Halal Business Corporate Social Responsibility

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Mar 25, 2010 - having a Halal certified business carries a very high responsibility .... Malaysia's global acceptance as a model of a modern and progressive ...
Halal Business Corporate Social Responsibility Othman Ibrahim*, Siti Zakiah Melatu Samsi**, Muhamad Fazil Ahmad*** *University Teknologi Malaysia/Faculty of Computer Science and Information System, Johor, Malaysia. Email: [email protected] **Multimedia University/Faculty of Business and Law, Melaka, Malaysia. Email: [email protected] ***Universiti Putra Malaysia/Faculty of Modern Languages & Communication, Selangor, Malaysia. Email: [email protected]

believe that, an organization or business should put CSR as part of their strategic planning so that their business will be socially involve with the society. In Halal business, the concept of CSR must be based on the Islamic business ethics which emphasize on the benefiting the humanity while maintaining God’s order (Ahmad, S.F., 1991). The concept of Islamic business ethics, CSR from Islamic perspective and how it can be implemented in Halal business will be discussed throughout this paper.

Abstract - Halal industry is growing in Malaysia and the government has done a lot of initiatives to nurture the industry. The awareness to get Halal status for the food products and premises also increase among the businesses as the enforcement efforts being done by authorized bodies and NGOs. However, as Halal from business point of view is a very profitable market locally and globally, many businesses might not aware that having a Halal certified business carries a very high responsibility towards Muslim consumers. The purposes of this paper are: (1) to see the concept of ethics in business from Islamic perspective and link it with Halal business and (2) to discuss the corporate social responsibility of Halal business towards Muslim consumers.

II. THE HALAL CONCEPT Halal is an Arabic term means permissible, allowed or lawful according to Islamic law (JAKIM). According to Trade Descriptions (Use of Expression "Halal") Order 1975, the term Halal when being used as a trade description of any food, it indicates that Muslims are permitted to consume the food and the food must be: a) Neither is nor consists of or contains any part or matter of an animal that a Muslim is prohibited by Hukum Syarak to consume or that has not been slaughtered in accordance with Hukum Syarak; b) Does not contain anything which is considered to be impure according to Hukum Syarak; c) Has not been prepared, processed or manufactured using any instrument that was not free from anything impure according to Hukum Syarak; and d) Has not in the course of preparation, processing or storage been in contact with or close proximity to any food that fails to satisfy paragraph (a), (b) or (c) or anything that is considered to be impure according to Hukum Syarak. Halal also covers hygiene and safeties where food and premises must be clean, safe, well taken care of, served properly and achieve a standard quality (Amat, 2006). This concept is known as ‘Halalan Toyyiban’. Talib et. al. (2010) mentioned that there are six specific motives of the halal concept in Islam; (1) To preserve the purity of the religion, (2) to safeguard the Islamic mentality, (3) to preserve life, (4) to safeguard property, (5) to safeguard future generations and (6) to maintain self respect and integrity.

Keywords – Halal; Business ethics; Corporate Social Responsibility; CSR; CSR in Islamic Perspective I. INTRODUCTION The Halal industry in Malaysia has a great potential to be one of the major contributors to the Malaysian economy. With the huge market segment locally and internationally, the involvement of businesses in Halal business are increasing from time to time. As Halal business especially food production and processing is based on the Islamic principles, the main objective of the existence of Halal food and products is to protect Muslim consumers from taking and using non-Halal products which might bring negative impacts to their lives. However, while the government, authorization bodies and NGOs are actively promoting Halal certification and Halal business, the number of unethical practice among businesses are also increasing. Businesses perceive that Halal is merely to get the certification, ensure that their product is labeled by Halal label which enable them to gain the market. The businesses do not really understand their responsibilities as producers and sellers of Halal products towards the Muslim consumers. In other industries, Corporate Social Responsibility (CSR) has been widely discussed and debated by academics, scholars, researchers as well practitioners. It is 1

