Despite the increasing trend in disclosures, findings from Malaysian reporters suggest that their understanding of the underlying concepts of CSR is dismally low. Findings indicate that the entire three mechanisms of isomorphism; the coercive, the normative and the mimetic, do contribute to Malaysian company CSR.
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AAA Amran & Devi-corporate social reporting tk mixed methods approach.pdf
Despite the increasing trend in disclosures, findings from Malaysian reporters suggest that their understanding of the underlying concepts of CSR is dismally low. Findings indicate that the entire three mechanisms of isomorphism; the coercive, the normative and the mimetic, do contribute to Malaysian company CSR.
Despite the increasing trend in disclosures, findings from Malaysian reporters suggest that their understanding of the underlying concepts of CSR is dismally low. Findings indicate that the entire three mechanisms of isomorphism; the coercive, the normative and the mimetic, do contribute to Malaysian company CSR.
Azlan Amran School of Management University Science Malaysia Penang E-mail: azlan_amran@usm.my
S. Susela Devi Faculty of Business & Accountancy University of Malaya 50603 Kuala Lumpur Malaysia E-mail: susela@um.edu.my
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C0RPORATE SOCIAL REPORTING IN MALAYSIA: A MIXED METHOD APPROACH
ABSTRACT
Current development in social accounting presents an interesting phenomenon. Many surveys indicate that the number of companies engaging in corporate social and environmental disclosure reporting (henceforth CSR) is on the increase, including in Malaysia (KPMG, 2002, ACCA, 2002, ACCA, 2004). Among the big multi national companies (MNCs), this practice is already becoming a norm. Despite the increasing trend in disclosures, findings from Malaysian reporters suggest that their understanding of the underlying concepts of CSR is dismally low (Amran and Susela, 2004). Obviously, this contradiction between practice and knowledge begs the question of what are the real motivating factors or drivers that lead to the increase in the number of reporters.
This paper advocates the use of ethnographical methodology (Puxty et.al. 1978) to reveal the grounding of this phenomenon within the social, economic and political context of a rapidly developing nation utilizing the Institutional perspective. The findings indicate that the entire three mechanisms of isomorphism; the coercive, the normative and the mimetic, do contribute to Malaysian company CSR. Several new variables were also identified and statistically tested to larger samples.
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Corporate Social Reporting in Malaysia: A mixed method approach
INTRODUCTION
Current development in social accounting presents an interesting phenomenon. Many surveys indicate that the number of companies engaging in corporate social and environmental disclosure reporting (henceforth CSR) is on the increase, including in Malaysia (KPMG, 2002, ACCA, 2002, ACCA, 2004). Among the big multi national companies (MNCs), this practice is already becoming a norm. In some countries CSR is now made mandatory but in Malaysia it is still very much left to the initiatives of the individual firms. Despite the increasing trend in disclosures, findings from Malaysian reporters suggest that their understanding of the underlying concepts of CSR is dismally low (Amran and Susela, 2004). Obviously, this contradiction between practice and knowledge begs the question of what are the real motivating factors or drivers that lead to the increase in the number of reporters.
Significant research (Andrew et al.,1989; Che Zuriana et al., 2001; ACCA, 2002; Thompson and Zakaria, 2004; Haron et al., 2006; Teoh and Thong, 1984; Mohamad Zain, 1999; ACCA, 2002; Jaafar et al., 2002; Haniffa and Cooke, 2002) has been carried out to investigate this phenomenon but none has provided conclusive findings. This paper is an attempt at approaching the same phenomenon, albeit from a different approach. It advocates the use of mixed methodology (Puxty et.al. 1978) to reveal the grounding of this phenomenon within the social economic and political context of a rapidly developing nation utilizing the Institutional perspective.
The crux of this study therefore, is to examine the reasons behind the disclosures made by local companies by examining the determinants derived from an exploratory study in the light of the Institutional Theory perspective. The determinants are subsequently tested on larger samples using quantitative techniques.
CORPORATE SOCIAL REPORTING IN MALAYSIA
CSR is largely promulgated by companies in the developed countries. However, the development of CSR in Malaysia has advanced considerably over the years and has been recognized as among the most robust in terms of corporate responsibility activities and reporting (Baskin, 2005). This is also evident from the recent survey conducted by ACCA that indicates a general increasing trend in the number of companies engaging in CSR. Previous researches in Malaysian CSR can be divided into two groups based on differing objectives. Firstly are studies that look into the extent of CSR (Andrew et al., 1989; Che Zuriana et al., 2001; ACCA, 2002; Thompson and Zakaria, 2004; Haron et al., 3 2006). Secondly are studies that try to identify the drivers or factors of CSR development (Teoh and Thong, 1984; Mohamad Zain, 1999; ACCA, 2002; Jaafar et al., 2002; Haniffa and Cooke, 2002; Chambers et al., 2003; Nik Ahmad and Sulaiman, 2004; Thompson and Zakaria, 2004; Elijido-Ten, 2004). It is worth noting that a few studies combine both the mentioned objectives (ACCA, 2002 and Thompson and Zakaria, 2004).
Extent of CSR
One of the earliest studies on the development of CSR in Malaysia was carried out by Teoh and Thong (1984). This study examined various aspects of corporate social performance including social reporting. The authors surmised that companies were mainly involved in areas of human resource, product service, community work and the physical environment. Human resource related activities topped the list of social involvement by the companies surveyed.
An interesting finding from the 1984 study was the mismatch between the level of actual corporate social involvement and the reporting of such activities. In the case of private companies, this mismatch was attributed to the limited circulation of Annual Reports. For public companies, disclosures of their social involvement were made in the form of passing references in the Chairmans Statements since Annual Reports were traditionally kept very brief. Based on these revelations, the researchers concluded that Malaysian companies were, on the whole, rather conservative in their attitudes towards CSR (Teoh and Thong, 1984).
Later on, a more focused study was conducted by Andrew et al. (1989). This study however, had the disadvantage of including Singaporean companies in the scope of its investigation. It therefore did not faithfully represent the Malaysian scenario. Nevertheless, the study by Andrew et al. (1989) on the corporate Annual Reports of 119 publicly listed Malaysian and Singaporean companies for the years ending in 1983, revealed two interesting findings. Firstly, out of the 119 sampled companies, only 31 % did any form of social reporting and a majority of these disclosures reported only on one category (Andrew et al., 1989). Secondly, it appeared that the size of a company had a bearing on disclosures.
