ISO 26000 efforts and corporate social ...

Int. J. Business Excellence, Vol. 7, No. 4, 2014

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ISO 26000 efforts and corporate social responsibility performance in Malaysian automotive industry Nurul Fadly Habidin* Department of Management and Leadership, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris, 35900 Tanjung Malim, Perak, Malaysia E-mail: [email protected] *Corresponding author

Nursyazwani Mohd Fuzi, Farah Izzaida Mohd Zamri, Siti Norhafizan Hibadullah and Auni Fatin Nadia Chiek Desa Departments of Accounting and Finance, Faculty of Management and Economics, Universiti Pendidikan Sultan Idris, 35900 Tanjung Malim, Perak, Malaysia E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Abstract: The automotive industry is an important industry in manufacturing sector. This study shows a model to conduct an empirical study in Malaysian automotive industry in order to improve CSR performance. The aim of this study is to review structural analysis of ISO 26000 efforts and CSR performance in Malaysian automotive industry. This study is to review ISO 26000 standards effort (recognising social responsibility and stakeholder identification and engagement). The CSR performance in this study is focused on two main performance; environmental performance and social performance. This study also proposed structural relationship model between ISO 26000 efforts and CSR performance in Malaysian automotive industry. Based on the proposed research model, research hypotheses are being developed. This paper culminates with suggested future research work. Keywords: ISO 26000; CSR performance; environmental performance; social performance; standards; social responsibility; stakeholder engagement; structural equation modelling; SEM; automotive industry; Malaysia. Reference to this paper should be made as follows: Habidin, N.F., Fuzi, N.M., Zamri, F.I.M., Hibadullah, S.N. and Desa, A.F.N.C. (2014) ‘ISO 26000 efforts and corporate social responsibility performance in Malaysian automotive industry’, Int. J. Business Excellence, Vol. 7, No. 4, pp.515–529.

Copyright © 2014 Inderscience Enterprises Ltd.

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N.F. Habidin et al. Biographical notes: Nurul Fadly Habidin is a Lecturer at Universiti Pendidikan Sultan Idris, where he teaches industrial management, management accounting and business engineering. His main research interests are lean, Six Sigma, quality/business engineering and continuous/performance process improvement. Nursyazwani Mohd Fuzi is a Full Master’s student of Management Accounting at Universiti Pendidikan Sultan Idris. Her main research interest is corporate social responsibility in automotive industry. Farah Izzaida Mohd Zamri is a Full Master’s student of Accounting at Universiti Pendidikan Sultan Idris. Her main research interest is green lean Six Sigma in automotive industry. Siti Norhafizan Hibadullah is a Full Master’s student of Management Accounting at Universiti Pendidikan Sultan Idris. Her main research interest is lean manufacturing in automotive industry. Auni Fatin Nadia Chiek Desa is a Full Master’s student of Management Accounting at Universiti Pendidikan Sultan Idris. Her main interest is occupational safety and health in automotive industry.

1

Introduction

Automotive industry is one of the main pillars of the Malaysia economy as well as most important manufacturing industries in this country. Recently, Malaysian automotive industry has been a major manufacturer and exporter of vehicle spare parts, components and accessories in the region. According to Abdullah et al. (2008), the automotive industry plays a vital role in developing and expanding support to suppliers in order to enhance production and automotive manufacturing. In addition, the automotive industry has reached capacity and efficiency in the design of components for original equipment and replacement markets (MGCC, 2010). The improvement at Malaysian automotive development industry, it can reduce the importation of cars and reducing the release of foreign exchange. The automotive development should continuously improve because the industrial activities are very wide and it is related to material supply, production, sales, profits, and manage operations in the automotive industry (Jaya et al., 2012). Therefore, it has shown significant industrial growth in the Malaysian automotive industry. ISO 26000 standards is applicable to all organisations whether public sector or private sector. International Organization for Standardization (ISO) has developed the guidance of ISO 26000 which is related to social responsibility. ISO 26000 (2010) intended to go beyond legal compliance, recognising legal compliance which is obligation to organisation and social responsibility. Based on Mckelvey (2007), it is stated that ISO 26000 has several benefits such as increase social practices in organisations, able to identify the risks that occur in organisations, and increase profit. Besides that, ISO 26000 also increasing workforce, reduce pollution and waste discharge, and good relationships with stakeholders. Smeureanu et al. (2011) noted that ISO 26000 can assist organisations in addressing social responsibility associated with its operation and it is intended to

