Social Responsibility Journal

Institutionalizing corporate social responsibility: effects on corporate reputation, culture, and legitimacy in Malaysia
Zulhamri Abdullah Yuhanis Abdul Aziz

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Zulhamri Abdullah Yuhanis Abdul Aziz, (2013),"Institutionalizing corporate social responsibility: effects on corporate reputation, culture, and
legitimacy in Malaysia", Social Responsibility Journal, Vol. 9 Iss 3 pp. 344 - 361
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Institutionalizing corporate social

responsibility: effects on corporate
reputation, culture, and legitimacy in
Malaysia

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Zulhamri Abdullah and Yuhanis Abdul Aziz

Zulhamri Abdullah is an
Associate Professor in
Branding at the Department
of Communication, Faculty
of Modern Languages and
Communication, Universiti
Putra Malaysia, Selangor,
Malaysia. Yuhanis Abdul
Aziz is a Senior Lecturer at
the Department of
Hospitality and Recreation,
Faculty of Economics and
Management, Universiti
Putra Malaysia, Selangor,
Malaysia.

Abstract
Purpose The purpose of this paper is to develop measures of Asian corporate social responsibility
(CSR) based on Davids dual process model for Malaysian government linked corporations (GLC) and
publicly listed companies (PLC).
Design/methodology/approach A survey consisting was conducted and a structural equation model
was used to test the relationships among constructs. An instrument to measure CSR practices focusing
on CSR relational, CSR ethical/moral, and CSR discretionary is developed to evaluate impacts on
corporate reputation, culture, and legitimacy.
Findings Findings suggest CSR antecedents emerge through formalization of corporate
communication management in Malaysian organizations. The structural model provides evidence that
CSR initiatives impact corporate reputation directly. The study acknowledges the increase in CSR
initiatives in corporate communication practices in GLCs and PLCs in the quest to gain public legitimacy
and corporate governance.
Originality/value The study contributes to the corporate communication literature by linking CSR to
corporate reputation and culture, and developing a CSR model that explores a critical dimension in
management of corporate identity in an Asian country.
Keywords Corporate social responsibility, Corporate reputation, Institution, Malaysia,
Social responsibility, Organizations
Paper type Research paper

Introduction
In an age of reputation, corporate social responsibility (CSR) is debated vigorously by
scholars and managers across business functions such as communications, marketing,
finance, and human resource (Lindgreen et al., 2009). Managing CSR is always a vital issue
in the boardroom. Most multinational corporations invest millions to manage CSR programs
to meet corporate social performance in their origin country and other countries in which
they operate. Managing CSR programs is important to companies because it influences
underlying intangible assets such as corporate reputation, identity, and image.
It is fruitful to see how an organization understands the institutional environment in the global
context (Jackson and Apostolakou, 2010). Based on institutional theory, every organization
is bound to abide by formal and informal rules. Scott (2008, p. 50) points out that there are
three pillars of institution: regulative, normative and cultural-cognitive systems. The
organization operates by conforming to formative regulations (e.g. business licenses), and
adapts it into a normative approach (e.g. CSR policy) (Jackson and Apostolakou, 2010).
Scott (2008, p. 50) argues that the organization is a process, not a state of social order, and
should be viewed as a process of institutionalization and deinstitutionalization.
Incremental or revolutionary, change is required to survive and grow in a highly

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VOL. 9 NO. 3 2013, pp. 344-361, Q Emerald Group Publishing Limited, ISSN 1747-1117

DOI 10.1108/SRJ-05-2011-0110

competitive business environment. DiMaggio and Powell (1983, p. 147) argue that a
structural change makes the organization less competitive and efficient. Greater focus on
enhancing legitimacy and reputation is central in shaping organizational institutionalism
(Deephouse and Suchman, 2008; see Scott, 2008).

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Todays corporate world pressures such as increased deregulation, liberalization,

privatization establishing free trade areas, lack of talented personnel, mergers and
acquisitions and environmental responsibility to name a few, have led companies to pay
considerable attention to essential intangible impactful concepts such as reputation,
identity, image and branding (Balmer and Greyser, 2003). Managing CSR programs
harmonize these concepts in the context of corporate communication (Cornelissen, 2008)
and corporate-level marketing (Balmer and Greyser, 2003). Corporate communication is a
strategic function aligned with corporate strategy.
Although CSR studies flourish in leading academic journals (Lindgreen et al., 2009),
corporations know little about CSR integration with corporate strategy in emerging markets,
especially in Asia. Some CSR programs implement public relations (PR) gimmicks
(Rondinelli, 2006) rather than develop systematic and coherent initiatives that reflect overall
strategy (Cornelissen, 2008). Many CSR conferences, seminars and forums in Asian
countries are conducted to offer substantial awareness of CSR practices to corporate
leaders and other stakeholders. Many Malaysian managers have positive attitudes toward
CSR even though CSR involvement diminished from 1991 to 2001, (Abdul Rashid and
Ibrahim, 2002, p. 16). For examples, evidence showed that 69.2 percent agreed with the
statement that involvement by business in improving its communitys quality of life will also
improve long run profitability in a survey 2001, as compared to almost 90 percent agreed
with the statement in 1991. Nearly 90 percent in 1991 agreed that a business that wishes to
capture a favorable public image will have to show that it is socially responsible, however,
only 65.2 percent agreed with the statement in 2001 (Abdul Rashid and Ibrahim, 2002, p. 13).
Although awareness of CSR is at stake, there is a weak positive relationship between CSR
and financial performance (Janggu et al., 2007). Peloza and Papania (2008) supported this
argument by examining the relationship between CSR and corporate financial performance.
They also argued that social performance may be more important than financial
performance by stressing on multiplicity of stakeholders. With an emphasis on institutional
logic, Kanter (2011, p. 66) argued that todays companies should focus on six facets that are
a common purpose, a long-term view, emotional engagement, community building,
innovation and self-organization. The essence is to combine financial and social logic to
build enduring institutions. Nevertheless, buzzwords and phrases such as walk the talk
can be a daunting task for Asian corporate leaders to exercise a real CSR agenda aligned
with corporate strategy. Many believe that financial performance is a top priority in any
business scenario (Srivoravilai and Melewar, 2008; Janggu et al., 2007).
Keeping the organizational performance in mind, evidence shows that relationships among
CSR practices, corporate identity and purchase intentions of four corporations - Microsoft,
Nike, Philip Morris, and Wendys reflect the social values of the organizations (David et al.,
2005). Othman et al. (2011) found that CSR reporting as a mandatory requirement imposed
by a regulatory body influences Malaysias corporate reputation. In an emerging market,
countries interpret different meanings of CSR (Chapple and Moon, 2005; Abdul Rashid and
Ibrahim, 2002). A survey by the World Business Council for Sustainable Development
stressing environmental issues and community empowerment found that CSR is defined
differently by Thai and Ghanaian leaders (Blowfield and Frynas, 2005). A study by Dusuki
et al. (2008) reveals that Malaysian stakeholders perceive the pyramid of the CSR model that
frames four dimensions economic, legal, ethical, and philanthropic differently; they
stress cultural factor should include CSR measurement. Specifically, corporate culture here
focuses on behavior and strategy (Vella and Melewar, 2008). This will discuss in detail in the
following section. It is fruitful to see a unified CSR agenda that affects positively
organizational reputation, legitimacy and culture in an emerging market. Hence, the main
purpose of this study is to empirically analyze whether CSR initiatives as practiced by

