Professional Documents
Culture Documents
CORPORATE FINANCE
CONCEPT PAPER
STAKEHOLDERS INFLUENCE AND CONFLICT
BETWEEN SHAREHOLDERS TOWARDS FIRMS
CSR
Submitted to:
Prof.Madya.Dr Zahiruddin Ghazali
Prepared by:
RAJENDIRAPERASAD MUNIAM (820309)
1 : Introduction 2-3
2 : Problem Statement 4-5
3 : Research Question 6
4 : Methodology Overview 6
5 : Stakeholders influence factors 7-8
6 : Shareholder conflict factors 9
5 : Literature Review 10-11
5 : Recommendation 12
5 : Conclusion 12
6: Reference 12-15
1
STAKEHOLDERS INFLUENCE AND CONFLICT BETWEEN
SHAREHOLDERS TOWARDS FIRMS CSR
Introduction
The concept of CSR begins from the needs of ethical and fair treatments
among their customers and basically all business need to respect the
honesty. Even though was not legally required, but due to it was the right
thing to do. It is the link between the company and the community. On
todays phenomena the use of CSR influence the way business adopt more
consideration and responsibility. Due to the rapid economic development,
Malaysia were also not being excluded in the process with social,
environment, pollution and other things which incorporate with social need
awareness (Shim, D. S. 2006).
Being ranked among four largest economics in Southeast Asia with the
increase of total market capital from 116.9 to 410.5 billion US dollars in
between the year 2000 and 2010 (US Census Bureau, 2011), the tremendous
growth came not without its cost, such as deforestation, carbon emission,
pollution and others factors as well (Ang, J. B. 2008). Therefore,
implementation of social and environment related activates under CSR under
voluntary basis were needed to overcame such issues.
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this give the firms an opportunity to came report CSR information in their
own way by leaving the stakeholders at disadvantage. The stakeholders can
utilize their power to pressure the firm in a way that necessary information
can be disclose in CSSR as they are in good position in control critical
resources to the firms (Roberts, R. W. 1992).
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The study of objective variable is found to be easier where else the study of
subjective variable is not so accurate. Thats why many of the studies found
to concentrate on the financial performance on the impact caused by both
shareholders and stakeholders.
Problem Statement
Only few is known regarding the practice of CSR in the non-western world (Li
et al. 2010). Currently its been in a doubt on the relation between theory
and reality and wheater the theory has represented the reality worldwide.
More research shall be conducted in developing countries in order to test the
application and use of the concept to those countries (Belal & Momin, 2009).
Some studies were done to identify the influence of the specific country in
context with CSR and identified cultural factors, social, political, business
system, shareholders influence and environment impact (Williams, 2001)
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the companies there were aware and active in CSR, but most sees that as a
burden and distracting from making profits (Qingfen, 2006). Some studies
have shown significant result and shows a clear difference between
interpretation and practice of CSR in different countries which involve both
stakeholders and shareholders contribution towards CSR practice. Malaysia
firms shows more social responsibilities due to keep the annual report brief
and shows what the company is doing (Teoh & Thong, 1984).
The shareholders have the responsibility to ensure the firm is well run and
well managed. The main concept of having shareholders for a company is to
make the firm accountable for their action. As representative on the board of
directors, they are responsible and act as custodian for the shareholders
interest. The main objective of the shareholders of any firm will be profit
maximization and the shareholders have the effect on CSR by multiple ways.
They can decrease the amount of money spend on CSR as their aim will be
on maximize their financial benefits rather than maximize their social welfare
responsibility (Jensen & Meckling, 1976). Even though CSR indirectly
contribute to their financial benefits, the tendency of shareholders to invest
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in direct investment were more to be practical. Therefore, the shareholders
pressuring firm to invest in economic activities found more than CSR
activities. Under this circumstances, the conflict between the shareholder
occur for the firm CSR.
Sub-questions:
Methodology Overview
6
This discussion paper proposes a mixed methods approach to identifying and
categorizing towards firm CSR. I will rely on existing data reported by
cooperatives such as annual reports previous case study and sources from
studies conducted by both academic and practicer. I will also use findings
from any existing studies, and compare findings across studies.
Influence by Stakeholders
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disclosure which resulted lower demand on public disclosure in the family
own firm including CSRR.
Based on all the above matters related, its obvious that the greater level of
CSR in shareholder power influence the firm decision and at the same time
limits the stakeholder position to take action.
Creditor Power
Firms dependent on debt can be shown by leverage. Normally in high
leverage of firms, the creditors may put pressure towards firm to act
according to them to preserve their interest. Creditors have high concern on
firms activities when activity can generate negative impact on both
environment or society, they will face risk in associated with them. Examples
are penalties, litigation, fines and so on. This will turn away the creditor
interest. The call for greater integrity from the firm and information on the
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latest status can protect against firms opportunistic behavior (Huang &
Kuang, 2010).
Firm will disclose their CSR related information due to creditors expectation
and demand (Robert, 1992). The firm need to make sure to convenience the
creditors on the business responsibility undertaken by the firm regardless
their CSR regulation. Therefore, high leverage firm normally will disclose
their level of compete towards CSR.
