11.isea vol 0004www.iiste.org call for paper no 1 pp. 18-39-rev
Issues in Social and Environmental AccountingVol. 4, No. 1 June 2010Pp 18-39 Corporate Social Reporting: A Preliminary Study of Bank Islam Malaysia Berhad (BIMB) Azhar Abdul Rahman Mohd Farid Asraf Md Hashim Fathiyyah Abu Bakar College of Business Universiti Utara MalaysiaAbstractThe purpose of this paper is to examine the themes, locations, extent, and also trends of corpo-rate social responsibility (CSR) disclosure of Bank Islam Malaysia Berhad (BIMB) from 1992to 2005. A disclosure index (checklist) and the extent of such disclosures were measured usingcontent analysis based on number of sentences. The findings of this study show that BIMBprefers to disclose themes associated with employees, product, and service contributions andcommunity involvement. Among the most popular locations in disclosing such information arein the chairman’s statement, financial statements, and directors’ report. The results also revealthat the bank has improved in terms of volume and the manner of presenting or disclosing CSRfrom year to year. This study is the first of its kind to be conducted on a company in a specificindustry in Malaysia using a longitudinal approach, and its empirical findings complement thefindings of prior studies.Keywords: Bank Islam Malaysia Berhad; corporate social reporting; disclosure; contentanalysis; longitudinal; Malaysia.Introduction Lumpur Stock Exchange) on 17 January 1992. The banking activities are basedBank Islam Malaysia Berhad (BIMB) on Shariah1 principles which representwas established as the first Islamic bank the absolute ethical codes of Islamic re-in Malaysia on 1 July 1983 and the bank ligion and culture. These Islamic codeswas listed on the Main Board of Bursa impose strong social obligations onMalaysia (formerly known as Kuala Muslim individuals and organisationsAzhar Abdul Rahman is an Associate Professor (area of specialization: Financial Reporting, corporate social reportingand accounting education) while Mohd Farid Asraf Md Hashim and Fathiyyah Abu Bakar (area of specialization: Fi-nancial Reporting - corporate social reporting) are lecturers at the College of Business Universiti Utara Malaysia(Northern University of Malaysia) 06010 UUM Sintok, Kedah MALAYSIA. Corresponding author: Azhar AbdulRahman, email: email@example.com. Acknowledgement: The authors would like to thank the financial supportgiven by University Utara Malaysia (under the Faculty grant). An early version of this paper was presented at the 3rdIslamic Banking, Accounting and Finance Conference (IBAF), Kuala Lumpur, Malaysia (29th - 30th July, 2008) andat the Monitoring Seminar on Fundamental Research Grant Scheme for Public Higher Educational Institutes, Phase1/2008-North Zone (14-15 October, 2008), Langkawi, Malaysia. The authors wish to thank the participants for con-structive comments that resulted in significant improvements in the present version.
A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39 19(Maali et al., 2003). Maliah (2000) Shariah. Shariah prohibits dealing inopined that from the Islamic perspective, interest, undertaking transactions withone’s accountability to Allah also en- unknown fate, ensures all transactions tocompasses one’s accountability to soci- be lawful (halal in substance and form)ety and therefore may be interpreted as and also requires business entities to paypromoting social justice and social re- the religious tax, zakat2. Islam strictlysponsibility. Consequently, a firm oper- bans any dealing with interest, which isating in Islamic surroundings is expected deemed oppressive. In addition, Islamicto be conscious of the impact of its ac- businesses are required to undertaketivities on the community. charitable activities and to help the poor and the needy. This is emphasised inIn general, Luan (2005a) stated that cor- many of the Quranic verses and hadithporate social responsibility (CSR) is of Prophet Muhammad (pbuh). Allahconcerned about the way in which com- says “Take from their wealth a charitypanies meet their obligation both to the by which you purify them and causeemployees and community. In the Is- them increase” (Quran, 9:103). The re-lamic context, the social responsibilities quirement to pay zakat is a clear exam-are derived from Allah and from the ple of such obligation.Prophet Muhammad [peace and bless-ings be upon him (pbuh)]. Thus, social Furthermore, according to the Account-role is very important for Islamic banks ing and Auditing Organization for Is-and some researchers described Islamic lamic Financial Institution (AAOIFI,banks as banks having a social face. 1998), Islamic banks should disclose allThis role is mainly a reflection of the information necessary to inform theimportance of upholding the Islamic community about their operation andprinciples upon which these banks oper- this is related to the concept of account-ate and how they address these social ability, which means that the communityissues (Maali et al., 2003). Therefore, has the right to know how the organisa-the bank needs to disclose all related tion’s activities are affecting their well-information regarding its social activities being. Thus, the content of Islamicto the public. On the other hand, the Bank’s annual report must provide so-communities are expecting enhancement cial information, focusing in detail thein transparency, greater involvement in aspects of zakat, Qard al-Hasan3 funds,solving social issues and improved ethi- and employee information which havecal behaviour from companies. particular relevance to the social ac- countability principle (Baydoun &Islamic banks offer their clients a variety Willett, 2000), including environmental,of financial products that do not violate energy, and other social informationShariah principles and have set up their (Che Zuriana, Kasumalinda, & Rapiah,own Shariah supervisory board to moni- 2001) in order to meet the increasingtor their activities according to Islamic needs of the stakeholders for such infor-1 mation for their decision making pur- Shariah is the Islamic law of human conduct. It isbased on the word of Allah in the Quran and the deedsand sayings of Prophet Muhammad (pbuh).2 3 Zakat represents business Zakat. It is an obligatory Qard al-Hasan is a loan that is to be repaid, dependingamount payable by the bank to comply with the princi- on the ability of the borrower, without any interest orples of Shariah. charges or share in the profit or loss of the business.