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improve performance results, increasing customer satisfaction, and emphasise social responsibility. Moreover, ISO standards can relate to the performance of the company and improvement in continuous operation (Sedani and Lakhe, 2011). Furthermore, Moonsamy and Singh (2012) mentioned that ISO 26000 standards are linking society and the environment to measure the performance and ability to continue their operating. It means that ISO 26000 can improve social welfare, waste reduction and increase the reputation and management of the company. Meanwhile, to measure ISO 26000 efforts, it is consists of two fundamental practices which are recognising social responsibility (RSR) and stakeholder identification and engagement (SIE). Thus, Malaysian automotive industry needs to adopt ISO 26000 efforts in order to improve the corporate social responsibility performance (CSRP). Stakeholders become more aware of the CSR performance because it affects the environmental and social performance (SP) of company. For example, study by Kakabadse et al. (2005), CSR performance plays an important role in improving environmental and SP of the organisation. This study shows CSR performance can improve the environmental and social impact of the company to produce the value of social responsibility. Next, Talaei and Nejati (2008) noted that SP view to the welfare of the community that helps for corporate activities and it can be profitable for the company. Besides, for engaging social and environmental performance (EP), companies need to increase management efficiency, reduction of environmental and social costs and improve company operations (Pedersen and Neergaard, 2009). This is because companies are able to maximise profits by improving CSR performance in their management. Meanwhile, for EP, companies with priority are given to the protection of resources and environmental protection in accordance with the process of production (Ehlert, 2010). For example, reduce waste; reduce emissions, and utilisation of available resources. Also, Charitoudi et al. (2011) pointed out that CSR performance affects the environmental and social such as society, the environment, and the workplace. Hence, more companies focusing on environmental and social concerns in their operations. This is supported by Buciuniene and Kazlauskaite (2012), CSR performance has positive impact on the management of the company, especially in social and environmental aspects such as increasing the credibility of employees, cost saving and reduce risk. Therefore, the aim of this study is to investigate the relationship between ISO 26000 effort and CSR performance in Malaysian automotive industry. The next section discusses the literature review, hypotheses development, research methods, proposed research model, finally, conclusions and future research agenda.

2

Literature review

2.1 ISO 26000 Standards ISO 26000 was introduced by 2010 and it is the international standard guidelines for the organisation to implement CSR. Based on Schwartz and Tilling (2009), ISO 26000 is considered from a corporate perspective which is related to social issues and social responsibility in the company. ISO 26000 also focused on the responsibility of the organisation to make decisions on society and the environment. According to

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International Standard ISO 26000 (2010), ISO 26000 emphasises the importance of the results and the performance of social responsibility. There are several benefits ISO 26000 of social responsibility includes more decision making to the organisation, improving risk management, enhancing the company’s reputation, competitiveness, productivity and resource efficiency, and motivate employees (Merz, 2011). Besides, Ward (2012) stated that ISO 26000 is the benchmark for good practices carried out in company. Thus, to measure ISO 26000 standards, Malaysian automotive industry should consider two fundamental practices of social responsibility which is RSR, and SIE.

2.1.1 Recognising social responsibility Organisations need to use the three relations of organisation, stakeholders and society in RSR. In automotive industry, they should be recognised social responsibility that can be influence the decisions and activities of the organisation. This is supported by Kelly (2009), ISO 26000 focuses on RSR to improve the company’s decisions and activities as related to society and the environment. Based on ISO 26000 (2010), an organisation needs to understand society and the environment that affect the decisions and activities of the organisation. It stated that to recognise social responsibility should consider the laws and regulations related to social and environmental criteria in ISO 26000. Organisation also should focus on stakeholders that can affect decisions and activities of the organisation. Hence, organisations need to determine the stakeholders to consider their interests. Besides that, organisations need to understand the relationship between the stakeholders and the society. It is very important for stakeholders in society’s expectations of social responsibility to influence the organisation linked to the relationship with organisation, its stakeholders and society to make decisions and activities of the organisation.