Government Power
CSR may be used by firm as a strategy which designed to able satisfy on the
government demands (Robert, 1992). There are two type variable which are
the firm size and industry. The regulation was imposed towards larger firms
generally. Since larger companies tendency to impact on the society due to
their business activities, they came out with more CSRR then smaller firms
(Branco & Rodrigues, 2008). With greater excess with their resource, they
can invest in CSR and give better picture to the stakeholders scrutiny
especially on their regulators (Chapple & Moon, 2005). With the
implementation of the CSR disclosure by BSKL in 2017, at the same time
government with their agencies able to control and monitor the activities of
the firm and influence them by the regulation which they have to comply.
Insiders
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There are two type of shareholders which consist of insiders which
associated with the firm and the shareholders which are not affiliated with
the firm. For insiders, if their firm CSR reduces the value then if should be
matter. Difference from deviation of value maximization could reduce as the
management ownership rise up. Another issue that could came will be, with
more control comes more entrenchment which will lead in the management
chooses to be in nonvalue-maximization activities. With larger stakes by the
insiders it may also reduce the CSR implementation and give more priority
towards them.
Board of Directors
The independent directors help more in aligning the managers objective and
with the other shareholders expectations. It is very crucial to understand
that the CSR conflict is not between the management and the shareholders,
it is into bringing close association affiliated and non-affiliated shareholders.
Since the reputation of a firm may be affected by the firms CSR rating,
therefore the directors both from inside and outside shall be seen as
affiliated shareholders. If all the board member tends to have ownership,
there will be correlation between CSR and board composition. The conflict of
misunderstand between the directors will result in conflict on the path
towards their firm CSR.
Institutions
Literature Review.
10
So far on the research conducted by the scholars in CSR generalized their
study on broad view and not on a specific organization or firm. Therefore,
CSR can be used to reduce the corporate function towards carrying for
community as well. Investment are done by the corporate organization for
getting back talents as well as financial returns. In Malaysia, generally mega
corporates companies such as Petronas, Proton, DRB Hicom, SP Setia and
many more doing their CSR to gain more support and at the same time along
with the new regulation done. Corporate social responsibility defines as a
generic concept where it refers the firm more concern and be in two-way
involvement with social, economic and public trust with the influence of
environment effect (Aguilera et, al. 2006). Barnea et al 2010 argues that the
word corporate social responsibility(CSR) were commonly used to describe
good practice and improvement citizenship. The strategic CSR is a point
where balanced of benefits and maximization of business and development
term were caused. To be able consistently contribute towards CSR, both
internal and external (shareholders and stakeholders), must have a common
goal to achieve in giving successful CSR practice and overcame their
differences (Jia & Zang, 2012).
The implementation of the new regulation in 2007, had open a wide aspect
and expectation to be performed by firm in contributing their CSR (Sharma,
2013). Stakeholders have broad explanation therefore anyone can play their
role. Due to that, the influence of the stakeholders can be variable. This issue
therefore considers each stakeholder may have different conflict views
among themselves (Aguinis & Glavas, 2012). For example, the initial
campaign done by the Greenpeace on the claim on deforestation and killing
orang utans, assuming most consumers from West doesnt come and see
what is going on here, they tend to buy into this campaign. The firm which
purchase and consume the oil palm had the fear of losing the market share
were they forced to find alternative and the palm oil owners and
suppliers(shareholders) not excluding their dependents (the stakeholders)
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lose out in the process. The stakeholders and not forgetting the role of
shareholders if anything may handicap them from achieving their true
potential (Jensen, 2001).
CSR both consist the voluntary and mandatory reports made by each firm
regardless issues important to wide range of stakeholders (Gray et, al. 1995).
CSR is used by many firms to manage the internal and external stakeholders
relationship which will impact those firms (Ullmann, 1985). The stakeholders
have the power to influence the firms decision because of their control in
resources required by the firm. The three main component which influence
the stakeholders are shareholders, government and creditors. However,
there are no association shown between the shareholders power which can
be used to measure concentrated power disclosed in firms worldwide, but
both the government and creditors have those influence (Robert, 1992). In
Malaysia (Elijido, 2009) did observe that the firms are more likely have the
tendency the government concerns while other stakeholders may influence
on the environmental reporting. The evidence from literature supports the
view of particular shareholders which refers to important in survival and
effective than others in CDR demanding subjected to their power in
influencing CSR. Investigation in the influence of the external pressure in
Canadian firm shows the firms are more response to the demand of their
financial shareholders, government and environmentalists (Neu et, al. 1998).
Firms should take into their consideration on both social and environmental
to maximize profits. The compulsory CSR requirement have an effect on the
firm disclosure (Lee & Hutchison, 2005). In several studies conducted in UK,
Spain and Norway its found that, although the number of reports on the
quantity and quality of CSR increases, but the lack of reports still found
presence of such regulation (Criado et, al. 2008).
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Recommendation
Conclusion
13
shareholders and stakeholders were not consistent, it is necessary for them
to work side by side for efficient decision making. The conflicts and influence
of them shall be align to achieve better goods and successful towards CSR of
their firms.
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