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In Southeast Asia, Corporate Governance Picks Up as a Norm

SINGAPORE, Aug 31 (Reporting ASEAN) – Corporate social responsibility (CSR) and corporate governance are far from new, but they are now becoming norms that merit companies’ investment in and disclosure about them, deeper study by research institutions and their teaching in business schools in Southeast Asia and beyond.

This was a recurring theme through a July conference held here on corporate governance and responsibility, one that was attended by 200 participants from governments, business, civil society, and trade unions, and organised by the National University of Singapore (NUS) Business School’s Centre for Governance, Institutions and Organisations, and the ASEAN CSR Network.

No longer is there a debate on whether business has a role to play in sustainable development, speaker after speaker said at discussions at the conference. Over the years, international standards of corporate governance have been developed and used in the region, and more and more Southeast Asian countries require disclosure of information about corporate sustainability.

Many companies, be it Microsoft or Sime Darby or Thailand’s CP Group, have already created senior managerial positions focusing on corporate sustainability, in contrast to the past when CSR used to be clumped together with communications, public or external relations. For corporations too, corporate responsibility is part of corporate image, values, strategy and brand.

Business schools, including the one at NUS, have courses on business responsibility and sustainability. At the July conference, the Centre for Governance, Institutions and Organisations (CGIO) of the NUS Business School, together with the ASEAN CSR Network, reported findings of a regional study on sustainability reporting and corporate disclosure on business integrity among the big listed companies in four ASEAN countries.

“Businesses are universally recognised as the primary engine of the economic growth and development needed to alleviate poverty,” said Yanti Triwadiantini, chairwoman of the ASEAN CSR Network. “And as ASEAN continues on the path of regional economic integration, businesses are increasingly expected to contribute not only to wealth generation, but also to solving some of the region’s pressing challenges.”

“Corporate social responsibility, or responsible business principles or corporate sustainability, is no longer just a trendy buzzword,” pointed out Rebecca Babaran, director of the human development directorate in the ASEAN Socio-Cultural Community in the ASEAN Secretariat, based in Jakarta.

“Although CSR is a voluntary initiative, it is increasingly considered as a must, a norm, for any credible and responsible business or corporates to adopt. Companies are being held accountable not just for their economic contribution and economic relationship with their clients or consumers, but also for their social and environmental impacts of their operation,” she said.

Beyond these general statements, proof of how corporate sustainability has grown deeper roots emerged from corporate representatives and academics at the conference, whose focus was ‘theory meets practice’ around business responsibility.

The “internationalisation” of CSR has grown over the years, Jeremy Moon, Velux professor of corporate sustainability at the Copenhagen Business School in Denmark, told the conference.

The fact is that “social criteria is now valued” in stock exchanges, he added. Customers these days value social criteria in their transactions, and governments’ purchasing decisions take into consideration social responsibility criteria. Business strategy often includes social responsibility.

“In Sime Darby, we acknowledge the fact that we operate in a world that’s different, where we have a wider range of stakeholders,” Rashyid Redza Anwarudin, vice president and head of sustainability reporting/social performance of the Malaysia-based Sime Darby Berhad, pointed out.

Investors increasingly ask about Sime Darby’s environmental impact and policy, he added. In the end, CSR is a way to “minimise risk, and an opportunity to differentiate ourselves from our competitors”.

The findings of the NUS-ASEAN CSR Network study provide encouragement to CSR advocates in that it shows how regulatory agencies in countries – such as the stock exchange or Securities and Exchange Commission – are making it mandatory for companies to disclose their policies in governance, economic, environment and social aspects.

The study looks at the state of progress in sustainability reporting in four ASEAN countries – Indonesia, Malaysia, Singapore and Thailand – by reviewing compliance with international sustainability measures such as at enforcement level, existence of written guide and use of the sustainability index. It looked at data from the countries’ top 100 mainboard companies by market capitalisation as of June 2015.