2.1.2 Stakeholder identification and engagement ISO 26000 emphasises SIE of social responsibility. Study by Weinestedt (2009), stakeholder identification refers to individuals that have one or more interest in organisational decision making. This study shows that the organisation is responsible for ensuring that stakeholder affects decision making and it complies with the law. Furthermore, ISO 26000 is guidance on identifying stakeholders as the core company to undertake social responsibility (Suntory, 2012). Thus, the impact of organisational decisions and activities allow organisations to identify stakeholders. Stakeholder engagement is one of the fundamental practices of ISO 26000. Greenwood (2007) defined that stakeholder engagement is the responsibility of stakeholders with their commitments, policies and practices of the organisation. It helps organisations to provide information and decision making in dealing with social responsibility. In addition, International Standard ISO 26000 (2010) stated that stakeholder engagement can be used to increase understanding of the organisation to make decisions and activities, enhance the beneficial effects on the organisation, improve organisational performance, reconcile the conflict between stakeholders and the society, fulfil regulations and laws, and achieve profitable to the organisation. Therefore, the automotive industries need to comply with ISO 26000 regarding to improve CSR performance.


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2.2 Corporate social responsibility performance CSR performance can be defined as a principle of social responsibility, processes of social awareness, programmes, and policies relating to the society. CSR performance recognises as organisation’s performance on social responsibility and it is related to the environmental and SP. Based on Arx and Ziegler (2008), environmental and SP affected the industrial sector to expand wider. It means that environmental and social activities beneficial to the organisation in order to maximise profits. CSR performance is involving companies to integrate social and environmental issues as a core business operation (Gjolberg, 2011). Thus, Oluwafemi and Oyatoye (2012) mentioned that all organisation needs to prioritise towards efforts to adopt the CSRP. By measuring CSR performance in automotive industry, companies can measure CSR performance based on EP and SP. Table 1 shows the measurement summary on CSR performance. Table 1

Measurement of CSR performance

CSR performance

Measurement

Environmental performance

Emissions, waste, recycling (Guthrie et al., 2007); energy, waste material (Muller and Kolk, 2008); environmental regulation, environmental protection, (Reinhardt and Stavins, 2010); reduce cost, reduce environmental risk (Harazin and Horvath, 2011); environmental management system, policy of environmental (Corporate Social Responsibility Report, 2011); and reduce pollution, cleaner production (Purnomo and Widianingsih, 2012).

Social performance

Community, health and safety, training and education (Guthrie et al., 2007); increase profit, society involvement (McKinley, 2008); workplace facilities to employees (Ioannou and Serafeim, 2010); employee practices, relation of management (Corporate Social Responsibility Report, 2011); and enhance social welfare (Fuzi et al., 2012).

2.2.1 Environmental performance EP is environmental control of organisation, based on the objectives, policies and environmental goals that affect the CSR performance. EP is closely related to the environmental management of the company. Gauthier (2005) stated that environmental assessment is the most widely used in environmental management. This means that the effects of environmental influences processes, products or services to companies that use natural resources for waste discharge such as energy, water, raw materials, wastes of production, and toxic product. Besides, EP is very important to the company because it relates to environmental protection and readiness to support environmentally friendly products (Gjolberg, 2011). In relation to that, companies need to follow environmental regulations specified so that it can increase the competitiveness of companies. Meanwhile, Sridhar (2011) pointed out that companies need to implement carbon emission reduction so that it can assists companies to improve their EP. Hence, all organisations that practicing and nurturing green programmes and environmental stewardship is beneficial to their company such as green building design, increase green operations, wastage reduction, and enhance operational efficiency (FMA, 2012). Table 2 presents some benefits of EP by different authors.