20 A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39poses. This study attempts to look at the disclosures of CSR and the extent ofissue of how far, as a pioneer in Islamic such disclosures in a particular Malay-banking, does BIMB disclose and apply sian bank’s annual reports. Previous re-Islamic values in reporting its corporate search in this area have focused only onsocial responsibility. Therefore, this Islamic banks in Jordan, Sudan, Iran,study tries to examine the theme and Bahrain, U.A.E., Palestine, Egypt, Tur-extent of CSR disclosure in BIMB’s an- key, Pakistan, Kuwait, Bangladesh,nual reports from 1992 (being listed at Qatar, Albania, South Africa, Russia,Bursa Malaysia) to 2005. Furthermore, and Mauritania (Maali et al., 2003).this study tries to look at the trend of Thus, there is a need to focus on IslamicCSR disclosures, whether the bank im- banks in Malaysia, which have a differ-proves its CSR disclosure and whether ent economic environment. Secondly,CSR disclosure is affected by some ex- this study employs a longitudinal ap-ternal events such as the financial crisis proach in examining the trend of socialin 1997 to 1998. disclosures in annual reports whereas most of the previous studies employedThis study extends previous studies on the cross sectional approach. Lastly, thisCSR in Malaysia (Maali et al., 2003; study provides some useful insights forThompson and Zarina, 2004; and Rama- the public in determining how far BIMBsamy and Ting, 2004) but looks specifi- meets its obligations to employees andcally at one particular company in the the community as a whole in Malaysia.banking sector. The empirical findingsfrom the first study done by Maali et al. The remainder of the paper is organized(2003) suggested that social reporting is as follows: first, the previous literaturenot a major concern for most Islamic on CSR disclosures is examined togetherbanks and the banks tend to disclose with the views from the Islamic perspec-only those items that help to construct a tive; second, the research design and thepositive image, such as matters relating method of content analysis are de-to charity and Zakat. Besides, the study scribed. Finally, the results and a discus-conducted by Thompson and Zarina sion are offered, and conclusions drawn.(2004) revealed that corporate socialresponsibility reporting, specifically thecorporate environmental reporting in LITERATURE REVIEWMalaysia is still in the early stage. Ac- Concept and Definitionscording to Ramasamy and Ting (2004),companies in Malaysia and Singapore Basically, the major catalyst in the focustend to have low levels of CSR aware- of relationship between business andness based on the perspective of employ- society comes from the idea of Miltonees in both countries. They added that in Friedman. He believed that the socialboth countries, companies are willing to responsibility of business is to increasebe responsible corporate citizens but profit (Friedman, 1970). During thefinancial and organisational constraints 1970s, the development of corporatemay reduce their CSR activities. social reports were initiated and sup- ported through practical use by estab-The main contribution of this study is to lished accounting firms such as Ernstprovide some descriptive data on the and Young. Due to the newly estab-
A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39 21lished concept of corporate social re- ing concern among business communi-ports, deficiencies of social reporting ties in recent years. Yap and Sin (1981)have become almost acceptable. How- reported that Malaysian companies areever, the concept that was brought by becoming more aware of the adverseFriedman and the deficient practice by effects of some their activities but thecompanies were short-lived. It was seen practice of reporting social performancethat the community has increased their of companies in Malaysia is practicallydemand for better and more complete non-existent yet. They argued that theinformation of social accounting as a primary mission of the business is tobasis for better decision making make profit, but a business must also(Gibson, 2004). According to Luan become active in matters of social con-(2005b), CSR is concerned about what cern in the environment in which it oper-businesses do and how their actions im- ates. This was supported by the findingspact the environment and society at of Ramasamy and Ting (2004). In theirlarge. The intent of business, therefore, study on corporate social awarenessis not just about creating wealth alone, level in Malaysia and Singapore, theybut doing it responsibly. He added, found that the absence of managementmany companies acknowledge and rec- awareness and regulation has resulted inognise that CSR should be at the heart of a lack of disclosure of social responsibil-the corporate governance agenda. ity. Other contributory factors include the lack of recognised reporting frame-Holt (2004) defines CSR as a matter of work for corporate social reporting, thereporting the impact of a corporation’s cost of reporting, and fear on how read-activities on a range of stakeholders ers would react (Thompson & Zarina,which consist of investors, lenders, em- 2004).ployees, customers, regulators, govern- Basically, there are three types of corpo-ment, communities, and the society as a rate social disclosure; purely descriptivewhole. In general, it focuses on the poli- (using narrative), non-financialcies and practices of the company re- (quantitative other than financial infor-garding issues of human rights, commu- mation) and financial (Belal, 2001;nity involvement, and environmental Guthrie & Parker, 1990; Zeghal and Ah-impact and sustainability. Doing CSR is med, 1990). These three types of disclo-simply not enough. Rather, how compa- sure can be classified into several di-nies involve and communicate CSR ac- mensions or types. In a review of vari-tions to customers and shareholders are ous literatures, the most common dimen-more vital. It speaks a lot of their reputa- sions of disclosures emphasised by re-tion, brand, as well as their products and searchers are:services. Ultimately it would affect their 1. Human resource / employee infor-customers. This signifies the importance mationof corporate social reporting or the dis- 2. Environmentalclosure of CSR information. 3. Community involvement 4. Product and services contributionCorporate Social Reporting and Dis- 5. Customer and consumerclosure The previous studies reveal that Malay-The issues of CSR have become a grow- sian companies tend to disclose more on