VOL. 9 NO. 3 2013 SOCIAL RESPONSIBILITY JOURNAL PAGE 345

Malaysian corporations may influence corporate reputation, corporate culture and

legitimacy.
Perspectives on corporate social responsibility
In the previous section, we provide an introduction to the underlying concept of CSR by
highlighting some issues such as business strategy, financial performance, legitimacy,
culture and reputation. Key issues of CSR, especially in an emerging market, are discussed.
In the context of corporate communication, studies note that CSR initiatives place at the top
when harmonizing relationship between a company and constituencies. It acts as
symmetrical communication, balancing economic and social values. We differentiate public
relations and corporate communication. In public relations literature, CSR practices turn into
corporate philanthropy and donations (Cutlip et al., 2006), which do not determine a
strategic predictor toward organizational goals; corporate communication practitioners
perceive CSR as a solid business function with a focus on stakeholder empowerment
(Cornelissen, 2008; Argenti and Barnes, 2009).

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In the public relations agenda, the notion of giving back to community is misled and seen as
a one-off event. In a more dynamic environment, CSR shape the corporate identity of the
company strategically. Through a CSR agenda, companies pay particular attention to key
determinants such as moral/ethical, discretionary and relational practices. In the context of
corporate marketing and in view of managing corporate branding, a firm focuses on three
key drivers: product innovation, environmental concern and community involvement (Keller
and Aaker, 1998). Acquiring depth of CSR understanding requires an interdisciplinary
approach and senior management involvement to reflect an overall corporate strategy.
Todays corporate strategies focus on sustainability as the new business model. Sustainable,
the company achieves the ultimate business asset corporate reputation in the long term.
A lack of research linking CSR actions to key concepts such as corporate identity, reputation
and image leads us to a study institutionalizing CSR within corporate communication and its
impact on corporate reputation, legitimacy and culture in Asian countries, particularly
Malaysia. David et al. (2005, p. 294) initiated a dual-process model of CSR in framing three
CSR practices: moral/ethical, discretionary and relational practices. This model contributes
to the body of corporate identity knowledge. It is fruitful to expand the key concepts of the
dual-process CSR model and evaluate the impact on corporate reputation, legitimacy and
culture in Malaysia. Thus, it is imperative to study CSR practices in the context of corporate
communication and corporate identity.
Conceptualizing CSR is viewed as a broader scope of management in this study. To develop
an integrative CSR approach, we examine constructs based on institutional theory, focusing
on a strategic management role. We review CSR initiatives based on Davids dual-process
CSR model, and address a solid relationship between CSR and reputation, focusing on
various empirical measurements. We discuss a link between CSR and corporate identity,
relating it to a sociological perspective and narrowing it to the notion of legitimacy and
corporate culture in institutionalizing as a better organic organization in Asian country.

Theoretical framework
Having discussed the relationship between CSR and corporate identity thoroughly, we
construct five testable hypotheses to examine CSR initiatives, corporate reputation,
corporate culture and legitimacy.
CSR initiatives
Initial development of the dual-process model of corporate identity provides a strong
theoretical framework that is validated sufficiently to construct three CSR practices:
moral/ethical, discretionary and relational practices. This study provides a better
understanding of those CSR practices by linking them to corporate reputation, legitimacy
and culture (see Figure 1).

PAGE 346 SOCIAL RESPONSIBILITY JOURNAL VOL. 9 NO. 3 2013

Figure 1 Theoretical model of CSR-Reputation

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CSR moral/ethical
Ethics and morality are used interchangeably here and are treated as religion to evaluate
behavior and decide what is right and wrong. Ethical standards are set for any business
activities for several reasons such as respects property right, honour promises, and ensure
mutual commitment (Jackson, 2004, p. 24). All companies are bound legally to abide by
extant laws. Many companies stress ethical responsibility, but compromise their license to
operate to gain profitability in the short term.
Siltaoja (2006) defines ethics and morality as creditability and responsibility in reporting
news and events truthfully; it includes trust, respect, honesty, truthfulness and pluralism.
Companies maintain a good reputation by requiring morality and ethical behavior (Siltaoja,
2006). Trust must be inculcated among internal stakeholders before spreading it wider into
the knowledge of external stakeholders involved indirectly with the company. Regular
contact and communications with stakeholders further maintain trust. Siltaoja (2006)
indicates that morality is the primary feature of responsible behavior. This promotes the
viewpoint of Frederick (1994) that ethics act as an anchor to CSR. Jackson (2004, p. 25)
stresses that it is important for companies to adopt CSR initiatives as a self-imposed restraint
to contribute to human well-being.