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Table 2

Benefits of EP

Authors

Benefits of environmental performance

Superti (2005)

Compliance with environmental standards, improve financial success, improve quality of environment, enhance market share, reduce the use of natural resources, and reduce environmental cost.

Fet (2006)

Reduce pollution and environmental efficiency.

Chahoud et al. (2007)

Increase in environmental efficiency and environmental management system, improve company’s performance, increase the environmental-friendly products, improve environment protection, and encourage company to use environmental technology.

Borck et al. (2008)

Increase environmental quality, reduce cost, energy conservation, and increase environmental protection.

Lyon and Maxwell (2008)

Increase environmental friendly, increase profit, reduction cost of environmental, improve the quality of production, efficiency of resource use, reduce environmental damage, and enhance customer welfare.

Jieyi and Hui (2009)

Strengthen environmental regulation; reduce the use of environmental resources, and environmental protection.

Strandberg (2009)

Cost savings, reduction of materials input, minimising toxic waste, reduction of error rates, and improve the quality of products.

Fang et al. (2010)

Improve the environment operation, improve resources allocation, reducing waste from manufacturing operations, reduce environmental pollution, and reduce environmental cost.

Filho et al. (2010)

Environmental conservation, improves environmental management, enhance competitiveness, and improve the quality of the environment operations.

Wang et al. (2010)

Reduce excessive costs in energy consumption; reduce social cost, pollution prevention, environmental protection, and increase corporate image.

Reinhardt and Stavins (2010)

Maximise profitability, reducing waste discharge, increase environmental quality, increase the charitable donations, efficient allocation of environmental resources, and reduction of external producing activities.

Giannarakis and Theotokas (2011)

Increase sales and increase capital markets.

Medarevic (2012)

Promote energy sources in the environment, increase the environmentally friendly brand and customer loyalty, increase the company’s profit margins, reduce production costs, and reduction of carbon dioxide emissions.

Yam (2012)

Reduction of excessive energy consumption, reduce carbon dioxide pollution, use of resources and quality of materials, ecosystem conservation for the company’s operations on the environment, reduce the use natural environment, enhance energy efficiency, develop green nature in environmental operations, reduce the effects of pollution, encourage the use of sustainable environmental, and promoting the use of environmentally friendly for waste reduction.


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Based on researches above, they found that many benefits gained when companies use EP to measure the CSRP. Study by Malovics et al. (2008), the company’s use of natural resources to enhance the EP, for example, prevent damage of eco-systems, equilibrium consumption and production of resources, and use of energy efficient. It means that CSR performance plays an important role in using the natural resources that affect the companies to improve EP. Most of the activities carried out in automotive industry more affect the environment. In order to measure the EP, the company control the manufacturing process related to the efficiency of the materials used and reduce the environmental pollution (Sofia, 2010). For example, the company measures the EP based on recycling rates, energy uses, emissions of air, and ecosystems quality, water usage, reduce carbon dioxide emissions, and pollution prevention. Besides, one of the examples that meet the expectations of society is organisation take the initiative to use the products and eco-friendly operations. In order to increase environmentally friendly, the role of stakeholders is very important and it can improve the company’s performance (Foote et al., 2010). Apart from enhancing performance of the company, every organisation needs to measure the level of EP in terms of regulations, policy and practice of the environmental. Compliance regulations and the standards is emphasis by the company to improve the environmental, market share, and reduce costs. Thus, the company needs to comply with environmental policies and environmental regulations that have been set. This is because companies can maximise profits and reduce environmental costs. According to Ehrlich (2012), EP can be measured in order to enhance the company’s performance relating to CSRP. For example, enhance the company’s corporate image, exposure in the use of greenhouse gas emissions, increase profit, and society impact. By implementing EP, the companies can achieve environmental goals that can be applied in automotive industry. Therefore, it is very important for the company to focus on EP to improve CSR performance in the automotive industry.

