VOLUME XLIV NUMBER 04 JULY-AUGUST 2016
ECONOMICAL ETHICAL ECOLOGICAL RESPONSIBILITY RESPONSIBILITY RESPONSIBILITY Corporate Social Responsibility ENVIRONMENTAL Practices REPORTING PRACTICES 14 36
The Institute of Cost and Management Accountants of Bangladesh (An autonomous professional institution under the Ministry of Commerce, GOB) Bi-monthly Journal of the ICMAB ISSN 1817-5090 I VOLUME XLIV I NUMBER 04 JULY-AUGUST 2016
Contents
01 Editorial
Editor Mr. Naba Krishna Muni FCMA 03 [email protected] PRESIDENT'S Message Associate Editors Mr. Shawkat Hossain FCMA Mr. R. Tareque Moudud FCMA 04 Journal and Publication Corporate Social Responsibility and Committee Innovation in Management Accounting Chairman Mr. Naba Krishna Muni FCMA Vice-Chairman Mr. R. Tareque Moudud FCMA Members Mr. Md. Abdur Rahman Khan FCMA 14 Prof. Dr. Swapan Kumar Bala FCMA Corporate Social Responsibility Practices by Mr. Muzaffar Ahmed FCMA Multinational Companies in Bangladesh Mr. M. Abul Kalam Mazumdar FCMA Mr. A S M Shaykhul Islam FCMA 20 Mr. A. K. M. Delwer Hussain FCMA The Impacts of Asset Liability Management on Mr. Mohammed Salim FCMA Mr. Md. Munirul Islam FCMA Profitability of selected Banks in Bangladesh Mr. Ahsanul Bari FCMA Mr. Md. Zahangir Alam FCMA 27 Mr. Mohammad Golam Sabur FCMA Employee Engagement: Does it matter for employee Ms. Tanzina Haque FCMA performance? Mr. Md. Abu Khair Hasanul Hasif Sowdagar FCMA Mr. Mohammad Shafiul Qasem FCMA Mr. Md. Zahidul Hasan Khan Chowdhury FCMA Ms. Zinnia Tanzina Huq FCMA 36 Mr. Md. Touhidul Alam Khan FCMA Environmental Reporting Practices: A Study on selected Chowdhury Sazzed Hossain Siddique ACMA manufacturing companies in Bangladesh Mr. A.K.M. Shahidul Kirmany ACMA Mr. Mohammad Ali Ikramul Kabir ACMA Mr. Md. Mashiur Rahaman ACMA 49 Syed Mehedi Hasan ACMA CMAs Working in Global World- An Interview Mr. Prahallad Chandra Das ACMA Mr. Abdul Jalil Miah ACMA 52 Mr. Anisuzzaman Sarker ACMA Update on IFRS, IAS, IFRIC and SIC Secretary Mr. Mohammed Mizanur Rahman for Professional Accountants Additional Director (R & P) Publisher Mr. Md. Mahbub-Ul-Alam Executive Director, ICMAB 56 Update on Income Tax All supervision Mr. Mohammed Mizanur Rahman Photography Mr. Md. Moslem Uddin 62 Design & Print Orchi Logistics Update on Dhaka Stock Market 159, Arambag (1st floor), Motijheel, Dhaka-1000. Ph.: +88 02 7192152, email: [email protected] 65 Editorial Office The Institute of Cost and CMA Students' World Management Accountants of Bangladesh ICMA Bhaban, Nilkhet, Dhaka-1205. GPO Box No. 2629 67 Tel.: 9615460 & 9611799 Book Review [email protected] [email protected] 69 ICMAB News
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From SELF-RESPONSIBILITY To CORPORATE SOCIAL RESPONSIBILITY Human being who don't accept responsibility shift the blame to their parents, teachers, God, fate, or luck. Responsible behavior should be included right from childhood. It cannot be taught without a certain degree of obedience. People who use their Every human being or business entity has the privileges without accepting responsibility usually responsibility as individuality or collectivity. end up losing their privileges. Responsibility When people accept additional responsibility involves thoughtful action. they are actually giving themselves a promotion. "Responsibilities gravitate to the Ancient Indian wisdom teaches us that our first person who can shoulder them" as mentioned responsibility is to the community, second to our by Elbert Hubbard. He who would learn to fly family and third to ourselves. When this hierarchy one day must first learn to stand and walk and is reversed, a society starts degenerating. Social run. This is applicable for any individual and responsibility ought to be the moral obligation of similarly, the same is applicable to business every citizen of the country. Responsibility and entity as because every business entity has its freedom go hand in hand. A sign of good citizen is 'on-going character' with perpetual succession that he is willing to pull his or her own weight. that means once the entity is started would According to Winston Churchill, "The price of continue for ever. This is the going concern greatness is responsibility." principle for a business entity. The same applies to corporate business entity. Societies are not destroyed so much by the activities of rascals but by the inactivity of the Responsible behavior means to accept good people. What's a paradox! If good people can accountability which represents