csr practices and influencing factors: evidences …
TRANSCRIPT
1 | P a g e
CSR PRACTICES AND INFLUENCING FACTORS: EVIDENCES FROM SMALL
AND MEDIUM ENTERPRISES IN MALAYSIA
Manjit Singh Sandhu
Senior Lecturer
Department of Management, School of Business
Monash University Sunway Campus, Malaysia
Tel: 603-55146195 Fax : 60355146192
Shaufique Fahmi Sidique
Senior Lecturer
Faculty of Economics and Management
Universiti Putra Malaysia
Tel : 603-8946 7679/89471097 Fax : 603-8946 7639
Betty Khoo
Global Metric Manager
WW Channel Sales Support Operations
Hewlett-Packard Malaysia
Page 1 of 37 ANZAM 2011
2 | P a g e
CSR PRACTICES AND INFLUENCING FACTORS: EVIDENCES FROM SMALL
AND MEDIUM ENTERPRISES IN MALAYSIA
ABSTRACT
Although CSR (Corporate Social Responsibility) is becoming an important element in
business conducts, its practices are usually carried out by large firms, particularly multinational
corporations (MNC). Large companies face relatively higher pressure than small companies to be
more socially responsible since they tend to be more visible to society and have bigger social impact
due to the scale of their activities. However, recent trend shows that small and medium enterprises
(SMEs) involvement in CSR practices is growing. This paper aims to provide some insights into the
factors influencing selected Malaysian SMEs to participate in CSR practices. It will provide a
description about the types of CSR activities undertaken by the Malaysian SMEs and identify the most
important targeted stakeholder. The study also intends to determine which stakeholder groups have
the most influence on CSR adoption. The data for this study is obtained from a survey of 80 randomly
selected SMEs from various industries in Malaysia.
Keywords: Corporate Social Responsibility; small firms; Malaysia
INTRODUCTION
Corporate Social Responsibility (CSR) or better known today as Corporate Responsibility
(CR) is a concept that is has gained enormous importance in today’s global economy. The European
Commission defines CSR as “a concept whereby companies integrate social and environmental
concerns in their business operations and in their interaction with their stakeholders on a voluntary
basis” (European Commission, 2011). The context of CSR today has moved gradually from its
historical focus on business philanthropy to a broader set of activities that integrate the practice of
CSR into the core strategy of an organization. Organizations are thus expected to go beyond their
profit driven perspectives and to consider their business practices impact to society and the
environment (Jenkins, 2006; Mirfazli, 2008). Currently, there is an increasing demand for more
ethical and socially responsible business. For example, in the last decade there has been more than ten
Page 2 of 37ANZAM 2011
3 | P a g e
times increase in ethical investment in Britain (Hellsten and Mallin, 2006). In the United States, a
survey showed that 70% of the polled consumers responded that they would not do business with a
company that is not socially responsible, regardless of the price (Joyner and Payne, 2002).
Although CSR is becoming an important element in business conducts, its practices are
usually carried out by large firms (Perrini et al, 2007; Udayasankar, 2008). Large companies which are
more visible to society face relatively higher pressure than small companies to be more socially
responsible. However, the significant growth and rising importance of the small and medium sized
enterprises (SMEs) has resulted in increased attention on the social and environmental impacts of
small firm operations (Jenkins, 2006). SMEs are an important sector in the economic and industrial
development of many countries and they play an important role in creating jobs, particularly in the
developing world. SMEs contribute to approximately 60% of employment in developing countries
(Luetkenhorst, 2004; Jenkins, 2004; Udayasankar, 2008). Although SMEs may face lesser pressure
and gain little recognition from CSR due to lower visibility as compared to larger firms, recent trend
shows that SMEs’ engagement in CSR practices is growing (Jenkins, 2006; Perrini et al., 2007).
Majority of studies on CSR are concentrated on large corporations and CSR in small and
medium firms receives very little attention (Fassin et al, 2007; Fassin et al, 2008;Jenkins 2006). This
leads to a void in the current literature because CSR practices designed for large companies are not
necessarily suitable for SMEs. Further, most of the CSR studies among SMEs have been conducted in
developed and industrialized countries such as USA, Australia and Europe (Deniz and Suarez, 2005;
Longo et al, 2005; Murillo and Lozano, 2006; Hoivik and Mele, 2009). The small business operations
and culture in these developed countries are different from developing countries like Malaysia, making
it difficult to generalize the past studies results and findings. Empirical evidences examining CSR
among small and large firms also tend to have inconclusive results and are unable to provide any clear
pattern of behavior.. This has resulted in a fragmented view on why firms tend to engage in CSR. We
argue that although there are differences between SMEs and large firms, the fundamental motivation
to exist is still the same - survival. Shouldn’t there be one universal CSR agenda or framework for all
firms irrespective of size of the organization and whether the firm is local or multinational.
Page 3 of 37 ANZAM 2011
4 | P a g e
This paper aims to provide some insights into the factors influencing selected Malaysian
SMEs to participate in CSR practices. It will provide a description about the types of CSR activities
undertaken by the Malaysian SMEs and identify the most important targeted stakeholder. This study
also intends to determine which stakeholder groups have the most influence on CSR adoption. The
findings from this study will help to enhance the understanding, development and knowledge of CSR
among the SMEs in this country.
LITERATURE REVIEW
CSR Theories
Historically, CSR has evolved from a macro focus to a micro focus where the emphasis has
shifted to the firm or corporations. At the macro level, classical economist such as Adam Smith
through his ‘wealth of nations’ argued that maintaining ethical and moral behavior is vital to achieve
long term economic growth. One of the first notable written contributions that examined the
relationship between firms and society was made by Howard Bowen in 1953 through his book “Social
Responsibilities of the Businessman”. Bowen questioned the role of businesses and tried to explain
why firms should be concerned with CSR. However, this view received staunch criticism from
Friedman (1962) who argued that the main purpose of a business is to maximize profits that is to
maximize shareholders’ wealth. Friedman (1962) argued in his book ‘Capitalism and Freedom’ that
businesses has only one motive towards society that is to ensure resources are allocated in such a way
that it leads to enhancement of profits while doing it within the rule of law and also avoiding deception
and fraud. Friedman further contented that any attempt by managers to use internal funds for other
purposes (such as CSR) is deemed as swindling away such funds at the expense of the shareholders.
Friedman’s thinking was supported by utilitarian theories where firms are seen as merely profit
making entities (Decchi, 2007). Then, there are others that criticized CSR and feared that businesses
may end up dominating society through their corporate responsibility ventures (Levitt, 1958).
During the late seventies, Carrol developed one of the most comprehensive framework known
as the CSR Pyramid (Caroll, 1979; 1991). The CSR Pyramid consists of four different levels of
corporate responsibilities where corporation’s main focus initially lies towards the economic and legal
Page 4 of 37ANZAM 2011
5 | P a g e
aspects and as they evolve, the other two aspects: ethics and philanthropic categories begin to play a
more dominant role. Another important school of thought was the stakeholder view (Freeman, 1984).
Freeman argued that the role of the business owner is to protect the interest of the various stakeholders
(employees, shareholders, customers etc) that have relationships with the firm and through their ties
are vital to the future success of the firm. Stakeholders here are referred to by Freeman as the various
groups of people such as customers, suppliers, employees, society, government and shareholders.
According to stakeholder theory there is no demarcation between economics and ethics. In the
process of value creation, firms irrespective whether they are large or small must ensure that their
stakeholders well being is taken care (i.e., listen to them, consider their needs when making decisions,
treat them fairly) so that they are able to contribute positively to the overall value being created. Thus,
irrespective of the ultimate motive of the organization, business owners need to take into account the
interests of the relevant groups who may have an impact on their end results. However, one limitation
of the stakeholder theory is that it does not prioritize among different stakeholder groups. How
important a stakeholder is and the degree of its influence may differ from one firm to another and from
large firms and SMEs.
In recent times, strategic gurus had presented a strategic view towards CSR. These proponents
who call it as ‘strategic philanthropy’ believe that CSR can be employed as a tool to enhance a firm’s
competitive advantage in the long run (Porter and Kramer, 2002; Porter and Kramer, 2006; Kotler and
Lee, 2005). They further argue that there can be a win-win situation and if businesses ignore society
this can lead to its destruction. This view is supported by empirical evidences where positive links
were found between CSR practices and firm reputation, consumer loyalty and market value of the
corporation (Kotler and Lee, 2005; Mackey et al, 2007).
