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Social Responsibil ity Journalnstitutionalizing corporate social responsibility: effects on corporate reputation, culture, and legitimacy in Malaysia

Zulhamri Abdullah Yuhanis Abdul Aziz

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To cite this document:Zulhamri Abdullah Yuhanis Abdul Aziz, (2013),"Institutionalizing corporate social responsibility: effects on corporate reputation, culture, anegitimacy in Malaysia", Social Responsibility Journal, Vol. 9 Iss 3 pp. 344 - 361Permanent link to this document:http://dx.doi.org/10.1108/SRJ-05-2011-0110

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http://dx.doi.org/10.1108/SRJ-05-2011-0110



Institutionalizing corporate social

responsibility: effects on corporate

reputation, culture, and legitimacy in

MalaysiaZulhamri Abdullah and Yuhanis Abdul Aziz

Abstract

Purpose – The purpose of this paper is to develop measures of Asian corporate social responsibility

(CSR) based on David’s dual process model for Malaysian government linked corporations (GLC) and

publicly listed companies (PLC).Design/methodology/approach – A survey consisting was conducted anda structural equation model

was used to test the relationships among constructs. An instrument to measure CSR practices focusing

on CSR relational, CSR ethical/moral, and CSR discretionary is developed to evaluate impacts on

corporate reputation, culture, and legitimacy.

Findings – Findings suggest CSR antecedents emerge through formalization of corporate

communication management in Malaysian organizations. The structural model provides evidence that

CSR initiatives impact corporate reputation directly. The study acknowledges the increase in CSR

initiatives in corporate communication practices in GLCs and PLCs in the quest to gain public legitimacy

and corporate governance.

Originality/value – The study contributes to the corporate communication literature by linking CSR to

corporate reputation and culture, and developing a CSR model that explores a critical dimension in

management of corporate identity in an Asian country.

Keywords Corporate social responsibility, Corporate reputation, Institution, Malaysia,

Social responsibility, Organizations Paper type Research paper

Introduction

In an age of reputation, corporate social responsibility (CSR) is debated vigorously by

scholars and managers across business functions such as communications, marketing,

finance, and human resource (Lindgreen et al., 2009). Managing CSR is always a vital issue

in the boardroom. Most multinational corporations invest millions to manage CSR programs

to meet corporate social performance in their origin country and other countries in which

they operate. Managing CSR programs is important to companies because it influences

underlying intangible assets such as corporate reputation, identity, and image.

It is fruitful to see how an organization understands the institutional environment in the globalcontext (Jackson and Apostolakou, 2010). Based on institutional theory, every organization

is bound to abide by formal and informal rules. Scott (2008, p. 50) points out that there are

three pillars of institution: regulative, normative and cultural-cognitive systems. The

organization operates by conforming to formative regulations (e.g. business licenses), and

adapts it into a normative approach (e.g. CSR policy) (Jackson and Apostolakou, 2010).

Scott (2008, p. 50) argues that the organization is a process, not a state of social order, and

should be viewed as ‘‘a process of institutionalization and deinstitutionalization.’’

Incremental or revolutionary, change is required to survive and grow in a highly

PAGE 344 j SOCIAL RESPONSIBILITY JOURNAL j VOL. 9 NO. 3 2013, pp. 344-361,Q Emerald Group Publishing Limited, ISSN 1747-1117 DOI 10.1108/SRJ-05-2011-0110

Zulhamri Abdullah is an

Associate Professor in

Branding at the Department

of Communication, Facultyof Modern Languages and

Communication, Universiti

Putra Malaysia, Selangor,

Malaysia. Yuhanis Abdul

Aziz is a Senior Lecturer at

the Department of

Hospitality and Recreation,

Faculty of Economics and

Management, Universiti

Putra Malaysia, Selangor,

Malaysia.



competitive business environment. DiMaggio and Powell (1983, p. 147) argue that a

structural change makes the organization less competitive and efficient. Greater focus on

enhancing legitimacy and reputation is central in shaping organizational institutionalism

(Deephouse and Suchman, 2008; see Scott, 2008).

Today’s corporate world pressures such as increased deregulation, liberalization,

privatization establishing free trade areas, lack of talented personnel, mergers and

acquisitions and environmental responsibility to name a few, have led companies to pay

considerable attention to essential intangible impactful concepts such as reputation,

identity, image and branding (Balmer and Greyser, 2003). Managing CSR programs

harmonize these concepts in the context of corporate communication (Cornelissen, 2008)

and corporate-level marketing (Balmer and Greyser, 2003). Corporate communication is a

strategic function aligned with corporate strategy.

Although CSR studies flourish in leading academic journals (Lindgreen et al., 2009),

corporations know little about CSR integration with corporate strategy in emerging markets,

especially in Asia. Some CSR programs implement public relations (PR) gimmicks

(Rondinelli, 2006) rather than develop systematic and coherent initiatives that reflect overall

strategy (Cornelissen, 2008). Many CSR conferences, seminars and forums in Asian

countries are conducted to offer substantial awareness of CSR practices to corporate

leaders and other stakeholders. Many Malaysian managers have positive attitudes toward

CSR even though CSR involvement diminished from 1991 to 2001, (Abdul Rashid and

Ibrahim, 2002, p. 16). For examples, evidence showed that 69.2 percent agreed with the

statement that ‘‘involvement by business in improving its community’s quality of life will also

improve long run profitability’’ in a survey 2001, as compared to almost 90 percent agreed

with the statement in 1991. Nearly 90 percent in 1991 agreed that ‘‘a business that wishes to

capture a favorable public image will have to show that it is socially responsible’’, however,

only 65.2 percent agreed with the statement in 2001 (Abdul Rashid and Ibrahim, 2002, p. 13).

Although awareness of CSR is at stake, there is a weak positive relationship between CSR

and financial performance (Janggu et al., 2007). Peloza and Papania (2008) supported this

argument by examining the relationship between CSR and corporate financial performance.

