Board Independence and Corporate Social Responsibility (CSR) Reporting in Malaysia

Abstract

This study aims to examine the influence of board independence on corporate social responsibility (CSR) reporting by publicly listed companies in Malaysia. Content analysis was used to determine the extent of CSR reporting. A reporting index consisting of 51 items was developed based on six themes: General, Community, Environment, Human Resources, Marketplace and Other. An Ordinary Least Square (OLS) regression was used to examine the relationship between board independence and firm CSR reporting. The results indicate that the association between board independence and company CSR reporting is industry specific. Overall, the empirical evidence partially supports agency theory. KeywordsAgency Theory, CSR, Board Independence, Malaysia AbstractThis study aims to examine the influence of board independence on corporate social responsibility (CSR) reporting by publicly listed companies in Malaysia. Content analysis was used to determine the extent of CSR reporting. A reporting index consisting of 51 items was developed based on six themes: General, Community, Environment, Human Resources, Marketplace and Other. An Ordinary Least Square (OLS) regression was used to examine the relationship between board independence and firm CSR reporting. The results indicate that the association between board independence and company CSR reporting is industry specific. Overall, the empirical evidence partially supports agency theory IntroductionCompanies have reported on their Corporate Social Responsibility (CSR) obligations for more than three decades (Deegan, 2013). The notion of CSR requires companies to consider the social, economic and environmental consequences of their operations and suggests that they address the needs and expectations of stakeholders such as investors, customers, suppliers, regulators and society. Consequently, growing numbers of companies are informing their stakeholders of their social and environmental performance through print-based reporting or their websites. Although it is costly and voluntary by nature, companies still embrace in CSR, as it has been accepted as a long-term business strategy (Jamali and Mirshak, 2007) and a source of competitive advantage. It is a way to gain, maintain and repair legitimacy (Deegan et al., 2000), and it enhances a company's reputation and risk management.Consistent with the increased importance of CSR, boards' roles and responsibilities have been extended from the traditional shareholder-centric view to encompass various stakeholders. Boards of directors influence CSR in various ways, from establishing stakeholder friendly corporate policies to creating committees that deal with CSR-related matters. They are also expected to monitor company performance financially and socially (Janggu et al., 2014) and are accountable for any decisions made by management to serve for the best interest of shareholders. The board of directors also plays a pivotal role in a company's CSR activities. Nevertheless, the decision to demonstrate social and environmental responsibi...

Board Structure, Ownership Structure, and Performance of Thai Listed Companies

“…The proposed checklist of voluntary CSR information is derived from a number of disclosure areas such as environmental, community involvement, marketplace and workplace disclosures. This approach is consistent with prior research on CSR reporting in developing countries (Ghazali, 2007;Rashid and Lodh, 2008;Barakat et al, 2015;Rashid, 2015;Isa and Muhammad, 2016;Omar et al, 2016;Ahmad et al, 2017). In order to avoid CSR information repetition, this study has ignored any other external reporting by the companies.…”

Board structures, liberal countries, and developed market economies. Do they matter in environmental reporting? An international outlook

“…Therefore, companies with a one‐tier board structure are less likely to disclose environmental information. A possible explanation is that when all board members have the same tasks and responsibilities, outside directors are most likely to fail to carry out their monitory functions correctly (Ahmad et al, ). Countries under a two‐tier board system are more likely to orientate companies towards stakeholders and, therefore, these companies will tend to report more environmental information.…”

“…This result is in line with Yu et al (), who report that the disclosure of environmental information in developed countries is more relevant for stakeholders because it allows them to make decisions not only focused on social and environmental issues but also financially focused decisions. Finally, the one‐tier board structure has a negative influence on environmental disclosure because this system reduces the objectivity and credibility of the directors when monitoring the managerial team (Ahmad et al, ). In countries where companies have a two‐tier structure, they tend to disclose more environmental information, because the supervisory board represents an effective mechanism for protecting environmental matters.…”

“…Boards represent shareholders and their directors (mainly nonexecutive) and are required to monitor behaviours, decisions, and policies of the management team, which have to be in line with shareholders and stakeholder expectations (Dunn & Sainty, ). However, the credibility, independence, and objectivity of executive directors (when monitoring managers) may be challenged because they may also be part of the management team (Ahmad, Rashid, & Gow, ). Consequently, independent directors lose the ability to monitor manager behaviour and the decision‐making process, because independent and executive directors share the same board (Block & Gerstner, ) and, accordingly, the latter might control and influence all decisions made by independent directors.…”

Is a risk management committee essential in moderating the relationship between corporate governance and sustainability disclosure

“…However, according to Jizi (2017), the range of CSR disclosure is influenced by the agent's own interests. In most of the developed countries, agents prefer to implement CSR activities based on their own self-interests while CG systems focus on shareholder primacy (Ju Ahmad et al, 2017a). For an agent, CSR is a building tool for a personal reputation.…”