SOCIAL REPONSIBILITY AWARENESS AMONG LOCAL GOVERNMENT ACCOUNTANT IN MALAYSIA 

MOHD NIZAM MOHD ALI
MOHD REZAIDI MOHD ISHAK
Institut Integriti Malaysia

 ASSOCIATE PROFESSOR SYED SOFFIAN SYED ISMAIL ALJEFFRI
ASSOCIATE PROFESSOR DR FAUDZIAH HANIM HJ FADZIL
FATHILATUL ZAKIMI ABDUL HAMID
MOHD SHAROFI ISMAIL
Faculty of Accountancy,
Universiti Utara Malaysia,
06010 Sintok Kedah
Email: zakimi@uum.edu.my

BACKGROUND of CORPORATE SOCIAL RESPONSIBILITY 

For the businesses, corporate social responsibility (CSR) is the commitment of businesses to behave ethically and to contribute to the sustainable economic development by working with all relevant stakeholders for improving their lives in ways that are good for business, the sustainable development agenda, and society at large.  Additionally, issues such as sustainable development and environmental quality are becoming increasingly interlinked, and are having a profound effect on businesses and its environment. 

            Hackston and Milne (1996) defined corporate social responsibility (hereafter known as CSR) as the provision of financial and non-financial information, as stated in corporate annual report or separate social reports.  Gray et al. (1995a) made a remark that the terminology for corporate social responsibility and environmental reporting has many virtual synonyms including corporate social and environmental disclosure, social responsibility disclosure and reporting and even social audit.  Belkaoui and Karpik (1989) and Hackston and Milne (1996), stressed that corporation is under pressure from its stakeholders to report their social activities because these parties wanted to protect their interest.  Mohamed (2000) suggested that corporate social reporting is an important tool to lessen the gap between community and firms.  In this case, the community is considered as an important external stakeholder for the firm.

            Gray et al. (1987) emphasised the notion of accounting providing a mediating role between different stakeholder groups and the responsibility of companies and defined social and environmental accounting as: 

… the process of communicating the social and environmental effects of organisations’ economic actions to particular interest groups within society and to society at large. As such it involves extending the accountability of organisations, beyond the traditional role of providing a financial account to the owners of capital, in particular, shareholders. 

            The interest in social reporting became tangible around the middle of the ‘60s. The concept of social reporting seemed to develop as a reply to the growing concern with ethics and CSR and the impact of business activity both socially and environmentally (Gray et al., 1996). It is worthy of note that scientific production concentrated particularly on the application of the concept of CSR to businesses operating in the private sector.

            Emphasis for CSR is on the reporting of this information. Reports are the vehicles by which responsibility and accountability can be governed, performance evaluated and the relevant changes made. Guthrie and Parker (1990) outline three major purposes for social reporting include:

1. A comprehensive view of the organisation and its resources

2. A constraint upon socially irresponsible organisational behaviour

3. Positive motivation for the organisation to act in a socially responsible manner.

Reporting is intended to balance the information asymmetry that exists between stakeholders and different entities.

LITERATURE REVIEW 

CSR and Public Sector 

CSR in accounting has been extensively researched in pursuit of new ways of providing an accountability of organisations and their actions. This prior research focuses largely on corporations since corporations have social contracts with the society.  However, for the public sector organisations and local government in particular, CSR may be viewed as having a stronger and more direct social contract with the community. 

            The concept of accountability is essential and is one of the purposes in CSR, as it affects many different stakeholders. The main focus of accountability is on primary stakeholders; those stakeholders directly influencing an organisation. For local government, every members and individual residing within their council boundary should be considered a primary stakeholder. Accountability is the duty to provide an account of those actions for which one is held responsible. Accountability, coupled with the idea of governance has led to the development of CSR. 