It is pertinent to note that the studies by Teoh and Thong (1984) and Andrew et al (1989) were conducted in the 80s, at a time when the Malaysian economy was just beginning to develop. Since then, there were no published studies on CSR in Malaysia until the year 2001. In 2001 a study was conducted by Che Zuriana et al.(2002) into the CSR practices of Malaysian companies for the five-year period ending 1999 (1995 to 1999). The study discovered that out of the sampled 100 companies from almost every industry in Malaysia, less than 30 percent of the companies made social and environmental disclosures. Most of the disclosures pertained to human resources information. Some of the companies surveyed disclosed information both in terms of narrative and quantitative formats; the majority were accustomed to use the Chairmans Statement for such disclosures. Surprisingly, these findings were basically consistent with the two prior 4 studies (Andrew et al.,1989 and Teoh and Thong, 1984). This indicates that there had not been any fundamental changes in corporate behavior towards CSR.
A more complex or rather complete study was conducted by ACCA (2002). The survey intended to examine the extent of environmental related disclosures by reporting companies listed on the main board of the Kuala Lumpur Stock Exchange. The survey covered 3 years of reporting from 1999 to 2001 and was significant in explaining the status of CSR in Malaysia in terms of both the quantitative and qualitative aspects. The survey findings showed that there has been an increase in the number of KLSE main board listed companies disclosing some form of environmental reports. As revealed, the trend grew from 25 in 1999, to 35 in 2000 and 40 in 2001 and the industrial product sector emerged as the largest sector that engaged in environmental reporting. This was followed by the plantation sector, consumer products, trading/services, construction, infrastructure and properties and finance. The survey also discovered that no reports on the environment were made by companies in the mining, technology and hotel sectors.
In terms of reporting, all the companies surveyed used the Annual Report as the means of communicating their environmental disclosures. Quality wise, the findings showed that there were an increasing number of pages allocated to environmental disclosures. Companies were also increasingly addressing environmental concerns within the Chairmans Statement. However, none of the reporting companies had their environmental information verified by a third party.
A more recent study of a similar kind was conducted by Haron et al. (2006). Haron et al. (2006) compared the social disclosures done in three representative years of pre-recession (1996), during recession (1998) and post recession (2000) in order to see if there were any differences. The findings indicated that the highest number of recorded disclosures was in the year 1998, which was during the recession period. Haron et al. (2006) rationalized that this phenomenon could be due to a few factors. Firstly, it would appear that the companies tried to legitimize their actions in order to boost public confidence in their performances. Secondly, the governments focus on social benefits during this time could have prompted the greater number of disclosures. Thirdly, the companies could have reacted positively to the calls by the government, in line with the development of corporate governance, to be more transparent. In addition to the three factors, the government, through the Finance Committee, issued the Report on Corporate Governance which promoted greater disclosure and transparency. Consequently, Haron et al. (2006) concluded that disclosures were highest during the financial crisis due to the active involvement of the government.
The above discussion underscores the fact that there are not many changes in the pattern of CSR in Malaysia despite the increasing number of practicing companies. There is also evidence that the government has had a hand in encouraging more disclosures through its promotion of greater transparency. In the following section, studies that look into the factors that influence CSR are discussed.
5 Identifying factors
Studies that identify the factors responsible for the development of CSR can be divided into two sub-groups namely, studies that employ rigorous statistical techniques in determining the factors or drivers and secondly, studies that use exploratory methods or secondary information. Studies of the former kind normally employ a framework that is attached with some theoretical explanation. This theory is used to rationalize the factors which the researchers perceive as being able to explain the extent of CSR.
One of the earlier local studies that employed this method was the study by Jaafar et al. (2002). Jaafar et al. (2002) applied the positive accounting theory to explain the extent of environmental disclosures among the KLSE main board listed companies. At the outset, the study postulated that companies that are exposed to potential wealth transfer due to unfavorable social or environmental performances would employ counter measures in order to prevent or minimize such transfer. The findings from the study supported this argument and compelled it to conclude that the level of environmental disclosure was largely influenced by the environmental performances of the companies. Companies facing environmental related issues would provide more detailed environmental information in the Annual Reports.
Another study that could be traced to the same year was the one conducted by Haniffa and Cooke (2002). Haniffa and Cooke (2002) brought corporate governance and culture dimension into the discussion of the possible factors that influence CSR. They tested a few variables in order to elicit evidences to support the influence of corporate governance and culture on CSR. In terms of corporate governance, two variables were found to have a significant impact namely, the existence of family members in the board and the existence of a non executive chairman. It appeared that more family members in the board would result in better reporting and that having a non executive chairman would also have a similar effect. In terms of the cultural dimension, their findings were inconclusive. They however, found that a higher proportion of companies with Malay directors tend to report more.
A more recent study by Thompson and Zakaria (2004) indicated that firm size, financial leverage, industry membership and NACRA were statistically related to the quantity of social disclosures. In addition, they observed that CSR was still at a low level and attributed this malaise to three factors: public apathy, lack of government pressure, and low awareness of companies on the benefits of CSR and the impact of their actions on the environment.
Elijido-Ten (2004) employed the stakeholder theory in order to explain the determinants of environmental disclosure in Malaysia. Specifically, Elijido-Ten (2004) used Ullmans (1985) three-dimensional framework which included stakeholder power, strategic posture and economic performance in explaining the extent of CSR, which was represented by two variables namely, quantity and quality. The findings of this study suggested that the main determinants of environmental disclosure were the level of environmental concern of the top management and the power of the government to sanction companies. This is 6 yet another study that confirmed the governments role in encouraging companies to embark on CSR.
Studies that are of the second kind have similarly identified several determinants or drivers. These are summarized and presented in the following Table 1.
Table 1: Summary of the Drivers ACCA (2002) Mohamad Zain (1999) Nik Ahmad and Sulaiman (2004 (Rank according the importance)
-Introduction of the Malaysian code of corporate governance in the KLSE listing requirement. -Increased demand for corporate governance and accountability as a result of privatization. -Business and marketing strategy. -Improve corporate image. -NACRA Environmental Reporting Award. -Demonstration of corporate environmental responsibility and strengthening of stakeholder relationships. -Improve access to capital investment. -Advancements in information and communication technology. -Vision 2020 and caring society -Follow US pattern: reaction to market forces. -Governmental influence
- To meet legal obligation
- Compliance with ISO 14000 requirement
- To provide true and fair view to Shareholder/ investors - Community concern with operations - pre-emptive action against legally imposed requirements
- environmental lobby group concerns - customers concern
Table 1 summarizes the drivers of Malaysian CSR. All of the above drivers are deduced from observations and secondary information except for those proposed by Mohamad Zain (1999) which are based on interviews with seven managers.
Unlike the developed countries like the US, UK and Australia where the impetus for the development of CSR are, in great part, driven by the human rights and consumerism movement and later by the serious involvement of the government, Malaysia has had a very different experience. Based on the limited studies conducted in Malaysia, none of the studies had successfully highlighted the influence of the consumer, community or employee. For instance, despite including the consumer factor as one of the suggested 7 reasons for disclosure, the study by Nik Ahmad and Sulaiman (2004) found that it was ranked last by the respondents of the questionnaire. As a matter of fact, the influence of environmental lobby groups was placed second last and the community factor, third last. This finding indicated that the local managers perceived pressure from these groups of stakeholders as being of no consequence. This was supported by the low level of CSR awareness among the local Malaysian people. Further study needs to be carried out in order to find the real motives for the Malaysian CSR development.