They also argued that social performance may be more important than financial

performance by stressing on multiplicity of stakeholders. With an emphasis on institutional

logic, Kanter (2011, p. 66) argued that today’s companies should focus on six facets that are

a common purpose, a long-term view, emotional engagement, community building,

innovation and self-organization. The essence is to combine financial and social logic tobuild enduring institutions. Nevertheless, buzzwords and phrases such as ‘‘walk the talk’’

can be a daunting task for Asian corporate leaders to exercise a real CSR agenda aligned

with corporate strategy. Many believe that financial performance is a top priority in any

business scenario (Srivoravilai and Melewar, 2008; Janggu et al., 2007).

Keeping the organizational performance in mind, evidence shows that relationships among

CSR practices, corporate identity and purchase intentions of four corporations - Microsoft,

Nike, Philip Morris, and Wendy’s – reflect the social values of the organizations (David et al.,

2005). Othman et al. (2011) found that CSR reporting as a mandatory requirement imposed

by a regulatory body influences Malaysia’s corporate reputation. In an emerging market,

countries interpret different meanings of CSR (Chapple and Moon, 2005; Abdul Rashid and

Ibrahim, 2002). A survey by the World Business Council for Sustainable Development

stressing environmental issues and community empowerment found that CSR is defineddifferently by Thai and Ghanaian leaders (Blowfield and Frynas, 2005). A study by Dusuki

et al . (2008) reveals that Malaysian stakeholders perceive the pyramid of the CSR model that

frames four dimensions – economic, legal, ethical, and philanthropic – differently; they

stress cultural factor should include CSR measurement. Specifically, corporate culture here

focuses on behavior and strategy (Vella and Melewar, 2008). This will discuss in detail in the

following section. It is fruitful to see a unified CSR agenda that affects positively

organizational reputation, legitimacy and culture in an emerging market. Hence, the main

purpose of this study is to empirically analyze whether CSR initiatives as practiced by

VOL. 9 NO. 3 2013 jSOCIAL RESPONSIBILITY JOURNAL j PAGE 345



Malaysian corporations may influence corporate reputation, corporate culture and

legitimacy.

Perspectives on corporate social responsibility

In the previous section, we provide an introduction to the underlying concept of CSR by

highlighting some issues such as business strategy, financial performance, legitimacy,

culture and reputation. Key issues of CSR, especially in an emerging market, are discussed.

In the context of corporate communication, studies note that CSR initiatives place at the top

when harmonizing relationship between a company and constituencies. It acts assymmetrical communication, balancing economic and social values. We differentiate public

relations and corporate communication. In public relations literature, CSR practices turn into

corporate philanthropy and donations (Cutlip et al., 2006), which do not determine a

strategic predictor toward organizational goals; corporate communication practitioners

perceive CSR as a solid business function with a focus on stakeholder empowerment

(Cornelissen, 2008; Argenti and Barnes, 2009).

In the public relations agenda, the notion of giving back to community is misled and seen as

a one-off event. In a more dynamic environment, CSR shape the corporate identity of the

company strategically. Through a CSR agenda, companies pay particular attention to key

determinants such as moral/ethical, discretionary and relational practices. In the context of

corporate marketing and in view of managing corporate branding, a firm focuses on three

key drivers: product innovation, environmental concern and community involvement (Keller

and Aaker, 1998). Acquiring depth of CSR understanding requires an interdisciplinary

approach and senior management involvement to reflect an overall corporate strategy.

Today’s corporate strategies focus on sustainability as the new business model. Sustainable,

the company achieves the ultimate business asset – corporate reputation – in the long term.

A lack of research linking CSR actions to key concepts such as corporate identity, reputation

and image leads us to a study institutionalizing CSR within corporate communication and its

impact on corporate reputation, legitimacy and culture in Asian countries, particularly

Malaysia. David et al. (2005, p. 294) initiated a dual-process model of CSR in framing three

CSR practices: moral/ethical, discretionary and relational practices. This model contributes

to the body of corporate identity knowledge. It is fruitful to expand the key concepts of the

dual-process CSR model and evaluate the impact on corporate reputation, legitimacy and

culture in Malaysia. Thus, it is imperative to study CSR practices in the context of corporate

communication and corporate identity.

Conceptualizing CSR is viewed as a broader scope of management in this study. To develop

an integrative CSR approach, we examine constructs based on institutional theory, focusing

on a strategic management role. We review CSR initiatives based on David’s dual-process

CSR model, and address a solid relationship between CSR and reputation, focusing on

various empirical measurements. We discuss a link between CSR and corporate identity,

relating it to a sociological perspective and narrowing it to the notion of legitimacy and

corporate culture in institutionalizing as a better organic organization in Asian country.

Theoretical framework

Having discussed the relationship between CSR and corporate identity thoroughly, we

construct five testable hypotheses to examine CSR initiatives, corporate reputation,corporate culture and legitimacy.

CSR initiatives

Initial development of the dual-process model of corporate identity provides a strong

theoretical framework that is validated sufficiently to construct three CSR practices:

moral/ethical, discretionary and relational practices. This study provides a better

understanding of those CSR practices by linking them to corporate reputation, legitimacy

and culture (see Figure 1).

PAGE 346 jSOCIAL RESPONSIBILITY JOURNALj VOL. 9 NO. 3 2013



CSR moral/ethical

Ethics and morality are used interchangeably here and are treated as religion to evaluate

behavior and decide what is right and wrong. Ethical standards are set for any business

activities for several reasons such as ‘‘respects property right, honour promises, and ensure

mutual commitment’’ (Jackson, 2004, p. 24). All companies are bound legally to abide by

extant laws. Many companies stress ethical responsibility, but compromise their license to

operate to gain profitability in the short term.