maturity. tolerate destruction by being inactive, how can Acceptance of responsibility is a reflection of they be good? The question is, are they discharging our attitude and the environment we operate their social responsibility? If good people do in. Most people are quick to take credit for nothing for the society, the evil shall flourish what what goes right but very few would readily we see at present everywhere due to our value accept responsibility when things go wrong. An system has been corrupt. How do we judge our individual does not accept responsibility is not value system? The seven deadly sins according to released from being responsible. The objective Mahatma Gandhi are: wealth without hard work, of every entity either human being or politics without principle, knowledge without corporate is to cultivate responsible behavior. character, commerce without morality, pleasure In case of human being, this is called social without conscience, religion without sacrifice and responsibility and in case of business entity, it is science without humanity. Each of these imbalance called corporate social responsibility. reflects lack of values. This has been affecting the mindset of the individual as well as the corporates.
THE COST AND MANAGEMENT 01 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Why don't people achieve excellence? The big Philanthropy: A common element of CSR in reason is the lack of vision or limited vision. We philanthropy. This includes monetary donations and need to dream beyond what is possible. aid given to local organizations and impoverished Everything we see today was a dream before it communities in developing countries. became a reality. Whatever we see around us like fans, bulb, TV, computer, smart phone, etc. - it was Benchmarking: Benchmarking enables a dream before its invention. Do we have a comparison of CSR performance against other dream? What's our dream? Every day that you organizations. It involves reviewing competitor CSR live, are you getting closer to your purpose? initiatives, as well as measuring and evaluating the Don't listen to who had failures - they will give impact that those policies have on society and the you faulty advice on how to succeed. Instead get environment, and how customers perceive your advice from successful people. Successful competitors' CSR strategy. After a comprehensive people don't do great things, they only do small study of competitor strategy and an internal policy things in a great way. Corporate Social review performed, a comparison can be drawn and Responsibility (CSR) is a means for the corporate a strategy developed for competition with CSR to do small things in a great way. To do this great initiatives. work, the professional knowledge and support of the Cost and Management Accountants would be Social accounting, auditing and reporting: Social an immense help to corporates becoming accounting involves accounting for and reporting successful. social and environmental effects of a company's economic actions. A number of reporting guidelines Corporate Social Responsibility (CSR) is a or standards have been developed to serve as companies' responsibility to the society in which frameworks for social accounting, auditing and it operates. This means considering all reporting. Many companies now produce externally stakeholders (internal, connected and external) audited annual reports that cover Sustainable as part of the decision making process - not just Development and CSR issues ("Triple Bottom Line the 'key players'. CSR policies cover issues like as Reports"), but the reports vary widely in format, environmental policy and sustainability, health and style, and evaluation methodology (even within the safety, treatment of staff, charitable work and industry). Within organizations internal auditors contribution and supporting local communities. may perform internal reviews (or audit) against the Benefits to business of good CSR are brand companies CSR policies as a way to review internal differentiation, avoiding regulation and building compliance. In Bangladesh, we are lagging behind. reputation in and outside the country. Using more and more the professional services of Cost and Management Accountants in regards to Building CSR into the organization - there are a building CSR into the organization is an area where variety of ways of building CSR into an CMAs could truly contribute towards sustainable organization's position, mentioned below: development of the country.