CSR discretionary
As interest in sustainability grows, some companies invest voluntarily in social obligation
initiatives such as charities and philanthropy. Based on a stakeholder salience model, some
companies give attention to discretionary stakeholders who possess legitimate claims but
have no power and urgency (Cornelissen, 2008, p. 44). Greedy companies ignore
discretionary stakeholders by giving the excuse that there is no direct impact on financial
performance. Becoming a society of organizations makes the company more visible for
public scrutiny (Bouchikhi and Kimberly, 2008), allowing the company to position its
corporate identity based on stakeholder expectations.
A study conducted by Fombrun and Shanley (1990) suggests that social responsiveness
(i.e. level of corporate charitable donations and a presence of a separately endowed
corporate charitable foundation) is associated positively with corporate reputation.
Dowling (1994) argues that attempts to enhance reputation by demonstrating social
responsiveness may be unreliable in some controversial industries such as tobacco,
nuclear energy and weapons manufacturing where negative perceptions jeopardize the
core of companies.

VOL. 9 NO. 3 2013 SOCIAL RESPONSIBILITY JOURNAL PAGE 347

CSR relational
Organizational success depends on an ability to handle relationships among stakeholders
such as customers, employees, suppliers, communities, politicians and owners (Ihlen,
2008). Companies must earn support from stakeholders whereby stakeholder interests are
always at stake (Freeman and Philips, 2002). The era where companies entertain customers
who have direct impact on the bottom line has changed dramatically. The real challenge is
cultivating relationships with various stakeholders vital for company success. Specifically, a
company needs to build mutually beneficial exchange relationships that illustrate
corporate-level relationships (Balmer and Greyser, 2003, p. 7). This is aligned with todays
new competitive business environment that requires managing relationships with a wider
array of stakeholders such as employees, consumers, media and investors (Argenti and
Barnes, 2009, p. 1).
CSR and corporate reputation
Corporate reputation is always a popular topic in the boardroom; it is an intangible asset but
one that is important to make the company sustainable in the long term. Reputation is like a
magnet that attracts resources (Fombrun and Van Riel, 2004, p. 5). It means that managing
resources (e.g. hiring talented executives) improves productivity and growth.

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The term reputation is interpreted differently from various perspectives. In marketing,

reputation is known as image, in accounting as goodwill and in sociology as prestige;
reputation is also interpreted as judgment (Fombrun and Van Riel, 2004), generalized as
goodness or desirability (Shenkar, 1996, p. 372). A unified definition of reputation needs to
be sought to avoid confusion. Reputation is the collective images of a companys evolving
performance consistency (Argenti and Druckenmiller, 2004; Fombrun and Van Riel, 2004;
White and Murray, 2004). Exercising CSR practices creates good and bad images.
Corporate identity managers need to strategize CSR agenda with emphases on building
company character and credibility (Jackson, 2004, p. 1).
Alchian and Demzet (1972) argue that reputation provides information about expected
future company behaviors. Fombrun and Shanley (1990) suggest that reputation
represents success in satisfying expectations of multiple stakeholders. Reputation is
defined often as the source of competitive advantage that companies earn (Deephouse,
2000; Fombrun, 1996, 1998). Since perception is reality, CSR actions determine
perceptions of a firms reputation (Fombrun and Shanley, 1990). CSR is a factor that
influences reputation (Brammer and Pavelin, 2004; Carroll, 1979). Hooghiemstra (2000)
argues for CSR as a communication instrument used by the firm to create and enhance
reputation. By acquiring great reputation, the firm creates a competitive advantage that
influences customer satisfaction. People want to buy products and services owned by a
reputable company. A study by Carroll and Buchholtz (2000) demonstrates that CSR
has a significant relationship with company reputation. Reputation represents how
reliable and honest the firm is in creating positive CSR actions (McWilliams and Siegel,
2000).
There are some indices that measure the corporate reputation of a company, such as
Fortunes Most Admired Companies in America (AMAC), The Brand Asset Valuator,
BrandZ, EquiTrend, Brand Power, Reputation Quotient (RQ) and RepTrak scorecard (Van
Riel and Fombrun, 2007, p. 230). The RepTrak scorecard is based on a remedial
instrument of RQ. An integrated tool is used to measure corporate reputation in
approximately 30 countries through annual the Global Reputation Pulse published by
Reputation Institute (Van Riel and Fombrun, 2007, p. 230). A CSR index is also
embedded in the RepTrak scorecard to rate a companys CSR performance worldwide.
However, the Reptrak model is criticized due to a lack of theoretical foundation and
international measures (Serbanica and Popescu, 2009). Helm (2005) designed a
formative measure of reputation with 25 items of company characteristics based on a
German consumer perspective. Accordingly, we hypothesize:
H1.

CSR initiatives are correlated positively with corporate reputation.