22 A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39employees and human resource, commu- ment in all aspects of life (Maali et al.,nity involvement and environment 2003). Baydoun and Willett (2000)(Thompson and Zarina, 2004; Hanim opine that the concept of the unity ofNorza and Mustafa, 2004; Che Zuriana Allah gives rise to different and broaderet al., 2001) in the chairman’s statement, concepts of accountability than thosefinancial statement, and directors’ report implied by the Western models. Thein the form of narrative information verse “Allah takes careful account of(Hanim Norza and Mustafa, 2004; Che everything” (Quran, 4:86) reinforces theZuriana et al., 2001). notion that everyone is accountable to Allah on the Day of Judgement for theirAn Islamic Perspective on Social Re- actions during their lives. Accountableporting to Allah implies accountable to society, which emphasises the rights of others.In Islam, the rights and obligation ofindividuals and organisations with re- The second concept is social responsibil-spect to each other are clearly defined. ity and justice. The term brotherhoodThus, responsibilities dimension in Is- (Ukhuwwah) in Islamic societies is alam is well defined and does not change clear example of the importance of so-or become irrelevant over time or place cial responsibility in Islam. Muslims arebecause it is derived from Allah and supposed to take care of others in theProphet Muhammad (pbuh). There are society – the Prophet Muhammad (pbuh)three criteria used in Islamic corporate said, “The Muslims in their mercy to-reporting; based on Quran, Hadith, Sun- wards each other are like a body, if sin-nah, and Shariah, full disclosure and gle part of it complains the other partspublic accountability (Baydoun & would be affected” (Al-Bukhari andWillett, 2000). The main purpose of an Muslim). For instance, zakat is an an-Islamic business is to satisfy the will of nual payment required of every MuslimsAllah and based on what has been given or enterprises who owns a minimumby the Quran, Hadith, Sunnah, and also amount of assets specified by Shariah toShariah. This does not mean that they be paid to eligible persons. Zakat shouldcannot seek profit, which is essential to be paid to certain people specified in thebusiness survival, but working or con- Quran which includes the poor, theducting business in Islam is considered needy and debtors in financial difficulty,part of the worship of God (Maali et al., and volunteers who dedicate their efforts2003). Thus, social reporting takes place and time to spread the Islam teachingswithin a framework of social relations. (Maali et al., 2003). The prohibition of Riba (usury) is a clear example of theFrom the Islamic perspective of social Islamic emphasis on social justice. Islamreporting, there are several concepts also encourages individuals and busi-used to discuss social relations like ac- nesses to provide a Qard fund (non-countability, social justice, and owner- interest bearing loan). This fund allowsship. The concept of accountability in the borrower to use the money withoutIslam is derived from the concept of having to pay any interest or profitTauhid (the unity of Allah). This con- (Maali et al., 2003). In addition, Islamiccept implies total submission to Allah’s businesses are required to deal justly inwill and following the religious require- all aspects of their activities and also in
A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39 23dealing with employees, customers and Muslim researchers nowadays place aall members of the society. great concern on the disclosure of finan- cial indicators and a system that consid-The last concept is ownership and trust ers justice, fairness, and ethical practicesthat emphasises on the concept of a per- in the capitalistic practice (Maali et al.,son that holds property in trust for Allah 2003; Sofyan, 2003). Although the con-and he or she should use this property ventional accounting system providesaccording to Allah’s will. Islam respects mandatory and voluntary criteria regard-private ownership but ownership is not ing the level of disclosure in the annualabsolute and the benefits of society report, it seems that Islamic accountingshould be given priority when dealing somehow includes a different set of dis-with properties. closure requirements by the banking sec- tor. According to the model of disclo-From the above concepts, the objectives sure presented by AAOIFI in 1998, Is-of corporate reporting in Islamic busi- lamic banks must comply with Shariahnesses are to show business entities’ regulations and apply Islamic valuescompliance with Shariah and also to within their activities and also disclo-assist users in making economic deci- sures. The values are related to the con-sions. Therefore, the Islamic businesses cept of disclosing all information neces-should disclose all information about sary to inform the community abouttheir operations because in the Islamic their operation, and this relates to thecontext, the Muslim societies have the concept of accountability - meaning thatright to know how organisations could the community has the right to knowaffect their well-being. The duty to dis- how the organisation is affecting theirclose the truth is emphasised several well-being. Sofyan (2003) states thattimes in the Quran such as: “and cover there are seven items on Islamic valuenot the truth with falsehood, nor conceal information which need to be disclosed,the truth when you know” (Quran, 2:42). which are also required to be disclosed by AAOIFI. They are:An Islamic bank is required to follow 1. basic information about the Islamicaccounting and reporting practices that bank,are based on the ruling of its Shariah 2. unusual supervisory restrictions,Supervisory Board4, as well as other ac- 3. earnings or expenditures prohibitedcounting and reporting guidelines like by Shariah law,Guidelines on the Specimen Financial 4. the method used by the Islamic bankStatements for Licensed Islamic Banks to allocate investment profit (loss)(GP8-i) and Financial Reporting Stan- between unrestricted investmentdard (FRSi-1), and also rules set by the account holders or their equivalentAAOIFI. and the Islamic bank as a Mudarib or as an investor with its own funds,Corporate Social Reporting and Dis- 5. statement of changes in restrictedclosure in Islamic Financial Institu- investments,tions 6. statement of sources and uses of funds in the Zakat and charity fund,4 and Shariah Supervisory Boards are in-house religiousadvisors. 7. statement of sources and uses of
24 A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39 funds in the Qard fund. AAOIFI. He also indicated that the dis- closure of BMI is more thorough asThe Islamic community emphasises on compared to Bank Islam Malaysia Ber-the information of compliance with had (BIMB) and Faisal Finance Institu-Shariah regulation, besides information tion Inc. (FFII). This could be seen byrelated to financial indicators. Therefore, looking at the contents of the BIMBunder the principle of full disclosure, it 1996 annual report, where BIMB failedis appropriate to disclose information of to include information related to assetparticular relevance to the social ac- restrictions, non-halal (unlawful) trans-countability principle, such as Zakat, actions, and the sources and uses of Za-Qard funds, and employment details kat. Starting from 2004, Financial Re-(Baydoun & Willett, 2000). porting Standard on i-1 (FRS i-1) on Islamic accounting required IslamicA few items on social reporting that banks and financial institutions to dis-should be disclosed in Islamic banks’ close all Zakat obligations except forannual reports were suggested by Maali Zakat fund that can be voluntarily dis-et al. (2003). These items should be dis- closed. As for FFII, the 1998 annualclosed by Islamic banks wherever they report disclosed limited information onoperate, based on the moral responsibil- Islamic values. There was also no dis-ity accepted by Islamic scholar. The pro- closure on Shariah Supervisory Councilposed items are: and Zakat which are required by1. disclosure of Shariah supervisory AAOIFI. board opinion,2. any unlawful transaction, Basically, there are several items which3. Zakat, relate to the Islamic values that need to4. social responsibility and justice, be disclosed by Islamic Financial Insti-5. ownership and trust, tutions as required by the FRS i-1. The6. Qard al-Hasan, items consist of:7. charitable and social activities 1. encouragement to disclose unusual8. employees, supervisory restrictions;9. late repayments and insolvent client, 2. disclosure of Shariah advisor or10. environment, and board and Zakat obligations;11. other aspects of community involve- 3. encouragement to disclose the earn- ment. ings or expenditure prohibited by Shariah;Some of the suggested items namely 4. concentration and distribution ofZakat, Qard al-Hasan, and charity are investment accounts;similar to the disclosure requirements by 5. encouragement to disclose any prin-AAOIFI. In the case of Bank Muamalat cipal uncertainties it faces, environ-Indonesia (BMI) and disclosure on Is- mental report, and value addedlamic values, Sofyan (2003) found that statement; andBMI has recognised the importance of 6. encouragement to disclose otherdisclosing information regarding Islamic useful statements to users (e.g., Za-values within the financial statements. kat fund and Qard fund).BMI disclosed five out of seven of theIslamic values recommended by
