Is Malaysia struggling to keep corporate social responsibility alive in corporate restructuring

 

7 April 2005 . The subject of Corporate Social Responsibility (CSR) is gaining prominence and has a profound effect on the conduct of business, not only in Malaysia but also across the world. It covers a wide spectrum of issues including business ethics, corporate governance, socially responsible investing, environmental sustainability and community investment. CSR has been defined as a concept where enterprises integrate social and environmental concerns in their business operations and in their interactions with stakeholders, often on a voluntary basis.

Former Prime Minister, Tun Dr. Mahathir Mohamad when presenting his ground breaking paper, “The Way Forward” cautioned against making economic development the “be-all and end-all” of our national endeavors. While the concept of CSR is mainly targeted towards companies of ongoing concerns, the same concept can also be applied to corporate restructuring exercises involving financially distressed companies. The Deputy Prime Minister, Dato’ Seri Najib Tun Razak in a keynote address on the role of corporate social responsibility in achieving competitive advantage had said that adoption of CSR entails a paradigm shift from the industrial-age notion that economic, social and environmental goals are always and invariably in conflict with one another.

Although CSR can prove challenging to attain at times particularly in corporate restructuring, experiences obtained from Grant Thornton International, an international organization of accounting and consulting firms, has proven that this sense of responsibility is inherent in the way it operates.

“Grant Thornton employs a holistic approach in achieving socially responsible objectives. Consideration must be given to affected parties as the success of a restructuring exercise very often depends on it,” said Geoffrey Foo, Associate Director of Corporate Advisory Services at Shamsir Jasani Grant Thornton, the Malaysian member of Grant Thornton International at a Press Conference today.

It has to be appreciated however that in corporate restructuring particularly where liquidation and receivership scenarios are concerned, affected parties may not wish for their respective positions to be improved for one reason or another. For example, many a time abandoned housing/building project purchasers, occupiers of shopping complexes whose building owners has been wound-up or even the affected company itself refuse to improve their affected positions despite being aware of the imminent repercussions. It has to be realized that, very often, affected parties do not change their stands because of personal financial constraints which does not allow them to do so. Such a situation, left uncheck breeds discontent. This is not a foundation for an equitable society to flourish.

This is where specialist expertise can be applied to help resolve problems in complementing the objectives of agencies such as Syarikat Perumahan Negara, Small Debt Resolution Committee and Danaharta. A group of Grant Thornton’s regional and international insolvency specialists and forensic experts from Hong Kong, United Kingdom, Australia and Malaysia presented various concerns and highlighted developments on this subject at the Press Conference.

“While improvements in the current systems can be further achieved, nothing beats prevention. Our consulting division has successfully contributed to this end by providing loan and project monitoring services to financial institutions. The quality of the loans and projects under our review has thus far been excellent with one of the financial institutions, where our services have been rendered, reporting zero NPL,” said Geoffrey Foo. “We even have loans under review where the loan settlement is ahead of schedule. Financial Institutions should realize that proper loan and project monitoring when applied responsibly lowers the cost of lending as it minimizes NPL risks and improves quality of its loan asset.”

Financial institutions in particular should employ holistic approaches in their loan monitoring procedures especially where loans granted may affect a significant number of members of the public. Examples would include loans involving property development, where the successful repayment of the loans concerned affects the solvency of the borrower, what more if the borrower possess high manpower requirement, a large number of creditors whose livelihood depends on the survival of the borrower and so on.

“To a large extent, insolvency legislation and agencies set up in the country today are on par with more developed countries such as the UK where Malaysia’s insolvency legislations are historically founded upon,” said James Earp, Partner and Head of the London Fraud Insolvency Division at Grant Thornton UK. However, it is prevalent that CSR remains an illusion in a lot of restructuring exercises.

In Australia, particularly in the construction and its related industries, it was common practice to set up a new company for each project to hedge against the risks of one failed project affecting the parent company. Paul Billingham, Partner and Head of Recovery & Reorganization Services at Grant Thornton Australia said, “It is now theoretically not possible to segregate the assets of the group from the claims of employees of one of the subsidiaries. Australia has gone one step further in that under the Corporations Act, a parent company can be held liable for all of the failed subsidiary’s debts where it allows that company to trade insolvently.”

Implementing laws and structures to facilitate corporate restructuring exercises is merely a step towards addressing social responsibility. In line with the government’s call to instill greater sense of corporate social responsibility, the authorities are invariably required to exercise their part in dispensing with its duties and functions responsibly and expediently. Undoubtedly, cooperation is required from all parties concerned namely the government & its agencies, financial institutions, courts and the corporate restructuring professionals themselves in the promotion of social responsibility above that from the requirements currently in place.