CSR Theoretical Development

There is no specific theory to explain CSR practices by companies (Choi, 1999).  Legitimacy theory, stakeholder theory, political economic accounting theory and agency theory were employed in many CSR studies. Gray et al.  (1995a, 2001) argue that the legitimacy and stakeholder theories are neither separate nor competing, but they are viewed as overlapping perspectives between the political economy assumptions.  Belkaoui and Karpik (1989) and Trotmen and Bardley (1981) employed  agency theory to explain the CSR practice by companies and posited that CSR information was  voluntarily disclosed by firms as a mean to reduce agency costs or future agency costs that could arise in the form of regulation (Gray et al., 2001). Legitimacy theory is based on the premise that company will signal their legitimacy by disclosing information in the annual reports (Gray et al. 1995a).

The majority of prior CSR studies utilized the legitimacy theory, even though the results were inconsistent (Patten, 1991, 1992; Gray et al., 1995a; Guthrie and Parker, 1989, 1990). The inconsistent results may be due to different strategies used by companies to legitimize its behaviour (Cormior and Gordon 2001; Newson and Deegan, 2002),  to manage their legitimacy that is expected to vary over time (Gray, Khouy and Leavers, 1995) or to manage pressure on them from the society (Clark and Sweet, 1999).  For example Hogner (1982) studied on the type and amount of CSR disclosure in the US Steel annual reports from 1901 and 1980, founds support for legitimacy theory where the disclosure made by companies were response to societal forces experience  at different period of time. In another study by Patten (1992), on the environmental disclosure by Oil Company after the Exxon Valdez oil spill, again confirmed the legitimacy arguments. He argued that organizations disclosed information as a mean of establishing or protecting the legitimacy of the organization by influencing public opinion.  Recent evidence by Hamid (2004) on Malaysian banks concurred with legitimacy theory as the primary explanation for CSR disclosure in the annual reports. As pointed by Newson and Deegan (2002), the legitimacy theory directly relies on the concept of social contract whereby it emphasised on how organizations are dependent on their environments and the expectations from the society that might be changing across time. 

Cormior and Gordon (2001) and Gray et al. (1995a) outlined the explanation given by Dowling and Preffer (1975) and Lindbloms’ (1994) on the four broad legitimacy strategies used by the organizations when they face legitimacy threat.  The first strategy is to educate the society about the organization intention to improve its performance or change its action.  The second strategy is to alter society perception towards organization action without making any changes to that action (Cormoir and Gordon, 2001).  The third strategy is to divert or manipulate attention away from the issue concern by the society to other alternative issue.  The last strategy is to change or alter society expectations about organization performance.  Based on the above strategies, it assumes that legitimacy theory would provide explanation for the organization’s behaviour that is to influence the society and stakeholders’ perceptions about the companies.  Therefore, CSR is considered as a reaction to factors from the environment that company operate and pressure received for the stakeholders and society. 

            Based on the above discussion the primary purpose of this research is to examine the prepares perception i.e. local government accountant towards the social responsibility (SR) or CSR, in which SR is important for the image building and designing legitimacy strategy.

            The Malaysian government is divided into three levels: federal, states and local government. Local authority is governed by the Local Government Act 1976. Local authority is the closest government agency to the public and their responsibility is not only accommodating the public with variety of services and basic facilities but also as a catalyst to the communities. 

            The reason for choosing local government is because these agencies have their strength in term of autonomy power on financial and management. Therefore, local government does not only have power in collecting taxes and other revenues but also power to have and control their own fund. Examples of services provided by the local government are keeping public places clean and free from filth and rubbish, preserving the public health, providing for the inspection and examination of food or drink which is for sale, regulating the control and use of markets and buildings, shops, sheds, stalls, pens and any other erections, regulating the slaughtering of animals and others.

            It is estimated that by the year 2000 more than 65 per cent of Malaysians will be living in urban areas as opposed to 51 per cent in 1991. To meet the needs of these urban residents, local government must be able to strengthen their financial capacity and community services. This is an important challenge for local government if they are to sustain to a higher level of urban services and higher quality of urban life in the next millennium.