Past Empirical Perspectives
Deniz and Suarez (2005) conducted an empirical examination of 112 family businesses (both
large as well as SMEs) in Spain employing CSR programs and found that orientation towards CSR
tends to differ between the family firms and there was lack of a consistent pattern in the reason why
they engaged in CSR. Most of the firms showed mixed type of CSR orientation. Three clusters were
Page 5 of 37 ANZAM 2011
6 | P a g e
found: 41 firms had philanthropic orientation, 33 had classic orientation and 26 had socio-economic
orientation. Longo et al (2005) surveyed 62 SMEs from Bologna, Italy covering a range of industries
and employed stakeholder theory as the framework. 39 SMEs were found to be socially responsible
and 23 were not. Only 20 firms engaged in CSR due to ethical motive alone whereas 14 did it due to
ethical as well as other motives (economic etc).
A study conducted by Jenkins (2006) on 24 UK based SMEs found that all SMEs were
involved in some way or another in some form of philanthropic activities. Employing stakeholder
theory as its framework, the study found that all 24 SMEs were engaged in a range of CSR activities
related to various stakeholders (environmental practices, employee development, community
development practices and supplier learning schemes etc). Jenkins argued that SMEs style of
management is more informal and is very much determined by the owner-manager’s personalities. The
main driver of CSR activities is the owner-manager who decides on how resources are allocated for
social means.
Another study in the Netherlands on the adoption of CSR by forty two family firms (Uhlaner
et al, 2004) revealed that family business owners have strong special relationships with employees,
clients, suppliers, sports clubs, churches, service organizations and use this to their advantage. The
stakeholders were more like an extended family. These relationships led to economic benefits,
conformance to ethical and legal expectations and philanthropic involvement. However, for
employees, clients and suppliers the behaviour most inherent was economic benefits. Although much
desired, truly philanthropic activity was very limited. Within the developing nation perspective, Jamali
and Mirshak (2007) conducted eight case studies on eight firms (four local and four MNC
subsidiaries) operating in Lebanon selected based on their involvement and visibility of their CSR
programs. The conceptual framework was based on the integration between Carrol’s (1979) three
dimensional model of corporate performance and Wood’s (1991) CSP revisited. There was a clear
lack of systematic, focused and institutionalized approach to CSR (applies to both local as well as
foreign SME) in Lebanon. CSR practices among SMEs in Lebanon were very much based on
voluntary philanthropic action over and above their mainstream activities. The main motive to adopt
CSR practices was because of concern in maintaining legitimacy and credibility in a shared
Page 6 of 37ANZAM 2011
7 | P a g e
environment and as a means to give back to society. CSR adoption was mainly catalyzed by
owners/founders who acted as moral actors. Profitability was not considered an important reason to go
into CSR but short term benefit such as enhancing reputation, branding and public relations did exist.
Most CSR practices of international subsidiaries were based on parent firm CSR strategies/agenda.
However, the study had several limitations. The sample was considered too small and thus lacked
external validity. The results also could not reflect the true state of CSR practices in Lebanon since
several of the firms in the sample were foreign firms located in Lebanon (Microsoft, Tetra Pak, SMLC
and Le Vendome) and there are tendencies of those firms emulating the CSR practices of their parent
companies.
Hoivik and Mele (2009) conducted a single case study covering a single clothing Norwegian
manufacturing firm having operations in Norway as well as in China. The study showed that the firm
exhibited strong involvement in social responsibility by employing people in marginalised situations
and undertook positive actions in improving working conditions, promoted employee involvement,
employment protection and action of solidarity. Although, the firm engaged voluntarily in social
responsibility it employed an integrative strategy which included fulfilling its business objectives as
well as its social/moral objectives.
In conclusion, past empirical findings show that the motivation to adopt CSR practices among
SMEs in the developing as well as developed countries is still very much a voluntary practice based on
initiatives undertaken by the owners of the business whose ethical behavior and moral values may
drive their decision.
RESEARCH METHODOLOGY
The conceptual framework for this study was developed based on Carroll’s model of corporate
social responsibility (Carroll, 1979 and 1991) and Freeman’s stakeholder’s theory (Freeman, 1984).
The data for this study was collected using a structured questionnaire mailed to 500 randomly selected
small and medium enterprises (SME) from the SME Business Directory1 in Malaysia. The firms were
from various business sectors such as manufacturing, education and training, construction, services
1 a comprehensive list can be obtained from http://www.smeinfo.com.my.
Page 7 of 37 ANZAM 2011
8 | P a g e
and tourism. A sample 80 respondents constituting 16% response rate were obtained. The survey
questionnaire consists of four sections where the first section solicits firm background information, the
second section investigates the factors affecting SME motivations to implement CSR initiatives by
using seven-point Likert-scale questions (1 for ‘Strongly Disagree’, 7 for ‘Strongly Agree’) which are
adopted on a similar study undertaken by Mankelow (2006) and Quazi (2003). The third section
evaluates the CSR practices targeted to different stakeholder groups and the seven-point Likert-scale
questions were adopted from a similar study done by Lindgreen et al (2009). The last section of the
survey evaluates the extent to which the organizations were influenced by different stakeholders in its
CSR practices using five-point Likert-scale questions (1 for ‘Very Low Influence’ to 5 for ‘Very High
Influence’) adopted from a study conducted by Lindgreen et al (2009).
RESULTS AND ANALYSIS
The majority of our respondents are SMEs operating in the services sector (32.5%), followed
by manufacturing (20.8%), manufacturing-related services (15.6%), others (14.3%) and ICT (11.7%).
SMEs classified as ‘others’ comprises of businesses such as workshop, trading, telecommunication,
restaurants, oil and gas, and laboratory. The sample has very low representation of the SMEs from the
agro-based (3.9%) and the primary agriculture (1.3%) sector. In Malaysia, SME classification is based
on the number of employees a business employs or the total sales or revenue generated by a business
in a year. With regards to the number of employees, a majority of the respondent companies have 5 to
20 employees (43.4%). The number of employees of other companies in the sample ranges from less
than 5 (19.7%), from 21 to 50 (21.1%) and 51 to 150 (15.8%). In the turnover category, most of the
respondent companies have annual sales of RM1 million to less than RM5 million (32.9%), followed
by RM200,000 to RM1 million (25.0%) and RM5 million to less than RM10 million (19.7%). Only
11.3% of the respondent have an annual sales turnover of RM10 to less than RM25 million. Around
10% of the sample consists of companies with turnover less than RM200,000. More than half of SMEs
sampled have business experience of more than 10 years. Approximately 53% of the companies in the
sample have been in operation from 10 to 30 years and 9.4% of the sample have been operating for
more than 30 years.
Page 8 of 37ANZAM 2011
9 | P a g e
Factors affecting SMEs motivations for CSR
Table 1 reports the factors motivating the SMEs to engage in CSR practices. The motivating
factors are classified into four broad levels of responsibilities which are Economic, Ethical,
Philanthropy and Legal. Table 2 shows the ranking of the CSR motivating factors and also its
corresponding internal reliability values (Cronbach’ alpha). All alpha values are above the minimum
acceptance value of 0.7 (Nunnally, 1978). The ranking indicates that the main motivation for engaging
in CSR practices among the Malaysian SMEs is economic responsibilities, followed by ethical,
philanthropy, and legal. Within the economic category, ‘enhancing corporate image’ (M=5.321,
SD=1.304) is rated as the most important aspect, followed by ‘maintaining customer loyalty’, ‘long-
term survival’, ‘customer support’, ‘business interest in CSR’ and finally ‘donations based on tax
incentives’. With regards to philanthropic responsibilities, ‘contribution to community’ is the most
important motivating factor, whereas ‘donations beyond tax implication’ is the least important factor.
Under the ethical category, ‘businesses should respond to social issues’ is the most important factor
followed by ‘staff welfare’ and ‘communicating social messages’. The legal motivation for the SMEs
is to follow industry CSR standards. This indicates that they are also interested in carrying out CSR
activities if it is widely practiced by the industry in order to position themselves against their
competitors for strategic purposes.
Insert Table 1 here
Insert Table 2 here
CSR practices for different stakeholders
Table 3 reports the CSR practices for different stakeholders and Table 4 reports the ranking of
the respective stakeholder-related practices. The CSR practices are categorized into six different
stakeholder-related practices which are Customers, Suppliers, Employees, Investors, Communities-
Environment and Communities-Philanthropy. The ranking result indicate that CSR practices for
customers is considered to be most crucial, followed by suppliers, employees, investors and
Page 9 of 37 ANZAM 2011
10 | P a g e
communities. CSR practices for the community are further divided into practices related to the
environment and corporate philanthropic activities. CSR practices with respect to the environment are
ranked higher than corporate philanthropy related CSRs. Within the CSR practices for customers,
paying attention to resolving customer complaints is considered as the most important factor
(M=6.090; SD=0.825) followed by incorporating customer interests in business decisions (M=6.013;
SD=1.000) and providing customers with the needed information to make good purchasing
decisions(M=6.000; SD=1.162). The result is well anticipated as addressing customer complaints
successfully is important for retaining existing customer base for all businesses especially the smaller
ones or the ones with low market power. The second most important CSR category is employee-
related CSR practices. The most important CSR practice under this category is treating employees
fairly and respectfully, regardless of gender and ethnic background (M=6.128; SD=1.177).