A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39 25RESEARCH METHOD being of the Ummah5.Data Collection Content Analysis ProcedureThis study focussed on disclosures madein the corporate annual reports. This is A checklist of disclosure item for socialbecause the annual report is the common disclosures was designed to determinedocument produced by companies on a the items that could be disclosed in theregular basis and is widely used in prior bank’s annual reports. The checklist isstudies related to CSR (Gray, Kohny, & based on the modification of instrumentsLavers 1995; Fathilatul Zakimi, designed by Maali et al. (2003), itemsMohamad Sharofi, & Azhar, 2002; that are required and recommended byHanim Norza & Mustaffa, 2004; Kua- AAOIFI and FRSi-1 to disclose in an-sirikun & Sherer 2004). The annual re- nual reports of Islamic banks, and alsoports of BIMB from 1992 to 2005 were based on other established literatures,requested from its main office in Kuala especially previous studies on 29 banksLumpur. The authors accessed the infor- operating according to Islamic principlesmation within the annual reports of (located in 16 countries, excluding Ma-BIMB from the compact disk provided laysia). Some modifications were madeby the bank. to this checklist in order to adapt it to the conditions and characteristics of an Is-Company Selection lamic bank in the Malaysian context. The checklist instrument describing theBank Islam Malaysia Berhad (BIMB) items for identifying social disclosureswas selected as a subject for this study that come within nine themes is summa-due to the following reasons. rised in Table 1. It is designed to codify1. BIMB is the first Islamic bank es- the qualitative information contained in tablished in Malaysia, where the the annual report. The nine themes in- banking activities are based on the clude both mandatory and voluntary dis- Shariah principles. closure as required by FRS i-1. The2. Some of BIMB’s corporate objec- mandatory themes are Zakat obligation tives include: and Shariah Supervisory Council. Al- to provide its customers with though both thematic themes disclosures Islamic banking facilities and are required by FRS i-1, they are being services of the highest possible considered as CSR items because as sug- quality; gested by Maali et al. (2003) the moral to develop a motivated work- responsibility accepted by religious force inculcated with appropriate banks and the Islamic principles that work ethics fully committed to consider ethical issues are quite different the bank and to offer efficient from the conventional banks which fol- and courteous service to custom- low the Western cultures. This is impor- ers; tant especially for Muslim customers to to be always conscious of its ensure that their expectations on Shariah responsibilities and duties as an principles are being fulfilled. The volun- Islamic corporate citizen; and tary themes which are encouraged by To be actively involved in social FRS i-1 include unusual supervisory activities to increase the well 5 Ummah is Muslim societies.
26 A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39restrictions, unlawful transaction, Qard and environment text, they actually usedfund, community involvement, employ- sentences to determine the classificationees, environment, and product and ser- of the text. Milne and Adler (1999)vice contribution. stated that using sentences for both cod- ing and measurement would provideTo measure the extent of social disclo- complete, reliable and meaningful datasures in the annual reports, a content for further analysis. Thus, the number ofanalysis method was used. Content sentences was chosen for this study toanalysis has a strong foundation in the codify and measure the disclosures ofsocial disclosure literature (Ingram, CSR.1978; Ingram & Frazier, 1980; Guthrie& Parker, 1989). The method has been The annual reports of BIMB were readwidely adopted in prior social responsi- thoroughly to identify the social disclo-bility disclosures studies (for example sures from 1992 to 2005. Then, two test-see the studies by Guthrie and Parker, able dimensions were designed to meas-1990; Zeghal and Ahmed, 1990; Hack- ure the volume of disclosures. The firstston and Milne, 1996; Hanim Norza and dimension is to determine the themes ofMustafa, 2004; and Kuasirikun and CSR using the same checklist disclo-Sherer, 2004). Weber (1985), as quoted sures and the second dimension is thein Hackston and Milne (1996), defined location of the CSR items in the annualcontent analysis as a method of codify- reports following the approach used ining the text or content of a piece of writ- the study by Hanim Norza and Mustafaing in various groups or categories de- (2004). We identified a few potentialpending on the selected criteria. locations that were expected to provide corporate social disclosures. The loca-The themes have been identified to en- tions are chairman’s statement, direc-sure that each definition is unambiguous tors’ report, calendar of the year, notesand mutually exclusive in order to elimi- to the accounts and others (for example,nate overlapping interpretations. The special page or section), statement ofnumber of words, sentences, and pages corporate governance, additional com-could be used to measure the volume of pliance information, and report ofdisclosures. Referring to Ingram and Shariah Supervisory Council. The inter-Frazier (1980), they advocate the use of coder reliability measurement was con-number of sentences because a sentence ducted by performing pre-testing proce-is easily identified and is less subject to dure adopted from Hackston and Milneinter-judgement variations than phrases, (1996) and Fathilatul Zakimi et al.,classes, and themes. The use of number (2002). The first two authors reviewedof pages as a measure of disclosure the annual reports independently andwould be problematic due to variation of counted the number of CSR sentencesmargin, font size, and graphics. Concise based on the initial checklist developed.or verbose styles of writing would be The data were then coded and comparedproblems if the numbers of words were by the third author to detect any incon-used (Hackston & Milne, 1996). Be- sistencies in the coding process. If in-sides, although most of the previous consistencies were found, the annualstudies used words, paragraphs, and reports were reanalysed and amend-pages to measure the content of social ments to the initial checklist were made.