2.2.2 Social performance SP is measured by the social practices of the organisation. It is measured based on the principles, measures and actions implemented by the company. Falkenberg (2006) mentioned that SP related to the social impact of corporate behaviour of social responsibility for conducting social issues within the company. SP is also in terms of the company strategy to provide a competitive advantage. In addition, SP shows the process of corporate activities related to social activities and stakeholders (Yokoyama, 2008). Process of social activity is measured as corporate social goals, perceptions of society and donations. By having SP measurement, it can help the company to improve profitability, society welfare, and achieve the needs of society. The anticipated approaches in Table 3 can help company to meet the benefits of SP. By engaging the SP in automotive industry, it can provide many benefits to the company to measure the SP. This performance is measured not only for profit but to emphasise the company’s operational efficiency in managing the society (Rahim et al., 2011). For example, company should consider measurement about the local community and the quality of labour, and increase the commitment of the customer in terms of the social impact of company. In addition, companies must focus on interests of society in

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decision-making that is useful for companies to measure SP. Thus, as long as companies consider social development stability, it can provide better returns of SP. Table 3

Benefits of SP

Authors

Benefit of social performance

Anderson and Bieniaszewska (2005)

Increase social equality, increase corporate culture and ethics, and enhance competitive advantage.

Jenkins and Obara (2008)

Improve product quality, increase the company’s revenue, improve the lives of human societies, improve the transparency of culture operations, increase the retention of the best staff and workers, and provide a positive relationship to the community.

Boon and Ababio (2009)

Increase the community to ensure long term success, promote community and social development, and increase the company’s social investment activities,

Besser and Jarnagin (2010)

Improve community relations for controlling the social performance, improve social welfare for the long term, improve the company’s success in the community, help the company to attract customer loyalty, enhance social capital, and the ability to improve the quality of employees in the company,

Argandona (2011)

Increase the company’s profits, increase society demand to buy the company’s products, improve employee motivation and productivity of employees, and improve social value in the community,

Setiawan and Darmawan (2011)

Enhance the social welfare in the business process, influence the social activities to the community, assist prevent the social risks in the long run, and easier for companies to achieve good financial position.

Stites and Michael (2011)

Enhance employee commitment in performing tasks, beneficial to enhance company’s investment, encourage a positive employees attitude, improve corporate reputation, increase customer satisfaction and loyalty, and to reduce the social risks related to operations of the company.

Corporate Social Responsibility Report (2011)

Increase employee skills and training, improve market share, protection of social safety, and enhance health and safety of employees and community.

Based on Yam (2012), SP can be measured as social investment or donate money, products, services, and resources available in operations of the company as well as providing a positive impact on the society. This study concern about social involvement related to community activities that contribute to a company that undertakes charity such as implement of programmes related to social culture of society. Therefore, it is enabling companies to enhance social welfare and to make positive contributions in the Malaysian automotive industry.

3

A proposed conceptual model

Malaysian automotive industry is provides high competition for local and international car manufacturers (Habidin and Yusof, 2012). This is because consumer demands for high quality product and service. According to Zubir et al. (2012), many countries to


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create jobs, increase economic growth, and improve the technology in the automotive industry, especially in terms of motor vehicles. It plays an important role in manufacturing automotive industry to increase the production of motor vehicles in the Malaysian automotive industry. In addition, Malaysian automotive industry is growing importation of vehicles in the installation and development of automotive components (Hashim et al., 2012). This study is conducted to analyse the influence of ISO 26000 efforts and CSR performance. In this study, authors will use the structured questionnaire as sampling method. According to Habidin (2012), the benefits of structured questionnaire which are time saving, decrease cost of money and energy. Meanwhile, the population of this study comprised in Malaysian automotive industry. Questionnaires will distribute to respondents from the listing of automotive industry obtained from Malaysian Automotive Component Parts Association (MACPMA), Kelab Vendor PERODUA, and Proton Vendors Association (PVA). To analyse the data, two statistical techniques were adopted. The Statistical Package for the Social Sciences (SPSS) version 17 was used to analyse the preliminary data and provide descriptive analyses about thesis sample such as means, standard deviations, and frequencies. Having analysed the measurement model, the structural model was then tested and confirmed. Structural equation modelling (SEM) techniques were used to analyse research hypothesis in structural research model that the model is reliable and validated instruments (Habidin, 2012). SEM using AMOS 6.0 will use to test the measurement model. Based on literature review, there are many previous study investigating ISO 26000 efforts and CSR performance. This paper author’s proposed structural relationship model for ISO 26000 efforts and CSR performance in Malaysian automotive industry. Figure 1 presented the proposed conceptual model. Figure 1