Mission and Objectives: Inclusion of CSR To produce an effective result, we need to connect values within the mission statement has become Corporate Social Responsibility with Self- common practice, and creates focus for directors Responsibility. In this respect, we can quote from when setting strategy to ensure CSR is built into Travis Engen, CEO, Alcan who said "We know that strategies being are followed. Creating focused the profitable growth of our company depends on CSR objectives with clear plans for achievement the economic, environmental, and social also help focus CSR activity, particularly when sustainability of our communities across the world. these are linked to managerial performance and And we know it is in our best interests to reviewed regularly. contribute to the sustainability of those communities." CSR Policies: A CSR policy is an internal statement of rules and expectations on CSR issues to be applied within the organization. It sets out the organizations values and clear rules Naba Krishna Muni FCMA to be following in relation to many ethical and Editor, The Cost & Management social issues.
THE COST AND MANAGEMENT 02 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 cost and management accountants who cause the societal development and sustainability. In its continuous quest for professional excellence, ICMAB has carefully taken initiatives to practice professionally and solemnly declares its commitment in every platform. The present business environment offers opportunities and imposes threats to both accounting and accountants. With the increasing importance attached to environmental issues and social responsibility, risk management and reporting, the accounting profession has to change. Professional bodies align their actions to the trends identified in the local and international economic environment. Moreover, companies adjust their demands regarding the roles and activities of accountants in the light of these evolutions. The importance of sustainability and corporate responsibility continue to gain PRESIDENT'S recognition; indeed, organizations that embrace sustainability can enhance their reputation with stakeholders and their MESSAGE value. The intersection of business and sustainability has three key dimensions: economic viability, social well-being, and environmental responsibility. Accountants work in this area to Social Responsibility and Sustainability help embed sustainability factors into an organization's in the Eye of Management Accountants strategy and decision-making processes to achieve sustainable value creation. In a free market economy corporates play a major role in Several concepts related to CSR apply to the overall shaping the course of economic development of a nation. accounting domain. Environmental Management Accounting, When they grow, although they take care of various Social Environmental Accounting, Corporate Social and stakeholders including employees, customers, government Environmental Reporting, or Social Responsibility Accounting and shareholders, but another important segment may not are few such examples. These concepts link CSR to the be taken with due care, which is community. Now, in modern accounting system, arguing for the importance of such aspects corporate World the issue has been in discussion across the in the work of accountants. In this context, the aim of this country, region and at the global level and experts opine that issue is to analyze the role of accountants within CSR. Global in the long run corporates which are socially responsible accounting professional bodies like IFAC, ICAEW etc. have earns more profit than the comparable companies which are turned their attention during the last decade to bringing into mostly busy with themselves. Corporates which are attention the implications of CSR on the accounting committed to sustainable development by creating long term profession. Through their strategies and actions, professional value including value for the environment are the survivors bodies influence the way in which accountants are educated, and shown the ability to remain in the business for more act and are expected to act in their activities. The Framework than centuries. developed by IFAC addresses four perspectives in bringing together all the critical areas required to manage successfully a Over the years, management accountants are serving the sustainable organization: business strategy, internal society through their particular job definitions. It is very management, financial investors, and other stakeholders. difficult to ensure sustainability of firms without the dedicated roles that management accountants play. In 1970, Any responsible corporate normally remain sustainable by the economist and Nobel laureate Milton Friedman focusing on 3P approach-People, Planet and Profit. Socially published an article in The New York Times Magazine titled, responsible organisations must enhance the sense of The Social Responsibility of Business is to Increase its Profits. transparency and governance, maintain ethics in all In the article, he referred to Corporate Social Responsibility transactions and must engage in fair dealing. United Nations (CSR) programs as "hypocritical window dressing," and said Global Impact (UNGC) adopted 10 principles on corporate that business people inclined toward such programs "reveal a social responsibility and sustainability which takes care of suicidal impulse." Even four decades ago, at a time of growing human rights, labor condition, environment and anti- public concern for the environment, his views represented corruption, clearly demonstrates that sustainability is a the general skepticism and contempt with which many in functions of all these mission driven objectives. Corporate America viewed CSR. In Bangladesh, the concept is progressing gradually with more Meanwhile, Corporate Social Responsibility (CSR) and and more corporates are taking in seriously and making some sustainability becomes the key issues and challenges in the impacts. Accountants act in these areas in order to increase current business environment. Accountants play a critical the CSR, in their respective domains of action. In this light, we role in organizations in areas closely related to CSR such as may conclude that CSR is not a distinct topic or competence, reporting, transparency, ethics, legal compliance, but a new perspective, or enrichment, of the previous communication with stakeholders, and resource utilization. responsibilities of accountants. They measure, control, and communicate inside and outside organizations. ICMAB believes that it is a part of the society and it has due responsibility towards the society. ICMAB is Arif Khan FCMA serving the society by producing world class professional President, ICMA Bangladesh
THE COST AND MANAGEMENT 03 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Corporate Social Responsibility and Innovation in Management Accounting
Narisa Tianjing Dai Artie Ng Guliang Tang University of International The Hong Kong Polytechnic University of International Business and Economics, PRC University, Hong Kong Special Business and Economics, PRC Administrative Region, PRC
Key findings This study develops a conceptual framework to illustrate how sustainability issues are embedded in the management control system to operationalise firms' corporate social responsibility (CSR) objectives and strategies.