Incorporating the interests of employees has the lowest mean score in under the employee-related CSR
category (M=5.115; SD=1.405).
Supplier-related CSR practices are found to be the third most important CSR category
perceived by the SMEs. The most important aspect in this category is treating suppliers, regardless of
their size and location, fairly and respectfully (M=5.756; SD=1.164). Investor-related CSR practices
yield the fourth highest mean average score among the five stakeholders. The most important CSR
practice in this category is providing full and accurate financial information of the organization to the
investors (M=5.571; SD=1.482). The ranking result also indicates that environment and philanthropy
related CSR practices are not the major priorities for the SMEs in developing country such as
Malaysia. The most they do is to incorporate environmental concern into their business decisions
(M=5.218; SD=1.420) and minimize the environmental impact of their organization’s activities
(M=5.218; SD=1.392). They barely measure their organization’s environmental performance
(M=4.474; SD=1.509). This could be due to the lack of environmental regulations and enforcements in
developing countries. With respect to philanthropy-related CSR practices, the most common practice
is to incorporate the interest of the local communities in their business decisions (M=5.013;
SD=1.372). This indicates that the SMEs are somewhat concerned about their business impact to the
Page 10 of 37ANZAM 2011
11 | P a g e
local communities. Providing financial support for education in the local communities (mean = 4.513;
SD = 1.484) is also not a common practice among the SMEs.
Insert Table 3 here
Insert Table 4 here
Stakeholder influence
Table 5 evaluates the influence of different stakeholder groups such as directors and owners,
workers, market stakeholders and government and pressure group on CSR policies adopted by the
respondent companies and Table 6 ranks the relative influence of each stakeholder group. CEO, board
of directors and owners under directors and owner group (mean = 3.803; SD = 1.053) is perceived to
have the highest influence on CSR by the respondents. Workers such as middle level managers and
other employees influence in CSR is ranked second, followed by market stakeholders, and government
and pressure groups.
Insert Table 5 here
Insert Table 6 here
CONCLUSION AND IMPLICATIONS
The prime motivation of this study is to identify the factors that influence Malaysian SMEs to
participate in CSR programs. Our findings indicate that the main motivations for engaging in CSR
practices are economic incentives, followed by ethical considerations, philanthropy, and legal
requirement. The findings are not consistent with the Lebanese studies (Jamali et al, 2009 and Jamali
and Mirshak, 2007) where philanthropic motive was the main driver for SME participation in CSR
activities. However, our findings support the studies done in the Netherlands (Uhlaner et al, 2004) and
Catalonia (Murillo and Lazano, 2006) where economic motive was the main motive for CSR adoption.
Our findings support the strategic view towards CSR theory by Porter and Kramer (2006)
which states that the adoption of CSR practices can enhance competitive advantage. We argue that
although small firms have different characteristics compared to larger firms, the primary objective
remains the same, that is profit maximization. Adoption of CSR is likely to enhance corporate image,
improve sales and eventually results in higher profits in the future. Thus, we believe that there is little
Page 11 of 37 ANZAM 2011
12 | P a g e
connection between firm size and the motivation to adopt CSR practices. In addition our results also
support Caroll’s CSR pyramid whereby firms focus initially on economic incentives and as they
evolve, other motives began to be given priorities. Legal requirement is found to be the least important
factor in Malaysia and this is not unanticipated as small firms have lower compliance requirements as
compared to larger public listed firms. SMEs in Malaysia are not required by law to have CSR
practices unlike large public listed firms that are required by law to provide CSR reports together their
annual income statements.
The second objective of the study is to describe the CSR practices undertaken for different
stakeholders and to identify the most important targeted stakeholder. We found that CSR practices
among SMEs in Malaysia tend to be geared towards satisfying the customers. Customers are therefore
seen as the most important CSR stakeholders, followed by employees, suppliers, investors and
community. The result concurs with the economic motive of the firm whereby gearing CSR activities
towards the customers will ensure the livelihood of the firm. Most SMEs are family-run business and
they tend to have closer relationships with employees and suppliers. This finding supports the study by
Uhlaner et al (2004) where they concluded that employees and suppliers of small firms are like
extended family. Our results also indicate that employee welfare such as equal opportunities, fair
salaries and benefits, and employee development are found to be important CSR practices among
SMEs. All these practices will promote a positive work climate that will subsequently be translated
into higher productivity and profits. CSR practices that are related to the environment and
philanthropy are found less important than customer-, employee- and supplier-related CSR practices,
since their impact on profits are less direct. Smaller firms also usually have lower resources and
priorities are given to activities with faster impact on profitability.
The final objective of the study is to determine which stakeholder groups have the most
influence on the adoption of CSR practices. We found that top management (CEO, board of directors
and owners) have the highest influence on CSR adoption, followed by employees, market stakeholders
and government pressure groups. This supports the past study by Jenkins (2006) and Jamali et al
(2009) that also found owner-managers playing the most important role in allocating resources for
CSR activities.
Page 12 of 37ANZAM 2011
13 | P a g e
This study has some theoretical implications. Firstly, we postulate that small firms, despite
having different characteristics than larger firms, the motivations to go into CSR tend to be similar.
Most firms have a combination of motives that influence their involvement is CSR and the motives are
usually business survival-related. The call by CSR theorist to develop new models to explain CSR
involvement by small firms is not justified. We believe that Caroll’s CSR pyramid model is very much
applicable to all types of firms albeit their sizes. Our results have shown that smaller firms have
similar CSR priority-ranking to the Caroll’s CSR pyramid. The only difference is legal motivation
which is easily justified because the SMEs are operating in a developing country which has different
legal requirements for CSR practices. Secondly, we also find that the Freeman’s stakeholder theory is
relevant to explain CSR adoption among SMEs. We argue that irrespective of size, firms have almost
similar stakeholder structure although their organizational structure may differ. Firms also have
similar obligations to their stakeholders. Therefore, the adoption of CSR practices is very much geared
towards fulfilling stakeholder’s expectations. In our case, in line with Caroll’s economic
responsibilities, small firms were found to focus their CSR practices towards satisfying their
customers, followed by employees and suppliers. We believe that the stakeholder theory and the
Caroll’s pyramid are essentially integrated. Thirdly, small firms have simple organizational structure
and fewer management layers. As such, in line with our third objective, the major decisions on CSR
activities in SMEs are influenced by owners and directors who play multiple roles in the organization.
Thus, this again shows the relevance of stakeholder’s theory in explaining the role played by top
management in influencing CSR adoption.
Our findings also have some practical implications. Long-run sustainability remains an
important agenda for both small and large firms. However, formal policy on CSR for SMEs is
currently lacking. The result of this study shows that CSR is taken seriously by SMEs and the adoption
structure can be further improved by developing a more comprehensive CSR framework. For example,
the government can develop a legal framework to institutionalize CSR practices of small firms. This
research has several limitations. The study can be improved if a larger sample is surveyed. The
findings can be strengthened if this quantitative study is supported by qualitative data such as in-depth
interviews and case studies of selected firms. This study relies heavily on descriptive statistical
Page 13 of 37 ANZAM 2011
14 | P a g e
approach which may not be sufficient to make robust conclusions. Future studies may want to extend
this research by analyzing the impact of CSR adoption on small firms’ business performance
REFERENCES
Bowen, H.R. (1953). Social Responsibilities of the Businessman. New York: Harper & Row.
Carroll, A. B. (1979). A Three-Dimension Conceptual Model of Corporate Performance. Academy of
Management Review 4 (4), 497-505.
Carroll, A.B., (1991). The pyramid of corporate social responsibility: Toward the moral management of
organizational stakeholders. Business Horizons, 34(1), 39-48.
Deniz, D. M and Suarez, C, K.M (2005) Corporate Social Responsibility and Family Business in
Spain, Journal of Business Ethics 56, 27-41.
Fassin, Y. ( 2008), “SMEs and the fallacy of formalising CSR”, Business Ethics: A European Review,
17(4), 364-378.