The above analyses lead to one main conclusion, that is, Malaysian CSR literature lacks exploratory studies that are ethnocentric (Puxty et al., 1987) in nature to really understand the motives of Malaysian CSR.
THEORETICAL FRAMEWORK
The discussion on local studies thus far reveals that various theoretical explanations have been employed to explain the Malaysian CSR phenomenon. Haniffa and Cooke (2002) and Zakaria (2002) for example, employed the legitimacy theory while Mohamad Zain (1999), suggested the viability of the stakeholder theory. Despite the many postulations put forth, none has been able to satisfactorily explain the conundrum. A theory can only provide a partial explanation and it depends on the scope and the variables that the researcher intends to investigate.
Given this backdrop, this study is an attempt at an explanation of the phenomenon from the lenses of the Institutional Theory. This theory has been highlighted as having a great potential to explain corporate social reporting (Rowe and Wehrmeyer, 2001, Milne and Patten ,2002) partly due to the empirical failure of current popular theory (Dillard et al, 2004). Miller (1994) highlights the need to refocus and gain a better understanding of how accounting influences and is influenced by a multiplicity of agents, agencies, institutions and processes.
WHAT IS THE INSTITUTIONAL THEORY?
The Institutional Theory is interested in the process by which items become institutionalized or how they become rule like facts (Scott, 1987). In the context of this study, institutionalize means how the environmental factors influence the Malaysian corporations to feel that CSR is something important that needs to be carried out. Institutionalists like Zucker (1987) argue that the Institutional Theory provides a rich and complex view of organizations. This theory holds that organizations are influenced by normative, cohesive and cognitive pressures. Under some situations, these pressures will lead the company to follow the required stances as specified by the actors. The consequences lead to isomorphism within the institutional environment. 8
This paper addresses the subject of whether the Malaysian corporate sector is being institutionalized into social reporting. Hence there is a need to look at how the relevant actors, through the Institutional mechanisms, are able to institutionalize local company practices by way of understanding what influences them to adopt CSR practice.
The Institutionalists believe that institutional environments obtain their power from rationalization and from accompanying state elaboration (Zucker, 1987). Zucker explains that this environment is a result of a much wider state project that comes under state jurisdiction. This wider state project may be generated from the collective normative order, including the professions and widespread agreements shared by members of organizational fields. The conformity with this collective order increases the flow of societal resources and enhances long run survival prospects (Zucker, 1987). The institutional elements that influence the firm may also come from external factors. Zucker (1987), adds that organizations are pressured to become similar, sometimes because of environmental constraints and sometimes because of network ties with other organizations. Townley (2002), highlights the importance of powerful carriers or agents and how their interpretations shape the implementation of the new system.
The sources of Institutionalization move to create isomorphism, a process in which related institutions influence companies adopt certain stances or practices, like for instance, CSR. The process involves three mechanisms namely, cohesive, mimetic and normative pressures. Cohesive pressure refers to both formal and informal coercions exerted by other organizations on which the particular organization is dependent on. Mimetic pressure comes from uncertainties while normative pressure stems from professionalisation and socialization (Di Maggio and Powell, 1983). According to Meyer and Rowan (1977), these institutional pressures exert crucial impacts on the organizations. The first impact is when organizations incorporate elements which are legitimated externally without considering the efficiency factor. The second impact is when they employ external or ceremonial assessment criteria to define the value of the structural elements. This point may explain why many respondents of this study highlight the significant influence of awards on their reporting. The last impact is when the organizations depend on externally fixed situations in order to reduce turbulence and maintain stability. These impacts consequently influence the pattern of social and environmental disclosures. The following chart 1 summarizes the proposed model illustrating the institutionalization of CSR.
Sources of Institutional factors Mechanism of Institutionalization: -Cohesive -Mimetic -Normative
Adoption of CSR. Chart 1: Institutionalization process of Corporate Social Reporting phenomenon.
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RESEARCH METHODOLOGY This paper employs an exploratory sequential mixed method. Creswell (2003) states that sequential procedures are suitable for studies that seek to elaborate on or expand the findings of one method with another method. This is the contribution from this study in that it incorporates an ethnocentric approach that affords a grounded understanding of the phenomenon in the local context. It provides a mixture of advantages of qualitative and quantitative methods in order to achieve the above objectives. Furthermore, the ethnographic methods can give shape to new constructs or paradigms, and new variables, for further empirical testing in the field or through traditional, quantitative social science methods (Genzuk, 2003). This study begins with an exploratory research using a qualitative approach and followed by a quantitative approach on a larger sample in order to generalize results to a population.
Qualitative approach
In the first phase, this study explores and identifies the relevant factors and themes that explain the practice of CSR in Malaysia by employing all of the three mentioned methods. Face-to-face interviews with top managers of selected listed companies are conducted for this purpose. The companies are selected based on their reporting. Only companies that show a significant amount of reporting and had achieved recognition in terms of winning awards for corporate reporting are chosen. In all, 11 companies are interviewed. The questions used are open-ended and the conversations taped and transcribed ad-verbatim.
The post interview analysis commences immediately after the data collection process is completed. The average transcription is 6-7 pages for each respondent on an A4 sized paper and using single spacing and font 12 of Times New Roman characters. The transcripts of each respondent are then read more than once. This act is done during the process of getting the big picture and admittedly, there is some element of biasness by doing this a point that is well explained by the constructivists, who postulate that a researcher normally looks at certain phenomenon through certain perspective.
The data is analyzed by the analytic methods proposed by Miles and Huberman (1994). According to Miles and Huberman (1994), even though there are diverse methodologies in approaching the qualitative research, still, some analytic practices may be used across different qualitative research types. They propose that qualitative analysis consists of three linked sub processes namely, data reduction, data display and data conclusion drawing/verification. Miles and Huberman (1994) state that these sub processes happen concurrently. Overall the analysis process loosely followed these three sub processes.
The transcribed data are analyzed for any underlying themes and in doing this, the initial proposed model is used. Clearly, some aspects of the proposed preliminary framework are supported by the evidences. Solely relying on the preliminary framework however, 10 may obscure the true picture gained from all the evidences. As such, the next stage of the data analysis process calls for the comparing and cross analyzing of the coded and summarized data with the profile of the respondents. The simplified data are compared with the respondents nature of business, stakeholders and the products or services offered by them.
The outcome is a detail matrix table that is akin to the data display as described by Miles and Huberman (1994). The table displays an organized, compressed assembly of information that permits conclusion drawing and action. The data display helps the researcher to understand what is happening (Miles and Huberman, 1994), as well as to see the regularities, patterns and the causal relationship. The Institutional Theory is concurrently used to interpret the evidences since this perspective encapsulates the core issues emanating from the evidences.