Although Halal is an Islamic concept based on the revelation, it is not necessary that the owner of Halal business is Muslim. In Malaysia, any business owner regardless of their race and religion are allowed to apply for Halal certification for their products and sell them to the consumers. Islam is a complete religion. Because of the ‘Halalan Thoyyiban’ concept, the Halal products are now accepted in the global market and among non-Muslim consumers (Amat, 2006).

acceptance in the market, of Halal products produced or processed in Malaysia (Azman Ngah, 2010). IV. ISLAM AND BUSINESS ETHICS Ethics may be defined as the set of moral principles that distinguish what is right from what is wrong (Beekun, 1996), (Beekun, 1997) and (Yeh, 1999). It is a normative field because it prescribes what one should do or abstain from doing. "Business Ethics" can be defined as the critical, structured examination of how people and institutions should behave in the world of commerce. In particular, it involves examining appropriate constraints on the pursuit of self-interest, or (for firms) profits, when the actions of individuals or firms affects others (Cole, B.C., & Smith, D.L., 1996), (Karassavidou, E., & Glaveli, N., 2006). When doing business, Islam is concerns with the ethics and it is sometimes said that "business ethics" is an oxymoron. How can businessmen do business and still be an ethical person in a way they are following the role of Islamic law. It is business all about self-interest, greed and making exuberant profits or not (Beekun, 1996 &1997) & (Rizvi 2008). Watt & W. Montgomery (2008), discussed that, business, trade and commerce have always been a part of Islam. From early Islamic days, the Holy City of Mecca has been the center of commercial activities. It was indeed the annual trading center of Mecca that provided Prophet Mohammad the forum for preaching Islam to the people that came for the trading. The early Muslims were not only engaged in trade but they went to distant lands in connection with business. Islam in fact reached East and West Africa, East Asia through the business people. Islam encourages work in general, and trade and commerce in particular, Prophet Mohammad was himself engaged in this profession before he became a prophet (Bukhari M. I. & Yusuf T. D., 1997). He was a successful businessman. Known for integrity, he bore the honorific title, “the Trustworthy or al-amin”, The Quran states: "God has made business lawful for you" In addition, the Qur'an includes rules not only for manners and hygiene, marriage and divorce, but it also lays down detailed rules for commerce and politics, interest and debts, contracts and wills, and industry and finance. Islam has permitted and in fact encouraged business. Islam lays out the basic principles of our economic behavior as consumers, producers and owners of wealth (Yusuf Ali., 2004). In business relationships Islam strictly forbids any discrimination between people based on their religion, sex, or gender. There is no basic conflict between good business practice and profit making in Islam. Islam looks at profit as secondary way to measure efficiency (Abeng, T., 1997) & (Ahmad, S.F., 1991). The business ethic in Islam can be divided into three categories which are first, trust of God's creation and all that is in it. God has created and perfected the whole universe then man is set over it all with delegated. Muslims

III. HALAL INDUSTRY PERSPECTIVES In industry perspective Halal concept provides good business opportunities for everyone, Muslims or nonMuslims alike. It is touted as a new growth sector in light of the huge potential in this market. The rising affluence of Muslims worldwide and the increasing awareness on Halal have created high demand for Halal products and services. In referring to Halal, the business opportunities are not only confined to the food and non-food sector but also covers the services sector such as finance and banking, insurance, education and training, research, certification, consultancy, logistics, healthcare and travel and tours. The halal industries are towards lucrative industry and huge opportunities for halal business whether domestic and international trade. Currently the demand for Halal food and other Islamic consumer goods is increasing. Yaakob (2009) and Li Za (2010) mentioned that there are 1.8 billion Muslims globally, constituting about 20% of the world population. The entire Halal industry is estimated to be worth US$2.3tril (RM7.4tril) and includes food and beverage, pharmaceuticals, cosmetics and personal care, excluding banking. The food industries globally are looking at the “Halalan Thoyyiban” concept as a new tool for marketing. To tap this lucrative market, the industry must understand and appreciate the religious and scientific basis of Halal requirement (Yaakob, 2009). All Halal products should be synonymous with the best in the market, in terms of quality and value for money, with the added bonus, that the products are completely acceptable for Muslims due to the Halal certification. In this context, it is important to ensure that there is rigorous and comprehensive procedures adopted, for the Halal certification, in order to guarantee authenticity and the integrity of the certificates (Riaz & Chaudry, 2003). Bodies undertaking such certification must be competent and trusted, and, with the necessary capacity to operate globally with authority. Global recognition of the certification authority is important, so that the Halal Status of products certified by the authority is universally accepted and recognized. JAKIM of Malaysia is now evolving into an increasingly accepted certification authority by other countries, thus enabling Malaysia to become a Regional Hub for Halal Product manufacturing. This complements Malaysia's global acceptance as a model of a modern and progressive Islamic country, and provides the boost for