Siltaoja (2006) defines ethics and morality as creditability and responsibility in reporting

news and events truthfully; it includes trust, respect, honesty, truthfulness and pluralism.

Companies maintain a good reputation by requiring morality and ethical behavior (Siltaoja,

2006). Trust must be inculcated among internal stakeholders before spreading it wider into

the knowledge of external stakeholders involved indirectly with the company. Regular

contact and communications with stakeholders further maintain trust. Siltaoja (2006)

indicates that morality is the primary feature of responsible behavior. This promotes the

viewpoint of Frederick (1994) that ethics act as an anchor to CSR. Jackson (2004, p. 25)stresses that it is important for companies to adopt CSR initiatives as a self-imposed restraint

to contribute to human well-being.

CSR discretionary

As interest in sustainability grows, some companies invest voluntarily in social obligation

initiatives such as charities and philanthropy. Based on a stakeholder salience model, some

companies give attention to discretionary stakeholders who possess legitimate claims but

have no power and urgency (Cornelissen, 2008, p. 44). Greedy companies ignore

discretionary stakeholders by giving the excuse that there is no direct impact on financial

performance. Becoming a society of organizations makes the company more visible for

public scrutiny (Bouchikhi and Kimberly, 2008), allowing the company to position itscorporate identity based on stakeholder expectations.

A study conducted by Fombrun and Shanley (1990) suggests that social responsiveness

(i.e. level of corporate charitable donations and a presence of a separately endowed

corporate charitable foundation) is associated positively with corporate reputation.

Dowling (1994) argues that attempts to enhance reputation by demonstrating social

responsiveness may be unreliable in some controversial industries such as tobacco,

nuclear energy and weapons manufacturing where negative perceptions jeopardize the

core of companies.

Figure 1 Theoretical model of CSR-Reputation


http://www.emeraldinsight.com/action/showImage?doi=10.1108/SRJ-05-2011-0110&iName=master.img-000.jpg&w=326&h=166



CSR relational

Organizational success depends on an ability to handle relationships among stakeholders

such as customers, employees, suppliers, communities, politicians and owners (Ihlen,

2008). Companies must earn support from stakeholders whereby stakeholder interests are

always at stake (Freeman and Philips, 2002). The era where companies entertain customers

who have direct impact on the bottom line has changed dramatically. The real challenge is

cultivating relationships with various stakeholders vital for company success. Specifically, a

company needs to build mutually beneficial exchange relationships that illustrate

corporate-level relationships (Balmer and Greyser, 2003, p. 7). This is aligned with today’s

new competitive business environment that requires managing relationships with a wider

array of stakeholders such as employees, consumers, media and investors (Argenti and

Barnes, 2009, p. 1).

CSR and corporate reputation

Corporate reputation is always a popular topic in the boardroom; it is an intangible asset but

one that is important to make the company sustainable in the long term. Reputation is like a

magnet that attracts resources (Fombrun and Van Riel, 2004, p. 5). It means that managing

resources (e.g. hiring talented executives) improves productivity and growth.

The term reputation is interpreted differently from various perspectives. In marketing,

reputation is known as image, in accounting as goodwill and in sociology as prestige;

reputation is also interpreted as judgment (Fombrun and Van Riel, 2004), generalized as

goodness or desirability (Shenkar, 1996, p. 372). A unified definition of reputation needs tobe sought to avoid confusion. Reputation is the collective images of a company’s evolving

performance consistency (Argenti and Druckenmiller, 2004; Fombrun and Van Riel, 2004;

White and Murray, 2004). Exercising CSR practices creates good and bad images.

Corporate identity managers need to strategize CSR agenda with emphases on building

company character and credibility (Jackson, 2004, p. 1).

Alchian and Demzet (1972) argue that reputation provides information about expected

future company behaviors. Fombrun and Shanley (1990) suggest that reputation

represents success in satisfying expectations of multiple stakeholders. Reputation is

defined often as the source of competitive advantage that companies earn (Deephouse,

2000; Fombrun, 1996, 1998). Since perception is reality, CSR actions determine

perceptions of a firm’s reputation (Fombrun and Shanley, 1990). CSR is a factor that

influences reputation (Brammer and Pavelin, 2004; Carroll, 1979). Hooghiemstra (2000)argues for CSR as a communication instrument used by the firm to create and enhance

reputation. By acquiring great reputation, the firm creates a competitive advantage that

influences customer satisfaction. People want to buy products and services owned by a

reputable company. A study by Carroll and Buchholtz (2000) demonstrates that CSR

has a significant relationship with company reputation. Reputation represents how

reliable and honest the firm is in creating positive CSR actions (McWilliams and Siegel,

2000).

There are some indices that measure the corporate reputation of a company, such as

Fortune ’s Most Admired Companies in America (AMAC), The Brand Asset Valuator,

BrandZ, EquiTrend, Brand Power, Reputation Quotient (RQ) and RepTrak scorecard (Van

Riel and Fombrun, 2007, p. 230). The RepTrak scorecard is based on a remedial

instrument of RQ. An integrated tool is used to measure corporate reputation in

approximately 30 countries through annual the Global Reputation Pulse published by

Reputation Institute (Van Riel and Fombrun, 2007, p. 230). A CSR index is also

embedded in the RepTrak scorecard to rate a company’s CSR performance worldwide.

However, the Reptrak model is criticized due to a lack of theoretical foundation and

international measures (Serbanica and Popescu, 2009). Helm (2005) designed a

formative measure of reputation with 25 items of company characteristics based on a

German consumer perspective. Accordingly, we hypothesize:

H1. CSR initiatives are correlated positively with corporate reputation.




CSR, corporate reputation and corporate culture

Corporate culture is a significant driver of building corporate identity (Melewar, 2003).