A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39 27 Table 1. Checklist for CSR disclosures for BIMB and BHB from 1992 to 2005Themes 92 93 94 95 96 97 98 99 00 01 02 03 04 05Unusual supervi- x x x x x x x x x x x x x xsory restrictionsUnlawful (haram) x x x x x x x x x x x x x xtransactionsZakat obligation / / / / / / / / / / / / / /Qard fund / / / / / / / / / / / / / /Community in- x x / / / / / / / / / / / /volvementEmployees / / / / / / / / / / / / / /Environment x x x x x x x x x x x x x xProduct/service / / / / / / / / / / / / / /contributionShariah Supervi- / / / / / / / / / / / / / /sory Council/ - disclosedx- not disclosedFINDINGS AND DISCUSSIONS payment pertaining to Zakat matters,Overall Disclosure reports, and attestation of SSC, as well as the investment account, is required toAs discussed earlier, the themes of the be disclosed by paragraph 71 and 72 ofCSR were derived from previous stud- the FRS i-1. This implies that socialies, AAOIFI, and FRS i-1. Table 1 reporting that exists in the annual reportsshows the themes of CSR disclosed by seems to be influenced by the legislativeBIMB and BHB from 1992 to 2005. requirements (Douglas et al., 2004). TheTwo themes namely unusual supervisory theme disclosed for Zakat consisted ofrestrictions and unlawful transactions the statement of distributions of Zakat in(consisting of both earnings and expen- terms of amount (RM), SSC attestationditures) were not disclosed. Unusual regarding the computation of Zakat andsupervisory restrictions and unlawful the distribution of the fund. As for thetransactions are items that need to be SSC, the theme disclosed was deriveddisclosed as required by AAOIFI but not from the list of SSC’s membership andby FRS i-1. The study also found that no report of SSC which attested that theenvironmental disclosure was made in operations of the bank were conductedthe annual report throughout the 14 according to the Shariah principles. Theyears. roles of SSC pertaining to the monitor- ing of bank’s activities and Zakat wereZakat obligations and Shariah Supervi- also disclosed under the theme.sory Council (SSC) were disclosed con-secutively. This is due to the fact that The community and involvement theme
28 A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39is disclosed every year except for the proved the quality and development ofyear 1992 and 1993. The items disclosed new products and services for the con-under the theme include the bank’s role venience of its customers. They havein economic development especially for expanded the ATM network, openedsmall and medium-sized enterprises. new branches, introduced E-BankingBIMB is also involved in donating to and new products such as Ijraa savingsprojects for the community, including account6 and Rahnu7scheme to its cus-scholarships for students, health activi- tomers. The other theme disclosed byties, and campaigns for blood donation. BIMB is the distribution of Qard fund, which is recommended by the FRS i-1.The next theme disclosed by the bank is The item related to the disclosure ofemployees. This theme concerns em- Qard fund is the amount distributed toployees’ training, assistance, remunera- its beneficiaries.tion, and benefits. It also focuses on themanagement style or programme that Themes and Extent of CSR Disclosuredirectly affects the employees. The bankhas its own training department which Table 2 summarises the results of con-conducts programmes for its staff and tent analysis based on the selectedthe training provided are given to all themes from 1995 to 2005. Consistentgroups and levels of employees. For ex- with most prior studies (Guthrie &le in the year 2005, more than 500 Parker, 1990; Hackston & Milne, 1996;programmes were held involving 3,707 Thompson & Zarina, 2004; Hanimstaff. On average, each employee would Norza & Mustafa, 2004), BIMB madereceive at least three days of annual most disclosures on employees (39.45training per year. Any changes of Group percent), product and service contribu-Corporate Mission and organisational tion (34.25 percent) and community in-structure would be supplied with cur- volvement (12.49 percent) from thericulum training to support these overall CSR disclosure. The percentagechanges. The bank also implements the of employee social disclosure of 39.45Employee Share Option Scheme (ESOS) percent is quite similar with the percent-for eligible employees. age obtained in a study done by Thomp-Product and service contributions were son and Zarina (2004) where they foundalso reported by BIMB in its annual re- that in year 2000, companies in Malay-ports. This theme focuses mainly on sia disclosed 40 percent of their CSRproduct and service quality and also activities on human resource and em-product and service development and ployees.research. BIMB has consistently im- Table 2. Descriptive statistics on the themes of CSR disclosure for BIMB and BHB (1992 to 2005) Themes Sentences Percentages (%)Zakat obligation 6.74Qard al-Hasan fund 1.88Community involvement 12.49Employees 39.45Product/Service contribution 34.25Shariah Supervisory Council 47 5.19Total 905 100
A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39 29The focus on employee disclosure tends theme. It seems to suggest that custom-to promote the image of employees’ well ers’ satisfaction and expectation which-being, mutual interest with the com- reflect the bank principles and values inpany, as well as matters related to providing financial solutions (productswages, health, and safety (Kuasirikun & and solutions) in line with Shariah prin-Sherer, 2004). Zakat obligation and ciples have proven to be very importantShariah supervisory council as compul- for the long term sustainability of thesory disclosed items are tagged at 6.74 bank.percent and 5.19 percent respectively,while Qard fund was the least disclosed The third most disclosed theme is com-items with only 17 sentences or 1.88 munity involvement. The analysispercent. showed that 113 sentences were dis-Appendix 1 shows the number of sen- closed throughout the 14 years, and yeartences disclosed by BIMB from 1992 to 1998, 2002, and 2004 show the highest2005. The total number of sentences re- amount of disclosure with 20 sentences,ported was 905. The most disclosed 19 sentences, and 23 sentences, respec-CSR theme is employees with 357 sen- tively. This result is supported by thetences, mostly disclosed in the year 2002 finding of Thompson and Zarina (2004)(44 sentences), 2004 (55 sentences), and who found that community involvement2005 (43 sentences), and these findings was the third highest theme reported byare consistent with those of Douglas et Malaysian listed companies. The resultal. (2004), Kuasirikun and Sherer is also consistent with those reported by(2004), and Che Zuriana et al. (2001). Kuasirikun and Sherer (2004). TheirAll the three studies found that human study showed that community involve-resource issues were the most reported ment is the third highest CSR categoryby their sampled companies (Irish Fi- being reported after employee and envi-nancial Institutions, Thailand compa- ronment in the annual reports of Thai-nies, and Malaysian companies, respec- land companies. Besides, our analysistively). Besides, a study by Guthrie and also shows a lack of disclosure on activi-Parker (1990) on UK, US and Australian ties related to community involvementcompanies found that human resources in the first six years being listed in thewas the most reported CSR, which is Main Board of Bursa Malaysia. Thissimilar to the result of the current study. may suggest that the bank gave more emphasis on internal matters, such asThe next most reported theme by BIMB development of human resource, prod-is product and service contribution with ucts, as well as services enhancement310 sentences, which is mostly disclosed during its initial stage of being a listedin the year 2002 (41 sentences), 2004 company.(61 sentences), and 2005 (46 sentences).A previous study by Thompson and Za- The Shariah supervisory council themerina (2004) also revealed that most of is constantly disclosed as one sentenceMalaysian companies gave products and for each year from 1992-2002 indicatingservices as the second most disclosed that there was no additional function of the council except to make sure that the6 Ijraa savings account is a savings account for teenag- banking activities are in line withers.7 Rahnu scheme is a collateralised borrowing scheme. Shariah’s requirements. Starting from
30 A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-392003 to 2005, the amount of disclosures Table 3 shows the rank of CSR disclo-had increased to 12 sentences for all the sure from 1992 to 2005 based on meanthree years. This was due to the intro- of sentences. As stated in the earlier partduction of FRSi-1 in 2004 which re- of the study, employees are the mostquires all Islamic Financial Institutions disclosed theme with the overall mean of(IFI) to disclose all activities pertaining 25.50 sentences ranging from 14 to 55to authority and roles of the Shariah sentences disclosed per year. A priorboard. study by Baydoun and Willett (2000) supports this finding as they opined thatZakat obligation is reported with 61 sen- a set of Islamic Corporate Reportingtences with the highest amount reported (ICR) has to focus in detail on aspectsin the year 2004 (10 sentences) and 2005 which have particular relevance to the(7 sentences). The incremental nature of social accountability principle includingZakat’s disclosure is consistent with the employment. The disclosure of em-increase in Zakat distribution activities ployee theme is also in line with one ofcarried out by BIMB within the two BIMB’s mission, which is to provide ayears. On the other hand, the Qard fund conducive working environment and tois disclosed once in every year except become an employer of choice for topfor the year 2003, where four sentences talents in the market reflecting highlyare disclosed regarding Qard fund distri- the importance of human resource to thebution. organisation (BHB, 2007). Table 3. Level of social responsibility disclosure of BIMB by theme from 1992 to 2005 Themes Mean Standard devia- Minimum Maximum Sentence tion Per YearEmployees 25.50 13.849 14 55Product/Service contribution 22.14 18.451 3 61Community involvement 8.07 7.985 0 23Zakat obligation 4.36 1.906 3 10Shariah Supervisory Council 3.36 4.684 1 12Qard al-Hasan fund 1.21 0.802 1 4The second highest mean is the product/ isational structure of the bank.service contribution theme, having 22.14sentences ranging from 3 to 61 sentences The third highest mean of disclosure isper year. This theme was least disclosed community involvement with a mean ofin the year 1992 and 1993 (see Appen- 8.07 sentences, ranging from 0 to 23dix 1). This might be due to the fact that sentences. None of the community in-during the beginning years of the bank’s volvement activities were disclosed inoperation as a listed company, less new the year 1992 and 1993 (see Appendixproducts and services were being intro- 1). Zakat obligation, Shariah supervi-duced as most of the expenses were sory council and Qard fund are rankedchannelled to maintain the new organ- at forth, fifth and sixth place with means
A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39 31of 4.36, 3.36, and 1.21 sentences, re- nual reports with about 318 sentencesspectively. (35 percent), followed by the financial statements with 208 sentences (23 per-Location and Extent of CSR Disclo- cent), and directors’ reports with 199sure sentences (22 percent). The results ob- tained are consistent with the study con-In determining the location of CSR dis- ducted by Che Zuriana et al. (2001).closures in the annual reports, there are a Their study shows that Malaysian com-few potential places that were identified, panies prefer to disclose CSR in thesuch as chairman’s statements, directors chairman’s statement, financial state-reports, calendar of the year, financial ments and directors’ reports. However,statements (balance sheet, income state- another study by Hanim Norza andment, cash flow statement, statement of Mustafa, (2004) revealed that the vastchanges in equity, and notes to the ac- majority of Malaysian companies placedcounts), statement of corporate govern- the corporate social disclosure in theance, additional compliance information, chairman’s statement, followed by thereport of Shariah supervisory council, directors’ report and notes to the ac-and others (e.g. special page or section). counts. This reflects the more emphasis given to the chairman’s statement as aAs shown in Table 4, the most preferred location to report all CSR activities,location for the bank to disclose CSR is business strategies and bank achieve-in the chairman’s statement of the an- ments’ for the whole year. Table 4.Descriptive statistics on the location of CSR disclosures for BIMB (1992 to 2005) Location Number of Sentences Percentage (%)Chairman’s statement 318 35.13Directors’ report 199 21.98Calendar of the year 25 2.76Financial statements 208 22.98Statement of corporate governance 15 1.66Additional compliance information 28 3.10Report of Shariah supervisory council 47 5.2Others (e.g. special page) 65 7.19 Total 905 100In addition, from year to year the bank sections have been created, such as addi-shows an improvement in presenting its tional compliance information startingannual report by creating new locations from 2001, statement of corporate gov-and also the manner the information is ernance starting from 2002, and calendarreported. As a matter of fact, some new of the year starting from 2004, which