Categorising firms' CSR activities into Responsive and Strategic CSR agendas (Porter and Kramer 2006), this framework emphasises that different uses of MCS must be adopted to effectively operationalise different CSR agendas.
Boundary systems and diagnostic uses of budgets and performance management systems are more pertinent to operationalising Responsive CSR agendas, whereas the belief system and interactive uses of MCS are more effective in facilitating the selection and implementation of Strategic CSR programmes.
This study provides empirical evidence on the different types of Responsive and Strategic CSR programmes in two Chinese State-owned Enterprises (SOEs). Our empirical data shed light on the role of MCS in implementing CSR strategies at these firms.
THE COST AND MANAGEMENT 04 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Introduction Porter and Kramer (2006) propose a strategic approach to examining the relationship between In recent years, there has been increased companies and the society in which they operate. consensus that corporate social responsibility They categorise firms' involvement in society as (CSR) is significant for the sustainable Responsive CSR and Strategic CSR based on the development of companies and society as a importance of certain social issues to society and to whole. CSR is increasingly incorporated into business. Responsive CSR involves companies acting mission statements and prioritised in strategic as good citizens and actively mitigating the potentially configurations of modern organisations harmful effects of their value chain on society, (Mersereau and Mottis 2011; Bennett and James whereas Strategic CSR extends beyond these 1998). According to a 2009 survey conducted practices and involves initiatives that both on Fortune 500 firms, CSR is becoming an differentiate themselves from their competitors and increasingly prominent and accepted part of the are distinctly beneficial to society and the corporate strategy agenda. However, there is environment. Drawing upon this categorisation of very little understanding of how different firms' CSR agendas and Simons' levers of control control mechanisms are adopted to (LOC) (1991, 1995) as a frame of reference, we seek operationalise strategic agendas related to CSR. to explore how different uses of controls facilitate Against this backdrop, this research examines the management and operationalisation of both the way in which companies embed CSR in Responsive and Strategic CSR initiatives. It is argued their MCS in an attempt to align the behaviour that the boundary system and diagnostic uses of of organisational participants with strategic MCS are more attuned to facilitating the objectives concerning sustainability in China. implementation of Responsive CSR agendas, whereas In China, the concept of CSR is advocated by the belief system and interactive uses of MCS are the Chinese government as part of its grand more capable of enabling organisations to initiate and agenda of building a harmonious socialist manage Strategic CSR programmes. The integration society. The leaders of the Communist Party of of different uses of formal MCS enables managers to China (CPC) have repeatedly asserted the embed concepts pertinent to CSR and sustainability importance of CSR in the scientific in the mind-sets of organisational participants and development of society1.Given the link between direct their behaviour to achieve firms' CSR strategic SOEs and the Chinese government, SOEs are agendas. expected to serve as pioneers in the use of We aim to provide knowledge on organisational CSR to facilitate the development of a practices and lessons from the control and harmonious society and the continuance of performance management of CSR programmes, '2 China's 'economic miracle . Against the which will guide management accountants and backdrop of this increased attention to CSR at companies to direct and manage their CSR efforts to the strategic level in Chinese SOEs, this study achieve sustainable development in emerging aims to explore the manner in which firms markets. We address the following research manage and incentivise CSR activities. Our questions: empirical inquiry concerns two case Chinese G SOEs, one for-profit conglomerate in Mainland How do different uses of MCS facilitate the China and one notfor-profit organisation in operationalisation of both Responsive and Hong Kong. By closely examining empirical Strategic CSR agendas in Chinese SOEs? materials collected from two case companies, we contribute to the field of sustainable Specifically, we examine the following questions: development and CSR by elaborating on the G What types of Responsive and Strategic CSR mechanisms by which MCS is used to render activities do Chinese SOEs undertake? companies' sustainable strategies operational. G What are the roles of MCS in the management of