It found that 100 percent of companies complied with sustainability reporting requirements by government regulators in Indonesia, Malaysia and Thailand. Only 71 percent of companies in Singapore reported on their sustainability commitments and policies, because the Singapore Stock Exchange does not yet make this mandatory. It becomes a requirement, on a ‘comply or explain’ basis, from December 2017 onwards in the city-state.

But when it comes to the quality of this sustainability reporting, the study showed relatively low results – with Thailand getting the highest percentage at 56.8, followed by Singapore at 48.8, Indonesia at 48.4, and Malaysia at 47.7. Disclosure quality was measured by NUS researchers using indicators in the economic, environment, social and governance areas and assigning values to them.

“Everybody reports on something but there is still quite a significant bit of improvement to be made on quality. Because in terms of quality, the midpoint for this is about 60 so everybody is below the midpoint,” Lawrence Loh, director of the CGIO at the NUS Business School, told reporters.

The results of a second study by NUS and ASEAN CSR Network show that on the issue of business integrity in ASEAN, only 54 percent of top listed companies in five ASEAN countries have a publicly disclosed commitment to anti-corruption.

Thailand, acknowledged to have a wider general acceptance of corporate responsibility, ranked highest, followed by Singapore, the Philippines, Malaysia and Indonesia. At the same time, it is interesting to note that despite this, Thailand ranks just 76th in the 2015 Corruption Perception Index of Transparency International, not far from Indonesia’s 36 and the Philippines’ 35.

The study used 13 questions from Transparency International’s study ‘Transparency in Corporate Reporting’ to score companies by being satisfactory, partly satisfactory and non-satisfactory in their public commitments in areas ranging from public statements against corruption, commitments to comply with anti-corruption laws, their leadership’s demonstrated support for anti-corruption, presence of a code of conduct or anti-corruption policy that applies to all employees and directors and whether companies have training programs for their staff on fighting corruption.

The study reviewed publicly disclosed information from the top 50 companies in five ASEAN countries by market capitalisation.

Highlights of the study results show that 96 percent of companies expressed commitment to comply with anti-corruption laws. Only 18 percent of companies laid out explicit support for anti-corruption measures.

Just 14 percent of the companies disclosed that their anti-corruption policy explicitly applies to third parties acting on their behalf. An average of 59 percent had a policy covering gifts, hospitality and expenses, with Thailand scoring 84 percent and Malaysia 39 percent on this point. Only 19 percent of companies disclosed that they explicitly prohibit facilitation payments.

Loh explained that the studies were aimed at highlighting where corporate social responsibility is in the region and allowing countries to learn from each other. “It is not to compare countries, it’s more for cross-sharing and cross understanding. It was never meant to be like the SEA Games; this is not SEA Games,” he quipped.

“We need to encourage this culture of disclosure, which is what we call the culture of transparency,” Loh added. “Don’t just do, tell the world what you do. Because you’re talking about stakeholders – they don’t have instant inside information about a company, you need to communicate and you need to communicate responsibly and accurately.”

Quality disclosure by companies in ASEAN is a “work in progress”, he said. For instance, companies usually have data on the percentage of revenues spent on research and development or marketing, expense items that are listed separately in their chart of accounts.

“But nobody has concentrated on sustainability or CSR. It’s not an indicator. So I think research is going in that direction and set benchmarks. There’s no right or wrong answer but it’s good to have benchmarks and then you correlate it with performance,” Loh added. “But before we do that, we need to make sure people are willing to comply.”

Perhaps the next step is to encourage the setting up of a benchmark for the top 100 companies when it comes to CSR spending, he said. A concrete area of investigation in the future would be to measure corporations’ expenses on CSR.

“But the problem is, from the accounting viewpoint, there is not a clear demarcation (in terms of recording expenses) on CSR. It’s diffused all over (the company books), so the accounting practice has not caught up (with the growth of CSR). R and D, marketing, (are) very clear (in expense accounts), but CSR is everywhere in them,” Loh added. “So it’s very hard.” (END/Reporting ASEAN)

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