PAGE 348 SOCIAL RESPONSIBILITY JOURNAL VOL. 9 NO. 3 2013

CSR, corporate reputation and corporate culture

Corporate culture is a significant driver of building corporate identity (Melewar, 2003).
Culture is defined as a shared system of belief and values that influences behavior of
organizational stakeholders (Vella and Melewar, 2008, p. 18). The concept of corporate
culture that is the rich system of values and beliefs (Stuart, 1999 in Balmer and Greyser,
2003, p. 112) has a link to Mintzbergs ideology in strengthening organizational structure.
Strategic CSR focuses on everyday business processes and operations. CSR practices
influence corporate culture, consisting of the attitudes, values, beliefs, norms and customs
of an organization. Flatt and Kowalczyk (2006) found that corporate reputation mediates the
effects of corporate culture and financial performance based on Fortunes Most Admired
Company survey for 1986 and 1987. Firestones (2006) argues that corporate culture is a key
indicator of building and protecting corporate reputation; due to unique cultural facets in
Asian countries, corporate culture impacts corporate reputation. Thus, we propose the
following hypotheses:
H2.

CSR initiatives are correlated positively with culture.

H3a. Culture is correlated positively with corporate reputation.

H3b. Culture mediates partially CSR initiatives on corporate reputation.

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CSR, corporate reputation and legitimacy

The great challenge for companies is gaining credibility and legitimacy through corporate
identity management (Cheney and Christensen, 2001). Projecting an ideal corporate identity
is vital for Asian companies to communicate consistently with various stakeholder groups.
This leads to long term competitive advantages and enhanced corporate reputations
(Friedman, 2009). Projection begins with CSR actions to showcase a unique and distinctive
corporate identity, and practices are developed to meet social performance. Pressures to
conform to regulative, normative and cultural-cognitive systems to improve legitimacy drive
such practices (Scott, 2008). From a sociological view, reputations are parameters of
legitimacy and symbolize institutional prestige (Fombrun and Van Riel, 1998 in Balmer and
Greyser, 2003, p. 229); legitimacy increases organizational reputation. This leads to the
following hypotheses:
H4.

CSR initiatives are correlated positively with legitimacy.

H5a. Legitimacy is correlated positively with corporate reputation.

H5b. Legitimacy mediates partially CSR initiatives on corporate reputation.

Method
Sample and procedures
We surveyed 350 employees who are studying Masters of Corporate Communications and
MBAs in executive programs at the University of Putra, Malaysia. Data for this study were
collected through self-administered questionnaires in 2010. Respondents held full-time
positions of executive, manager, department head, director or managing director. They were
selected if they were involved directly in CSR initiatives in their respective companies.
Pilot test
A pilot test was administered to test instrument validity. Forty sets of questionnaires were
distributed to Bachelors students studying in executive programs in the University of Putra,
Malaysia. Of 40 questionnaires, 10 failed to be returned. Of the 30 valid samples, all
respondents participated in the pilot test resulting in a 75 percent response rate for the pilot
study. Respondents identified ambiguous or unclear items and provided suggestions for
changes. The pilot test revealed no changes were necessary; data collection for the primary
study proceeded as planned.

VOL. 9 NO. 3 2013 SOCIAL RESPONSIBILITY JOURNAL PAGE 349

Administration of survey
The sample consisted of the Masters of Corporate Communications and MBA classes of
2009 (N 350), based on a postgraduate database from an Academic Division, University
of Putra, Malaysia. Three research assistants were hired to distribute the questionnaire to
respondents in person during evening classes. The questionnaire took 10 to 20 minutes to
complete, although no time constraint was imposed. Three-hundred questionnaires were
returned; among them, 15 were eliminated due to missing values, which reduced the final
sample size to 285 (81.4 percent). It was found that the data were missing completely at
random (MCAR) and thus can be ignored (Rubin, 1976) because it may cause potential
biased. Mean Imputation method were not chosen to replace missing value because it could
results in biased parameter estimates in structural equation modeling (SEM) Brown, 1994;
Wothke, 2000).
Survey instrument
While developing the questionnaire, multiple scale items were obtained from various
sources in extant literature. The instrument used to gather data was a structured
questionnaire, consisting of five parts. The data were collected by means of eight pages of a
self-administered questionnaire, using various response forms. Responses to the items in all
construct scales were scored on a five-point scale, ranging from 5 (extremely important) to 1
(not at all important), and dichotomous items were used as well.

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Structure of questionnaire
The first part of the questionnaire (Part A) required respondents to indicate organizational
information. This part consisted of 12 items. Sample items included:
B

Which industry does your company belong to?

How long has your organization been incorporated?

How many employees are in your organization globally?

The second part of the questionnaire (Part B) contained 14 items measuring CSR initiatives.
Moral or ethical practice was measured using five items from David et al. (2005), including
The company treats employees fairly, and The company competes fairly with its
competitors. Four items from David et al. (2005) measured discretionary practices. Sample
items included The company contributes resources to the arts and cultural programs in the
community, and The company supports children and family issues, such as adoption and
foster care. Relational practice was operationalized through five items. Two items from
David et al. (2005) includes The company strives to build long-term relationships with its
consumers, and The company is willing to listen to its consumers and other stakeholders
and is open to constructive criticism about its business practices. Three items were
adapted from Vella and Melewar (2008). They were The company strives to promote
favorable relationships with employees, The company appears to be trustworthy and
The company is concerned with aligning its value and belief with stakeholders interests.
Part C examined corporate reputation constructs. Ten items were adapted from Helm (2005)
to measure corporate reputation. Sample items were The company strives for corporate
successes, The company focuses on customer-orientation and The company provides
high quality products. The fourth part (Part D) measured cultural and legitimacy constructs.
A five-item scale was revised from Vella and Melewar (2008) measured cultural constructs.
Examples items included Multi-ethnic employees work in harmony in this company and
Employees share the same values and beliefs. Legitimacy constructs were measured
using a five-item scale developed based on Deephouse and Suchman (2008) and Scott
(2008). Sample items included Company product and services are compliant with legal
expectations and The company always complies with the newest legal principles as soon
as possible. The final part of the questionnaire (Part E) included questions on respondents
profiles. Five items captured gender, race, working experience, income, and
academic/professional qualifications.