32 A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39also contains pictorial information. Trend of CSR DisclosureHowever, the frequency of disclosure inthese three sections is low, which is 28 Over the period from 1992 to 2005, allsentences (3.1 percent) for the additional the annual reports of the bank disclosedcompliance information, 25 sentences some amount of social disclosures. Ta-(2.76 percent) for calendar of the year, ble 5 and Figure 1 (to be read togetherand 15 sentences (1.66 percent) for the with Appendix 1) show the overall trendstatement of corporate governance. of disclosing corporate social responsi- bility information. Table 5. Descriptive statistics on the trends of CSR disclosures Year Sentences Percentage (%) 1992 38 4.2 1993 26 2.87 1994 32 3.54 1995 29 3.2 1996 29 3.2 1997 29 3.2 1998 75 8.29 1999 49 5.42 2000 39 4.31 2001 64 7.07 2002 109 12.05 2003 101 11.16 2004 162 17.9 2005 123 13.59 Total 905 100In general, the bank shows a fluctuating plementation of a far-reaching organisa-trend of CSR disclosure over the 14 tional restructuring exercise (BHB,years (Figure 1). The highest amount of 2004). However, in 2005, the amount ofdisclosures is in 2004, with 162 sen- CSR disclosure had decreased by 24tences and this represents about 17.9 percent (with 123 sentences, represent-percent of total volume of disclosure. ing about 14 percent of total volume ofWe suggest that this result might be due disclosure) from the previous year whichto the backdrop of Malaysia’s sustained was attributed to the loss suffered by theeconomic growth and during this year, bank due to bad debts (BHB, 2005). Thethe bank had almost completed the im- lowest volume of disclosure was in 1993
A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39 33 Figure 1. Line chart portraying the trends of BIMB’s CSR disclosures (1992 to 2005)In general, the bank shows a fluctuating ganisation should properly suit it activi-trend of CSR disclosure over the 14 ties to meet the society’s expectations,years (Figure 1) The highest amount of which is based on the notion that thedisclosures is in 2004, with 162 sen- business operates in a society via a so-tences and this represents about 17.9 cial contract. Therefore, the organisationpercent of total volume of disclosure. needs to perform socially desired actionWe suggest that this result might be due and disclose appropriate social informa-to the backdrop of Malaysia’s sustained tion to reflect itself as a good corporateeconomic growth and during this year, citizen (Guthrie and Parker, 1989; Maalithe bank had almost completed the im- et al., 2003). From this theory, it seemsplementation of a far-reaching organisa- like by disclosing more CSR informa-tional restructuring exercise (BHB, tion, it would create a better perception2004). However, in 2005, the amount of on the bank itself from the perspectiveCSR disclosure had decreased by 24 of society and stakeholders. Besides, bypercent (with 123 sentences, represent- increasing CSR activities and disclosure,ing about 14 percent of total volume of it may reduce the legitimacy threat. Thedisclosure) from the previous year which significant increment of disclosureswas attributed to the loss suffered by the might also be due to the establishment ofbank due to bad debts (BHB, 2005). The a second Islamic bank in Malaysia, Banklowest volume of disclosure was in 1993 Mualamat Malaysia Berhad on 1 Octo-with 26 sentences (2.87 percent), a year ber 1999 which creates a competitiveafter the bank had been listed in Bursa environment for BIMB in enhancing itsMalaysia. Starting from 2000 to 2004, image as the pioneer Islamic bank inthe volume of CSR disclosures increased offering Islamic products in the country.significantly from the first eight years.Referring to legitimacy theory, an or- The fluctuation of these disclosures from
34 A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39year to year might be influenced by under the employees theme. One of themany factors like size, culture, profit- reasons was due to the BIMB’s empha-ability, growth, and structure of the sis on Islamic principles regarding thebank. It has been proven by prior studies concept of accountability, which re-that the variations in the extent of disclo- quires the Islamic bank to disclose em-sure are associated with several com- ployment details (Baydoun and Willett,pany attributes like firm size (Fathilatul 2000). An extract from the chairmanZakimi et al., 2001) and also corporate statement in 2004’s annual report ofgovernance and culture of the company BIMB is shown below:(Haniffa and Cooke, 2002). The success of Islamic Banking and the Group in particular dependsThe results also showed that during the greatly on the human factor. Wefinancial year crisis from 1997 to 1998, need strong pool of intellectualthe level of CSR disclosures were still capital to stay ahead of the compe-increasing. This phenomenon could be tition and to realise our long-terminfluenced by the fact that during the version of being a global player inyear, the parent company, BIMB Hold- the Islamic banking sector. Train-ings Berhad (BHB) had been incorpo- ing also plays an important role inrated, and there was an exchange of ensuring internal career growthshares between BIMB and BHB, and and succession planning. In thesubsequently the listing of BHB shares face of organizational changes af-on the Main Board of Bursa Malaysia. fecting the Group, the training cur-This findings support earlier findings by riculum has been geared to supportHanim Norza and Mustafa (2004) and the new structure and Group Cor-Che Zuriana et al. (2001), where they porate Mission.found that during the financial crisis, the (BHB, 2004)companies still disclosed social informa-tion in the annual reports. In addition, in In addition, the trend of disclosure forthat year, the bank presumably would product and service contribution is alsolike to disclose more information about constant, similar to the employee themeCSR to keep attracting new investors or and just slightly fluctuated over thedepositors, and to create confidence years. The total disclosures in 2004 wereamong the existing investors and the 61 sentences, which represents about 20public to place their money in the bank. percent from the total CSR disclosuresThis assumption is based on the argu- for that theme. This finding reflects thement by Fathilatul Zakimi et al. (2001) competitive environment whereby otherthat during the Asian financial crisis, conventional banks are also introducinggreater impact was faced by banking and new Islamic banking products to attractfinancial institution. As such, by making the public to place their money in thecorporate social disclosures, it would bank. However, the community involve-create confidence among investors and ment theme shows a fluctuating trendthe public. throughout the years. Although the level of disclosure for this theme varied overRegarding the trend of disclosure ac- the years, there was a marked improve-cording to themes, the findings show ment in disclosing such information.that the majority of such disclosures fall This seems to suggest that the bank