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have to realize that they are just trustee for God’s universe and they truly do not owe anything in this life. That kind of belief is along with their knowledge that God sees all what they do, will make their work under constant surveillance, and keeps their performance at its best while following God’s defined conduct (Al Maududi, 2008). Second, justice and honesty, the justice can be defined as just conduct, fairness exercise of authority in maintenance of right and fair dealing between each other regardless of faith is strictly laid down in Islam and honesty incorporates the concepts of truthfulness and reliability and covers all aspects of relationships in human life thought, word and action (Al Maududi, 2008). The third principle is mutual respect and consideration for others is also inherent in the moral teachings of Islam or Islamic akhlaq (Al Maududi, 2008). Adding the adjective "Islamic" to "business ethics" might surprise some. But one has to realize that Islam is not just a religion in the spiritual sense of the word, it is a way of life. There is no separation between the secular and the spiritual in Islam. There is no difference between the sphere of worship and the sphere of business. Islamic laws govern the family life of its followers as well as their social conduct (Beekun, 1996), (Ahmad, S.F., 1991), (Hanafi, A.A. & Sallam, H., 1997) and (Shaharuddin, A., 2005).

important a business voluntarily involves in charity, fine arts, education and activities that can enhance the quality of life of the members of the society. The following figure illustrates the CSR pyramid suggested by Carrol (1991).

Fig. 1: Corporate Social Responsibility Pyramid Source: Carrol, 1991 From the Islamic perspective, business performance are appraise based on how well the resources are manage to improve the society. The concept of ummah demonstrates that society has a right and stake in whatever a Muslim owns (Muhammad, 2007). The following figure shows the CSR Model in Islamic Perspective. The model emphasizes that the main objective of humankind is to attain al-falah i.e. an everlasting success in the world and hereafter as well as barakah or God’s blessings (Muhammad, 2007). The model shows that the Islamic Business Organization (IBOs) is socially responsible to the members of the society and the environment. The members of the society include stockholders, employers, customers, suppliers, government, public and debtors.

V. ISLAM AND CORPORATE SOCIAL RESPONSIBILITY Corporate Social Responsibility has become an agenda in many countries for their industries. The European Commission for example, made a commitment in European Union to promote CSR which believes that SCR can build customers’ trust and create long term relationship. The European Commission (2010) defines CSR as: "A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis." The European Commission encourages the businesses in Europe to do their best in providing their products and services that add value to the society (European Commission, 2006). Mc William and Siegel (2001) define CSR as: “Actions that appear to further some social good, beyond the interests of the firm and that which is required by law.” Carrol (1991) in his paper discussed the CSR pyramid that consists of four responsibilities. i.e. Economics, Legal, Ethical and Philanthropic responsibilities. The economic responsibility of the CSR stresses on the important of the business to consistently making high profit and competitive in the market. The legal responsibility stresses on how a business should ensure that they perform in a manner that consistent with legal requirements or at least meet minimal legal regulations. The ethical responsibility focuses on how a business conducted ethically as expected by the society whereby the philanthropic responsibility shows how

Fig. 2: Corporate Social Responsibility from Islamic Perspective Source: Muhammad, 2007