Fassin, Y., A. V. Rossem, and M. Buelens (2010). Small-Business Owner-Managers' Perceptions of
Business Ethics and CSR-Related Concepts. Journal of Business Ethics 96(1), 1-9.
Freeman, R. E. (1984), “Strategic management: a strategic approach”, Boston: Pitman.
Friedman, M. (1962). Capitalism and Freedom, Chicago: University of Chicago Press.
Hellsten, S., and C. Mallin (2006). ‘Are “Ethical” or “Socially Responsible” Investments Socially
Responsible? Journal of Business Ethics 66(1), 393-406.
Hoivik, H., and Mele’, D. (2009). Can an SME become a Global Corporate Citizen? Evidence from a
Case Study. Journal of Business Ethics, 88(1), 551-563.
Jamali, D and Mirshak, R. (2007). Corporate Social Responsibility (CSR): Theory and Practice in a
Developing Country Context. Journal of Business Ethics, 72(1), pp. 243–262.
Jenkins, H., (2006). Small business champions for corporate social responsibility. Journal of Business
Ethics 67(1), 241-256.
Jenkins, H., (2004). A critique of conventional CSR theory: An SME perspective. Journal of General
Management 29(4), 37-57.
Joyner, BE & Payne, D (2002). 'Evolution and Implementation: a study of values, business ethics and
corporate social responsibility', Journal of Business Ethics, 41(1), 297-31.
Kotler, P. and N. Lee (2005). Corporate Social Responsibility: Doing the Most Good for Your
Company and Your Cause , John Wiley & Sons, Hoboken, NJ.
Levitt, T. (1958) ‘The Dangers of Social Responsibility’, Harvard Business Review 36(1), 41-50.
Lindgreen, A, Johnston, W.J., & Swaen, V (2009). “Corporate social responsibility: an empirical
investigation of U.S. organizations”, Journal of Business Ethics, 85 ( 2) , 303-323.
Longo, M., M. Mura, and A. Bonoli (2005). “Corporate Social Responsibility and Corporate
Performance: The Case of Italian SMEs”, Corporate Governance, 5(1), 28-42.
Page 14 of 37ANZAM 2011
15 | P a g e
Luetkenhorst, W. (2004) ‘Corporate Social Responsibility and the Development Agenda: The
case for actively involving small and medium enterprises’, Intereconomics, May/June.
Mackey, A., Mackey, T.B., and Barney, J. B. (2007): “Corporate Social Responsibility and Firm
Performance: Investor Preferences and Corporate Strategies”, The Academy of Management
Review, 32(3), 817-835.
Mankelow, G, (2006). 'What Motivates Small Enterprises to Participate in Corporate Social
Responsibilities?’ The Australian Journal of Business and Social Enquiry, 4(1), 60-73
Mirfazli, E. (2008). Corporate social responsibility (CSR) information disclosure by annual reports of
public companies listed at Indonesia Stock Exchange (IDX). International Journal of Islamic
and Middle Eastern Finance and Management 1 (4), 275-284.
Murillo, D. & Lozano, J. (2006). SMEs and CSR: An approach to CSR in their own words. Journal of
Business Ethics, 67(3), 227-240.
Nunnally, JC. (1978) Psychometric theory. New York: McGraw-Hill.
Perrini, F., Russo, A. & Tencati, A. (2007). CSR strategies of SMEs and large firms: Evidence from
Italy. Journal of Business Ethics, 74(3), 285-300.
Porter, M. & Kramer, M. (2002). The Competitive Advantage of Corporate Philanthropy.
Harvard Business Review. 80(12), 56-68.
Porter, M.E. and Kramer, M.R.(2006), “The link between competitive advantage and corporate social
responsibility”, Harvard Business Review 85 (12), 78-92.
Quazi, A., (2003). Identifying the determinants of corporate managers’ perceived social obligations.
Management Decision, 41(1), 822-83.
Udayasankar, K.(2008), “Corporate social responsibility and firm size”, Journal of Business Ethics,
83(2), 167-175.
Uhlaner, M.L, Goorbalk, J.M.H and Masurel, E (2004). Family business and Corporate Social
Responsibility in a sample of Dutch Firms. Journal of Small business and Enterprise
Development. 11(2), 186-93.
Page 15 of 37 ANZAM 2011
16 | P a g e
TABLES
Table 1
Motivations for CSR
Item Score
Mean SD
Economic
Enhance corporate image 5.321 1.304
Maintain customer loyalty 5.077 1.439
Long term survival 5.026 1.432
Customer approval/support 4.846 1.451
Business’s interest in CSR 4.423 1.428
Donations based on tax incentives 4.077 1.552
Philanthropy
Contribution to community 5.231 1.289
Address community needs 5.039 1.343
Community acceptance 4.923 1.246
Donations beyond tax implications 4.182 1.636
Ethical
Businesses should respond to social issues 5.231 1.494
Staff welfare 5.051 1.404
Communicate social messages 4.551 1.492
Legal
Following industry standards in CSR 4.526 1.355
Table 2
Ranking of motivating factors
CSR
Ranking Factors Mean SD
Cronbach's Alpha
1 Economic 5.067 1.225 0.893
3 Ethical 4.944 1.217 0.777
2 Philanthropy 4.851 1.085 0.786
4 Legal 4.526 1.355
Page 16 of 37ANZAM 2011
17 | P a g e
TABLES
Table 3
CSR practices for different stakeholder
CSR practices Score
Mean SD
Customers
We (pay attention to) resolve customer complaints about our
products or services 6.090 0.825
We incorporate the interests of our customers in our business
decisions 6.013 1.000
We provide all customers with the information needed to make
sound purchasing decisions 6.000 1.162
Suppliers
We treat suppliers, regardless of their size and location, fairly
and respectfully 5.756 1.164
We inform our suppliers about organizational changes affecting
our purchasing decisions 5.325 1.322
We incorporate the interests of our suppliers in our business
decisions 5.256 1.333
Employees
We treat our employees fairly and respectfully, regardless of
gender or ethnic background
6.128 1.177
We provide our employees with salaries that properly and fairly
reward them for their work
5.936 1.121
We provide procedures that help to insure the health and safety
of our employees
5.885 1.289
We support our employees who want to pursue further
education
5.564 1.438
We help our employees balance their private and professional
lives
5.205 1.323
We incorporate the interests of our employees in our business
decisions
5.115 1.405
Investors
We provide our investors with full and accurate financial
information about the organization
5.571 1.482
We inform our investors of changes in corporate policy 5.403 1.360
We incorporate the interests of our investors in business
decisions
5.237 1.495
Page 17 of 37 ANZAM 2011
18 | P a g e
Communities - Environment
We incorporate environmental concerns in our business
decisions
5.218 1.420
We minimize the environmental impact of all our organization’s
activities
5.218 1.392
We incorporate environmental performance objectives in our
organizational plans
4.962 1.516
We voluntarily exceed government-imposed environmental
regulations
4.936 1.436
We financially support environmental initiatives 4.577 1.410
We measure our organization’s environmental performance 4.474 1.509
Communities - Philanthropy
We stimulate the economic development in the communities
where we operate.
5.154 1.152
We help improve the quality of life in the communities where
we operate
5.115 1.217
We incorporate the interests of the communities where we
operate in our business decisions
5.013 1.372
We give money to charities in the communities where we
operate
4.949 1.441
We financially support activities (arts, culture, sports) in the
communities where we operate
4.513 1.484
We financially support education in the communities where we
operate
4.487 1.560
Table 4
CSR ranking
CSR
Ranking Identified Stakeholder Mean SD
Cronbach's Alpha
1 Customer 6.034 0.809 0.728
3 Employees 5.639 0.966 0.84
2 Supplier 5.459 1.007 0.715
4 Investors 5.395 1.322 0.899
5 Community-Environment 4.897 1.259 0.935
6 Community-Philanthropy 4.872 1.071 0.869
Page 18 of 37ANZAM 2011
19 | P a g e
TABLES
Table 5
Stakeholder Influence
Stakeholder Score
Mean SD
Directors & Owners
Chief Executive Officer 3.829 1.088
Owners/Shareholders 3.818 1.144
Board of Directors 3.763 1.153
Workers
Middle-level Managers 3.316 0.867
Employees 3.000 0.874
Market Stakeholders
Customers 3.390 1.041
Competitors 3.052 1.111
Suppliers 2.974 0.959
Government & Pressure Groups
National Regulators 3.260 0.865
Press/Media 3.197 1.083
International Regulators 3.182 0.928
Local Communities 3.143 1.048
Trade Unions 2.658 0.987
Table 6
Ranking of stakeholder influence
CSR
Ranking Identified Stakeholder Mean SD
Cronbach's Alpha
1 Directors & owners 3.803 1.053 0.923
2 Workers 3.158 0.817 0.858
3 Market stakeholders 3.139 0.902 0.837
4 Government & pressure groups 3.087 0.722 0.783
Page 19 of 37 ANZAM 2011
1 | P a g e
CSR PRACTICES AND INFLUENCING FACTORS: EVIDENCES FROM SMALL
AND MEDIUM ENTERPRISES IN MALAYSIA
ABSTRACT
Although CSR (Corporate Social Responsibility) is becoming an important element in
business conducts, its practices are usually carried out by large firms, particularly multinational
corporations (MNC). Large companies face relatively higher pressure than small companies to be
more socially responsible since they tend to be more visible to society and have bigger social impact
due to the scale of their activities. However, recent trend shows that small and medium enterprises
(SMEs) involvement in CSR practices is growing. This paper aims to provide some insights into the
factors influencing selected Malaysian SMEs to participate in CSR practices. It will provide a
description about the types of CSR activities undertaken by the Malaysian SMEs and identify the most
important targeted stakeholder. The study also intends to determine which stakeholder groups have
the most influence on CSR adoption. The data for this study is obtained from a survey of 80 randomly
selected SMEs from various industries in Malaysia.
