that corporations have greater
financial and human resources as compared to individuals, non-profit organisations and even
governmental bodies in some cases. Adopting CSR practices, it is said, is also in the interest of the
business, which depends on some aspects of a society’s infrastructure3 for its existence. In this
context, one may also argue that boards of directors of companies would also be acting in the best
interest4 of the company when social and environmental considerations are embodied into its
decision making process.

CSR and Corporate Governance

Though separate, CSR and corporate governance are closely related in that both these concepts are
associated with enhancing the reputation of a company. As the concept of corporate governance
seeks to promote a transparent management system with the aim of ensuring accountability to
shareholders, the expectations on the modern corporation have resulted in CSR being viewed as a
subset of corporate governance. As such, corporate accountability appears to have been extended to
cover a wide range of societal issues which include environmental matters, human rights and anti-
corruption.

CSR and the Malaysian Regulators

In the Malaysian context, a key point to note is that there have been clear indications by regulators
that the development of CSR is encouraged. It is to be further noted that the Securities Commission
(“SC”) views CSR as a natural progression of its ongoing work in relation to the development of a
strong framework for good corporate governance. The SC is also keen to see more Malaysian
companies incorporate CSR into their corporate governance agenda, not only to develop better
corporate citizens, but also to enhance the recognition and profile of domestic companies in the eyes
of international and domestic institutional investors5.

Additionally, the CSR Framework launched by Bursa in 2006 serves as a guideline to public listed
companies in the implementation and practice of CSR. The CSR Framework sets out four focal areas
for corporations intending to implement CSR programmes, namely:-

(i) the workplace, through the promotion of human capital development, labour and
human rights and employee health and safety;
(ii) the marketplace, through the promotion of green products, social branding, vendor
development and corporate governance;
(iii) the environment, through the sourcing of renewable energy; and
(iv) the community, through the sponsorship of charitable organisations.

Notwithstanding that the practice of CSR is in itself voluntary, Bursa requires listed companies to
make a statement in their annual reports on the CSR activities undertaken by them during their
financial year and where no such activities have been undertaken, for a negative statement to be
inserted6. Whilst such a requirement may somewhat facilitate and encourage more informed

Corporate Social Responsibility (“CSR”) – A Brief Overview 2

investments from the perspective of an investor, it is hoped that this will also provide the impetus for
Malaysian listed companies to initiate CSR activities, given that such disclosure requirement is
mandatory.

The Government also appears to be encouraging CSR practices, as can be seen from the launching of
the Silver Book7, which provides a framework for government-linked companies to contribute
responsibly to society.

Conclusion
The SC and Bursa’s proactive role in encouraging the implementation of CSR is welcomed. Whilst
much effort will be required in a corporation’s integration of social perspectives with their business
conduct so that CSR is part of the corporation’s culture, the shifting trends seem to suggest that it
may be in the best interest of a corporation to adopt CSR practices.

AARON GERARD SANKAR AND YONG SHEUE LIH

CORPORATE & COMMERCIAL PRACTICE GROUP

For further information regarding Corporate matters, please contact

Grace C.G. Yeoh

gcgyeoh@shearndelamore.com

Michael H.K. Lim

michaellim@shearndelamore.com

1
The stakeholder concept, in broad terms, characterizes a stakeholder as any individual or group that are affected by the
organizations policies or actions. These include shareholders, employees, customers, suppliers and community within which
the corporation operates.
2
These examples have been advocated by the European Commission in its Green Paper on Promoting a European Framework
for Corporate Social Responsibility.
3
Its consumer base, for instance.
4
The recently amended Section 132(1) of the Companies Act 1965 provides, inter alia, that a director of a company shall at all
times exercise his powers in the best interest of the company.
5
http://www.sc.com.my/eng/html/cg/csr.html
6
This is set out in Appendix 9C (Part A) of Bursa’s Listing Requirements.
7
The Silver Book is one of the initiatives identified by the Putrajaya Committee on GLC High Performance in the GLC
Transformation manual launched in 2005.

Corporate Social Responsibility (“CSR”) – A Brief Overview 3