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VI. DISCUSSION Referring to the Islamic business ethics as well as the CSR concept, Halal business owner must also place CSR as an important aspect in their business. As the business ethics stresses on the trust of God’s creation, justice, honesty as well as akhlaq, Halal business people are suppose to run their business based on this business ethics to attain God’s blessings. The CSR pyramid concept can also be implemented in Halal business. Like other businesses, Halal business must also aim to make profit as maximum as they can so that it contributes to the Muslim economy as a whole. The lucrative market that the Halal industry offers enables the businesses to maximize their profit but must also socially responsible to the consumers. The Halal rules and regulations based on the Islamic law, Halal certification requirements and the Halal standard developed by the authorization bodies are the basis for the Halal businesses to meet the legal responsibilities of the CSR pyramid. As discussed in the Islamic Business Ethics, it is a responsibility for a Muslim business people to be ethical in conducting their business which also meets the ethical responsibilities of the CSR pyramid. Philanthropic responsibilities of the CSR pyramid can be implemented in Halal business when a business carry outs its social obligation towards the society. In Islam, paying zakat for example is part of the business responsibility in helping the poor and those in needs. The CSR model developed by Muhammad (2007) is a comprehensive CSR model which is suitable for Halal business. It is because both the Halal and CSR model derived from the Islamic teaching. Al-Falah and Barakah concepts are supposed to be highest aim for any Halal business. Halal business or also known as Islamic Business Organization (IBO) in the model must ensure that it takes care the environment and the members of the society such as stockholders, customers, suppliers, government, employee, public and debtors. The success of Halal business to implement its CSR based on Islamic perspective will enable it to meet the six specific motives of Halal concept as discussed above.

Furthermore in another Ayat, Allah glorifies a true Businessman by saying that (Yusuf Ali., 2004): “Their doing business does not stop them from the remembrance of Allah” It is everyone’s responsibility to take a long and serious look at their organization and implement policies and procedures that are conducive. Halal and Haram issues are serious matters for Muslims but also provide good business opportunities for everyone. Properly processed and halal certified consumer products are pertinent to capture the lucrative global halal market. As a general guide to Muslims in business traders should adopt the following overriding principals, love God and His commands more than your trade or business, be honest and truthful, to keep one’s word, to be humble in how we conduct our life, do not deal in fraud, do not bribe and deal justly. REFERENCES [1] Abagail McWilliams and Donald Siegel, “Corporate Social Responsibility: A Theory of the Firm Perspective”, The Academy of Management Review, Vol. 26, No. 1, pp. 117-127, 2001. [2] Abeng, T., “Business ethics in Islamic context: Perspectives of a muslim business leader”, Business Ethics Quarterly. 7(3), 47-54, 1997. [3] Ahmad, S.F., “The ethical responsibility of business: Islamic principles and implication”, Journal of Objective Studies. 3(1), 23-43, 1991. [4] Amat, S., “Halal – new market opportunities”, The 9th Efficient Consumer Response (ECR) Conference. Kuala Lumpur Convention Centre (KLCC), Kuala Lumpur, Malaysia, 2006. [5] Archie B. carrol, “The pyramid of Corporate Social Responsibility: Toward the moral management of organizational stakeholders, from Business Horizons”, JulyAugust 1991, The Faundation for the School of Business at Indiana University. Retrieved July 1st, 2010 from http://www.cba.ua.edu/~aturner/MGT341/MGT341%20Re adings/Pyramid.pdf

VII. CONCLUSION Thus, it is the responsibility of every Muslim to be ethical in their daily business practices and to act responsibly towards the community in which it serves. To review its business practices and remove from its organization any unlawful activities and devote themselves to productive and lawful activities that benefit mankind. Since Islam had identified the ills of an unjust Interestbased Economic system, the Quran came out very clearly against its prevalent use. The Quran did not just stop with an injunction on Interest but in the same sentence encouraged enterprise and trade. That Ayat in Surah AlImraan spell out: “Allah has permitted Trade and forbidden Interest”

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