Before the above mentioned matrix table is constructed, the simplified coded motivations are first listed. The following are the motivations identified from the interview data.
MI To depict as well as to enhance corporate image or to use CSR as a marketing tool to promote the company. Some of the companies clearly state that they address the good image to the government and the overseas associates. M2 To win the NACRA award by referring to the criteria stated by the organizer. M3- To be competitive in terms of reporting within the same industry as well as to face subtle peer pressure posed by industry members. M4 Management commitment and initiative in inculcating the reporting culture is important since they are the persons who can give approval on social and environmental activities. M5- Companies which have a mission statement relating to CSR elements tend to report more on social and environmental activities since they are bound to be responsible. M6 Companies which have international markets tend to follow the reporting trend in order to be considered as world class companies. M7 Companies which are big and consider themselves as leaders in the market tend to produce more reporting which they call leadership by example. M8 Use disclosure as an investor relations strategy since some of the shareholders, particularly from overseas, and the government appreciate the companys effort on CSR. M9 Follow parent company reporting style which has good reporting. M10 Influenced by the associations culture to which the company belongs. For example, members of Business Council of Sustainable Development Malaysia tend to have more disclosures. M11 Top managers who have been exposed to CSR concepts prior to joining the current companies may have an influence on the extent of CSR in these new companies. For example, an employee who previously worked with Shell is highly motivated to implement the same culture in the new company. The above highlighted motivations are than summarized for the purpose of developing the matrix table. The following table (Table 2) presents the complete matrix for further 11 analysis. The motivations identified via the qualitative approach are than brought forward for triangulation with those acquired via the quantitative approach.
Table 2: Code Matrix Display Motivation of CSR Motivation / interviewee C 1 C 2 C 3 C 4 C 5 C 6 C 7 C 8 C 9 C 10 C 11 M1 - To enhance corporate image- address influential stakeholders like the government and oversea associates
M2 - To win the NACRA award
M3 - Industry influence M4 - Management commitment and initiative
M11 - Top managers have been exposed to CSR concepts
Quantitative approach
The quantitative approach starts with a discussion on the hypotheses development and followed by the research design used to test the hypotheses.
Hypotheses development
Coercive isomorphism and the adoption of CSR
Coercive isomorphism comes from the political influence and the problem of legitimacy. It results from both formal and informal pressures exerted by other stakeholders on which the company is dependent. The pressure may come in the form of orders, persuasions or invitations to join the collusion. The findings from the exploratory study indicate that 12 companies adopt CSR with the purpose of promoting their image and as an investor relations strategy. Two stakeholders that are seen to impose coercive influence are the government and foreign organizations.
The state
The Malaysian government is taking social and environmental issues seriously. This is seen in the incorporation of elements of Agenda 21 in its own development planning and monitoring systems, namely the five yearly Malaysia Development Plans and the longer term Outline Perspective Plans (Hasan and Adnan, 2002). The vision 2020 thrust aims to make Malaysia a fully developed country with emphasis on prudent environmental exploitation and sustainability (Mahyuddin and Rao, 2003).
Companies which have significant government investments normally have government appointed directors sitting on the board. These directors have some clout on certain decisions to align the companies with the aspirations of the government. Through their actions, the dynamics of field coercion come into play. These same companies, by virtue of government connection, are also politically visible. This means that they are exposed to scrutiny not only by the government but also other interested parties. One of the interviewed companies that is significantly owned by the government indicated the need to follow government aspirations, including environmental and social aspects.
Hypothesis 1: Ceteris paribus, there is an association between a company that has a high proportion of government shareholding and Corporate Social Reporting.
A company which depends heavily on government contracts and projects is deemed to be institutionalized by government aspirations. This occurs through the coercive mechanism. The coercive force comes into play in the form of potential ceasing of future government engagements. Complying with government aspirations therefore makes perfect business sense. Dependence here however, does not imply a complete and permanent dependence but rather it shows the importance of the government as a major purchaser or client of the company. This is to ensure the long term viability of the company. The interviewee believes that by adopting CSR it will appear legitimate to the government and can help them get rewards in terms of government contracts in the future. Thus based on the above arguments, the following alternative hypothesis is developed:
Hypothesis 2: Ceteris paribus, there is an association between a company that is dependent on government contracts and Corporate Social Reporting.
Foreign organisation
Evidence from the interview data indicates that foreign investors are concerned about CSR. This is due to the higher level of environmental and corporate responsibility 13 awareness among the stakeholders in developed countries (Teoh and Thong, 1984). For example C2, which recently received a grant from the European Union, mentioned the stipulation imposed by the union that the grant be used only for the purchase of environmentally friendly equipments.
The above scenario indicates that companies, which are exposed to oversea partners or investors, may have been institutionalized by their foreign counterparts as they compete for the resources. From the Institutional Theory perspective, these companies will follow the same environmental and social perceptions of their investors in order to gain more investments as well as to make the investors stay. This is to ensure their long run survival. Malaysian companies practice CSR with the purpose of communicating to their investors how they feel about environmental and social issues and also to inform the extent of their involvement. Even though the information in the Annual Reports may not be current, nevertheless they tell the investors of the history of the companies activities throughout the years. This yearly information would attract new foreign investors as well as please the current ones which are holding shares in the companies.
Hypothesis 3: Ceteris paribus, there is positive association between a company that has a high proportion of foreign shareholders and Corporate Social Reporting.
In the case of companies that are dealing with overseas business associates, such as from the US and Japan where the awareness on CSR are high, it is expected that they will be institutionalized by the reporting culture of these associates. This can happen since these business partners are in a powerful position to exert their influence by virtue of investments and business dealings in and with these companies. Thompsons (2003) explanation for the high number of Malaysian companies possessing ISO14001 certifications lends support to the above mentioned influence of foreign business associates. Due to the heavy dependence of Malaysian companies on their overseas counterparts, it is a wise strategy to strike mutual understanding in all aspects of business operation including the practice of CSR. However to date, no empirical studies have been done to support this proposition. Based on the above arguments the following alternative hypothesis is developed:
Hypothesis 4: Ceteris paribus, there is an association between a company that has foreign business associates and Corporate Social Reporting.
Normative isomorphism and the adoption of CSR
The emphasis on normative isomorphism introduces how the prescriptive, evaluative and obligatory dimensions influence the adoption of CSR. These dimensions encompass both values and norms. Scott (2001) explains that values are conceptions of the preferred or desirable and norms specify how things should be (p.55). These values and norms prescribe how the specified actors should behave. Normative systems can be used to 14 explain how award, association membership, management commitment, mission and goals, parent reporting and managing directors background influence company to adopt CSR.