1For example, the importance of CSR to the development of China was strengthened in the sixth plenary session of the 16th CPC congress: 'extensively carrying out activities to create a harmonious situation in which everyone promotes harmony, and focusing on enhancing a sense of social responsibility amongst citizens, enterprises and all kinds of organisations. We must continue to improve the incentive mechanism for enterprises; we should also focus on strengthening external constraints, guiding enterprises to improve management and fulfil their social responsibility'. 2 On 4 Jan. 2008, the State Council's State-Owned Assets Supervision and Administration Council (SASAC) issued a publication for state-owned enterprises SOEs), 'Guidance for SOEs on their Social Responsibility Obligations', whose purpose has been to raise awareness of Corporate Social Responsibility (CSR).
THE COST AND MANAGEMENT 05 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 firms' Responsive CSR agendas? significant role in formulating and operationalising G What are the roles of MCS in the management firms' CSR strategies and that different uses of of firms 'Strategic CSR agendas? MCS tend to facilitate the management of different categories of CSR strategies.
Theoretical Framework Controlling Responsive CSR Responsive CSR and Strategic CSR Responsive CSR involves the identification and Since the 1990s, companies worldwide have begun management of the evolving expectations of a to invest in various CSR programmes to improve company's different stakeholders and its existing their relationships with society and the and potential social and environmental risks. Given environment-not only because they want to be that the dimensions of Responsive CSR are more good corporate citizens but also because they explicit and standardised than those of Strategic believe doing so is good for business (Stone 1995; CSR, a checklist approach may be adopted to Mersereau and Mottis 2011). Porter and Kramer manage Responsive CSR agendas. The boundary (2006) argue that the lack of effective coordination system and diagnostic uses of MCS play a critical and control of these CSR programmes tends to role in this process. The boundary system of MCS diffuse companies' impact on society, resulting in in relation to CSR is an explicit set of unrelated efforts and precluding a full range of organisational boundaries that is expressed in social benefits from these companies' actions. The negative or minimum terms and defines activities authors contend that companies' social agendas that are considered detrimental to the interests of must be responsive to stakeholders' requirements key stakeholders. The boundary system prevents (i.e. fulfilling Responsive CSR), but these agendas employees from engaging in actions that expose must also move beyond simply meeting societal the firm to social and environmental risks. expectations. Companies must further engage in The core areas of stakeholders' requirements and CSR activities that reinforce their strategies and a firm's CSR risks may be translated into leverage their capabilities to improve their performance indicators. Targets for satisfactory competitive advantages (i.e. developing Strategic performance in these areas may be established CSR). and monitored. Key performance indicators, such Responsive CSR involves acting as a good as energy usage, carbon emissions, R&D corporate citizen, satisfying the evolving needs of expenditures, employee satisfaction, and stakeholders, and mitigating existing or potential expenditures in training, may be outlined in adverse effects of organizational activities. Strategic budgets. Actual performance is monitored and CSR moves beyond Responsive CSR and directs compared against pre-set targets in these organisational resources and managerial attention dimensions to identify exceptions and deviations to initiate and operationalise CSR agendas that are from plans through the performance evaluation consistent with firms' strategies and are able to system (Abernethy and Lillis 1995; Tuomela 2005). differentiate themselves from their competitors, This diagnostic use of MCS in relation to resulting in strengthened strategic positions. This Responsive CSR highlights the aspects critical to study aims to extend the work of Porter and stakeholders and is intended to drive employees Kramer (2006) by proposing a framework that to perform and align their behaviour with illustrates the role of MCS in operationalising and stakeholders' evolving expectations to promote managing Responsive and Strategic CSR agendas. good corporate citizenship and obtain the license to operate. When examining the role of MCS the implementation of firms' strategies, Simons' levers Controlling Strategic CSR of control (LOC) framework (1990, 1991, 1995) has served as a useful analytical tool (Abernethy Whereas Responsive CSR depends on being a and Brownell 1999; Henri 2006). The LOC good corporate citizen and addressing the social framework focuses on the tensions between the risks that a business faces, Strategic CSR is more organisational need for change and the selective and dynamic. A firm's selection of organisational need for the achievement of appropriate Strategic CSR initiatives entails a predefined objectives. Simons (1991, 1995) thorough understanding of its competitive classifies MCS into four categories: belief systems, position and an examination of its capacities to boundary systems, and diagnostic and interactive benefit society. Strategic CSR initiatives must uses of MCS. It is argued that MCS plays a move beyond simply addressing a standardised