Culture is defined as ‘‘a shared system of belief and values’’ that influences behavior of

organizational stakeholders (Vella and Melewar, 2008, p. 18). The concept of corporate

culture that is ‘‘the rich system of values and beliefs’’ (Stuart, 1999 in Balmer and Greyser,

2003, p. 112) has a link to Mintzberg’s ideology in strengthening organizational structure.

Strategic CSR focuses on everyday business processes and operations. CSR practices

influence corporate culture, consisting of the attitudes, values, beliefs, norms and customs

of an organization. Flatt and Kowalczyk (2006) found that corporate reputation mediates the

effects of corporate culture and financial performance based on Fortune’s Most Admired

Company survey for 1986 and 1987. Firestones (2006) argues that corporate culture is a key

indicator of building and protecting corporate reputation; due to unique cultural facets in

Asian countries, corporate culture impacts corporate reputation. Thus, we propose the

following hypotheses:

H2. CSR initiatives are correlated positively with culture.

H3a. Culture is correlated positively with corporate reputation.

H3b. Culture mediates partially CSR initiatives on corporate reputation.

CSR, corporate reputation and legitimacy

The great challenge for companies is gaining credibility and legitimacy through corporateidentity management (Cheney and Christensen, 2001). Projecting an ideal corporate identity

is vital for Asian companies to communicate consistently with various stakeholder groups.

This leads to long term competitive advantages and enhanced corporate reputations

(Friedman, 2009). Projection begins with CSR actions to showcase a unique and distinctive

corporate identity, and practices are developed to meet social performance. Pressures to

conform to regulative, normative and cultural-cognitive systems to improve legitimacy drive

such practices (Scott, 2008). From a sociological view, reputations are parameters of

legitimacy and symbolize institutional prestige (Fombrun and Van Riel, 1998 in Balmer and

Greyser, 2003, p. 229); legitimacy increases organizational reputation. This leads to the

following hypotheses:

H4. CSR initiatives are correlated positively with legitimacy.

H5a. Legitimacy is correlated positively with corporate reputation.H5b. Legitimacy mediates partially CSR initiatives on corporate reputation.

Method

Sample and procedures

We surveyed 350 employees who are studying Master’s of Corporate Communications and

MBAs in executive programs at the University of Putra, Malaysia. Data for this study were

collected through self-administered questionnaires in 2010. Respondents held full-time

positions of executive, manager, department head, director or managing director. They were

selected if they were involved directly in CSR initiatives in their respective companies.

Pilot test

A pilot test was administered to test instrument validity. Forty sets of questionnaires were

distributed to Bachelor’s students studying in executive programs in the University of Putra,

Malaysia. Of 40 questionnaires, 10 failed to be returned. Of the 30 valid samples, all

respondents participated in the pilot test resulting in a 75 percent response rate for the pilot

study. Respondents identified ambiguous or unclear items and provided suggestions for

changes. The pilot test revealed no changes were necessary; data collection for the primary

study proceeded as planned.




Administration of survey

The sample consisted of the Master’s of Corporate Communications and MBA classes of

2009 (N ¼ 350), based on a postgraduate database from an Academic Division, University

of Putra, Malaysia. Three research assistants were hired to distribute the questionnaire to

respondents in person during evening classes. The questionnaire took 10 to 20 minutes to

complete, although no time constraint was imposed. Three-hundred questionnaires were

returned; among them, 15 were eliminated due to missing values, which reduced the final

sample size to 285 (81.4 percent). It was found that the data were missing completely at

random (MCAR) and thus can be ignored (Rubin, 1976) because it may cause potential

biased. Mean Imputation method were not chosen to replace missing value because it could

results in biased parameter estimates in structural equation modeling (SEM) Brown, 1994;

Wothke, 2000).

Survey instrument

While developing the questionnaire, multiple scale items were obtained from various

sources in extant literature. The instrument used to gather data was a structured

questionnaire, consisting of five parts. The data were collected by means of eight pages of a

self-administered questionnaire, using various response forms. Responses to the items in all

construct scales were scored on a five-point scale, ranging from 5 (extremely important) to 1

(not at all important), and dichotomous items were used as well.

Structure of questionnaire

The first part of the questionnaire (Part A) required respondents to indicate organizational

information. This part consisted of 12 items. Sample items included:

B Which industry does your company belong to?

B How long has your organization been incorporated?

B How many employees are in your organization globally?

The second part of the questionnaire (Part B) contained 14 items measuring CSR initiatives.

Moral or ethical practice was measured using five items from David et al. (2005), including

‘‘The company treats employees fairly,’’ and ‘‘The company competes fairly with its

competitors.’’ Four items from David et al. (2005) measured discretionary practices. Sample

items included ‘‘The company contributes resources to the arts and cultural programs in thecommunity,’’ and ‘‘The company supports children and family issues, such as adoption and

foster care.’’ Relational practice was operationalized through five items. Two items from

David et al. (2005) includes ‘‘The company strives to build long-term relationships with its

consumers,’’ and ‘‘The company is willing to listen to its consumers and other stakeholders

and is open to constructive criticism about its business practices.’’ Three items were

adapted from Vella and Melewar (2008). They were ‘‘The company strives to promote

favorable relationships with employees,’’ ‘‘The company appears to be trustworthy’’ and

‘‘The company is concerned with aligning its value and belief with stakeholders’ interests.’’

Part C examined corporate reputation constructs. Ten items were adapted from Helm (2005)

to measure corporate reputation. Sample items were ‘‘The company strives for corporate

successes,’’ ‘‘The company focuses on customer-orientation’’ and ‘‘The company provides

high quality products.’’ The fourth part (Part D) measured cultural and legitimacy constructs.

