This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
This chapter discusses the background of CSR disclosures in Malaysia across three decades which are in the late 1980s, in the 1990s and the 2000s and currently. It is important to review the previous literature to gain in-depth knowledge and understanding of the development of CSR disclosures before the mandatory disclosure requirement which was imposed in 2007.
Corporate Social Responsibility Disclosures in Malaysia
CSR disclosures in the late 1980's
The CSR disclosures began slowly in Malaysia due to the low level of awareness about their importance to the success of the companies. In addition, there has been no mandatory requirement imposed by the regulatory body on this matter. This is supported by Teoh and Thong (1984) and Andrew et al. (1989) in their studies which found that low disclosures among the corporate citizens were due to the absence of legislation on the matter and low level of awareness of the impact of CSR disclosures on their business performance.
These studies have proven that there was a disparity between the level of actual corporate social involvement and the reporting of such activities in both the private and public listed companies. Based on these revelations, the researchers concluded that Malaysian companies were still conservative in their attitudes towards CSR as quoted by Nik Ahmad et al. (2003), Amran and Devi (2008) and Amran and A.K (2009).
CSR disclosures in the 1990's
The study on CSR disclosures was conducted by Mohamed Zain and Janggu (2006) who examined the level of CSR disclosures among construction companies from 1998 to 2002. 37 construction companies were examined and they discovered that the extent of CRS disclosures were at a very low range of 0.2 for product and environment to a high of 52.4 for human resource disclosures. On average, most of construction companies also tended to disclose more human resource issues (73.6%) as compared to community (15.9%), environment (7%) and product (3.5%) disclosures. The authors also found that CSR disclosure had a positive relationship with the companies' size which implied that the larger the constructions company, the more disclosure was made.
In addition, Haron et al. (2004) examined the level of corporate social disclosure among 134 public listed companies in Malaysia during the recession period in 1998 as well as pre and post recessions in 1996 and 2000 respectively using content analysis. This study found that, the corporate social disclosure level was the highest during the recession period in 1998, in which 72 percent of the companies disclosed some corporate social reporting in their annual reports as compared to during the pre and post recession periods with 48.5 and 61 percent respectively. This is related to the agency theory which stated that the increase in the CSR disclosures has led to the reduction in agency cost. The legitimacy theory further recommended that companies may increase the disclosure during the financial crisis to gain public confidence.
It seems that the government's support during the financial crisis was another reason for the high level of CSR disclosures during the economic downturn in 1998 through the budget in order to ensure that the continuous development of the country and the welfare of the society were well managed as well as to improve the regulatory framework. Besides that, the companies were said to have high level of CSR disclosures representing their state of internal controls in complying to the Code of Corporate Governance (Haron et al.,2004).
Furthermore, Muhammad Jamil et al. (2003) conducted a longitudinal study to investigate and examine the trend of the CSR disclosures in Malaysian companies for a five-year period from 1995-1999. 500 annual reports for 100 companies listed on the main board were reviewed. The authors discovered that 85 percent of the sampled companies from the various industries disclosed CSR information at least one year in their annual reports and all companies in the hotel and mining sectors rigorously disclosed CSR information as compared to only 75 percent of companies in the plantation sector.
Moreover, all the companies mainly disclosed information on human resources and community involvement. However, in total, less than 30 percent of them consistently disclosed the CSR information in the five-year period. The authors argued that the absence of a mandatory requirement for CSR disclosure was the main reason for the low level of disclosures as well as that the CSR was still at the development stage in Malaysia as compared to other developing countries.
Craig and Russell (1998) who have ascertained the extent, pattern and nature of the CSR disclosures in ASEAN found that other ASEAN countries other than Malaysia had disclosed less than the Singaporean companies. The authors argued that the difference in the financial accounting system might have been the reason for this finding. This is because Singapore's and Malaysia's accounting systems have been influenced strongly by the British group as compared to Indonesia, Thailand and the Philippines whose financial accounting systems were under the non-British group's influence.
CSR disclosures in the 2000's
Many researchers continued to study the levels of CSR disclosures in Malaysia during the 2000's period. One of them was Nik Ahmad (2003) who used content analysis to examine the coincidence of CSR disclosures in the annual reports of 200 top companies in 2000. This study found that, 84 percent of the sampled companies disclosed some form of CSR information in their annual reports. This indicated an increase in the number of companies which disclosed the CSR information as compared to previous studies due to the change in the value of the society. The companies were now more aware of the importance of being socially responsible to the society in parallel with the legitimacy theory.
Furthermore, Yusof and Lehman (year?) also quoted that the CSR disclosures in Malaysia in 2003 was very low which was only 10 percent as reported by the ACCA study in 2004. Malaysian companies also tended to disclose minimum disclosures as possible and focussed on the positive and good news only as compared to developed countries such as Australia which disclosed both the good and bad news about their companies.