THE COST AND MANAGEMENT 06 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 checklist of stakeholder innovation as well as the exploration of potential opportunities to expectations and social risks and formulate CSR programmes that are aligned with the firm's strategy must enable the firm to and can confer competitive advantages. differentiate itself and obtain a Given the different dimensions of Responsive and Strategic CSR, it competitive advantage. The firm is argued that the boundary system and diagnostic use of budgets must initiate and manage and performance management system (PMS) are more pertinent to focused, proactive and integrated operationalising and managing Responsive CSR agendas, whereas Strategic CSR programmes the belief system and interactive use of MCS are more effective in based on constant analysis of the facilitating the selection and implementation of Strategic CSR dynamic competitive programmes. The different uses of MCS enable the company to environment and the firm's ensure good corporate citizenship, effectively manage social and resources. Therefore, the belief environmental risks, strengthen its competitive position and acquire system and the interactive use of new competitive advantages. The theoretical framework proposed in MCS play a critical role in this research is summarised in Table 1 and Figure 1. formulating and operationalising Strategic CSR programmes. The Table 1: The role of MCS in managing CSR strategies belief system clarifies to managers the organisation's CSR strategies Appropriate Use of MCS sustainability and CSR values that Responsive Involves securing a good Boundary system and diagnostic uses CSR agendas corporate citizenship and of budgets and PMS are more may not be reflected in routine mitigating existing and potential pertinent to operationalising and MCS. This system has the harms of a firm’s operations. managing Responsive CSR agendas. capacity to sanction a departure Strategic Initiatives that would both Belief system and interactive uses of from an organisation's routines CSR agendas confer competitive advantage MCS are more effective in facilitating and to encourage the and benefit society. the selection and implementation of Strategic CSR programmes. exploration of new opportunities and innovations that would both benefit society and strengthen Figure 1: Controlling Responsive and Strategic CSR agendas the organisation's competitive advantage. Diagnostic system The key areas of CSR along are The interactive use of MCS is identified and characterised by performance indicators, which are characterised by frequent then incorporated into budget communication between and PMS to obtain a good managers and employees at Complement and corporate citizenship and Complement support the use mitigates negative impacts of and support corporate operations. different levels of an of measures the use of organisation. These measures Reinforce Reinforce communications bring together CSR values rules and information and ideas regarding a prohibitions firm's competitive position and inspire debate and discussion on Responsive Belief System CSR agendas Boundary System the benefits and costs of CSR is embedded in the The boundary system core values and combined identifies and monitors potential strategic CSR with firms’ strategies. social and environmental risks and draws boundaries programmes. The key areas of for organisational CSR and the core competitive participants to secure firms’ advantages are communicated Strategic license to operate. and strengthened among CSR agendas managers and employees. The Reinforce Reinforce bottom-up communication in CSR values rules and prohibitions this process presents executive managers with local knowledge about the dynamic environment Defines the Interactive system Defines the bounds within bounds within in which the firm operates Discussions and debates around which discussions the CSR programmes and firms’ which discussions (Simons 1995; Bisbe and Otley and actions induced core competence are undertaken. and actions induced are encouraged Information on CSR activities and are encouraged 2004). The interactions among strategic capabilities is exchanged employees at different levels of across the firm to enable the initiation and management of the organisation enable Strategic CSR programmes.