Keywords: Corporate Social Responsibility; small firms; Malaysia
INTRODUCTION
Corporate Social Responsibility (CSR) or better known today as Corporate Responsibility
(CR) is a concept that is has gained enormous importance in today’s global economy. The European
Commission defines CSR as “a concept whereby companies integrate social and environmental
concerns in their business operations and in their interaction with their stakeholders on a voluntary
basis"(European Commission, 2011). The context of CSR today has moved gradually from its
historical focus on business philanthropy to a broader set of activities that integrate the practice of
CSR into the core strategy of an organization. Organizations are thus expected to go beyond their
profit driven perspectives and to consider their business practices impact to society and the
environment (Jenkins, 2006; Mirfazli, 2008). Currently, there is an increasing demand for more
Page 20 of 37ANZAM 2011
2 | P a g e
ethical and socially responsible business. For example, in the last decade there has been more than ten
times increase in ethical investment in Britain (Hellsten and Mallin, 2006). In the United States, a
survey showed that 70% of the polled consumers responded that they would not do business with a
company that is not socially responsible, regardless of the price (Joyner and Payne, 2002).
Although CSR is becoming an important element in business conducts, its practices are
usually carried out by large firms (Perrini et al, 2007; Udayasankar, 2008). Large companies which are
more visible to society face relatively higher pressure than small companies to be more socially
responsible. However, the significant growth and rising importance of the small and medium sized
enterprises (SMEs) has resulted in increased attention on the social and environmental impacts of
small firm operations (Jenkins, 2006). SMEs are an important sector in the economic and industrial
development of many countries and they play an important role in creating jobs, particularly in the
developing world. SMEs contribute to approximately 60% of employment in developing countries
(Luetkenhorst, 2004; Jenkins, 2004; Udayasankar, 2008). Although SMEs may face lesser pressure
and gain little recognition from CSR due to lower visibility as compared to larger firms, recent trend
shows that SMEs’ engagement in CSR practices is growing (Jenkins, 2006; Perrini et al., 2007).
Majority of studies on CSR are concentrated on large corporations and CSR in small and
medium firms receives very little attention (Fassin et al, 2007; Fassin et al, 2008;Jenkins 2006). This
leads to a void in the current literature because CSR practices designed for large companies are not
necessarily suitable for SMEs. Further, most of the CSR studies among SMEs have been conducted in
developed and industrialized countries such as USA, Australia and Europe (Deniz and Suarez, 2005;
Longo et al, 2005; Murillo and Lozano, 2006; Hoivik and Mele, 2009). The small business operations
and culture in these developed countries are different from developing countries like Malaysia, making
it difficult to generalize the past studies results and findings. Empirical evidences examining CSR
among small and large firms also tend to have inconclusive results and are unable to provide any clear
pattern of behavior.. This has resulted in a fragmented view on why firms tend to engage in CSR. We
argue that although there are differences between SMEs and large firms, the fundamental motivation
to exist is still the same - survival. Shouldn’t there be one universal CSR agenda or framework for all
firms irrespective of size of the organization and whether the firm is local or multinational.
Page 21 of 37 ANZAM 2011
3 | P a g e
This paper aims to provide some insights into the factors influencing selected Malaysian
SMEs to participate in CSR practices. It will provide a description about the types of CSR activities
undertaken by the Malaysian SMEs and identify the most important targeted stakeholder. This study
also intends to determine which stakeholder groups have the most influence on CSR adoption. The
findings from this study will help to enhance the understanding, development and knowledge of CSR
among the SMEs in this country.
LITERATURE REVIEW
CSR Theories
Historically, CSR has evolved from a macro focus to a micro focus where the emphasis has
shifted to the firm or corporations. At the macro level, classical economist such as Adam Smith
through his ‘wealth of nations’ argued that maintaining ethical and moral behavior is vital to achieve
long term economic growth. One of the first notable written contributions that examined the
relationship between firms and society was made by Howard Bowen in 1953 through his book “Social
Responsibilities of the Businessman”. Bowen questioned the role of businesses and tried to explain
why firms should be concerned with CSR. However, this view received staunch criticism from
Friedman (1962) who argued that the main purpose of a business is to maximize profits that is to
maximize shareholders’ wealth. Friedman (1962) argued in his book ‘Capitalism and Freedom’ that
businesses has only one motive towards society that is to ensure resources are allocated in such a way
that it leads to enhancement of profits while doing it within the rule of law and also avoiding deception
and fraud. Friedman further contented that any attempt by managers to use internal funds for other
purposes (such as CSR) is deemed as swindling away such funds at the expense of the shareholders.
Friedman’s thinking was supported by utilitarian theories where firms are seen as merely profit
making entities (Decchi, 2007). Then, there are others that criticized CSR and feared that businesses
may end up dominating society through their corporate responsibility ventures (Levitt, 1958).
During the late seventies, Carrol developed one of the most comprehensive framework known
as the CSR Pyramid (Caroll, 1979; 1991). The CSR Pyramid consists of four different levels of
corporate responsibilities where corporation’s main focus initially lies towards the economic and legal
Page 22 of 37ANZAM 2011
4 | P a g e
aspects and as they evolve, the other two aspects: ethics and philanthropic categories begin to play a
more dominant role. Another important school of thought was the stakeholder view (Freeman, 1984).
Freeman argued that the role of the business owner is to protect the interest of the various stakeholders
(employees, shareholders, customers etc) that have relationships with the firm and through their ties
are vital to the future success of the firm. Stakeholders here are referred to by Freeman as the various
groups of people such as customers, suppliers, employees, society, government and shareholders.
According to stakeholder theory there is no demarcation between economics and ethics. In the
process of value creation, firms irrespective whether they are large or small must ensure that their
stakeholders well being is taken care (i.e., listen to them, consider their needs when making decisions,
treat them fairly) so that they are able to contribute positively to the overall value being created. Thus,
irrespective of the ultimate motive of the organization, business owners need to take into account the
interests of the relevant groups who may have an impact on their end results. However, one limitation
of the stakeholder theory is that it does not prioritize among different stakeholder groups. How
important a stakeholder is and the degree of its influence may differ from one firm to another and from
large firms and SMEs.
In recent times, strategic gurus had presented a strategic view towards CSR. These proponents
who call it as ‘strategic philanthropy’ believe that CSR can be employed as a tool to enhance a firm’s
competitive advantage in the long run (Porter and Kramer, 2002; Porter and Kramer, 2006; Kotler and
Lee, 2005). They further argue that there can be a win-win situation and if businesses ignore society
this can lead to its destruction. This view is supported by empirical evidences where positive links
were found between CSR practices and firm reputation, consumer loyalty and market value of the
corporation (Kotler and Lee, 2005; Mackey et al, 2007).
Past Empirical Perspectives
Deniz and Suarez (2005) conducted an empirical examination of 112 family businesses (both
large as well as SMEs) in Spain employing CSR programs and found that orientation towards CSR
tends to differ between the family firms and there was lack of a consistent pattern in the reason why
they engaged in CSR. Most of the firms showed mixed type of CSR orientation. Three clusters were
Page 23 of 37 ANZAM 2011
5 | P a g e
found: 41 firms had philanthropic orientation, 33 had classic orientation and 26 had socio-economic
orientation. Longo et al (2005) surveyed 62 SMEs from Bologna, Italy covering a range of industries
and employed stakeholder theory as the framework. 39 SMEs were found to be socially responsible
and 23 were not. Only 20 firms engaged in CSR due to ethical motive alone whereas 14 did it due to
ethical as well as other motives (economic etc).