In addition, Ramasamy and Hung (2004) examined the level of CSR awareness from the perspective of the employees as one of the important stakeholders in Malaysia and Singapore using questionnaires. 303 questionnaires were distributed to 303 MBA students of Nottingham University Business School registered in Malaysia and Singapore.
However, only 102 students responded. This study further supported that Malaysian companies had low levels of CSR awareness due to the absence of regulations on corporate social disclosures. Only larger companies tended to disclose all types of CSR information in their annual reports. On the other hand, smaller companies in Malaysia were only committed towards CSR activities which were limited to donations to charity organisations and so on which was due to the limited resources held by small companies.
Moreover, Nik Ahmad and Abdul Rahim (2005) conducted a study to examine the CSR awareness among Malaysian companies and managers as well as their views towards the CSR activities practiced. They found that 58.6 percent of the companies agreed that their companies were highly aware of the concept of the CSR. This was followed by 34.5 percent that felt that their companies were aware, while only 6.9 percent were unsure about the level of the CSR awareness possessed by their companies. Besides, they also found that the managers of the sampled companies had different perceptions on the CSR issues. The extent of the CSR programmes was also not extensively implemented by the Malaysian companies especially the courses or training programmes on CSR. In fact they were at the state of planning and appointing managers in charge of the CSR activities.
The longitudinal data analysis from 1999 to 2005 has also been conducted by Saleh (2009) to explore the different categories of CSR among 200 public listed companies within the various industries in Malaysia. This study found that companies in Malaysia have participated in four categories of CSR which were employee relations which had the highest disclosure made by the companies, followed by product development, community involvement and environmental. This indicated that the companies had now put more attention on their human resources. However, the author also highlighted other reasons for the CSR disclosures by Malaysian companies, which included adhering to their business associates overseas which were already applying the CSR and also for the purpose of getting projects from the government.
Besides, the level of awareness among the corporate citizens on the CSR disclosures was improving as proven by the increase in the percentage of listed companies that disclosed the CSR from 66 percent in the early 1990's to 82 percent in 2004 (Thompson & Zakaria, 2004) as quoted by Amran and A.K (2009). On average, the number of sentences disclosed by those companies was relatively low and descriptive in nature which ranged from 85 to 789 sentences and in 1.4 pages to a maximum of 14.59 pages. Most of them were likely to disclose the human resources theme rather than the environment, energy, products and community involvement (Manasseh, 2004; Haron et al., 2004; Amran, 2006).
Furthermore, the corporate responsibility level in Malaysia nowadays is growing in terms of the extent of disclosures and the number of companies that disclosed the CSR information. Most of them appreciated their employees with a 82 percent of the total disclosures and were concerned about the environmental issues but did not disclose information on the companies' involvement with the community. This implied that the state of the CSR disclosures was not in a satisfactory level to support the government's effort to turn around the profit making minded business to caring corporate citizens (Janggu et al., 2007).
In addition, with the adoption of the Silver Book's requirement by the Malaysian firms, it has shown the improvement in terms of participation of the companies in the CSR disclosures especially the Government-Linked Companies. However, the affects of the economic downturn in 2007 has warned the companies that they need to slowdown their participation in their CSR activities and disclosures in order to focus on their survival in the market. This was due to the competing needs of the companies' resources in facing the financial difficulties which required them to properly manage the companies' resources in order to stabilise the companies' financial performance.
Current CSR disclosures in Malaysia
Current studies have been conducted by several authors to determine the extent of the CSR disclosures with the various independent variables. Some of them involved ownership structures (Mohd Ghazali, 2008; Darus et al., 2009) corporate governance mechanism (Amran & Devi, 2007; Lim et al., 2008; Ying et al, 2008; Said et al., 2009) and impact of regulation imposed by the government (Darus et al., 2009). They found the evidence that the government ownership as well as the mandatory disclosure requirement which was introduced in 2006 have improved the extent of the CSR disclosures as compared to family ownership structures.
Besides that, the extent of the CSR disclosures have shown a great improvement in which the government through the Silver Book encourages companies to disclose their CSR activities comprehensively according to the framework of Bursa Malaysia to include information on environment, community, marketplace and CSR at the workplace.
In conclusion, CSR disclosures began slowly in 1980's as reported by Teoh and Thong and Andrew et al. in their 1984 and 1989 studies. In 1990's, the research conducted during this period showed the evidence that Malaysian corporate citizens have improved the extent of their CSR disclosures.
In addition, better improvements are shown in the mid 2000's when some of the studies found that companies in Malaysia not only focussed on the contribution to the community but were also encouraged by the government in 2007 to responsibly do well to employees, environment and customers as well as their suppliers as outlined in the Bursa Malaysia framework to gain sustainable competitive advantages.