Topic 3 [Part 2]

Community & CSR

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 Corporate Social Responsibility (CSR)
▪ Companies started to realise that they are responsible towards their
stakeholders, not only their shareholders.
▪ A broad definition of “stakeholder” of a company = any party which is
affected by & affects operations, activities and decisions of the company.

decisions
Is affected by
operations

activities & affects

Any party 2
Different categories of stakeholders
▪ primary stakeholders = more direct association with the
company (shareholders, creditors, customers, suppliers,
employees and the local community) [Unlike the CF, investors &
lenders]

▪ secondary stakeholders = less direct or indirect association with

the company (the government, industry regulators &
competitors).

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Priority of claims from stakeholders
▪ Power: the ability to exert influence over a particular decision.
Primary stakeholders have a high degree of power that can be
used.

▪ Legitimacy: the extent of validity or an appropriateness of a

stakeholder’s claim to stake. Primary stakeholders have a
legitimate interest in a firm and this increases salience to a firm.

▪ Urgency: the extent to which stakeholders’ demands or claims

call for immediate attention from the firm. The urgency depends
on its degree of sensitivity and the importance of the
relationship to a firm.
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 Three Perspectives of Stakeholder Theory
The core of the Stakeholder
Theory (Donaldson &
Peterson, 1995).
▪ Co.s have duties to the
society (Kant).
▪ Stakeholders should be
treated ethically.
▪ Co.s should consider
stakeholders’ views in
decision-making.
Normative
Perspective
Describes & explains the behaviour of co.s in dealing
with various stakeholders.
The strategy: relationship with stakeholders depends
on the relative importance of a particular stakeholder
group compared to others.
Co.s must treat stakeholders
Stakeholder well in order to make profits &
Theory achieve economic goals
Managers have to balance &
meet various stakeholders’
needs.
Descriptive Instrumental
Perspective Perspective
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 CSR violations?
▪ Most companies have accepted their role in CSR
▪ But there is still abuse of human rights & the environment
▪ Even in multinational companies that are making billions of dollars annually
▪ The West have become more socially aware & are less tolerant .: boycotted
these companies.
▪ However, since these multinational companies have lost their market share in
the West, they have now targeted Asia, the Middle East and Africa to promote
their products.

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 The Good, the Bad & the Ugly …
BAD:
GOOD: ▪2002: Threatened Ethiopia for $6 million during famine
▪ Comparatively ▪Canada: Price fixing along with Hershey & Mars
reasonable ▪UK: 7 out of the 15 breakfast cereals with the highest
prices levels of sugar, fat, and salt
▪ Recycling efforts ▪Water pollution & dealing with dictators

UGLY:
▪Lying & selling baby milk powder to the poor → malnutrition & baby deaths
▪Bottled water so no water for the locals & Cases of tap water
▪2005: Child labour & slavery in cocoa plantations in Africa & no check on
suppliers → “everybody does it”
▪2008: (Chinese Milk scandal) melamine in the milk powder → 6 babies died; 860
hospitalized with kidney problems → 300,000 victims 7
CSR violations?
▪ Support Malaysian companies, but firm on CSR.

▪ CSR activities is costly → lower profits

▪ It is important for us as consumers in Malaysia to make it costlier for these

companies if they are not involved in CSR activities.

▪ Buy Malaysian first to boost Malaysia’s economy (* tourism in Malaysia)

▪ We support Malaysian businesses, these companies should also take care

of Malaysian consumers (win-win).

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Company & Stakeholders (Islamic perspective)
Company
Shareholders Suppliers
Business operations
• Shariah compliant • Abide to contract
are Shariah compliant
investment • Prompt payment
& no haram elements:
• Rewards for risks ▪ Haram ingredients • Source from CSR
▪ riba friendly co.s
▪ gharar
Employees ▪ Maysir
Prompt, fair pay for fair
Customers
workload Generate fair profit Transparent & fair
No discrimination & [care for stakeholders]
dealings
*Welfare True & Fair F/S Quality products for
Community &
(useful AR) a fair price →
Environment
(tax & zakat) 9
Company & Stakeholders (Islamic perspective)
Company ▪ Shariah compliant operations
▪ Fair profit + taking care of stakeholders.
▪ True & fair financial statements; useful annual reports.
Shareholders ▪ Shariah compliant investment (fair reward for risks)
Suppliers ▪ Abide by contracts with suppliers
▪ Pay suppliers promptly
▪ Sourcing from CSR friendly suppliers
Customers ▪ Transparent & fair dealings with customers
Employees ▪ Prompt & fair remuneration for a fair workload
▪ No discrimination + Employees’ welfare
Community & ▪ Operations do not endanger community or environment.
Environment ▪ Pay taxes & zakat (if relevant)
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Company & Customers (Islamic perspective)

Product ▪ Halal products for Muslim customers

▪ Halal = permitted ingredients + no unhealthy ingredients +
hygienic preparation
Advertising ▪ No false or exaggerated advertising
Ownership ▪ Transactions on tangible items that exist & belong to the
seller (unless authorised agent)
Transactions ▪ According to agreement
▪ Free from uncertainty, doubt & deception

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CSR Framework
▪ Bursa Malaysia launched a CSR framework for listed companies in 2006.
This framework has 4 dimensions:

▪ The framework stresses that CSR is more than occasional charity.

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Sustainability Reporting Guide
• The Bursa Malaysia issued the Sustainability Reporting Guide
(2015) → the environment [Part 3]

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Philosophies of Corporate Social
Responsiveness

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Carroll’s Pyramid of CSR

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Davis’ CSR Propositions
▪ Proposition 1: Social responsibility arises from social power
▪ Proposition 2: Businesses shall operate as a two-way open system
▪ Proposition 3: The social costs-benefits (activity/product/service) shall be
considered
▪ Proposition 4: Customers bear social costs
▪ Proposition 5: Business organisations have the responsibility as
[corporate] citizens to entail in certain social issues beyond their usual
operating areas [resolve social problems]

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 The Debate of Corporate Social Responsibility

Arguments Against CSR Arguments in Favour of CSR

Classical economics: Dilutes the Good for business in the long term
primary purpose of a business
Competitive disadvantage Prevent future external interference

Stakeholders bear the cost Business have the resources

Individuals have moral responsibility, It is the right thing to do

not firms
Incompetent to deal with social issues
*Responsibility as a Corporate
citizen 17