THE COST AND MANAGEMENT 07 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Findings Table 2: Controlling Responsive and Strategic CSR agendas in C1 We examine the empirical CSR programmes Controlling CSR programmes: Uses of MCS data to explore different Responsive CSR Reduction of waste and Diagnostic: Indicators of C1’s footprint on the carbon emission environment are developed and incorporated CSR programmes initiated in into its budget and performance management two case companies. In system. particular, we investigate the Energy saving Diagnostic: Indicators of C1’s energy usage are manner in which different developed and incorporated into its budget uses of MCS operationalise and performance management system. and incentivise these CSR Environmental Safety Boundary: It is made clear across the organisation that any violation of the programmes. Our empirical environment and safety code would be off limits. data analysis is conducted in Diagnostic: The number of safety accidents is three steps. First, we identify monitored and used as a key performance different CSR programmes indicator in its incentive system. conducted within each case Donation Diagnostic: A budget for philanthropic company and the manner in activities is provided and followed by subsidiaries. which social and Training Diagnostic: Training expenses are set as a environmental issues are percentage of annual income. A plan is made at embedded in decision- the headquarters level and executed by making and operations in subordinates. different departments within Strategic CSR Participation in the Belief: C1’s strategy and core values are local community in C1’s communicated to managers and employees in C1 and C2. Second, we overseas subsidiaries local subsidiaries. categorise these CSR Interactive: Frequent interactions inspire programmes into Responsive debate and discussion between headquarters and Strategic CSR based on and local subsidiaries on issues including what and how CSR programmes may improve the the framework proposed by strategic standing of local subsidiaries. Porter and Kramer (2006). If the CSR programme or the Table 3: Controlling Responsive and Strategic CSR agendas in C2 manner in which social and environmental issues are CSR programmes Controlling CSR programmes: Uses of MCS embedded in the firm's Responsive CSR 3R plus programme Diagnostic: Quantitative measures have been (reduce, reuse and recycle, developed to review progress in the overall operations does not plus rethink) reduction of waste relative to prior reporting reinforce or transform its periods. Budgeted measures regarding the strategic competitiveness, carbon footprint of C2 are developed and we consider it Responsive compared with actual performance. CSR; otherwise, we consider Incentive programme on Diagnostic: C2 provides a 50-cent rebate each ‘Reusable Rice Box’ for time an employee uses his/her own lunch box it Strategic CSR. Third, we internal staff to purchase a main dish. closely examine how Ocean Park Restaurant’s Diagnostic: Decisions regarding the initiation different uses of MCS sustainable seafood menu of these programmes are made by the CFO and implemented according to plans. operationalise and facilitate Staff contest & related these CSR programmes. We sustainability quizzes find that Responsive CSR Strategic CSR Education on sustainability Belief: C2 formulated its core values by agendas tend to be concentrating on providing quality service to facilitated by boundary and the community and caring about the environment and nature. This belief system diagnostic systems because facilitates senior managers’ understanding of they are explicit and CSR as a source of competitive advantage. coherent, whereas Strategic Interactive: C2 adopts loose control CSR programmes are mechanisms in an interactive manner to facilitate the implementation of its educational selected and controlled programmes. interactively. The detailed analysis of different CSR programmes and the uses of C1: Controlling Responsive and Strategic CSR controls in facilitating these programmes are summarised Responsive CSR in Tables 2 and 3. C1 is a Fortune 500 international metals and mining corporation with
THE COST AND MANAGEMENT 08 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 operations spanning 26 nations and world regions. induce corrective actions. In this way, the The company's headquarters is in charge of the behaviours of organisational participants are development of its CSR agendas. monitored and directed to enable the implementation of Responsive CSR agendas. The interview with the head of the corporate Based on the delineation of the areas that may office shows that C1 identifies its key stakeholders affect its key stakeholders, performance measures according to the guidelines of Global Reporting are developed and incorporated into C1's budget5 Initiatives and Global Compact3. Areas of C1's and performance management system in the operations along its value chain that would impact headquarters and subsidiaries. The results of our these stakeholders are outlined next. Measures to surveys with financial mangers of different evaluate C1's impact are developed and used to subsidiaries of C1 indicate that key CSR monitor any potential harm that may arise from its performance targets assigned to subsidiaries by operations. These measures include economic value