Award factor
Respondents of the exploratory study perceive that by disclosing CSR this would help them enhance their image. This perception is shared by all companies irrespective of size or industry. From the Institutional Theory perspective, this attitude is a result of the isomorphic pressure posed by the relevant actors in the environment. One strategy that is really obvious for the furtherance of company image is by winning the NACRA awards. The awards confer recognition to the winners and attest to their compliance to the award criteria. This factor induces companies to make better reporting. The survey by ACCA (2002) highlights that the NACRA Reporting Award is one of the drivers of Malaysian CSR development. Based on the above argument this study proposes the following hypothesis.
Hypothesis 5: Ceteris paribus, there is positive association between company that refers to the award criteria and Corporate Social Reporting.
Internal goal factor
Oliver (1991) suggests that if the internal goals of the firm is compatible with the external pressure, then the firm is more willing to acquiesce. In this study, the respondents identify the goals and mission of the company with the direction, philosophy and commitment of the management. The goals and mission influence the future and as well as the short term planning of the company. As pointed by Oliver (1991), there is a high possibility for the company to conform to external normative pressures when these pressures are compatible with its own internal goals. In addition, having an internal goal that is related to social and environmental matters is by itself a form of normative pressure on the company since it prescribes the way the company should behave. As such, the following hypothesis is developed.
Hypothesis 6: Ceteris paribus, there is positive association between internal goal and Corporate Social Reporting.
Parent company factor
Another significant point from the qualitative finding suggests that a company which is a subsidiary of a good reporter of social and environmental data tends to follow the reporting culture of the parent. In this regard, the Institutionalists argue that the subsidiary normally adopts the compatible accounting practice of the parent company since they are sharing the same policy (DiMaggio and Powell, 1983). Therefore, the following hypothesis is developed.
15 Hypothesis 7: Ceteris paribus, there is positive association between a subsidiary of a parent company that is seriously engaged in CSR and Corporate Social Reporting.
Association factor
The Institutionalists (Di Maggio and Powell, 1983) argue that the density of interactions can institutionalize a company. For instance, a company that is bound by some kind of ties with other companies within the same association normally shares the characteristics of the others since all of these companies are institutionalized by the same association philosophy or rule. In a nutshell, a particular company is expected to follow the goals and objectives of the association. In the case of Malaysia, BCSDM is one association that is responsible in promoting sustainable development among the business community in the country. There are fifty six members in this business council for the year of 2002/2003 and thirty of them are public companies. This study believes that a company which is a member of such an association would have been institutionalized by the objectives of the association and thus will be influenced to adopt CSR.
Hypothesis 8: Ceteris paribus, there is positive association between membership in BCSDM and Corporate Social Reporting
Management factors
In her framework, Oliver (1997) applies normative rationality in accessing the individual level motivation and postulates that the choice of motivation is induced by historical precedent and social justification. Historical precedent, in this context, refers to the corporate norms or corporate routines. Normative pressure as discussed by Di Maggio and Powell (1983) stems from a collective struggle of members of an occupation to define the conditions and methods of their work, known as professionalization. Some aspects of professionalization are important sources of isomorphism. For the accounting profession, the first aspect is the formal accounting education and cognitive base produced by the university. The second is the growth and elaboration of the professional network. According to Di Maggio and Powell (1983), the university and professional training institutions are important centers for the development of organizational norms. The study by Bebbington et al. (1994) on the attitudes of top UK companies Finance Directors reveals that memberships in certain professional accountancy bodies may have some slight influence on their perceptions of environmental accounting. The study also finds that pre-university training education may also impact the attitudes of accountants.
Based on the cross analysis of the responses to the profiles of the respondents, this study finds that companies with top managers who have had prior experiences in CSR while working with other multinational companies, normally have high awareness of the CSR issue. This is consistent with the proposition of the Institutionalists that the employee can be a diffusion agent. Another pattern that emerged in the analysis is that respondents who are educated overseas tend to have higher awareness of CSR. 16
Hypothesis 9: Ceteris paribus, there is positive association between a Managing Director who has had prior working experience with a foreign company and Corporate Social Reporting.
Hypothesis 10: Ceteris paribus, there is positive association between a Managing Directors qualification and Corporate Social Reporting.
Mimetic isomorphism and the adoption of CSR
A mimetic process is the third mechanism of institutional isomorphic change. It results from the uncertainty within the environment. When the environment creates a symbolic uncertainty, an organization will model itself on other organizations (DiMaggio and Powell, 1983). In this case, the modeled organization may not be aware of the impact of its action on its dependent organization. It serves as a convenient source of practice that the follower may use. This model practice may be diffused unintentionally through employee transfers or the sharing of the same consulting firms or membership of a trade organization or association, or being linked to a business network. As local companies increasingly globalize, they may follow or mimic other successful international companies in order to be accepted as part of the multinational fraternity. This is important to preserve their image and ensure their survival.
Industry
According to the Institutionalists, organizations tend to model themselves after similar organizations that they perceive to be more successful (Maggio and Powell, 1983). This proposition is confirmed by this exploratory study which shows that some of the respondents copy the reporting of others which they perceive to be the best. Thus, by extension, the more members of the industry are engaged in CSR, the more CSR would there be for each particular industry. Prior literature has also shown that the industry to which the company is attached has significant influence on the amount of CSR (Patten, 1991, Hackson and Milne (1996). Therefore, the following hypothesis is developed.
Hypothesis 11: Ceteris paribus, there is positive association between industry membership and Corporate Social Reporting.
Foreign activities
The mimetic and the modeling concepts are again applicable in describing the relationship between companies that are involved in international trade and the practices of foreign MNCs. As confirmed by the exploratory data, Malaysian companies are influenced by the practices of these MNCs since they also want to be recognized as MNCs. The Institutionalists argue that a company tends to follow another successful company when the environment is uncertain (Di Maggio and Powell, 1983). Thus, in the 17 case of a company operating in countries that do not have any law regarding the disclosure of environmental and social impact, it will tend to follow the practice other MNCs. However, in the reverse case of a company operating in a country where the awareness is high and where there exists laws regarding the issue, the company will tend to follow the normative and cohesive pressures created by the culture and the law. In both instances, the modeling concept comes into play. This postulation of the Institutionalists however, is not empirically proven by Haniffa and Cooke (2002). Thus, the following hypothesis is developed.
Hypothesis 12: Ceteris paribus, there is positive association between a company that has a high amount of foreign activities and Corporate Social Reporting.
Size factor
Another factor identified by this study as having an influence on the extent of CSR is size. Many of the big companies interviewed state that, as big companies they have to provide leadership. This is in fact a form of mimetic action whereby, upon realizing that big MNCs have already practiced CSR, these big local companies are now forced to follow suit. Thus the following hypothesis is developed.
Hypothesis 13: Ceteris paribus, there is positive association between size and Corporate Social Reporting.