A study conducted by Jenkins (2006) on 24 UK based SMEs found that all SMEs were
involved in some way or another in some form of philanthropic activities. Employing stakeholder
theory as its framework, the study found that all 24 SMEs were engaged in a range of CSR activities
related to various stakeholders (environmental practices, employee development, community
development practices and supplier learning schemes etc). Jenkins argued that SMEs style of
management is more informal and is very much determined by the owner-manager’s personalities. The
main driver of CSR activities is the owner-manager who decides on how resources are allocated for
social means.
Another study in the Netherlands on the adoption of CSR by forty two family firms (Uhlaner
et al, 2004) revealed that family business owners have strong special relationships with employees,
clients, suppliers, sports clubs, churches, service organizations and use this to their advantage. The
stakeholders were more like an extended family. These relationships led to economic benefits,
conformance to ethical and legal expectations and philanthropic involvement. However, for
employees, clients and suppliers the behaviour most inherent was economic benefits. Although much
desired, truly philanthropic activity was very limited. Within the developing nation perspective, Jamali
and Mirshak (2007) conducted eight case studies on eight firms (four local and four MNC
subsidiaries) operating in Lebanon selected based on their involvement and visibility of their CSR
programs. The conceptual framework was based on the integration between Carrol’s (1979) three
dimensional model of corporate performance and Wood’s (1991) CSP revisited. There was a clear
lack of systematic, focused and institutionalized approach to CSR (applies to both local as well as
foreign SME) in Lebanon. CSR practices among SMEs in Lebanon were very much based on
voluntary philanthropic action over and above their mainstream activities. The main motive to adopt
CSR practices was because of concern in maintaining legitimacy and credibility in a shared
Page 24 of 37ANZAM 2011
6 | P a g e
environment and as a means to give back to society. CSR adoption was mainly catalyzed by
owners/founders who acted as moral actors. Profitability was not considered an important reason to go
into CSR but short term benefit such as enhancing reputation, branding and public relations did exist.
Most CSR practices of international subsidiaries were based on parent firm CSR strategies/agenda.
However, the study had several limitations. The sample was considered too small and thus lacked
external validity. The results also could not reflect the true state of CSR practices in Lebanon since
several of the firms in the sample were foreign firms located in Lebanon (Microsoft, Tetra Pak, SMLC
and Le Vendome) and there are tendencies of those firms emulating the CSR practices of their parent
companies.
Hoivik and Mele (2009) conducted a single case study covering a single clothing Norwegian
manufacturing firm having operations in Norway as well as in China. The study showed that the firm
exhibited strong involvement in social responsibility by employing people in marginalised situations
and undertook positive actions in improving working conditions, promoted employee involvement,
employment protection and action of solidarity. Although, the firm engaged voluntarily in social
responsibility it employed an integrative strategy which included fulfilling its business objectives as
well as its social/moral objectives.
In conclusion, past empirical findings show that the motivation to adopt CSR practices among
SMEs in the developing as well as developed countries is still very much a voluntary practice based on
initiatives undertaken by the owners of the business whose ethical behavior and moral values may
drive their decision.
RESEARCH METHODOLOGY
The conceptual framework for this study was developed based on Carroll’s model of corporate
social responsibility (Carroll, 1979 and 1991) and Freeman’s stakeholder’s theory (Freeman, 1984).
The data for this study was collected using a structured questionnaire mailed to 500 randomly selected
small and medium enterprises (SME) from the SME Business Directory1 in Malaysia. The firms were
from various business sectors such as manufacturing, education and training, construction, services
1 a comprehensive list can be obtained from http://www.smeinfo.com.my.
Page 25 of 37 ANZAM 2011
7 | P a g e
and tourism. A sample 80 respondents constituting 16% response rate were obtained. The survey
questionnaire consists of four sections where the first section solicits firm background information, the
second section investigates the factors affecting SME motivations to implement CSR initiatives by
using seven-point Likert-scale questions (1 for ‘Strongly Disagree’, 7 for ‘Strongly Agree’) which are
adopted on a similar study undertaken by Mankelow (2006) and Quazi (2003). The third section
evaluates the CSR practices targeted to different stakeholder groups and the seven-point Likert-scale
questions were adopted from a similar study done by Lindgreen et al (2009). The last section of the
survey evaluates the extent to which the organizations were influenced by different stakeholders in its
CSR practices using five-point Likert-scale questions (1 for ‘Very Low Influence’ to 5 for ‘Very High
Influence’) adopted from a study conducted by Lindgreen et al (2009).
RESULTS AND ANALYSIS
The majority of our respondents are SMEs operating in the services sector (32.5%), followed
by manufacturing (20.8%), manufacturing-related services (15.6%), others (14.3%) and ICT (11.7%).
SMEs classified as ‘others’ comprises of businesses such as workshop, trading, telecommunication,
restaurants, oil and gas, and laboratory. The sample has very low representation of the SMEs from the
agro-based (3.9%) and the primary agriculture (1.3%) sector. In Malaysia, SME classification is based
on the number of employees a business employs or the total sales or revenue generated by a business
in a year. With regards to the number of employees, a majority of the respondent companies have 5 to
20 employees (43.4%). The number of employees of other companies in the sample ranges from less
than 5 (19.7%), from 21 to 50 (21.1%) and 51 to 150 (15.8%). In the turnover category, most of the
respondent companies have annual sales of RM1 million to less than RM5 million (32.9%), followed
by RM200,000 to RM1 million (25.0%) and RM5 million to less than RM10 million (19.7%). Only
11.3% of the respondent have an annual sales turnover of RM10 to less than RM25 million. Around
10% of the sample consists of companies with turnover less than RM200,000. More than half of SMEs
sampled have business experience of more than 10 years. Approximately 53% of the companies in the
sample have been in operation from 10 to 30 years and 9.4% of the sample have been operating for
more than 30 years.
Page 26 of 37ANZAM 2011
8 | P a g e
Factors affecting SMEs motivations for CSR
Table 1 reports the factors motivating the SMEs to engage in CSR practices. The motivating
factors are classified into four broad levels of responsibilities which are Economic, Ethical,
Philanthropy and Legal. Table 2 shows the ranking of the CSR motivating factors and also its
corresponding internal reliability values (Cronbach’ alpha). All alpha values are above the minimum
acceptance value of 0.7 (Nunnally, 1978). The ranking indicates that the main motivation for engaging
in CSR practices among the Malaysian SMEs is economic responsibilities, followed by ethical,
philanthropy, and legal. Within the economic category, ‘enhancing corporate image’ (M=5.321,
SD=1.304) is rated as the most important aspect, followed by ‘maintaining customer loyalty’, ‘long-
term survival’, ‘customer support’, ‘business interest in CSR’ and finally ‘donations based on tax
incentives’. With regards to philanthropic responsibilities, ‘contribution to community’ is the most
important motivating factor, whereas ‘donations beyond tax implication’ is the least important factor.
Under the ethical category, ‘businesses should respond to social issues’ is the most important factor
followed by ‘staff welfare’ and ‘communicating social messages’. The legal motivation for the SMEs
is to follow industry CSR standards. This indicates that they are also interested in carrying out CSR
activities if it is widely practiced by the industry in order to position themselves against their
competitors for strategic purposes.
Insert Table 1 here
Insert Table 2 here
CSR practices for different stakeholders
Table 3 reports the CSR practices for different stakeholders and Table 4 reports the ranking of
the respective stakeholder-related practices. The CSR practices are categorized into six different
stakeholder-related practices which are Customers, Suppliers, Employees, Investors, Communities-
Environment and Communities-Philanthropy. The ranking result indicate that CSR practices for
customers is considered to be most crucial, followed by suppliers, employees, investors and
communities. CSR practices for the community are further divided into practices related to the
environment and corporate philanthropic activities. CSR practices with respect to the environment are
Page 27 of 37 ANZAM 2011
9 | P a g e
ranked higher than corporate philanthropy related CSRs. Within the CSR practices for customers,
paying attention to resolving customer complaints is considered as the most important factor
(M=6.090; SD=0.825) followed by incorporating customer interests in business decisions (M=6.013;
SD=1.000) and providing customers with the needed information to make good purchasing
decisions(M=6.000; SD=1.162). The result is well anticipated as addressing customer complaints
successfully is important for retaining existing customer base for all businesses especially the smaller
ones or the ones with low market power. The second most important CSR category is employee-
related CSR practices. The most important CSR practice under this category is treating employees
fairly and respectfully, regardless of gender and ethnic background (M=6.128; SD=1.177).