A five-item scale was revised from Vella and Melewar (2008) measured cultural constructs.Examples items included ‘‘Multi-ethnic employees work in harmony in this company’’ and

‘‘Employees share the same values and beliefs.’’ Legitimacy constructs were measured

using a five-item scale developed based on Deephouse and Suchman (2008) and Scott

(2008). Sample items included ‘‘Company product and services are compliant with legal

expectations’’ and ‘‘The company always complies with the newest legal principles as soon

as possible.’’ The final part of the questionnaire (Part E) included questions on respondents’

profiles. Five items captured gender, race, working experience, income, and

academic/professional qualifications.




Data analysis

In this study, structural equation modeling (SEM) was employed to test the model

goodness-of-fit and individual parameters estimated in the hypotheses. Even though SEM is

typically used for confirmatory study, but it can also be used to test theory on relationships as

what the current study intend to do. Data analyses were conducted in two stages. The first

stage involved descriptive analyses to provide general descriptions of respondents. The

internal consistency method using Cronbach’s alpha was calculated to confirm reliability of

each construct (Table I). In the second stage, relationships among the CSR initiatives (moral,

discretionary and relational practices) culture, legitimacy and corporate reputation were

examined. Relationships between latent variables and indicators were investigated

simultaneously (Joreskog and Sorbom, 1993).

Results

Measurement model

Several items were removed from further examination due to low standardized loadings

(less than 0.60) calculated during confirmatory factor analysis (CFA). One item from the

moral practice scale (The company honors human rights of those employed in foreign

countries) and one item from corporate reputation (The company has a commitment to

charitable causes) were deleted during CFA analyses. Two items (The company uses

local values to articulate its company brand) and (My company emphasizes voluntarysocial and environmental disclosure) from the culture and legitimacy scales were

removed.

Goodness of fit results demonstrated acceptable fit: x2=df ¼ 1:866 and the RMSEA value

was within an acceptable range (0.055). Other fit indices revealed a mix of acceptable fit

(GFI ¼ 0:864, AGFI ¼ 0:834, NFI ¼ 0:824, TLI ¼ 0:896 and CFI ¼ 0:909). The goodness fit

indices demonstrated reasonable values even though some indices (GFI, AGFI, NFI and

TLI0 were slightly lower than the expected value of greater than 0.9 (Bentler and Bonett,

1980). Overall, the results provided by x2 /df and RMSEA (Browne and Cudeck, 1993) fell

within a range of acceptable value (less than 0.10) (Hair et al., 2010). An EFA (exploratory

factor analysis) using principle component with varimax rotation was performed to identify

and confirm the underlying items for each factor. The KMO (Kaiser-Meyer Olkin)

technique and test of Bartlett for sphericity were employed to ensure the suitability of EFA

analysis. As evidence in Table II, both KMO results and Bartlett’s test (significant at 0.000

level) suggests suitability of performing EFA. The standardized factor loadings (Table II),

ranging from 0.602 to 0.757, were significant. Of the 29 items, 11 had loadings greater

than 0.70, providing evidence of reasonable convergent validity (Anderson and Gerbing,

1988).

Table I Hypotheses verification

Hypothesis Coefficient CR ( t Value) P Value Result

Direct effect a:CSR initiatives ! Corporate reputation 0.238 4.836 0.00 SupportedCSR initiatives ! Cultural 0.321 8.241 0.00 Supported

CSR initiatives ! Legitimacy 0.333 8.559 0.00 SupportedCulture ! Corporate reputation 0.366 3.029 0.002 SupportedLegitimacy ! Corporate reputation 0.158 1.035 0.301 Not supported

Indirect effect b:CSR initiatives ! Corporate reputation (through culture) Refer Table V for result SupportedCSR initiatives ! Corporate reputation (through legitimacy) Supported

Notes: a The direct effect of each relationships were derived from structural equation analysis; b The indirect effects were examined using

hierarchical multiple regression as presented in Table V; * p , 0:05, ** p . 0:001; Critical coefficient (t Value) . 1.96 indicates

non-significant relationships




Reliability and validity

All constructs were subject to scale reliability and validity examinations. Discriminant validity

was assessed through inter-construct correlations as illustrated in Table III. All correlation

values between latent constructs were significantly different from zero, but there were no

Table II Summary of factor loadings for the measurement model

Constructs Item descriptions Factor loading KMO Bartlett’s test

Moral practices 1. Company treats employees fairly 0.620 0.880 x2¼ 1537:212 p , 0:000

2. Company competes fairly with its competitors 0.6613. Company is honest and upfront about telling

the truth when something goes wrong 0.658

Discretionary practices 1. Company contributes resources to the art and

cultural programs in the community 0.676 0.880 x2¼ 1537:212 p , 0:000

2. Company contributes resources to raise socialawareness of issues such as hunger and

domestic violence 0.7303. Company supports children and family issues,

such as adoption and foster care 0.7514. Company supports public health programs,

such as the fight against AIDS, cancer and

other diseases 0.743

Relational practices 1. Company strives to build long-term relations

with its consumers 0.678 0.880 x2¼ 1537:212 p , 0:000

2. Company is willing to listen to its consumers

and other stakeholders and is open to

constructive criticism about its business

practices 0.7503. Company strives to promote favorable

relationship with employees 0.7574. Company appears to be trustworthy 0.7185. Company is concerned with aligning its value

and belief with the stakeholders’ interest 0.643

Corporate reputation 1. Company strives for corporate success 0.683 0.881 x2¼ 1061:250 p , 0:000

2. Company focus on customer oriented 0.6543.Company providesthehighqualityof products 0.6854. Company provides value for money for its

products and services 0.6125. Company has the credibility of marketing

communication claims 0.6026. Company has a commitment to protect the

environment 0.7187. Company has an efficient management 0.7428. Company has good employees 0.729

9. Company has a good standing financialperformance 0.705

Culture 1. Multi ethnics employees work in harmony in

this company 0.650 0.887 x2¼ 881:372 p , 0:000

2. Company is concerned about cultural

sensitivity among employees 0.7423. Employees share the same values and beliefs 0.6934. Company has a policy on equal opportunities

among the employees 0.677

Legitimacy 1. Company product and services are compliant

with the legal expectation 0.630 0.887 x2¼ 1537:212 p , 0:000

2. Company always submit to the newest legal

principle as soon as possible 0.6513. Company be only allowed to do what is

explicitly permitted by law 0.6434. Company works with regulators to formulate

and develop the regulatory standard 0.674




high or very high correlations (i.e. greater than 0.69) as suggested by Anderson and

Gerbing (1988). Hence, the measures used provided evidence of discriminant validity.