RESEARCH DESIGN
Unit of analysis
The unit of analysis of this study is the annual report of the company that is listed in the Bursa Malaysia. The prime source is the annual report of the company itself. This is consistent with the previous researches done in this area (Hackston and Milne, 1996, Haron et al., 2006, Zakaria, 2002 ). The Annual report is chosen as the main document because it is conveniently available and is produced every year. It is also regarded as the main form of company communication (Zeghal & Ahmed, 1990, Haron et. al, 2006).
According to Gray et. al., (2001), there are three reasons only Annual Report is used in many CSR researches. First, the practical matter of identifying the full range of other disclosure is not irrelevant. Second, the annual report s a central corporate document which speaks about the organization as a whole. Third, much of the interest in social and environmental reporting lies in the construction of accounts of the organizations social and environmental activities.
Sampling design and data collection
The population of the sample is all of the listed companies since they are required to publish their annual reports annually, per the KLSE listing requirement. In Malaysia, a 18 private limited company is not required to publish its annual report. As such, private limited companies are omitted from the sample. Companies from the unit trust sector are also excluded from the population sample as they are subjected to additional requirement. (Appendixes 9C-06 of KLSE listing requirement as at January 2001).
This study applies the stratified random sampling method on the sectors of the listed companies in the Bursa Malaysia. Each sector then has its representative selected randomly. This study does not focus on the top companies like the previous research (Hackston and Milne, 1996) but includes small and medium companies as well. This is driven by the preliminary observation that many of these companies are exposed to the external institutional factors as well. Furthermore, a mixed group of samples would be useful in order to see the relationships of the institutional factors and ensure that all industries are included.
Samples are also drawn from both boards in the Bursa Malaysia. In Malaysia, big companies are normally listed in the first board and small ones in the second board. Companies in the second board are also drawn based on the sectors. In order to see the relationship of membership of BCSDM and CSR, companies that are members of BCSDM and listed on either of the two boards are also taken into the sample. Altogether there are 21 companies that are members of BCSDM. A letter requesting for their latest annual reports is sent to them. The final sample chosen for this study amounts to 201 companies. Table 3: Demography of the respondents
This study uses content analysis to measure the quantity of corporate social responsibility disclosures. Content analysis has been a popular method in assessing CSR disclosures (Gray et al., 1995b). Prior studies on CSR (Ernst and Ernst (1978), Guthrie and Parker (1990), Hackston and Milne (1996), Haniffa and Cooke (2002), Raar (2002) and Zakaria (2002) had used content analysis in measuring CSR. Weber (1990) defines content analysis as a research method that uses a set of procedures to make valid inferences from text. Weber adds that the rule of this inferential process varies based on the interest of the investigator. This research technique is supposed to be able to make a replicable and valid inference from data according to the context (Krippendorff, 1980). In order to ensure the replicable manner of inference, a set of interrogation instrument, checklist and decision rules should be developed. This study decides to adopt the Hackston and Milne (1996) instrument in order to provide a reliable set of procedures to measure the disclosure of CSR and also allow comparability with other researchers.
Gray et al. (1995b), raise a big concern on the unit of analysis for the amount of disclosure. Milne and Adler (1999) state that in social and environmental disclosure studies much of the discussion on the unit analysis confuses the issues of what should form the basis for coding with what should form the basis for measuring or counting the amount of disclosure. They add that these two are not same. Many of the researchers focus on how they count or measure but not many really understand what unit of analysis forms the basis for their coding decisions. Milne and Adler (1999) propose sentence as a more reliable basis for coding than other units of analysis. As such, this study uses the sentence as the basis to code and count the content of CSR. This method has the advantage of enabling clear classifications since sentences carry explicit meanings. It also makes the task of the researcher easier in following the decision rule.
Independent variables
For independent variables, the study mainly depends on secondary data that are available from published documents and web sites.
DATA ANALYSIS
This study uses multiple regressions in assessing the variability in the extent of CSR. This statistical method has been widely used in previous researches (Hackston and Milne (1998), Cooke (1998), and Haniffa and Cooke 2002). The majority of the variables in this study are measured using dummy variables since most of the variables are qualitative in nature. Gujarati (2003) states that dummy variables can be incorporated in the regression models just as other quantitative variables. Gujarati (2003) emphasizes that a regression model may contain variables that are all exclusively dummy, or qualitative in nature.
20 Based on the above discussion of dependent and independent variables, the following regression model is developed:
CSR =
BB 0 + B 1 FS i + B 2 GS i + B 3 DG i + B 4 DF i + B 5 AWCR i + B 6 IND i + B 7 CON i + B 8 CONST i + B 9 B TTECH i + B 10 FIN i + B 11 PLMIN i + B 12 FACT i + B 13 BCSDM i + B 14 GOAL i + B 15 SIZE i + B 16 PRT i + B 17 MDEX i + B 18 MDQ i + e i
Where
QTYCSR = total quantity of CSR. BB 0 = intercept FS
= percentage of foreign ownership GS
= percentage of government ownership DG = 1 if the company depends on government tender/ project; 0 if otherwise. DF = 1 if the company depends on foreign; 0 if otherwise. AWCR = 1 if the company follows award criteria; 0 if otherwise IND = 1 if the company is in industrial sector; 0 if other wise CON = 1 if the company is in consumer sector; 0 if otherwise CONST = 1 if the company is in construction sector; 0 if otherwise TTECH = 1 if the company is in trading and technology sector; 0 if otherwise FIN = 1 if the company is in finance sector, 0 if otherwise PLMIN = 1 if the company is in plantation/ mining sector, 0 if otherwise FACT = 1 if the company has foreign activities; 0 if otherwise. BCSDM = 1 if the company is a member of BCSDM ; 0 if otherwise GOAL = 1 if the company has goal/mission related to CSR; 0 if otherwise. SIZE = total sales (proxy for size) PRT = 1 if the companys parent company discloses CSR; 0 if otherwise MDEX = 1 if the Managing Director of the company has working experience with Multinational company; 0 if otherwise. MDQ = 1 if the Managing Director has foreign qualification; 0 if otherwise. e i = error terms.
The correlation matrix is reviewed and the variance inflation factors (VIF) computed to detect whether there is multicollinearity problem. Further analysis to see whether the multiple regressions assumptions have been violated is also carried out. The normality, linearity and homoscedasticity assumptions are determined based on the analysis of residuals, plots of the studentized residuals against predicted values, and Q-Q plot.
The above analyses show that the untransformed data violates the multiple regression assumption on normality, linearity and homoscedasticity assumptions and none on multicollinearity effects. Refer to Table 4 for a descriptive analysis of the violation. The issue of identifying appropriate techniques in dealing with accounting disclosure has been discussed in Cooke (1998), Haniffa and Cooke (2002) and Tilling (2004). Cooke (1998) 21 suggests that whoever undertakes research on disclosure issue should pay attention to the structure of data and consider the appropriateness of transformations, wherever necessary. In addressing the above violation and in order to ensure the rigorousness of the regression test, the data is then transformed into rank and normal data and re-checked for violation. The problem is found to have ceased.
