Keynote Address by YBhg Dato’ Zarinah Anwar
Chairman, Securities Commission
Malaysian Corporate Social Responsibility
and Governance Conference
17 October 2006
“Corporate Social Responsibility –
Infusing New Spirit into the Business World”
Ladies and gentlemen.
I would like to thank ASLI and ACCA Malaysia for inviting me to speak at this Conference on Corporate Social Responsibility and Governance.
I have been asked to speak on how Corporate Social Responsibility or CSR in short can infuse new spirit into the business world. But before I do that, perhaps we should take a moment to consider what the word ‘business’ in itself represents.
It was Adam Smith who famously said that “the pursuit of self-interest in a free market would benefit all in society” 1. Coming from a man, whom some credit as the founder of the modern economy, this quote almost gives businesses the carte blanche to concentrate all their efforts on one single focus: profit optimisation.
What is lesser known perhaps is that Smith also said that “sympathy” or the concern for one’s fellows is “essential for the cohesion and stability of society”.
Two sides of the same coin
For a long time, capitalism and altruism were seen as two separate pursuits. The business world embraced and thrived on the notion of ‘self-interest’ but delegated ‘sympathy’ for others to labour. When businesses do show their concern for society, some did so to fulfil a social obligation, bowing under external pressure to demonstrate their social responsibility.
But the tide is turning. In recent years, there has been a clear shift from obligation to strategy. While many, in particular corporate icons, continue to commit a substantial portion of their company’s profits and individual net worth to global corporate philanthropy, more and more companies are moving beyond mere philanthropy and integrating CSR into their core business strategy and practice.
When before it was a mere case of doing well to look good, there is now an increased desire to do well AND to do good.
This morning I would like to explore the sweeping global change that has shaped businesses’ approach to CSR; but more importantly, I would like to enlist you as key players in the Malaysian business community, to step up, speak out and take responsibility for a growing movement that recognises and realizes opportunities for bottom line benefits through corporate support and partnerships with communities to bring about a better world.
The global business climate today
Ladies and gentlemen,
Traditionally, businesses have operated in a marketplace driven by profit and loss and influenced by supply and demand. Today, not only are businesses expected to increase their bottom line in a flattened global environment but they also need to operate under an additional 21st century factor: ‘the new moral marketplace’.2
In the “new moral marketplace”, companies are increasingly being judged by consumers, investors and employees based on the perceived corporate morality of the company. Modern day technological strides have opened up a world of information for today’s digitally connected population. Terms such as fair trade, environmentally friendly, against animal testing and free-range to name but just a few – which many years back would probably only be heard within the NGO circle – have crept into the supermarket shelves and consumers’ conscience of today.
Over the years, consumers have become more discerning, not only scrutinising and making their choices based on the financial value of a product or company, but also on the intrinsic values that the product or company represents.
Thus it is that over the years, companies have realised that the practice of corporate philanthropy need to evolve to become an integral part of corporate strategy, as they seek to derive competitive advantage while responding to perceived pressures from the market.
And there is good reason to do this. Six years ago for example, the leaders of the world agreed a vision for the future and a framework for its implementation. This came in the form of the eight Millennium Development Goals which envisage amongst others a world with less poverty, hunger and disease, a healthier environment, and developed and developing countries forging a partnership for the betterment of all.
But today a significant proportion of the developing world’s population still exist on less than US$1 per day, millions of children still die before the age of five sadly from preventable diseases, deforestation continues at an alarming rate of 13 million hectares a year, and youth unemployment accounts for close to half of the world’s jobless.
There is therefore still a long way to go. The challenges of the world should not and cannot be borne by governments and nations alone. The responsibility to change this world for the better, to bridge the gap between the haves and the have nots, to ensure that communities can continue to regenerate, lie in each and every one of us as a global citizen. And that includes especially businesses with their resources which can be channelled into a diverse array of programs to address these challenges, and to work together with the communities they operate in to bring about a sustainable future for all.
In today’s environment, where businesses find themselves increasingly operating in a seamless, borderless but multifaceted world, business communities become more interconnected than ever before. It therefore makes sense for business to operate on universal values by subscribing to moral and ethical practices, and nurturing a system of shared beliefs that will translate into socially responsible behaviour.
It is important to realise for example that economic, social and environmental goals are no longer mutually exclusive. We need no better reminder of this than the current haze situation whose trans-border reach is a clear warning to us all that we cannot adopt a myopic view of the world and of our responsibilities towards the preservation of the well being of its people.
The signs of change
Ladies and gentlemen,
Recent years have brought about a promulgation of international charters, frameworks, and guidelines to lay the common ground for businesses to achieve.
One of these is the United Nations Global Compact Initiative which promotes corporate responsibility by advancing universal values in business operations. It is one of the largest and most widely embraced voluntary corporate citizenship initiatives. However, I can only repeat what I have often said before that it is rather disheartening that the number of Malaysian member companies of the Global Compact remains unchanged at a disappointing two since 2003.
