Dr. Cheah Foo Seong FCIS
Dr. Cheah Foo Seong is the Chief Technical Officer of PFA Malaysia Sdn. Bhd. and the Honorary Secretary of MAICSA

When I was a young man, my father used to remind me that looking after yourself first was more important than minding other peoples’ affairs, especially when it comes to money matters. When our own stomach is empty and hungry how are we going to help others? The concept of Corporate Responsibility (CR) is similar to that. CR was once a seldom talked-about phrase in the corporate world, and so was Corporate Governance.

Bursa views CR as an open and transparent business practice that is based on ethical values and respect for the community, employees, the environment, shareholders and other stakeholders, designed to deliver sustainable value to society at large.

In the 1950s when American corporations rapidly increased in size and power, CR became a prominent public debate during the 1960s and 1970s as that nation was confronted with increasing social problems such as poverty, unemployment, race relations, pollution and urban blights. Corporate America was caught by a rallying cry for change that businesses should be responsible to the needs of society as against merely making profits to satisfy shareholders returns of their investment. Milton Friedman, a well known American economist contended that CR is altogether a pernicious idea. He said, “In such an economy, there is one and only one social responsibility of business ……. To use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud ….”

At the other extreme, some critics felt that CR is a public relations ploy designed to legitimise and divert attention away from the corporation’s destructive corporate activity. Corporate governance had its beginning as far back as 1995 in the UK when Cadbury developed the Code for listed corporations of the London Stocks Exchange. The word found its way into the Malaysian corporate world after the 1999 financial fiasco, and ever since corporate governance was made compulsory for listed corporations to comply. CR has not been made compulsory as perhaps Malaysian corporations are still trying to be responsible to increase profits to satisfy the appetites of shareholders and investors. However, corporations have been seen to portray themselves to be socially responsible entities by giving donations for relief and welfare work. CR was then what critics would say merely a ploy to promote the corporations’ image.

Our regulator, Bursa Malaysia, felt that it was time for Malaysian listed corporations to understand what CR meant. Bursa views CR as an open and transparent business practice that is based on ethical values and respect for the community, employees, the environment, shareholders and other stakeholders, designed to deliver sustainable value to society at large. Theoretically, public corporations bring together many different groups’ interests like those of the shareholders, employees, suppliers and customers, with the objective of doing business. The stakeholder theory was considered as one of the theoretical model of a public corporation, because it claimed that corporations were operated or ought to be operated for the benefit of all those who had a stake in the enterprise. The enterprise is not solely a series of market transactions continually interacting with the stakeholder groups. Much of the success depends on how well these stakeholder relations are managed.

One of the reasons would be the changing expectations in the business world probably caused by the outbreak of corporate scandals and collapses of corporate giants. Andrew Savitz, the author of The Triple Bottom Line, and former partner of PricewaterhouseCooper’s sustainability practice, said “People are now very interested in corporate behaviour of all kinds.” Imagine what will happen to the image and perception of a corporation if it had a supplier using child labour or dumping waste into a local river that used to be pretty well hidden from the eyes of the public, and now, someone with a digital camera caught the act and blogs about it. “The value of a corporation is intangible in the eyes of investors and the public, and reputational issues can have a dramatic impact on the share price and the bottom line” said Savitz.

In a similar vein, good corporate governance practices add value to a corporation, and we have often heard a well quoted research findings by McKinsey & Co. “that the investors are willing to pay a premium for the shares of a good corporate governance corporation.” Corporate governance and corporate responsibility do converge in the same bed of business ethics. To be successful in business in this day and age, the costs of caring and sustainability rank high in the eyes of the stakeholder. The stakeholder theory is thus very akin with the objectives of corporate responsibilities. Are not these two good ‘fellows’ sharing the same bed of ethical practices leading to a high valued corporation?

CR is not merely corporate philanthropy which touches on poverty and woes of mankind. But, it is a more holistic approach to sustainability where corporations must align their vision, strategies and innovation, not only with today’s competitive markets but with the social and environmental conditions that will shape the business world of tomorrow. In the UK, the Accountability Rating survey methodology highlighted the six categories to measure the extent companies have built responsible practices into the way they do business and looks at how they account for the impact of their actions on their stakeholders. Companies would earn a score in each of the six categories for a maximum of 100. They are:-

Simon Zadek, the chief executive of AccountAbility said, “Smart companies make a big splash, but great companies develop comprehensive accountability practices to drive sustainable performance. They deal with the social and environmental factors that will become embedded in future markets, offers a unique quantitative approach to identifying great companies.” The statement applies to the two good bedfellows: CR and corporate governance.