            The role of community support and participation is crucial in the performance of local government as it ensures the success of a particular urban programme and can help reducing the cost of operation. To a great extent, the public can be involved in tree planting activities, recycling of wastes, reducing litter and controlling vandalism. In these cases, local government has to takes an initiative to link up with the non-governmental organizations and schools in order to promote community support and participation. Such measures will greatly enhance or improve abilities of local government in discharging their duties.

            In the business sector, social reporting constitutes a tentative to overcome the economic-financial statement by including information on the social and environmental impact of the activity of the company. One of the more positive results is that SR has been interpreted as a strategic process not just a simple informative document, the involvement of the stakeholders and the attention given to the relationship with them has become central elements (Hinna and Monteduro, 2003). However, notwithstanding in this evolution, the economic-financial accountability remains the central point.

            For public organizations (and in particular for local government) the situation is opposite. The request for information comes from the citizens and is primarily a social request and only successively becomes an economic-financial nature. The citizens are interested in knowing the public value generated (Moore, 1995). The most important public value generated by local government should be communicated to the citizens. The local government has to equip themselves with innovative systems of communication and accountability, in particular in SR (Hinna and Monteduro, 2003).   

RESEARCH METHODS 

The evidence in this study was collected using questionnaire and it was given to the local government accountant during their 2^nd annual local government conference in langkawi, Malaysia.  A questionnaire was designed to ask those accountant about their knowledge and views regarding the concept of SR in local government and 61 question were asked by using a combination of fill-in the blanks, ranking and five-point likert scale questions.  The questions were divided into five sections such as respondent’s background, knowledge in SR, important of SR, SR reporting strategy, and SR communication medium. 

RESULTS AND DISCUSSIONS 

The questionnaire was distributed to 150 participants during the conference, out of which 101 returned and useable representing 67% response rate The background profile are given in Table I as follows;

TABLE I Survey Demographic data

Results on respondents’ perceptions in SR are shown in Table II below using the mean response (scale 1 = unimportant to 5= highly important).  Questions 11, 13, 14 and 19 addressed the important of SR to the local government.  Majority of the respondents’ agree that the SR is important concept of accountability that could enhance the local government image from the eye of stakeholders.  Summary of the result by ranking in mean response close to very important (highly important = 5) that SR is important to the local government (4.57), SR should include in the mission and vision of local government (4.36), SR can enhance local government integrity (4.33) and local government should have an officer to attend SR matters (4.07).

            Questions 12, 15, 16, 17 and 18 addressed the issues of local government employee involving in SR function.  Question 12, 16 and 17 asked respondents whether thay are involve in SR functions and the highest mean difference was, SR concept was important to him or her (4.23), followed by SR is relevant to my job functions  (4.05) and  he or she understand the important of SR to the local government.  Moreover, questions 15 and 18 addressed the important of SR to all local government employees. Interestingly, respondents respond that all local government employees should apply SR concept in their daily duty (4.44) and SR was part of their organizations practices (4.21).

TABLE II Perceptions on Social Responsibility 

Table III below refer to questions 24 till 32, which addressed the background knowledge of respondents on SR by using the mean responses (scale 1 = really didn’t understand to scale 5 = fully understand).  The result shows that there are low levels of background knowledge in SR by the local government accountant by looking to the average means response ranging from 2.79 to 3.72.  The highest mean response (3.72) was question 30 on National Integrity Plan, where the national integrity plan concepts was actively promoted and communicated by the federal government to all government machineries and it’s new.

 TABLE III Background knowledge on SR

             Questions 20 till 23 linked to the four SR themes which is local government services, employee and its benefits, community and society, and environment.  The respondents asked to rank the SR theme from 5 for highly important to 1 for unimportant.  The result from mean response indicates that local government services were in the highest rank (3.35) followed by local government employee (2.55), community services (2.33) and the lowest rank in environmental (1.33).  The highest ranking for the local government services may implies that current issues faced by the local government on public complaints on their low level of satisfactions for the service offered by the local government (Fernandez, 2006).