Incorporating the interests of employees has the lowest mean score in under the employee-related CSR
category (M=5.115; SD=1.405).
Supplier-related CSR practices are found to be the third most important CSR category
perceived by the SMEs. The most important aspect in this category is treating suppliers, regardless of
their size and location, fairly and respectfully (M=5.756; SD=1.164). Investor-related CSR practices
yield the fourth highest mean average score among the five stakeholders. The most important CSR
practice in this category is providing full and accurate financial information of the organization to the
investors (M=5.571; SD=1.482). The ranking result also indicates that environment and philanthropy
related CSR practices are not the major priorities for the SMEs in developing country such as
Malaysia. The most they do is to incorporate environmental concern into their business decisions
(M=5.218; SD=1.420) and minimize the environmental impact of their organization’s activities
(M=5.218; SD=1.392). They barely measure their organization’s environmental performance
(M=4.474; SD=1.509). This could be due to the lack of environmental regulations and enforcements in
developing countries. With respect to philanthropy-related CSR practices, the most common practice
is to incorporate the interest of the local communities in their business decisions (M=5.013;
SD=1.372). This indicates that the SMEs are somewhat concerned about their business impact to the
local communities. Providing financial support for education in the local communities (mean = 4.513;
SD = 1.484) is also not a common practice among the SMEs.
Insert Table 3 here
Page 28 of 37ANZAM 2011
10 | P a g e
Insert Table 4 here
Stakeholder influence
Table 5 evaluates the influence of different stakeholder groups such as directors and owners,
workers, market stakeholders and government and pressure group on CSR policies adopted by the
respondent companies and Table 6 ranks the relative influence of each stakeholder group. CEO, board
of directors and owners under directors and owner group (mean = 3.803; SD = 1.053) is perceived to
have the highest influence on CSR by the respondents. Workers such as middle level managers and
other employees influence in CSR is ranked second, followed by market stakeholders, and government
and pressure groups.
Insert Table 5 here
Insert Table 6 here
CONCLUSION AND IMPLICATIONS
The prime motivation of this study is to identify the factors that influence Malaysian SMEs to
participate in CSR programs. Our findings indicate that the main motivations for engaging in CSR
practices are economic incentives, followed by ethical considerations, philanthropy, and legal
requirement. The findings are not consistent with the Lebanese studies (Jamali et al, 2009 and Jamali
and Mirshak, 2007) where philanthropic motive was the main driver for SME participation in CSR
activities. However, our findings support the studies done in the Netherlands (Uhlaner et al, 2004) and
Catalonia (Murillo and Lazano, 2006) where economic motive was the main motive for CSR adoption.
Our findings support the strategic view towards CSR theory by Porter and Kramer (2006)
which states that the adoption of CSR practices can enhance competitive advantage. We argue that
although small firms have different characteristics compared to larger firms, the primary objective
remains the same, that is profit maximization. Adoption of CSR is likely to enhance corporate image,
improve sales and eventually results in higher profits in the future. Thus, we believe that there is little
connection between firm size and the motivation to adopt CSR practices. In addition our results also
support Caroll’s CSR pyramid whereby firms focus initially on economic incentives and as they
evolve, other motives began to be given priorities. Legal requirement is found to be the least important
Page 29 of 37 ANZAM 2011
11 | P a g e
factor in Malaysia and this is not unanticipated as small firms have lower compliance requirements as
compared to larger public listed firms. SMEs in Malaysia are not required by law to have CSR
practices unlike large public listed firms that are required by law to provide CSR reports together their
annual income statements.
The second objective of the study is to describe the CSR practices undertaken for different
stakeholders and to identify the most important targeted stakeholder. We found that CSR practices
among SMEs in Malaysia tend to be geared towards satisfying the customers. Customers are therefore
seen as the most important CSR stakeholders, followed by employees, suppliers, investors and
community. The result concurs with the economic motive of the firm whereby gearing CSR activities
towards the customers will ensure the livelihood of the firm. Most SMEs are family-run business and
they tend to have closer relationships with employees and suppliers. This finding supports the study by
Uhlaner et al (2004) where they concluded that employees and suppliers of small firms are like
extended family. Our results also indicate that employee welfare such as equal opportunities, fair
salaries and benefits, and employee development are found to be important CSR practices among
SMEs. All these practices will promote a positive work climate that will subsequently be translated
into higher productivity and profits. CSR practices that are related to the environment and
philanthropy are found less important than customer-, employee- and supplier-related CSR practices,
since their impact on profits are less direct. Smaller firms also usually have lower resources and
priorities are given to activities with faster impact on profitability.
The final objective of the study is to determine which stakeholder groups have the most
influence on the adoption of CSR practices. We found that top management (CEO, board of directors
and owners) have the highest influence on CSR adoption, followed by employees, market stakeholders
and government pressure groups. This supports the past study by Jenkins (2006) and Jamali et al
(2009) that also found owner-managers playing the most important role in allocating resources for
CSR activities.
This study has some theoretical implications. Firstly, we postulate that small firms, despite
having different characteristics than larger firms, the motivations to go into CSR tend to be similar.
Most firms have a combination of motives that influence their involvement is CSR and the motives are
Page 30 of 37ANZAM 2011
12 | P a g e
usually business survival-related. The call by CSR theorist to develop new models to explain CSR
involvement by small firms is not justified. We believe that Caroll’s CSR pyramid model is very much
applicable to all types of firms albeit their sizes. Our results have shown that smaller firms have
similar CSR priority-ranking to the Caroll’s CSR pyramid. The only difference is legal motivation
which is easily justified because the SMEs are operating in a developing country which has different
legal requirements for CSR practices. Secondly, we also find that the Freeman’s stakeholder theory is
relevant to explain CSR adoption among SMEs. We argue that irrespective of size, firms have almost
similar stakeholder structure although their organizational structure may differ. Firms also have
similar obligations to their stakeholders. Therefore, the adoption of CSR practices is very much geared
towards fulfilling stakeholder’s expectations. In our case, in line with Caroll’s economic
responsibilities, small firms were found to focus their CSR practices towards satisfying their
customers, followed by employees and suppliers. We believe that the stakeholder theory and the
Caroll’s pyramid are essentially integrated. Thirdly, small firms have simple organizational structure
and fewer management layers. As such, in line with our third objective, the major decisions on CSR
activities in SMEs are influenced by owners and directors who play multiple roles in the organization.
Thus, this again shows the relevance of stakeholder’s theory in explaining the role played by top
management in influencing CSR adoption.
Our findings also have some practical implications. Long-run sustainability remains an
important agenda for both small and large firms. However, formal policy on CSR for SMEs is
currently lacking. The result of this study shows that CSR is taken seriously by SMEs and the adoption
structure can be further improved by developing a more comprehensive CSR framework. For example,
the government can develop a legal framework to institutionalize CSR practices of small firms. This
research has several limitations. The study can be improved if a larger sample is surveyed. The
findings can be strengthened if this quantitative study is supported by qualitative data such as in-depth
interviews and case studies of selected firms. This study relies heavily on descriptive statistical
approach which may not be sufficient to make robust conclusions. Future studies may want to extend
this research by analyzing the impact of CSR adoption on small firms’ business performance
Page 31 of 37 ANZAM 2011
13 | P a g e
REFERENCES
Bowen, H.R. (1953). Social Responsibilities of the Businessman. New York: Harper & Row.
Carroll, A. B. (1979). A Three-Dimension Conceptual Model of Corporate Performance. Academy of
Management Review 4 (4), 497-505.
Carroll, A.B., (1991). The pyramid of corporate social responsibility: Toward the moral management of
organizational stakeholders. Business Horizons, 34(1), 39-48.
Deniz, D. M and Suarez, C, K.M (2005). Corporate Social Responsibility and Family Business in
Spain, Journal of Business Ethics 56, 27-41.
European Commission. (2011). European Commission Enterprise and Industry: Sustainable and
Responsible Business: Corporate Social Responsibility. (Accessed 3 October, 2011),
[available at http://ec.europa.eu/enterprise/policies/sustainable-business/corporate-social-
responsibility/index_en.htm
Fassin, Y. ( 2008), “SMEs and the fallacy of formalising CSR”, Business Ethics: A European Review,
17(4), 364-378.
Fassin, Y., A. V. Rossem, and M. Buelens (2010). Small-Business Owner-Managers' Perceptions of
Business Ethics and CSR-Related Concepts. Journal of Business Ethics 96(1), 1-9.
Freeman, R. E. (1984), “Strategic management: a strategic approach”, Boston: Pitman.