DESCRIPTIVE ANALYSIS
Table 4: Descriptive Analysis on the Continuous Variable (independent and dependent variable)
Independent Variables Mean Std Dev Min Max Skewness Kurtosis K-S stats K-S Sig Foreign shareholdings 7.029 14.932 0.000 67.160 2.752 6.769 0.332 0.000 Government Shareholdings 6.903 12.556 0.000 80.560 3.732 16.208 0.291 0.000 Size (Turnover) 0.001 5879.772 0.001 63710.850 8.764 83.999 0.201 0.000 Dependent variables
Table 4 shows information for each independent variable and dependent variable, the mean, standard deviation, minimum, maximum value, skewness and also kurtosis. It also provides Kolmogorov-Smirnov statistics and its significant value. For CSR, the mean score is 27.299, the minimum score is zero and the maximum is 342. This indicates the existence of an outlier, since the maximum quantity of reporting is of an extreme value as compared to the mean. The data is positively skewed indicating that scores are clustered at the low values. The kurtosis values are also highly positive which indicate that the data is highly peaked in the centre. These results imply that the data is not normally distributed. Test of normality using Kolmogorov Smirnov statistics supports the results (K-S Stat= 0.299, p value = 0.00).
The foreign shareholding variable indicates a 2.752 for skewness and 6.769 for kurtosis. This implies that the distributions for foreign shareholding are slightly skewed to the left, indicating scores are clustered at the low values. In contrast, the kurtosis score indicates a cluster in the centre. This shows that the data for foreign shareholding variable is not normal in the sense that it is represented more by companies that have low percentages of foreign shareholding. The KolmogorovSmirnov test of normality supports this conclusion by indicating a significant value at p = 0.00 (K-S stats= 6.769).
The skewness and kurtosis scores for government shareholdings also indicate the same pattern. The data is positively skewed, implying a cluster to the left at the low percentage of shareholding. The kurtosis score is much bigger than that of foreign shareholding, at 16.208. This says that the data is not normal and confirmed so by the test of normality using Kolmogorov Smirnov statistic (K-S Stats=0.291, p value= 0.00). 22
The size variable is also not normally distributed and the pattern is similar to the last two variables. The skewness and kurtosis scores are slightly bigger than the above two variables. This implies that the data for size is not normal with the scores clustered to the left and peaked at the centre. This is supported by the test of normality using Kolmogorov-Smirnov statistic.(K-S stats= 0.201, p value= 0.00).
The descriptive result for CSR is presented in Table 5, which is a replica of the format used by Hackston and Milne (1996).
Table 5: Descriptive Result of CSR in Malaysia Disclosing Companies (making at least one disclosure) Disclosing companies as a Percentage of total Sample (incidence) Number of disclosed sentences (amount)
Disclosed sentences as a percentage of all disclosed sentences. Theme Environment 40 19.9 742 13.52 Employee 126 62.70 2157 39.31 Health and safety 36 17.90 378 6.89 Products 64 31.80 839 15.29 Energy 2 1 14 .25 Community 65 32.30 1349 24.58 General/Other 1 .50 8 .16 Total 5487 100 Evidence Monetary 145 72 1152 20.99 Non-monetary 124 61 1532 27.92 Declarative 145 72 2803 51.08 Total 5487 100 News Good 140 69.7 5128 93.46 Bad 8 4 90 1.64 Neutral 22 10.9 269 4.90 Total 5487 100
Table 5 indicates that the most common themes disclosed by the Malaysian companies are employee (62.7 percent), community (32.3 percent) and products (31.8 percent). These findings are in line with those of recent studies by Haniffa & Cooke (2002) and Thompson and Zakaria (2004). Both of these studies however, indicate products disclosure at second place and employee at third place. This implies that there is a slight increase in community disclosure that may have resulted from the increase in social awareness among the Malaysian companies. Environmental reporting is at fourth placing and followed by health and safety, and energy disclosures the latter with only two 23 companies reporting this type of information. These findings indicate that the trend of themes reported is relatively consistent through out the years and support the Institutional Theory.
As for the evidence dimension, the monetary and declarative types of disclosure share the same percentage at 72 percent while the non monetary disclosure is slightly less, at 60 percent. In term of the news dimension, the analysis reveals that most of the companies disclose CSR in the form of good news. This is consistent with the findings of studies by Zakaria (2002) and Hackston and Milne (1996). The fact that there are companies that do disclose bad news (8 companies or 4 percent) augurs well for the development of CSR in Malaysia. Zakaria (2002) also reports evidence of company reporting bad news in their CSR.
The fourth and fifth columns carry the most meaningful data as these convey the information on total sentences disclosed in each type of disclosure reported. This is because relying on the incidence rates alone may not be sufficient in getting a clear picture. Hackston and Milne (1996) states that relying on the incidence rates alone may provide misleading information since all the firms are treated as the same, thereby ignoring the quantity of the amount reported. Based on the total sentences disclosed, employee information still ranks at first place with 2157 sentences or 39.31 percent of the total sentences disclosed. The community disclosure is at second place and product disclosure at third.
REGRESSION ANALYSIS
The regression result is statistically significant and produces an adjusted R 2 of 0.559. This imply that amount of variability in CSR disclosure explained by the variable derived from the exploratory phase was quit large. However there are also some unexpected results from the regression test.
The proposition that foreign companies are influential stakeholders is not supported by the regression test. As mentioned previously, foreign companies are expected to pose coercive pressure on local companies to engage in CSR in order to get more investments from them. Surprisingly however, the result from the multiple regressions indicates that this is not the case. A brief glance at the foreign companies in the sample shows that these companies are active in CSR. For example, British American Tobacco (M) Berhad, Ajinomoto (M) Berhad and Nestle (M) Berhad are active in CSR. Further investigation into this anomaly indicates that these companies do not really disclose CSR in the Annual Report but via independent reports that are not considered by this study. This finding suggests that the practice of MNC in reporting CSR is different or rather more advance compared to local companies. Kolk (2005) studys investigating the differences in patterns and trends in reporting by companies in three different region indicates the increase of differences between three regions. This is explained due to differences in Institutional factors (Kolk, 2005). 24
Table 6: Regression analysis on sources of Institutional factors
df F statistics Prob > F Model 18 12.817 <0.000 Error 182 Total 200 Adjusted R 2
Government shareholding is expected to have a significant influence on CSR. However, the result from the regressions is contradictory. Nevertheless, companies that are dependent on government contracts are found to contribute significantly to CSR (less than 0.01). The regression analysis on the relationship between companies contending for NACRA and CSR has similarly produced a significant result (less than 0.01). This result reinforces the earlier finding from the exploratory study and also confirms the proposition by Institutionalist scholars (Meyer and Rowan, 1977) that award criteria prescribe company behavior. 25
Companies that have goals and missions related to CSR are expected to disclose more. The result from the regressions suggests that this contention is supportable and in line with the finding of Elijido-Ten (2004). Conversely, Parent company and association influences are found not to significantly impact CSR. This contradicts the earlier propositions.
