The state is showing it has a strong hand when it comes to corporate responsibility in Malaysia
The government of Malaysia is the most progressive in Asia when it comes to corporate responsibility. It has taken a number of pioneering initiatives to promote ethical business.
Former prime minister Abdullah Ahmad Badawi became the first national leader in Asia to champion corporate responsibility. Under his tenure, the government introduced the Silver Book, a set of comprehensive social responsibility guidelines for the government-linked companies, in 2006. Malaysia has a substantial number of state-owned companies in a wide range of sectors.
The same year, Bursa Malaysia – the national stock exchange – became the first market in Asia to introduce a rule requiring listed companies to disclose their corporate responsibility initiatives.
Bursa Malaysia provided a framework with four focal areas for action: environment, workplace, marketplace and community. However, companies have the flexibility to choose and prioritise activities. Bursa Malaysia’s definition of corporate social responsibility was a major departure from earlier thinking among Malaysian companies, which was limited to charity work.
Badawi scored another first in Asia when he introduced corporate social responsibility spending as a separate section in the national budget in 2007. Announcing the CSR guidelines in his budget speech, he said: “It is expected that companies which practice corporate social responsibility are likely to attract investors, particularly large domestic and international investors.”
His successor, and the current prime minister, Najib Razak, continues the commitment. He has set a national target to cut carbon emissions 40% by 2020. Since 2007, corporate responsibility has featured in each year’s national budget as an independent section outlining new initiatives.
“The government has played a pivotal role in promoting CSR in Malaysia,” says Geoffrey Williams, chief executive of OWW Consulting, a corporate responsibility advisory firm in Kuala Lumpur.
Williams picks out Abdullah Badawi for introducing important initiatives such as the CR reporting requirements for listed companies and a major anti-corruption and integrity programme under Institut Integriti Malaysia.
Shifting priorities
“Under the current government the focus has moved slightly towards environmental initiatives and incentives for green businesses but it remains to be seen what impact that will have,” Williams says.
Over the years, the government has introduced a number of tax incentives for companies to encourage investment in charitable projects, art and culture, reduction in greenhouse gas emissions, and community development.
In 2007, the ministry of women, family and community development launched the Prime Minister’s CSR Awards. Hundreds of companies now compete every year for these.
The award started by recognising achievement in eight categories: education, environment, culture and heritage, community and social welfare, best workplace practices, empowerment of women, small company CSR, and a special award for the best media coverage.
Two new categories of family friendly workplaces and outstanding opportunities for people with disabilities have been added in this year’s awards, further evidence of the government’s commitment to keep pace with emerging issues in corporate responsibility.
The 2011 budget includes an initiative to build 10 Trust Schools, and Khazanah Nasional – Malaysia’s sovereign wealth fund– will provide the funds. Other new initiatives include a nutrition programme for children from low-income groups and funds for youth programmes.
The budget in 2010 included a new policy for giving priority to environment-friendly products and services that comply with green technology standards in government procurement. A $460m green technology fund was also set up to support the green technology industry.
In 2009, the government launched Green Building Index (GBI), a rating system, to promote green buildings. Owners of certified GBI buildings are eligible for tax relief.
In another initiative, Bursa Malaysialaunched a sustainability knowledge portal in November 2010 to encourage sharing of good practices. “It is our intention to make this portal a global ‘go-to’ resource on sustainability. We have a number of companies which will be the first to showcase their sustainability initiatives on our Knowledge Portal,” Bursa Malaysia chairman Mohamed Dzaiddin Haji Abdullah said at the launch.
Bursa Malaysia has recently announced that it would launch an environment, social and governance index in 2012 with an aim to attract global socially responsible investment funds.
Williams of OWW Consulting says that among government agencies, Khazanah Nasional has promoted corporate responsibility vigorously among the companies it owns, and Standards Malaysia has finally adopted and promoted the ISO 26000 as the national social responsibility guidelines.
Petri Marttinen, chief operating officer at My Khatulistiwa, a local CSR consulting firm, agrees that the government recognises the importance of long-term sustainable strategies.
However, he points out: “There is no information on what actions are taken by Khazanah in the event the guidelines are not followed [by state-owned companies] and Bursa Malaysia stresses that all CR activity for public listed companies is on a voluntary basis.”
Shareholder activism
The government has championed the cause of minority shareholders in a big way. The government established the Minority Shareholder Watchdog Group in 2000 to protect the interests of minority shareholders.
One of the stated goals of MSWG is “to become the platform to initiate collective shareholder activism on questionable practices by management of public listed companies”.
In 2009, MSWG launched the annual Malaysian corporate governance index, a landmark initiative to encourage good corporate governance. The index rates and ranks listed companies on their corporate governance performance in the areas of compliance with corporate governance, quality of disclosures, financial sustainability, best practices, and corporate social responsibility efforts.
The MCG index results in an annual list of the top 100 companies in terms of corporate governance. The top performers also receive annual MCG index awards.
Integrity pledge
With an aim to curb corruption, the government sponsored a corporate integrity pledge, launched in April 2011. A voluntary initiative, companies sign up to a commitment to uphold anti-corruption principles in Malaysia.
The initiative has been launched jointly by Bursa Malaysia, the Companies Commission of Malaysia, the Malaysian Institute of Integrity, the Malaysian Anti-Corruption Commission, NKRA Corruption Monitoring and Coordination Division, the Malaysian Securities Commission, Transparency International Malaysia, and the prime minister’s office. Nearly 40 companies have signed up to the pledge so far.
Malaysia was ranked 56th in Transparency International’s Corruption Perception Index in 2010, a slide from number 36 in 2001.
In another first-of-its-kind policy in Asia, in June 2011, the prime minister announced that listed companies must have at least 30% board seats represented by women. Companies have until 2016 to comply.
The government had already implemented similar policy for the public sector in 2004. The number of women in senior public sector jobs has increased from 19% in 2004 to 32% in 2010.
In contrast, a government survey of 200 listed companies showed that women held only 6% of board seats in as of April this year, down from 7.6% in November 2010.
While women’s groups have welcomed the 30% quota policy, employers do not seem to be happy. Local media quoted Malaysian Employers Federation executive director Shamsuddin Bardan as saying: “If they want to be in that bracket, it should be by merit, not by quota.”
While the government has played a key role in promoting corporate social responsibility in the corporate sector, analysts point to areas where the government action has lagged behind other countries.
For example, Corporate Social Responsibility in Malaysia, a report prepared by the Norwegian Embassy in 2011, points out that Malaysia has resisted ratifying a number of human rights and labour rights conventions. The Norwegian Embassy report notes: “Although attention to CSR has increased in Malaysia in recent years, there is undoubtedly a need for improvement in several areas.”
The report adds: “A growing corruption problem indicates that there is a need for measures to counteract this trend. Inadequate reporting of implementation is another problem as stated CSR policies are not necessarily followed in practice.”
Marttinen of My Khatulistiwa says the government can do more to promote corporate responsibility in Malaysia such as increasing transparency and disclosure in the form of reporting, launching a sustainability index to standardise or benchmark corporate responsibility, and taking action against companies that abuse responsibility concepts or fail to report or disclose their activities.