Convergent validity was established using composite (construct) reliability and average

variance extracted (AVE).

All of the scales demonstrated acceptable composite reliability performance (Table IV).

Most of the composite reliabilities exhibited a high value greater than 0.80, except for the

moral practice construct. In terms of AVE, one of the six constructs (moral practice) had

variance extracted lesser than the recommended value of 0.50. The variance estimate

indicated total item variance accounted for the construct. Even though the result of AVE

exceeded the cut-off point greater than 0.50, composite reliability was not as good, but

demonstrated strong reliability. In terms of internal consistency, all constructs reported

sufficient reliability (greater than 0.70) (Nunnally, 1978), except for moral practice (0.638).

Examination of mediating role

The current study employs the famous Baron and Kenny (1986) criteria to test the effect of

mediations. There were several rules to be followed and satisfied: First, there must a

significant relationship between independent variable (CSR Initiatives) and mediators

(Culture and Legitimacy). Second, the independent variable (CSR Initiatives) must be

significantly related to dependent variable (Corporate Reputation). Finally, the mediators

(Culture and Legitimacy) must affect the dependent variable (Corporate Reputation) and the

effect of independent (CSR Initiatives) on dependent (Corporate Reputation) must be less in

the final rule than in the second rule. If the effect of the independent becomes insignificant in

the third rule, the mediator is considered as full mediator and if the effect of the independent

still strongly exists but is reduced in the third rule, the mediator is regarded to as a partialmediator.

Hierarchical multiple regression analysis was conducted to test H3b and H5b . A summary of

findings is shown in Table V. Results demonstrate that CSR initiative was related positively

with culture and legitimate (b ¼ 0:549and0:607, p , :001). This satisfies the first rule of

Baron and Kenny (1986) where there are significant relationships between CSR initiatives

and culture and legitimate. Of the control variables, none was found associated with culture

and legitimate, and no control variable showed a significant impact on corporate reputation.

Results also provide evidence that CSR initiatives was positively related to corporate

Table III Summary of discriminant validity

Inter-construct correlations Constructs M SD 1 2 3 4

1. CSR initiatives 3.95 0.54 1.0002. Culture 3.95 0.55 0.552* 1.0003. Legitimate 3.91 0.54 0.620* 0.686* 1.0004. Corporate reputation 3.75 0.55 0.677* 0.624* 0.631* 1.000

Notes: * p ¼ 0:01; n ¼ 285

Table IV The reliabilities of the measurement model

Construct Number of i tems Composite reliability .0.70 Variance extracted .0.50 Cronbach’s Coefficient Alpha

Moral practicea 3 0.71 0.45 0.638Discretionary practiceb 4 0.82 0.54 0.815Relational practicec 5 0.88 0.59 0.835Corporate reputation 9 0.92 0.57 0.864Culture 4 0.86 0.61 0.784Legitimacy 4 0.84 0.57 0.745

Notes: a, b and c¼ The compositereliability and variance extracted forCSR initiatives wascalculated based on its individual components

a, b and c




reputation (b ¼ 0:672, p , 0:001). Hence, the second rule was met. The table presents

evidence that culture and legitimate were related positively to corporate reputation

(b ¼ 0:260 and 0.200, p , 0:001). When culture was entered into the equation, the sizes of

direct effects of CSR initiatives on corporate reputation were reduced, but remained

significant. There was a significant increment in R 2 for the model (DR2¼ 0:088, p , 0:001).

For this reason, the third rule was met where the effect of CSR initiative was less and thus

confirms the partial mediation of culture. Thus, culture mediated the impacts of CSR initiative

on corporate culture partially. Similarly, results indicate that legitimacy showed a significant

increment in R 2 for the model where it’sDR2¼ 0:072 (p , 0:001). Thus, legitimacy mediated

the impacts of CSR initiative on corporate culture partially.

The Aroian test using the Sobel technique was examined to establish the significance value

of mediation on cultural and legitimacy constructs in the relationships between CSR initiative

and corporate culture. In Table V, results demonstrate that culture mediated the relationship

between CSR initiative and corporate reputation partially (test statistic ¼ 1:87, p . 0:01).

The Aroian test suggests that legitimate mediated the relationship between CSR initiative

and corporate reputation partially (test statistic ¼ 1:53, p , 0:01). Therefore, H3b and H5b

were supported.

Structural model

The structural model specifies a pattern of relationships among model variables. The initialstructural model was estimated based on a single-order factor model. Initial estimations

have produced an under-identified model. This happens due to a problem associated with

lack of degrees in freedom, which contributes to the unidentified model. The output showed

zero degrees of freedom and a zero chi-square, suggesting that any analysis that followed

was unsuitable. The model needed re-specification so that a better fitting model can be

calculated. Based on model estimation, the model was modified to improve fit. A

second-order factor analysis was required to achieve meaningful information and

knowledge on CSR initiatives. Hence, CSR initiatives based on the three constructs

Table V Hierarchical multiple regression results: direct and mediating effects

Standardised regression weights Culture Legitimate Corporate reputation

Independent variables Step 1 Step 2 Step 1 Step 2 Step 1 Step 2 Step 3

(I) Control variable Gender 0.076 0.018 0.135 0.070 0.143 0.071 0.052Race 0.100 0.092 0.071 0.061 0.037 0.026 20.010Experience 0.016 0.007 0.011 0.001 20.015 20.026 20.028Qualification 0.005 20.024 0.085 0.052 20.006 20.042 20.046