A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39 35wants to inform the public about its con- made some kind of CSR disclosure in itstribution in addressing social problems annual reports. The themes disclosed byand the role of the bank in facilitating the bank are employees, product andthe advancement of Islamic banking and service contribution, community in-finance in Malaysia (BHB, 1999). volvement, Zakat obligation, and Shariah supervisory council which com-Another theme that shows improvement prised both compulsory and voluntaryin terms of volume of disclosure is the disclosure as regulated and encouragedShariah supervisory council theme. The by AAOFI and FRS i-1. Consistent withitem regarding the role and authority of most prior studies, the most disclosedShariah supervisory council has been themes are employees, product and ser-disclosed starting from 2003 as required vice contribution, and community in-by FRS i-1. The disclosure of such infor- volvement. Zakat obligation, Shariahmation would make the public or users supervisory council and Qard fund areof annual reports aware of the function the least disclosed themes by BIMB.and role of the council in advising andmonitoring the operational activities of In addition, the most popular locationthe bank. for these disclosures is in the chairman’s statement, followed by the financialConclusion, Limitation, and Sugges- statements, and directors’ report. Wetion for Future Research believe that the chairman’s statement is the most attractive location for users ofFrom the Islamic perspective, the con- financial statements to find out such in-cept of full and truthful disclosure is em- formation and to know all activities,phasised many times in Quranic verses, business strategies, and BIMB’sHadith, and Sunnah. As an Islamic bank, achievements for the whole year. Gener-BIMB is expected by the public to dis- ally, the bank shows improvement inclose all the information that may impact terms of the amount and the manner ofdirectly on the employee and commu- disclosing such information from year tonity’s well-being. In fact, one of the year. Over the 14 years, the trend ofbank’s mission statements, which sup- CSR disclosure showed a fluctuatingports this expectation is to be a responsi- trend but increased steadily starting fromble and prudent corporate citizen (BHB, 2000 to 2004. This suggests that the es-2007). Thus, this study had sought to tablishment of a second Islamic bank,examine the theme or type, location, and Bank Muamalat Malaysia Berhad hasthe extent of CSR disclosure in the an- created a competitive environment fornual reports of BIMB and BHB, and also Islamic banking and finance industriesto investigate the trend of such disclo- in Malaysia. The overall result of thissure from 1992 to 2005. study contradicts with Maali et al. (2003), where they suggested that socialIn Malaysia, even though the CSR dis- reporting is not the major concern ofclosure is considered a voluntary disclo- Islamic banks, although we can see thatsure, BIMB has put some efforts and the volume of CSR disclosures of BIMBinitiatives in disclosing or reporting such has increased from year to year.information. Overall, this study foundthat over these 14 years, BIMB had This study also revealed that during fi-
36 A. A . Rahman, M.F. Hashim, F. Abu Bakar / Issues in Social and Environmental Accounting 1 (2010) 18-39nancial turmoil in 1997, the level of ReferencesCSR disclosure was not affected and thisresult could be due to the fact that during Accounting and Auditing Organizationthis time, BHB had been incorporated, for Islamic Financial Institutionand they need to disclose more informa- (AAOIFI) (1998). Bahrain.tion, especially CSR activities to attract Baydoun, N. & Willet, R. (2000)and create confidence among new or “Islamic corporate reports”, Aba-existing investors and the public to place cus, Vol. 36, No. 1, pp. 71-91.their money in the bank. Belal, A.R. (2001) “A study of corporate social disclosure in Bangladesh”,There are some limitations in this study. Managerial Auditing Journal,Firstly, the findings cannot be general- Vol. 16, No. 5, pp. 274-289.ised to all financial institutions in Ma- BIMB Holdings Berhad (BHB). (1999,laysia because it only focus on one fi- 2004, 2005). Annual Report.nancial institution and using only a sin- Kuala Lumpur:gle industry. Secondly, the CSR disclo- BIMB Holdings Berhad (BHB) (2007)sure contents are solely extracted from “Vision and Mission”, availablethe annual reports despite the availabil- a t : h t t p : / /ity of other resources such as Internet, www.bankislam.com.my/cms/newspapers, brochures and advertise- d e f a u l t . a s p ?ments being available. cms_articleID=91&languageID=0 (accessed April 28, 2009).In future research, the relationship of Che Zuriana, M. J., Kasumalinda, A., &factors or variables that can influence Rapiah, M. (2001) ”Corporatethe level of disclosure of CSR by Is- social responsibility disclosure inlamic financial institutions can be exam- the annual reports of Malaysianined. This will indicate whether a com- companies: A longitudinal study”,pany is a socially responsible citizen or Unpublished research, Universitiit has been pressured by the stakeholders Utara Malaysia.in order to meet regulatory compliance. Douglas, A., Doris, J., & Johnson, B.The variables may include size, regula- (2004) “Case study: Corporatetion requirement, corporate governance social reporting in Irish financialvariables, auditor type, etc. Besides, a institutions”, The TQM Magazine,comparative study can be done between Vol. 16, No. 6, pp. 387-397.Islamic and conventional financial insti- Fathilatul Zakimi, A.H., & Azhar, A. R.tutions in order to see the extent of the (2001) “The extent of corporateunderstanding and awareness of CSR disclosure by banks and financedisclosure between managers of finan- companies in Malaysia”, Unpub-cial institutions that are based on differ- lished research, Universiti Utaraent value systems. Furthermore, research Malaysia.on the constraints and limitations of cor- Fathilatul Zakimi, A.H., Mohamadporate social responsibility activities and Sharofi, I., & Azhar, A. R. (2002)disclosure amongst financial institutions “An empirical investigation ofcan be useful to gain insights into the corporate social disclosure bypossible reasons for such phenomena. banks and finance companies”, Unpublished research, Universiti
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