The Global Compact is not a regulatory instrument. It doesn’t tell businesses how to operate. Rather, it aims to integrate various principles in the areas of human rights, labour, environment and anti-corruption into business activities around the world and catalyse actions in support of the UN’s vision of a sustainable and inclusive global economy.
An ideal notion surely, some of you may wonder. Indeed, some may even question the sustainability of such initiatives and perhaps that accounts for the poor Malaysian subscription. How could such principles stand up to the daily boardroom pressures of delivering short-term results?
And more importantly, some wonder, would adopting the CSR principles crystallised by the Global Compact or any other international standards be able to attract investors?
In a 2002 survey conducted by the World Economic Forum’s Global Corporate Citizenship Initiative, chief executives were asked to rank their stakeholders according to the group which creates the greatest pressures or incentives for companies’ corporate citizenship activities. Investors were ranked seventh – after employees, government bodies, customers, local communities, NGOs and boards of directors.
A similar survey in 2004 also generated similar concerns from business leaders who commented on the low level of shareholder interest in this area. Several claimed that investors do not care nor take note of companies’ social and environmental performance.
However this is set to change. The corporate governance and ethical crises in recent years have prompted a sea change of legislations to improve corporate governance and ethics, but also to embrace the broader issues of corporate social responsibility including initiatives which persuade investors to think of more than just the bottom line.
In April this year, the United Nations Secretary-General launched the Principles for Responsible Investment (PRI) at the New York Stock Exchange. This voluntary and aspirational document provides a framework for achieving better long-term investment returns, and more sustainable markets. Essentially, it provides a framework for institutional investors to exercise their fiduciary duties and fairly assess companies on their environment, social and corporate governance (ESG) performance.
Institutional investors who sign up to the PRI commit themselves to integrate environmental, social and governance issues into conventional investment analysis and seek appropriate disclosures on environmental, social and governance issues in the companies that they invest. In addition, as signatories, they also commit to being active, responsible owners by promoting good corporate governance practices and reporting transparently on what actions have been taken.
It is heartening to note that this trend is gaining strength in Malaysia. The Ninth Malaysia Plan reinforces our nation’s agenda to achieve a stronger and more value added economy while focusing on socio-economic issues. It speaks not only of moving the economy up the value chain, but also of raising capacity for knowledge and innovation, addressing socio-economic inequities and improving the standard and sustainability of the quality of life.
Like the nation, businesses cannot afford to chase economic value without considering the impact of their operations on their stakeholders and the community at large. This responsibility is further reinforced by the recent Budget 2007 announcement which among others requires PLCs to disclose their CSR activities and provides encouragement for good CSR practices. No doubt this will set in motion a trend amongst local institutional investors who will integrate social, environmental and governance considerations into their investment decision.
Following on from this, I do hope that more Malaysian companies will see that there is an increasing convergence between the private sector, the financial markets and the global community that corporate social responsibility is not an option and should not be regarded just as a response to externally prescribed measures – but as an essential business strategy.
Ladies and gentlemen,
It is becoming increasingly obvious that business and society are equal partners in the advancement of the greater community. Business is not solely about making economic returns; it is also about people and values. And companies that have successfully incorporated CSR into their business operations have reaped benefits.
So, how do we move forward?
The joint statement of the ‘Global Corporate Citizenship: Leadership Challenge for CEOs and Boards’ developed at the World Economic Forum 2002 identified a 4-step framework for action which is worth sharing today.
While it is essential that clear responsibilities, resources and leadership roles are assigned across the company to address CSR issues on a day-to-day basis, for any CSR programme to really succeed, it is incumbent upon the CEOs, Board members and senior management like yourselves present today to:
1. Provide leadership;
2. Define what CSR means to your company;
3. Make it happen; and,
4. Be transparent about it.
The benefits of CSR are not just limited to big corporations. As with good corporate governance practices, CSR is equally relevant to smaller companies as, fundamentally, they both draw upon the same universal principles of accountability, honesty, transparency and sustainability.
It is the inextricable linkage between corporate governance and CSR which will create a corporate conscience that will help companies steer their objectives and priorities. As such, the leaders of companies amongst you must have absolute clarity, conviction and commitment in owning and driving your company’s CSR strategy. Indeed, for any CSR strategy to succeed, like any other business strategies, it must be led by example from the top and believed by the masses.
Getting CSR right is a journey not a destination. Leaders face tough decisions with increasing pressures to improve their bottom line and to be good corporate citizens. But we must persevere because the fruits of our labour today will make for a better tomorrow.
Every individual in this room has a positive and proactive role to play to infuse that new spirit into the Malaysian business environment. If today’s globalised world is characterised by change, the question that I now put to you is how will you change in order to derive the competitive advantage to be obtained from weaving social and environmental considerations into your business strategy?
On that note, I bid you a fruitful session ahead. Thank you.
|1||Adam Smith “The Wealth of Nations” (1776)|
|2||David Hess, Nikolai Rogovsky and Thomas W. Dunfee “The New Wave of Corporate Community Involvement: Corporate Social Initiatives” California Management Review 44, no. 2, Winter 2002, 114|