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Data analysis
In this study, structural equation modeling (SEM) was employed to test the model
goodness-of-fit and individual parameters estimated in the hypotheses. Even though SEM is
typically used for confirmatory study, but it can also be used to test theory on relationships as
what the current study intend to do. Data analyses were conducted in two stages. The first
stage involved descriptive analyses to provide general descriptions of respondents. The
internal consistency method using Cronbachs alpha was calculated to confirm reliability of
each construct (Table I). In the second stage, relationships among the CSR initiatives (moral,
discretionary and relational practices) culture, legitimacy and corporate reputation were
examined. Relationships between latent variables and indicators were investigated
simultaneously (Joreskog and Sorbom, 1993).

Results
Measurement model

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Several items were removed from further examination due to low standardized loadings
(less than 0.60) calculated during confirmatory factor analysis (CFA). One item from the
moral practice scale (The company honors human rights of those employed in foreign
countries) and one item from corporate reputation (The company has a commitment to
charitable causes) were deleted during CFA analyses. Two items (The company uses
local values to articulate its company brand) and (My company emphasizes voluntary
social and environmental disclosure) from the culture and legitimacy scales were
removed.
Goodness of fit results demonstrated acceptable fit: x2 =df 1:866 and the RMSEA value
was within an acceptable range (0.055). Other fit indices revealed a mix of acceptable fit
(GFI 0:864, AGFI 0:834, NFI 0:824, TLI 0:896 and CFI 0:909). The goodness fit
indices demonstrated reasonable values even though some indices (GFI, AGFI, NFI and
TLI0 were slightly lower than the expected value of greater than 0.9 (Bentler and Bonett,
1980). Overall, the results provided by x2/df and RMSEA (Browne and Cudeck, 1993) fell
within a range of acceptable value (less than 0.10) (Hair et al., 2010). An EFA (exploratory
factor analysis) using principle component with varimax rotation was performed to identify
and confirm the underlying items for each factor. The KMO (Kaiser-Meyer Olkin)
technique and test of Bartlett for sphericity were employed to ensure the suitability of EFA
analysis. As evidence in Table II, both KMO results and Bartletts test (significant at 0.000
level) suggests suitability of performing EFA. The standardized factor loadings (Table II),
ranging from 0.602 to 0.757, were significant. Of the 29 items, 11 had loadings greater
than 0.70, providing evidence of reasonable convergent validity (Anderson and Gerbing,
1988).
Table I Hypotheses verification
Hypothesis
Direct effect a:
CSR initiatives ! Corporate reputation
CSR initiatives ! Cultural
CSR initiatives ! Legitimacy
Culture ! Corporate reputation
Legitimacy ! Corporate reputation
Indirect effect b:
CSR initiatives ! Corporate reputation (through culture)
CSR initiatives ! Corporate reputation (through legitimacy)

Coefficient

CR ( t Value)

P Value

Result

0.238
0.321
0.333
0.366
0.158

4.836
8.241
8.559
3.029
1.035

0.00
0.00
0.00
0.002
0.301

Supported
Supported
Supported
Supported
Not supported

Refer Table V for result

Supported
Supported

Notes: a The direct effect of each relationships were derived from structural equation analysis; b The indirect effects were examined using
hierarchical multiple regression as presented in Table V; * p , 0:05, ** p . 0:001; Critical coefficient (t Value) . 1.96 indicates
non-significant relationships

VOL. 9 NO. 3 2013 SOCIAL RESPONSIBILITY JOURNAL PAGE 351

Table II Summary of factor loadings for the measurement model

Constructs

Item descriptions

Moral practices

1. Company treats employees fairly

2. Company competes fairly with its competitors
3. Company is honest and upfront about telling
the truth when something goes wrong

Discretionary practices

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Relational practices

Corporate reputation

Culture

1. Company contributes resources to the art and

cultural programs in the community
2. Company contributes resources to raise social
awareness of issues such as hunger and
domestic violence
3. Company supports children and family issues,
such as adoption and foster care
4. Company supports public health programs,
such as the fight against AIDS, cancer and
other diseases
1. Company strives to build long-term relations
with its consumers
2. Company is willing to listen to its consumers
and other stakeholders and is open to
constructive criticism about its business
practices
3. Company strives to promote favorable
relationship with employees
4. Company appears to be trustworthy
5. Company is concerned with aligning its value
and belief with the stakeholders interest
1. Company strives for corporate success
2. Company focus on customer oriented
3. Company provides the high quality of products
4. Company provides value for money for its
products and services
5. Company has the credibility of marketing
communication claims
6. Company has a commitment to protect the
environment
7. Company has an efficient management
8. Company has good employees
9. Company has a good standing financial
performance
1. Multi ethnics employees work in harmony in
this company
2. Company is concerned about cultural
sensitivity among employees
3. Employees share the same values and beliefs
4. Company has a policy on equal opportunities
among the employees

Legitimacy

1. Company product and services are compliant

with the legal expectation
2. Company always submit to the newest legal
principle as soon as possible
3. Company be only allowed to do what is
explicitly permitted by law
4. Company works with regulators to formulate
and develop the regulatory standard

Factor loading

KMO

Bartletts test

0.620
0.661

0.880

x2 1537:212 p , 0:000

0.880

x2 1537:212 p , 0:000

0.880

x2 1537:212 p , 0:000

0.881

x2 1061:250 p , 0:000

0.887

x2 881:372 p , 0:000

0.887

x2 1537:212 p , 0:000

0.658
0.676

0.730
0.751

0.743
0.678

0.750
0.757
0.718
0.643
0.683
0.654
0.685
0.612
0.602
0.718
0.742
0.729
0.705
0.650
0.742
0.693
0.677
0.630
0.651
0.643
0.674