Proposed model of the study

e1 e2

RSR SIE

ISO 26000

CSRP H1

SP

EP 1 e3

Notes: RSR = recognising social responsibility, SIE = stakeholder identification and engagement, CSRP = corporate social responsibility performance, EP = environmental performance, SP = social performance

1 e4

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3.1 Research hypotheses ISO 26000 provides the impact on social and environmental aspects in order to improve corporate profitability. Research by Perera (2009), ISO 26000 is beneficial to the company to achieve its social and EP, including the company’s reputation, cost savings and increase profits. This finding shows that ISO 26000 has significant impact on the improvement of the social and environmental in terms of management effectiveness of the company. According to finding by Girard and Sobczak (2012), ISO 26000 standards affect the organisation of social and EP. This study shows that by adhering ISO 26000 standards, companies can enhance social justice and environmental protection. Indirectly, it can improve the social and environmental impact in the automotive industry. Study by Weber (2012), ISO 26000 involved in creating social and environmental conditions that companies can operate in compliance with standards set. It can be profitable for the company to implement the ISO 26000 standard with the social and EP. Besides, ISO 26000 standards provide positive outcomes for the social and environmental issues adopted by the organisation and its stakeholders (Purnomo and Widianingsih, 2012). In other word, ISO 26000 contribute to social and environment performance such as enhance corporate image, reduce social and environmental risks, reduce operating costs, and improve company productivity. Moreover, Virtanen (2013) indicates that ISO 26000 provides environmental and social benefits to assist companies in accordance with environmental standards especially on safety and health of the society. The ISO 26000 efforts developed in this study show positive direct impact on CSR performance. Therefore, based on literature review and the research framework, the following hypotheses of the study have been developed: H1 There is a positive and direct significant relationship between of ISO 26000 efforts and CSR performance in the Malaysian automotive industry.

4

Conclusions

ISO 26000 efforts is a standard adopted by the company in determining the CSR performance in Malaysian automotive industry. It is an important study in the context that it provides management insight about ISO 26000 regarding CSR performance (EP and SP). It depicts that the Malaysian automotive industry can improve environmental and SP by engaging in social activities such as identifying the needs of society, the demands of society, good environmental conditions, social welfare and labour, produce high quality products, compliance with applicable laws, regulations and standards that have been set. All these activities significantly influences ISO 26000 efforts and improve CSR performance. This study also has conducted based on the proposed conceptual model. From previous study and proposed research model, research hypothesis are being developed. This study expected to provide valid and reliable for instrument and structural relationship model for ISO 26000 efforts and CSR performance constructs. The findings of this study can be benefited and contribute not only to academic but also to the industry, especially to the Malaysian automotive practitioners as a whole in making the model and the tool of this study as a benchmark to serve as a guide and reference resources to implement ISO 26000 efforts and CSR performance. In future research


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agenda, the authors are looking at the structural relationship between ISO 26000 efforts and CSR performance in the Malaysian automotive industry.

Acknowledgements The researchers would like to expresses their thanks to IJBEX reviewers for their suggestions to improve this paper. It is not complete without saying my gratitude to editor and editorial team who give their efforts in helping me during the entire review process. The researchers also like to acknowledge the Ministry of Higher Education (MOHE) for the financial funding of this research thought Fundamental Research Grant Scheme (FRGS), and Research Management Centre (RMC), UPSI for Research University Grant (RUG).

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