(II) CSR initiatives 0.549** 0.607** 0.672** 0.408**F 1.611R 2 at each step 0.444**DR 2 0.009

(III) Culture 0.359** 0.260**F 1.211 25.45 1.611R 2 at each step 0.003 0.301 0.466DR 2 0.296** 0.088**

(IV) Legitimate 0.345** 0.200**F 2.503 36.71 1.611 52.922R 2 at each step 0.021 0.386 0.538 0.561DR 2 0.362** 00.72** 0.106**

Notes: Aroian test for: CSR initiatives ! Culture ! 1.87*; CR 1.53*; CSR initiatives ! Legitimacy ! CR; CSR ¼ corporate social

responsibility; CR ¼ corporate reputation; P ¼ 0:001. Aroian test was conducted using the following input: A ¼ the regression weight(regression coefficient) for the relationship between the independent variable and the mediator; SEA ¼ the standard error of the

relationship between the independent variable and the mediator; B ¼ the regression weight (regression coefficient) for the relationship

between the mediator variable and the dependent variable; SE B ¼ the standard error of the relationship between the mediator variable

and the dependent variable




(moral, discretionary and relational practices) was examined as a second-order factor,

generated on the basis of the relationships among first-order factors. Figure 2 shows the final

estimations of the second-order factor model.

The final model provided good fit. The value for x2 /df and RMSEA were within acceptable

ranges (x2=df ¼ 1:723; RMSEA ¼ 0:50). Other indices also demonstrated satisfactory

results (GFI ¼ 0:877, AGFI ¼ 0:853, NFI ¼ 0:839, TLI ¼ 0:916, and CFI ¼ 0:925). Results of

the SEM demonstrated that the hypothesized model fits the data well. However, the values

for GFI, AGFI and NFI must be translated with cautious since these indices were lesser than

the suggested value of greater than 0.9 (Hair et al., 2010). Based on other indices (x2 /df,

RMSEA, TLI and CFI) that demonstrated reasonable fit, the proposed model provided

acceptable fit.

Hypotheses testing

The hypotheses were evaluated using path analysis from the structural model. The paths

between latent variables are presented in Figure 2. Examination revealed that H1, H2 and H4

were supported, with CSR initiatives related to corporate reputation(r ¼ 0:238), culture

(r ¼ 0:321) and legitimacy (r ¼ 0:333). H3a , predicting a positive relationship between

culture and corporate reputation, was also supported (r ¼ 0:366). However, H5a , predicting

a positive relationship between legitimacy and corporate reputation, was not supported

(r ¼ 0:158). Inspection of the indirect paths between CSR initiatives and corporate

reputation, culture and legitimacy demonstrated significant relationships, reported in

hierarchical regression analyses earlier. Therefore, H3b and H5b were supported. Ahypotheses verification summary is shown in Table V.

Discussion

The purpose of this paper was to develop empirical measures of corporate social

responsibility (CSR) initiatives and their impact on corporate reputation based on David’s

dual process model of CSR for Malaysian government linked corporations (GLC) and

public listed companies (PLC). University students participated to assist in structural

model validation. Of seven hypotheses tested, one was not supported. The proposed

model demonstrated good fit of the data as reported in the findings. The data established

sufficient reliability and validity. This study ascertains the effects of CSR initiatives on

corporate reputation. CSR initiatives were also found related to both cultural and

legitimacy constructs.

Figure 2 Final structural model


http://www.emeraldinsight.com/action/showImage?doi=10.1108/SRJ-05-2011-0110&iName=master.img-001.jpg&w=318&h=187



The structural model provides evidence that CSR initiatives have a significant impact on

corporate reputation. It was also found that CSR initiatives are related positively to culture

and legitimacy. Culture had a positive effect on corporate reputation and mediated the

relationship between CSR initiatives and corporate reputation partially. An indirect effect

between CSR initiatives with corporate reputation through culture and legitimate

demonstrated a significant relationship. Legitimacy was found to be non-significant when

tested directly with corporate reputation.

This study contributes to the body of CSR knowledge and corporate reputation. Through

structural equation modeling, this study proposes and validates an integrative structural

model that assimilates the role of CSR initiatives and its impact on corporate reputation.

Demonstrating the significant impact of CSR initiatives on cultural, legitimacy and corporate

reputation, this study enhances the current understanding of CSR initiatives both

theoretically and practically. It is important to note that legitimacy was not a strong

predictor of corporate reputation. When tested directly with corporate reputation, it

demonstrated no effect; permitted as a mediator linking CSR initiatives and corporate

reputation, there was evidence of a significant influence.

Theoretical implications

This study is a first attempt to examine how CSR initiatives influence corporate reputation,

legitimacy and culture in Malaysia. There are three sets of findings highlighting relationshipsbetween CSR constructs and other variables:

1. Findings suggest CSR initiatives are significant predictors of dimensions of corporate

reputation.

2. Findings demonstrate that CSR initiatives have a significant positive effect on culture and

legitimacy.

3. Findings show that culture is related positively to corporate reputation; however,

legitimacy is not related to corporate reputation.

This study advances theory of corporate identity and reputation in an Asian country. This

strengthens the notion that ‘‘corporate identity is transmitted to various stakeholders who

then formulate images that, in turn, form the basis of the company’s reputation’’ (Melewar,

2003, p. 195). The images represent CSR practices based on the dual-process model ofcorporate identity initiated by David et al.(2005). Undoubtedly, managing reputation is vital

for Malaysian corporations, based on a firm’s strategic initiatives supported in our first set of

findings.

One implication for corporate identity scholarship includes illuminating legitimacy and

cultural constructs as related to CSR practices. CSR constructs conceptualized in this study

are consistent with two key corporate-level questions: ‘‘what are we’’ and ‘‘what do we do?’’