Reliability and validity

All constructs were subject to scale reliability and validity examinations. Discriminant validity
was assessed through inter-construct correlations as illustrated in Table III. All correlation
values between latent constructs were significantly different from zero, but there were no

PAGE 352 SOCIAL RESPONSIBILITY JOURNAL VOL. 9 NO. 3 2013

Table III Summary of discriminant validity

Constructs
1. CSR initiatives
2. Culture
3. Legitimate
4. Corporate reputation

Inter-construct correlations
1
2

SD

3.95
3.95
3.91
3.75

0.54
0.55
0.54
0.55

1.000
0.552*
0.620*
0.677*

1.000
0.686*
0.624*

1.000
0.631*

1.000

Notes: * p 0:01; n 285

high or very high correlations (i.e. greater than 0.69) as suggested by Anderson and
Gerbing (1988). Hence, the measures used provided evidence of discriminant validity.
Convergent validity was established using composite (construct) reliability and average
variance extracted (AVE).

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All of the scales demonstrated acceptable composite reliability performance (Table IV).
Most of the composite reliabilities exhibited a high value greater than 0.80, except for the
moral practice construct. In terms of AVE, one of the six constructs (moral practice) had
variance extracted lesser than the recommended value of 0.50. The variance estimate
indicated total item variance accounted for the construct. Even though the result of AVE
exceeded the cut-off point greater than 0.50, composite reliability was not as good, but
demonstrated strong reliability. In terms of internal consistency, all constructs reported
sufficient reliability (greater than 0.70) (Nunnally, 1978), except for moral practice (0.638).
Examination of mediating role
The current study employs the famous Baron and Kenny (1986) criteria to test the effect of
mediations. There were several rules to be followed and satisfied: First, there must a
significant relationship between independent variable (CSR Initiatives) and mediators
(Culture and Legitimacy). Second, the independent variable (CSR Initiatives) must be
significantly related to dependent variable (Corporate Reputation). Finally, the mediators
(Culture and Legitimacy) must affect the dependent variable (Corporate Reputation) and the
effect of independent (CSR Initiatives) on dependent (Corporate Reputation) must be less in
the final rule than in the second rule. If the effect of the independent becomes insignificant in
the third rule, the mediator is considered as full mediator and if the effect of the independent
still strongly exists but is reduced in the third rule, the mediator is regarded to as a partial
mediator.
Hierarchical multiple regression analysis was conducted to test H3b and H5b. A summary of
findings is shown in Table V. Results demonstrate that CSR initiative was related positively
with culture and legitimate (b 0:549and0:607, p , :001). This satisfies the first rule of
Baron and Kenny (1986) where there are significant relationships between CSR initiatives
and culture and legitimate. Of the control variables, none was found associated with culture
and legitimate, and no control variable showed a significant impact on corporate reputation.
Results also provide evidence that CSR initiatives was positively related to corporate
Table IV The reliabilities of the measurement model
Construct
Moral practicea
Discretionary practiceb
Relational practicec
Corporate reputation
Culture
Legitimacy

Number of items

Composite reliability .0.70

Variance extracted .0.50

Cronbachs Coefficient Alpha

3
4
5
9
4
4

0.71
0.82
0.88
0.92
0.86
0.84

0.45
0.54
0.59
0.57
0.61
0.57

0.638
0.815
0.835
0.864
0.784
0.745

Notes: a, b and c The composite reliability and variance extracted for CSR initiatives was calculated based on its individual components
a b
, and c

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Table V Hierarchical multiple regression results: direct and mediating effects

Independent variables
(I) Control variable
Gender
Race
Experience
Qualification

Culture
Step 1
Step 2

0.076
0.100
0.016
0.005

(II) CSR initiatives

F
R 2 at each step
DR 2
(III) Culture
F
R 2 at each step
DR 2

0.018
0.092
0.007
20.024

0.135
0.071
0.011
0.085

0.549**

1.211
0.003

0.070
0.061
0.001
0.052
0.607**

25.45
0.301
0.296**

(IV) Legitimate
F
R 2 at each step
DR 2

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Standardised regression weights

Legitimate
Step 1
Step 2
Step 1

2.503
0.021

36.71
0.386
0.362**

0.143
0.037
20.015
20.006

Corporate reputation
Step 2

0.071
0.026
20.026
20.042

Step 3

0.052
20.010
20.028
20.046

0.672**
1.611
0.444**
0.009

0.408**

0.359**
1.611
0.466
0.088**

0.260**

0.345**
1.611
0.538
00.72**

0.200**
52.922
0.561
0.106**

Notes: Aroian test for: CSR initiatives ! Culture ! 1.87*; CR 1.53*; CSR initiatives ! Legitimacy ! CR; CSR corporate social
responsibility; CR corporate reputation; P 0:001. Aroian test was conducted using the following input: A the regression weight
(regression coefficient) for the relationship between the independent variable and the mediator; SEA the standard error of the
relationship between the independent variable and the mediator; B the regression weight (regression coefficient) for the relationship
between the mediator variable and the dependent variable; SEB the standard error of the relationship between the mediator variable
and the dependent variable

