Corporate Governance and Business Capabilities: Strategic Factors for Corporate Social Responsibility Reporting

Abstract

Corporate Social Responsibility (CSR) is a topical business issue in the current accountability-integrity age. This paper aims to examine and interpret the possible link between corporate governance, business capabilities and CSR reporting practices. Specifically, agency and resource-based theories were used as the underpinning theoretical perspectives in understanding the link between the corporate governance mechanism and their business capabilities with CSR reporting. Using a content analysis of the annual and sustainability reports, the relevant data were gathered from 100 leading companies listed on Bursa Malaysia. The results of the study revealed that corporate governance mechanism, in particular, board size has a significant potential to induce company/‘agents’ to engage in CSR reporting practices hence reducing agency costs. In the context of business capabilities, human resources in the form of commitment of top leadership to CSR initiatives was found to be a strategic factor in enhancing the CSR information disclosed. The companies’ engagement with stakeholders through social dialogues also assisted companies in reducing information asymmetry resulting in the maximization of shareholders’ interest.