            Table IV was asked respondents on four SR themes by using the means responses (scale 1 = strongly disagree to 5 = strongly agree).  Questions 33 till 37 were on the services offered by the local government to the public.   The average response was closed to strongly agree to agree where, the maintenance services (4.62) was in the highest rank, followed by public safety (4.42), media communication (4.26), sports and recreational (4.15) and the lowest rank was the disclosure of services offers by the local government that was according to their client charter i.e. a formal written statement describing the rights and responsibilities of local government and its citizens (3.91). 

            The next group of questions (questions 38 till 41) is about human resource policy for the local government employee.  Questions 38 and 41 were the highest and have the same means response (4.32).  Those questions were asking respondents’ whether they were always gone for training to increase their knowledge and competencies, and healthy and safety practice in their working environment.  This response may indicate their employer was concerned on knowledge up grade and working in good physical or mental condition.  Moreover question 39 was related employment policy (4.29) ranked second.  And family day organized by employer with the aim to foster relationship between employer and employee was in last ranked (3.99) but it was closed to agree scale. 

            Questions 42 till 44 asking on environmental policy practiced by the local government.  The average in means respond indicates that those theme were important for local government.  Finally, question 45 was asked about weather local government take steps in providing activities to foster relationship between the local communities its self.   Using means differences (4.29) indicates that the local government accountant agreed that their role as intermediateries that will encourage relationship among the local communities.

TABLE IV Importance of SR Theme 

             Table V below identifies the questions that were derived from the reporting strategies.  Using the mean response for (scale 1 = strongly disagree to 5 = strongly agree), questions 46 to 51 relates to SR reporting, and questions 52 to 55 addressed on legitimacy strategies. 

            With reference to the questions no 46 to 51, the results shows that the purpose of SR reporting was for the state government (4.58), general public (4.45), employee (4.52), media (4.46), the important of SR reporting (4.40), and SR reporting can  improved relationship with the stakeholders (4.38).  Interestingly, the result would suggest that the main motivations by the management of local government for SR reporting were for the State Government. This may due to the State Government be able to influences the management of local government and because the appointment of councilors or mayor was appointed by the State Government. 

            Questions 46 to 56 introduced the idea of SR reporting strategies drawn from legitimacy strategies introduced by Lindbloom (1994), on the notion that firms will disclosed their social information and activity to project their image, so that they can legitimized their behaviors to their stakeholder.  The findings may provide evidence on the three of the legitimized strategy used by local government that their decision to disclosed social information may to; first educate the society about the organization intention to improve it performance or change its action (mean difference: 4.41); second, SR will alter society perception towards organization action without making any changes to that action (4.22); and finally third, to change or alter society expectations  about organization performance (4.22). However the third legitimacy strategy on change the perception of relevant stakeholder and to manipulate their perceptions and also to deflect attention from issues concern was rated as not considered (3.71). 

TABLE V Reporting strategies 

             Not reported in the table were questions 56 to 61 on the communication medium for the SR.  The analysis using rank means difference, indicates that the highest rank was reporting via. local government webpage for SR activities (3.93), followed by local government bulletin or newsletter issued by them (3.81), annual SR reports issued by local government (3.74), news papers (3.62), local radio stations (3.15) and television (2.77).  The highest mean rank for media may explain the notion made above on the year 2000 more than 65 per cent of Malaysians will be living in urban areas as opposed to 51 per cent in 1991, where in urban area the internet facilities are easily available and the higher internet penetration rate. Furthermore, they may wants to align its roles, responsibilities and functions accordingly to be relevant in the information age and the internet communication offers economic and fast communication medium.  The lowest rank for using television for communication media may due to cost where the purpose of reporting is to communicate to the state government (based on above results) and local communities not for the whole countries.

CONCLUSION 

            The main purpose of this papers is to examine the awareness of the prepares it is accountant towards the SR concepts for the local government.  An overview of statistical result for perceptions towards SR, it provides evidence on the importance of SR to the local government.  And for the SR theme and reporting strategy it indicates that majority of respondents agreed that SR is about commitment local government to improving their relationship with stakeholders and society at large.  However, the absence of best practice of SR will affect the local government accountant or management as guidance for their responsibilities in SR or for the disclosing the SR information.