reputation (b 0:672, p , 0:001). Hence, the second rule was met. The table presents
evidence that culture and legitimate were related positively to corporate reputation
(b 0:260 and 0.200, p , 0:001). When culture was entered into the equation, the sizes of
direct effects of CSR initiatives on corporate reputation were reduced, but remained
significant. There was a significant increment in R 2 for the model (DR2 0:088, p , 0:001).
For this reason, the third rule was met where the effect of CSR initiative was less and thus
confirms the partial mediation of culture. Thus, culture mediated the impacts of CSR initiative
on corporate culture partially. Similarly, results indicate that legitimacy showed a significant
increment in R 2 for the model where its DR2 0:072 (p , 0:001). Thus, legitimacy mediated
the impacts of CSR initiative on corporate culture partially.
The Aroian test using the Sobel technique was examined to establish the significance value
of mediation on cultural and legitimacy constructs in the relationships between CSR initiative
and corporate culture. In Table V, results demonstrate that culture mediated the relationship
between CSR initiative and corporate reputation partially (test statistic 1:87, p . 0:01).
The Aroian test suggests that legitimate mediated the relationship between CSR initiative
and corporate reputation partially (test statistic 1:53, p , 0:01). Therefore, H3b and H5b
were supported.
Structural model
The structural model specifies a pattern of relationships among model variables. The initial
structural model was estimated based on a single-order factor model. Initial estimations
have produced an under-identified model. This happens due to a problem associated with
lack of degrees in freedom, which contributes to the unidentified model. The output showed
zero degrees of freedom and a zero chi-square, suggesting that any analysis that followed
was unsuitable. The model needed re-specification so that a better fitting model can be
calculated. Based on model estimation, the model was modified to improve fit. A
second-order factor analysis was required to achieve meaningful information and
knowledge on CSR initiatives. Hence, CSR initiatives based on the three constructs

PAGE 354 SOCIAL RESPONSIBILITY JOURNAL VOL. 9 NO. 3 2013

(moral, discretionary and relational practices) was examined as a second-order factor,

generated on the basis of the relationships among first-order factors. Figure 2 shows the final
estimations of the second-order factor model.
The final model provided good fit. The value for x2/df and RMSEA were within acceptable
ranges (x2 =df 1:723; RMSEA 0:50). Other indices also demonstrated satisfactory
results (GFI 0:877, AGFI 0:853, NFI 0:839, TLI 0:916, and CFI 0:925). Results of
the SEM demonstrated that the hypothesized model fits the data well. However, the values
for GFI, AGFI and NFI must be translated with cautious since these indices were lesser than
the suggested value of greater than 0.9 (Hair et al., 2010). Based on other indices (x2/df,
RMSEA, TLI and CFI) that demonstrated reasonable fit, the proposed model provided
acceptable fit.

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Hypotheses testing
The hypotheses were evaluated using path analysis from the structural model. The paths
between latent variables are presented in Figure 2. Examination revealed that H1, H2 and H4
were supported, with CSR initiatives related to corporate reputation(r 0:238), culture
(r 0:321) and legitimacy (r 0:333). H3a, predicting a positive relationship between
culture and corporate reputation, was also supported (r 0:366). However, H5a, predicting
a positive relationship between legitimacy and corporate reputation, was not supported
(r 0:158). Inspection of the indirect paths between CSR initiatives and corporate
reputation, culture and legitimacy demonstrated significant relationships, reported in
hierarchical regression analyses earlier. Therefore, H3b and H5b were supported. A
hypotheses verification summary is shown in Table V.

Discussion
The purpose of this paper was to develop empirical measures of corporate social
responsibility (CSR) initiatives and their impact on corporate reputation based on Davids
dual process model of CSR for Malaysian government linked corporations (GLC) and
public listed companies (PLC). University students participated to assist in structural
model validation. Of seven hypotheses tested, one was not supported. The proposed
model demonstrated good fit of the data as reported in the findings. The data established
sufficient reliability and validity. This study ascertains the effects of CSR initiatives on
corporate reputation. CSR initiatives were also found related to both cultural and
legitimacy constructs.
Figure 2 Final structural model

VOL. 9 NO. 3 2013 SOCIAL RESPONSIBILITY JOURNAL PAGE 355

The structural model provides evidence that CSR initiatives have a significant impact on
corporate reputation. It was also found that CSR initiatives are related positively to culture
and legitimacy. Culture had a positive effect on corporate reputation and mediated the
relationship between CSR initiatives and corporate reputation partially. An indirect effect
between CSR initiatives with corporate reputation through culture and legitimate
demonstrated a significant relationship. Legitimacy was found to be non-significant when
tested directly with corporate reputation.
This study contributes to the body of CSR knowledge and corporate reputation. Through
structural equation modeling, this study proposes and validates an integrative structural
model that assimilates the role of CSR initiatives and its impact on corporate reputation.
Demonstrating the significant impact of CSR initiatives on cultural, legitimacy and corporate
reputation, this study enhances the current understanding of CSR initiatives both
theoretically and practically. It is important to note that legitimacy was not a strong
predictor of corporate reputation. When tested directly with corporate reputation, it
demonstrated no effect; permitted as a mediator linking CSR initiatives and corporate
reputation, there was evidence of a significant influence.

Theoretical implications

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This study is a first attempt to examine how CSR initiatives influence corporate reputation,
legitimacy and culture in Malaysia. There are three sets of findings highlighting relationships
between CSR constructs and other variables:
1. Findings suggest CSR initiatives are significant predictors of dimensions of corporate
reputation.
2. Findings demonstrate that CSR initiatives have a significant positive effect on culture and
legitimacy.
3. Findings show that culture is related positively to corporate reputation; however,
legitimacy is not related to corporate reputation.
This study advances theory of corporate identity and reputation in an Asian country. This
strengthens the notion that corporate identity is transmitted to various stakeholders who
then formulate images that, in turn, form the basis of the companys reputation (Melewar,
2003, p. 195). The images represent CSR practices based on the dual-process model of
corporate identity initiated by David et al.(2005). Undoubtedly, managing reputation is vital
for Malaysian corporations, based on a firms strategic initiatives supported in our first set of
findings.
One implication for corporate identity scholarship includes illuminating legitimacy and
cultural constructs as related to CSR practices. CSR constructs conceptualized in this study
are consistent with two key corporate-level questions: what are we and what do we do?
(Balmer and Greyser, 2003). Olin (1979, in Balmer and Greyser, 2003, p. 54) stresses the
way [an] organization presents itself to external audiences. It should be noted that
corporate presentation should meet legal expectation (Suchman, 1995) in a shared system
of belief and values (Vella and Melewar, 2008, p. 18).
Institutionalizing CSR within corporate communication is highly significant to improving
corporate reputation. This suggests two theoretical implications. First, CSR as a strategic
business function had been proven to have a direct impact on corporate reputation. This
supports Cornelissens (2008, p. 44) argument on CSR initiatives viewed as a direct
instrument value to an organization, pertaining to reputational return and financial
performance. Second, the role of corporate communication needs to be formulated based
on CSR constructs moral/ethical, discretionary and relational at the technical and
managerial levels. This may improve Doziers communication technician and communication
manager as theoretical practitioner roles in the quest for dominant coalition imperative
(Cornelissen, 2008).