This study hypothesized that managing directors with prior working experience in multinational companies will influence their new companies reporting. However, this is not borne by the finding of the regression analysis. The second proposition on managing director qualification similarly fails to be proven.
Consistent with previous findings done in the Malaysian context (Thompsosn and Zakaria, 2004, Jaafar et al. 2004), size factor is proven to significantly contribute to CSR (less than 0.01). This is also true for the industry factor. The factor of foreign activities however, is not supported. Refer to Table 6 for the regression result.
CONCLUSION AND IMPLICATION
The main objective of this study is to explore the plausible explanation for the CSR in Malaysia. This study starts with exploratory study to identify possible factors from the preparer themselves and later on proceed with the regression test in order to examine the variability CSR explained by the factors. The whole processes were explained based on a single theory namely Institutional theory. Such methodology was adopted in order to overcome the problem of a lack of grounded study in CSR in identifying local context variables. Findings from the exploratory study are significant as it provide some insight as to the real phenomenon of Malaysian CSR. Different country might have different institutional factors that shape the CSR practices (Kolk, 2005). Factors derived from the exploratory study were segregated into three mechanisms of Institutional theory.
The above findings indicate that the entire three mechanisms of isomorphism; the coercive, the normative and the mimetic, do contribute to Malaysian company CSR. This is evident in a number of cases. Most of the CSR reporters, for example, are institutionalized by the government through their dependency on the government for contracts. In line with the government commitment on privatization that was officially announced in 1983, many government projects are tendered to private companies. This is done in order to relieve the financial and administrative burden of the government and to reduce the size of the public sector in the economy. Sun and Tong (2002), states that this policy is also aimed at promoting completion, improving efficiency and increasing productivity. Some of the companies like Plus Highway Bhd, DRB- Hicom Bhd and Pharmaniaga Bhd thrive on government concessions and tenders. As a democratic country, the tenders are open to companies that are capable of fulfilling all the government criteria. This may include social and environmental requirement. By complying with the minimum requirement through the promotion or sponsorship of 26 activities related to the community, these companies hope to project their image in the eyes of the government. To underscore this effort, it is also a common practice to invite top government personnel or ministers to launch their activities. By promoting themselves as socially responsible, these companies hope to be seen as toeing government aspirations and ultimately, in the long run, become favorite companies.
On the factor of government shareholding, the regressions analysis however finds no significant influence on CSR. This is unexpected since the government, through their representatives, normally sits on the Board of Directors and is therefore expected to directly influence company operations. The representatives are normally top personnel in the government service and well versed in government policy.
Following the heels of the privatization effort, the government now demands that the companies become more transparent (ACCA, 2002). From the institutional perspective, the adoption by companies of the policies and requirements of the government stem from a need to appear legitimate in order to maintain their long term survival. As such, the government can continue to play a major role in promoting CSR. They can even expand it by making certain disclosures mandatory.
As expected, one of the strong drivers of CSR is the NACRA Reporting award. This is acknowledged by most of the respondents. According to one, winning the award is akin to endorsing their CSR effort and therefore promotes their image. This again, is in line with the Institutional Theory proposition. As a result of the pressure exerted by the three institutional mechanisms, the company will employ external or ceremonial assessment criteria to define the value of structural elements. Similarly, other factors such as the industry, internal goals and size will, through the institutional mechanisms, impact the companies and eventually reflected in CSR. The coercive, normative and mimetic pressures propel companies to be more transparent and socially and environmentally responsible.
The use of external and ceremonial criteria assessments, such the NACRA criteria, uplifts the companies status, enables them to remain successful and buffers them from failure (Meyer and Rowan, 1983). By winning the award or adopting the NACRA criteria, the affected companies intend to demonstrate to the government or foreign business associates that they are socially and environmentally responsible. Eventually, they hope that the award or the use of the criteria will confer legitimacy to their actions on social responsibility. This legitimacy will entitle them to economic benefits that will ensure their survival (Di Maggio and Powell, 1983, Meyer and Rowan, 1983). Hybels (1995) argues that economic exchange is identical with legitimacy. Companies that are dependent on contracts will perhaps be given other contracts by virtue of their legitimacy. Hybels (1995), advocates that this kind of legitimacy will exist as long as the companies expect something to be gained from their appearing to be socially and environmentally responsible. This practice may also be institutionalized to become a norm, thereby resulting in consistent CSR. This argument is in line with the perception of the respondents in this study since they regard CSR as part of their investor relations and marketing strategies. Hypothesis on the size of the company is strongly supported. This 27 indirectly explained the size of the companies which are relying on the government contract.
This study concludes that the main motive for the companies adoption of CSR is to use it as a public relations strategy. This strategy is addressed to the most influential parties that hold significant resources for the companies in order to sustain and survive in the market.
LIMITATIONS
This study however, is not without its limitations. Firstly, this study is only looking at the Annual Reports for one year, and as such may not be suitable as a generalization of other periods. Due to this, it may fall short of being appropriate to be used in constructing policy. This research also focuses on only the Malaysian context, thereby limiting any comparison with other countries.
Secondly, the proxies used to measure the independent variable are confined by data availability. Most of the data is difficult to access to enable the study to be based on continuous measurement. This is due to the fact that some of the companies do not disclose such information and some even treat it as confidential. Furthermore, most of the variables are qualitative in nature and as such allow only a dichotomous type of measurement.
Lastly, this study is Annual Reports centric. It does not look at any other stand alone reports that the respondents might have produced on the society and the environment. The decision by this study to ignore these stand alone reports is based on the evidence from previous published studies that indicate the Annual Reports as being the main channel of reporting by companies for both financial and non-financial information.
SUGGESTION FOR FUTURE RESEARCH
Future studies should apply the longitudinal methodology in examining the nature and responses of the respondents. In addition, these studies should increase the number of respondents in order to obtain more generalised results and to look for evidences of CSR beyond the Annual Reports. It is a known fact that certain companies in Malaysia produce stand alone reports that, for all intents and purposes, serve as CSR. Longitudinal methodology also enables comparisons be made with other countries in order to know clearly where Malaysia stand in terms of CSR development.
One possible dimension to be explored in future studies is the perception of the stakeholders. How useful is the generated information to these stakeholders and which stakeholders truly use it? What is their perception of the disclosed social and environmental information? Such future studies will provide important information that can enhance our understanding of the demand for CSR in Malaysia. It will provide guidance to Malaysian companies on what to report and how to prepare the reports. 28
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