Friedman, M. (1962). Capitalism and Freedom, Chicago: University of Chicago Press.
Hellsten, S., and C. Mallin (2006). ‘Are “Ethical” or “Socially Responsible” Investments Socially
Responsible? Journal of Business Ethics 66(1), 393-406.
Hoivik, H., and Mele’, D. (2009). Can an SME become a Global Corporate Citizen? Evidence from a
Case Study. Journal of Business Ethics, 88(1), 551-563.
Jamali, D and Mirshak, R. (2007). Corporate Social Responsibility (CSR): Theory and Practice in a
Developing Country Context. Journal of Business Ethics, 72(1), pp. 243–262.
Jenkins, H., (2006). Small business champions for corporate social responsibility. Journal of Business
Ethics 67(1), 241-256.
Jenkins, H., (2004). A critique of conventional CSR theory: An SME perspective. Journal of General
Management 29(4), 37-57.
Joyner, BE & Payne, D (2002). 'Evolution and Implementation: a study of values, business ethics and
corporate social responsibility', Journal of Business Ethics, 41(1), 297-31.
Kotler, P. and N. Lee (2005). Corporate Social Responsibility: Doing the Most Good for Your
Company and Your Cause , John Wiley & Sons, Hoboken, NJ.
Levitt, T. (1958) ‘The Dangers of Social Responsibility’, Harvard Business Review 36(1), 41-50.
Lindgreen, A, Johnston, W.J., & Swaen, V (2009). “Corporate social responsibility: an empirical
investigation of U.S. organizations”, Journal of Business Ethics, 85 ( 2) , 303-323.
Page 32 of 37ANZAM 2011
14 | P a g e
Longo, M., M. Mura, and A. Bonoli (2005). “Corporate Social Responsibility and Corporate
Performance: The Case of Italian SMEs”, Corporate Governance, 5(1), 28-42.
Luetkenhorst, W. (2004) ‘Corporate Social Responsibility and the Development Agenda: The
case for actively involving small and medium enterprises’, Intereconomics, May/June.
Mackey, A., Mackey, T.B., and Barney, J. B. (2007): “Corporate Social Responsibility and Firm
Performance: Investor Preferences and Corporate Strategies”, The Academy of Management
Review, 32(3), 817-835.
Mankelow, G, (2006). 'What Motivates Small Enterprises to Participate in Corporate Social
Responsibilities?’ The Australian Journal of Business and Social Enquiry, 4(1), 60-73
Mirfazli, E. (2008). Corporate social responsibility (CSR) information disclosure by annual reports of
public companies listed at Indonesia Stock Exchange (IDX). International Journal of Islamic
and Middle Eastern Finance and Management 1 (4), 275-284.
Murillo, D. & Lozano, J. (2006). SMEs and CSR: An approach to CSR in their own words. Journal of
Business Ethics, 67(3), 227-240.
Nunnally, JC. (1978) Psychometric theory. New York: McGraw-Hill.
Perrini, F., Russo, A. & Tencati, A. (2007). CSR strategies of SMEs and large firms: Evidence from
Italy. Journal of Business Ethics, 74(3), 285-300.
Porter, M. & Kramer, M. (2002). The Competitive Advantage of Corporate Philanthropy.
Harvard Business Review. 80(12), 56-68.
Porter, M.E. and Kramer, M.R.(2006), “The link between competitive advantage and corporate social
responsibility”, Harvard Business Review 85 (12), 78-92.
Quazi, A., (2003). Identifying the determinants of corporate managers’ perceived social obligations.
Management Decision, 41(1), 822-83.
Udayasankar, K.(2008), “Corporate social responsibility and firm size”, Journal of Business Ethics,
83(2), 167-175.
Uhlaner, M.L, Goorbalk, J.M.H and Masurel, E (2004). Family business and Corporate Social
Responsibility in a sample of Dutch Firms. Journal of Small business and Enterprise
Development. 11(2), 186-93.
Page 33 of 37 ANZAM 2011
15 | P a g e
TABLES
Table 1
Motivations for CSR
Item Score
Mean SD
Economic
Enhance corporate image 5.321 1.304
Maintain customer loyalty 5.077 1.439
Long term survival 5.026 1.432
Customer approval/support 4.846 1.451
Business’s interest in CSR 4.423 1.428
Donations based on tax incentives 4.077 1.552
Philanthropy
Contribution to community 5.231 1.289
Address community needs 5.039 1.343
Community acceptance 4.923 1.246
Donations beyond tax implications 4.182 1.636
Ethical
Businesses should respond to social issues 5.231 1.494
Staff welfare 5.051 1.404
Communicate social messages 4.551 1.492
Legal
Following industry standards in CSR 4.526 1.355
Table 2
Ranking of motivating factors
CSR
Ranking Factors Mean SD
Cronbach's Alpha
1 Economic 5.067 1.225 0.893
3 Ethical 4.944 1.217 0.777
2 Philanthropy 4.851 1.085 0.786
4 Legal 4.526 1.355
Page 34 of 37ANZAM 2011
16 | P a g e
TABLES
Table 3
CSR practices for different stakeholder
CSR practices Score
Mean SD
Customers
We (pay attention to) resolve customer complaints about our
products or services 6.090 0.825
We incorporate the interests of our customers in our business
decisions 6.013 1.000
We provide all customers with the information needed to make
sound purchasing decisions 6.000 1.162
Suppliers
We treat suppliers, regardless of their size and location, fairly
and respectfully 5.756 1.164
We inform our suppliers about organizational changes affecting
our purchasing decisions 5.325 1.322
We incorporate the interests of our suppliers in our business
decisions 5.256 1.333
Employees
We treat our employees fairly and respectfully, regardless of
gender or ethnic background
6.128 1.177
We provide our employees with salaries that properly and fairly
reward them for their work
5.936 1.121
We provide procedures that help to insure the health and safety
of our employees
5.885 1.289
We support our employees who want to pursue further
education
5.564 1.438
We help our employees balance their private and professional
lives
5.205 1.323
We incorporate the interests of our employees in our business
decisions
5.115 1.405
Investors
We provide our investors with full and accurate financial
information about the organization
5.571 1.482
We inform our investors of changes in corporate policy 5.403 1.360
We incorporate the interests of our investors in business
decisions
5.237 1.495
Page 35 of 37 ANZAM 2011
17 | P a g e
Communities - Environment
We incorporate environmental concerns in our business
decisions
5.218 1.420
We minimize the environmental impact of all our organization’s
activities
5.218 1.392
We incorporate environmental performance objectives in our
organizational plans
4.962 1.516
We voluntarily exceed government-imposed environmental
regulations
4.936 1.436
We financially support environmental initiatives 4.577 1.410
We measure our organization’s environmental performance 4.474 1.509
Communities - Philanthropy
We stimulate the economic development in the communities
where we operate.
5.154 1.152
We help improve the quality of life in the communities where
we operate
5.115 1.217
We incorporate the interests of the communities where we
operate in our business decisions
5.013 1.372
We give money to charities in the communities where we
operate
4.949 1.441
We financially support activities (arts, culture, sports) in the
communities where we operate
4.513 1.484
We financially support education in the communities where we
operate
4.487 1.560
Table 4
CSR ranking
CSR
Ranking Identified Stakeholder Mean SD
Cronbach's Alpha
1 Customer 6.034 0.809 0.728
3 Employees 5.639 0.966 0.84
2 Supplier 5.459 1.007 0.715
4 Investors 5.395 1.322 0.899
5 Community-Environment 4.897 1.259 0.935
6 Community-Philanthropy 4.872 1.071 0.869
Page 36 of 37ANZAM 2011
18 | P a g e
TABLES
Table 5
Stakeholder Influence
Stakeholder Score
Mean SD
Directors & Owners
Chief Executive Officer 3.829 1.088
Owners/Shareholders 3.818 1.144
Board of Directors 3.763 1.153
Workers
Middle-level Managers 3.316 0.867
Employees 3.000 0.874
Market Stakeholders
Customers 3.390 1.041
Competitors 3.052 1.111
Suppliers 2.974 0.959
Government & Pressure Groups
National Regulators 3.260 0.865
Press/Media 3.197 1.083
International Regulators 3.182 0.928
Local Communities 3.143 1.048
Trade Unions 2.658 0.987
Table 6
Ranking of stakeholder influence
CSR
Ranking Identified Stakeholder Mean SD
Cronbach's Alpha
1 Directors & owners 3.803 1.053 0.923
2 Workers 3.158 0.817 0.858
3 Market stakeholders 3.139 0.902 0.837
4 Government & pressure groups 3.087 0.722 0.783
Page 37 of 37 ANZAM 2011