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Surprisingly, our last set of findings showed that there is no direct effect between legitimacy
and reputation. However, the finding strengthens the notion highlighting legitimacy and
reputation as engaged in a complementary relationship based on accountability standards
(King and Whetten, 2008, p. 199; Deephouse and Carter, 2005). A greater focus on
institutional theory and isomorphism contributes to corporate reputation scholarship.

Practical implications

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Today, increased awareness of CSR among executives in Malaysia demonstrates demand

that companies exercise better social and environmental performance. Our results suggest
that CSR practices have a direct impact on corporate reputation. Not surprisingly, the
Malaysian government deploys aggressive campaigns highlighting social and
environmental performance of publicly listed companies. A leading market regulator such
as Bursa Malaysia, professional bodies such as the Malaysian Institute of Accounting (MIA)
and the Association of Chartered Certified Accountants (ACCA), and leading corporate
governance institutes such as the Malaysian Institute of Corporate Governance (MICG) are
highly committed to ensuring a market of integrity and transparency in the highly competitive
business environment.
In a multicultural country like Malaysia, culture is a predominant factor that should not be
neglected when determining corporate reputation. Our findings show that culture has a
direct effect on CSR practices and corporate reputation. This is consistent with a study by
Vella and Melewar (2008), highlighting that business leaders perceptions of the importance
of cultural sensitivity influence business performance. Cultural diversity remains a complex
element of management within corporate culture.
In the context of Malaysian business, legitimacy is favorable when practicing CSR. We find
that legitimacy is not an important factor affecting corporate reputation. This does not
support the notion of reputations as indicators of legitimacy initiated by Fombrun and Van
Riel (1998, in Balmer and Greyser, 2003, p. 229). A study on rethinking the relationship
between legitimacy and reputation by King and Whetten (2008, p. 192) supports this finding;
they argue that legitimacy is a mandatory action for all organizations and reputation seems a
desirable asset that requires meeting an ideal standard. Many corporations meet minimum
regulations, but fail to practice higher performance standards capable of achieving both
mandatory performance (minimum) and public endorsement (elevated).

Conclusions
In the last few years, evidence emerged of the growing importance of corporate reputation,
in general, and its significance to corporate social responsibility particularly. Established
corporate reputations are critically important to ensuring customer loyalty and retention,
which contributes to competitive advantage. Using data on a sample of employed university
students, we present a structural model of CSR initiatives and corporate reputation.
Analyses concentrate on examining the relationship of CSR initiatives dimensions on
corporate reputation and the impact of cultural and legitimacy on corporate reputation.
Results indicate significant impact of all CSR initiatives dimensions on corporate reputation,
implying that moral, discretionary, and relational constructs exist and exert commanding
influences on corporate reputation. Nurturing and fostering suitable management strategies
involving the three practices are critical. More specifically, the results indicate clearly that an
organization wishing to foster and sustain corporate reputation needs to exercise moral
obligation such as treating employees fairly, demonstrate discretion by giving full support to
employees and involving them directly in charity activities, and implement relational
practices with regard to building relationships with stakeholders such as customers and
employees.
Our research provides substantial findings in the area of CSR and corporate reputation, but
it is no exception when it comes to limitations. We used students as a sample to test the
model. We believe that the student sample is appropriate and sufficient for such a study.

VOL. 9 NO. 3 2013 SOCIAL RESPONSIBILITY JOURNAL PAGE 357

They were employed, part-time students who were familiar with CSR issues. However, we
should not lose sight that they were working students who regarded the organization as a
transient place; they may move to other organizations as soon as they are better qualified.
We are cautions to generalize conclusions broadly and acknowledge the need for further
validation in future research.

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Further reading
Fombrun, C.J. and Rindova, V. (1998), Reputation management in global 1000 firms: a benchmarking
study, Corporate Reputation Review, Vol. 1 No. 3, pp. 205-212.
Freeman, R.E. (2002), Stakeholder theory of the modern corporation, in Donaldson, T. and Werhane, P.
(Eds), Ethical Issues in Business: A Philosophical Approach, 7th ed., Prentice Hall, Englewood Cliffs, NJ,
pp. 38-48.

About the authors

Zulhamri Abdullah is an Associate Professor in Branding at the Department of
Communication, Universiti Putra Malaysia. He earned his PhD from Cardiff University, UK.
He won numerous awards in the fields of reputation and corporate communication
management. He has published in the Public Relations Review (ISI) and International
Journal of Economics & Management (SCOPUS). He is also a reviewer of Journal of Brand
Management. Zulhamri Abdullah is the corresponding author and can be contacted at:
zulhamri@upm.edu.my

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Yuhanis Abdul Aziz is a Senior Lecturer at the Department of Management and Marketing,
Faculty of Economic and Management at Universiti Putra Malaysia. She received her PhD
degree in Business and Management from the University of Nottingham, UK.

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