One of the most important aspects that deserve attention in corporations is corporate social responsibility (CSR). The emergence of CSR in business organisations for the past three decades triggers the need for Islamic corporations to be more socially responsible. In view of the moral failure, corporate collapse and a lack of ethical values in business organisations, CSR outlines the ideal standard of behaviour of the firms from the social-oriented value perspective.
CSR, as its own discipline, was developed extensively in the West but little is written on the subject from the Islamic perspective. Although CSR is commendable in Islam, its theoretical foundation is distinct from the Western theory of CSR.
The trend of CSR is appealing worldwide. It is a common practice in the market, particularly for listed companies, to produce their annual CSR reports. Companies with good CSR record enjoy high reputation and are able to attract investors, especially institutional investors who are concerned about their ethical investments. In fact, the popularity of social responsible investment (SRI) has boosted CSR initiatives worldwide. SRI is a form of ethical screen to ensure that SRI funds are not invested in firms that have poor record of CSR. In the United Kingdom, the Financial Times Stock Exchange Index introduced the FTSE4 Good Index, formulated based on the CSR criteria. This is followed by the United States, whereby the Dow Jones Stock Exchange introduced its Sustainability Index. These initiatives indicate positive development on the need for social dimension in investment and business activities.
Basically, the term CSR has been broadly used to refer to firms’ social obligations on a voluntary basis. This is parallel to the definition of CSR by the European Commission, where it refers to “a concept whereby companies integrate social and environmental concern in their business operation and in their interaction with stakeholders on a voluntary basis”. Unlike the definition by the EC, which is very narrow, the definition of CSR by the World Business Council for Sustainable Development (WBCSD) extends the framework by not limiting it to voluntary form of CSR. WBCDS defines CSR as “the commitment of business to contribute to sustainable economic development, working with employee, their families and local community and society at large to improve their quality of life”. This definition enhances the scope of CSR by including any kinds of initiatives for social purposes, whether they are voluntary or obligatory.
From the Islamic perspective, a corporation is expected to have two-fold objectives: profit-oriented and social-oriented functions. Good corporate gover- nance with strong ethical consideration will determine the state of initiatives on CSR. The special characteristic of an Islamic corporation to comply with syariah ethical principles in all its activities requires a specific kind of governance. Islamic corporations shall avoid any involvement with all kinds of syariah prohibitions, such as riba (interest), gharar (uncertainty), speculation and maysir (gambling), to stay away from investing in any unlawful activities and to observe the principle of Islamic morality or Islamic ethical code.
In line with the ideal aspiration of Islamic economics, a corporation is not only required to fulfil its economic functions, but also play significant roles in addressing socio-economic issues as part of its corporate responsibilities. This foundational dimension is based on the holistic approach of corporate governance, whereby its framework is beyond the relationship between the shareholders, board of directors, management and stakeholders, but to include as to how maintain the relationship with God. In this aspect, an Islamic corporation requires additional syariah and ethical framework to safeguard and maintain not only the relationship with God but to include correlation with the human being, as well as the environment. As such, CSR can be the most appropriate platform and mechanism for Islamic corporations to fulfil their social responsibilities as part of their religious obligations.
In conclusion, the Islamic ethical dimension denotes a solid epistemological orientation for Islamic corporations as motivation to fulfil these ethical responsibilities via CSR initiatives. In addition, corporate governance is one of the factors that determine and influence the Islamic corporations’ CSR initiatives. Strong corporate governance, with proactive roles of stakeholders, appropriate organisational structure, ownership structure, sound monitoring and supervisory frameworks and proper corporate social reporting, will be able to stimulate the Islamic corporation to promote social and moral initiatives.
PROF MADYA DR ZULKIFLI HASAN, Faculty of Syariah and Law,
Universiti Sains Islam Malaysia,
Nilai, Negri Sembilan