(Balmer and Greyser, 2003). Olin (1979, in Balmer and Greyser, 2003, p. 54) stresses ‘‘the

way [an] organization presents itself to external audiences.’’ It should be noted that

corporate presentation should meet legal expectation (Suchman, 1995) in a shared system

of belief and values (Vella and Melewar, 2008, p. 18).

Institutionalizing CSR within corporate communication is highly significant to improving

corporate reputation. This suggests two theoretical implications. First, CSR as a strategicbusiness function had been proven to have a direct impact on corporate reputation. This

supports Cornelissen’s (2008, p. 44) argument on CSR initiatives viewed as ‘‘a direct

instrument value’’ to an organization, pertaining to ‘‘reputational return and financial

performance.’’ Second, the role of corporate communication needs to be formulated based

on CSR constructs – moral/ethical, discretionary and relational – at the technical and

managerial levels. This may improve Dozier’s communication technician and communication

manager as theoretical practitioner roles in the quest for dominant coalition imperative

(Cornelissen, 2008).




Surprisingly, our last set of findings showed that there is no direct effect between legitimacy

and reputation. However, the finding strengthens the notion highlighting legitimacy and

reputation as engaged in a complementary relationship based on accountability standards

(King and Whetten, 2008, p. 199; Deephouse and Carter, 2005). A greater focus on

institutional theory and isomorphism contributes to corporate reputation scholarship.

Practical implications

Today, increased awareness of CSR among executives in Malaysia demonstrates demand

that companies exercise better social and environmental performance. Our results suggestthat CSR practices have a direct impact on corporate reputation. Not surprisingly, the

Malaysian government deploys aggressive campaigns highlighting social and

environmental performance of publicly listed companies. A leading market regulator such

as Bursa Malaysia, professional bodies such as the Malaysian Institute of Accounting (MIA)

and the Association of Chartered Certified Accountants (ACCA), and leading corporate

governance institutes such as the Malaysian Institute of Corporate Governance (MICG) are

highly committed to ensuring a market of integrity and transparency in the highly competitive

business environment.

In a multicultural country like Malaysia, culture is a predominant factor that should not be

neglected when determining corporate reputation. Our findings show that culture has a

direct effect on CSR practices and corporate reputation. This is consistent with a study by

Vella and Melewar (2008), highlighting that business leaders’ perceptions of the importance

of cultural sensitivity influence business performance. Cultural diversity remains a complex

element of management within corporate culture.

In the context of Malaysian business, legitimacy is favorable when practicing CSR. We find

that legitimacy is not an important factor affecting corporate reputation. This does not

support the notion of reputations as indicators of legitimacy initiated by Fombrun and Van

Riel (1998, in Balmer and Greyser, 2003, p. 229). A study on rethinking the relationship

between legitimacy and reputation by King and Whetten (2008, p. 192) supports this finding;

they argue that legitimacy is a mandatory action for all organizations and reputation seems a

desirable asset that requires meeting an ideal standard. Many corporations meet minimum

regulations, but fail to practice higher performance standards capable of achieving both

mandatory performance (minimum) and public endorsement (elevated).

Conclusions

In the last few years, evidence emerged of the growing importance of corporate reputation,

in general, and its significance to corporate social responsibility particularly. Established

corporate reputations are critically important to ensuring customer loyalty and retention,

which contributes to competitive advantage. Using data on a sample of employed university

students, we present a structural model of CSR initiatives and corporate reputation.

Analyses concentrate on examining the relationship of CSR initiatives dimensions on

corporate reputation and the impact of cultural and legitimacy on corporate reputation.

Results indicate significant impact of all CSR initiatives dimensions on corporate reputation,

implying that moral, discretionary, and relational constructs exist and exert commanding

influences on corporate reputation. Nurturing and fostering suitable management strategies

involving the three practices are critical. More specifically, the results indicate clearly that anorganization wishing to foster and sustain corporate reputation needs to exercise moral

obligation such as treating employees fairly, demonstrate discretion by giving full support to

employees and involving them directly in charity activities, and implement relational

practices with regard to building relationships with stakeholders such as customers and

employees.

Our research provides substantial findings in the area of CSR and corporate reputation, but

it is no exception when it comes to limitations. We used students as a sample to test the

model. We believe that the student sample is appropriate and sufficient for such a study.




They were employed, part-time students who were familiar with CSR issues. However, we

should not lose sight that they were working students who regarded the organization as a

transient place; they may move to other organizations as soon as they are better qualified.

We are cautions to generalize conclusions broadly and acknowledge the need for further

validation in future research.

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Further reading

Fombrun, C.J. and Rindova, V. (1998), ‘‘Reputation management in global 1000 firms: a benchmarking

study’’, Corporate Reputation Review , Vol. 1 No. 3, pp. 205-212.

Freeman, R.E. (2002), ‘‘Stakeholder theory of the modern corporation’’, in Donaldson, T. and Werhane, P.

(Eds), Ethical Issues in Business: A Philosophical Approach , 7thed., Prentice Hall, EnglewoodCliffs, NJ,

pp. 38-48.

About the authors

Zulhamri Abdullah is an Associate Professor in Branding at the Department ofCommunication, Universiti Putra Malaysia. He earned his PhD from Cardiff University, UK.He won numerous awards in the fields of reputation and corporate communicationmanagement. He has published in the Public Relations Review (ISI) and International Journal of Economics & Management (SCOPUS). He is also a reviewer of Journal of Brand Management . Zulhamri Abdullah is the corresponding author and can be contacted at:[email protected]

Yuhanis Abdul Aziz is a Senior Lecturer at the Department of Management and Marketing,Faculty of Economic and Management at Universiti Putra Malaysia. She received her PhDdegree in Business and Management from the University of Nottingham, UK.


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