the headquarters are then further developed by added, which indicates the value created for subsidiaries and allocated to different business shareholders by C1, number of safety accidents, units. In this way, the diagnostic use of MCS which indicates its health and environmental safety pertinent to CSR renders the social and performance, employee training expenses, which environmental consequences of decisions and the indicates C1's investment in employee actions of the headquarters, subsidiaries and development, donation, which indicates C1's business units of C1 transparent, accountable and contribution to society, and change in emission of malleable and enables the operationalisation of COD and comprehensive energy consumption in C1's Responsive CSR strategies. Responsive CSR output units of 10,000 RMB, which indicates C1's measures are also incorporated in the firm's impact on the environment. C1 highlights existing investment appraisals, highlighting potential social and potential social and environmental risks and environmental risks of alternatives to ensure through the delineation of the above areas along that investment decisions based on financial its value chain. Monitoring and controlling the analysis are consistent with the firm's Responsive potential harm that may arise from its operations CSR agendas. in these areas helps to mitigate potential risks, safeguard its reputation and maintain its license to operate. These Responsive CSR activities4 are Strategic CSR operationalised via the use of a boundary and In C1, CSR is primarily conceptualised in a diagnostic system in C1. defensive manner, where managers participate in Environmental and safety issues are strengthened CSR programmes to mitigate existing and at all levels of C1. It has been noted that any potential risks, defend the firm's reputation and violations of the environmental and safety code maintain the legitimacy endowed by its key are off-limits. The boundary system related to stakeholders in response to the increased environmental issues identifies the areas of attention on the social and environmental impacts acceptable behaviour for organisational of the firm's behaviour. Managers refer to the participants. Within the bounds drawn by the creation of shareholder value as the main boundary system, the diagnostic use of MCS objective of the organisation. According to this entails a periodic review of key performance rationale, managers contend that all CSR activities indicators in relation to CSR strategies (Bisbe and bear financial costs, and these activities may be Otley 2004; Tuomela 2005). Any deviations from justified only if the lack of such CSR endeavours the pre-set target would alarm the managers and would endanger the firm's reputation, incur future
3C1 defines its CSR objectives as 'building a responsible company and co-creating a bright future'. The corporate office of C1 identifies eight groups of stakeholders, including the government, the State-Owned Assets Supervision and Administration Commission (SASAC), employees, customers, business partners, investors and creditors, the community, the public, and NGOs. 4 These CSR activities, such as environmental protection, employee training and donation, may be combined with the firm's core strategy and developed to strengthen its competitive position. However, C1 has not had this experience. For example, its donations are made individually by subsidiaries and SBUs and lack co-ordination and strategic impact at the headquarters level. Moreover, in many cases, training is organised in C1 to mitigate potential risks and responsibilities. When an accident occurs in any subsidiary, penalties from the headquarters and regulators are lower in cases where employees have been trained. Therefore, we categorise these activities as Responsive CSR. 5In the comprehensive budget of C1, the amount of donation is set at 60million RMB per year, whereas training is set as a percentage of annual income. Targets for energy saving and waste reduction are also provided in the company's annual plan.
THE COST AND MANAGEMENT 09 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 costs and jeopardise shareholder value. Few CSR the headquarters during their interactions. Local programmes have the capacity to enhance a firm's knowledge is combined with headquarters' strategic position, with programmes aimed at strategic considerations to inform the evaluation increasing participation in the local community for of individual Strategic CSR programmes. overseas subsidiaries representing an exception. Moreover, C1 organises periodic seminars for local subsidiaries to exchange experiences in As a metals and mining corporation, C1 has designing and implementing their local CSR operations in over 26 countries and global regions. programmes. Such local CSR programmes, once These overseas subsidiaries and business units they are demonstrated to be successful, are have initiated programmes to interact with local compiled as case studies to train overseas communities. These programmes take different subsidiaries. forms, including building schools in remote, underdeveloped areas, planting trees, interacting with local environmental NGOs, providing training C2: Controlling Responsive and to local employees and improving the Strategic CSR environmental and safetyrelated practices of acquired companies. These CSR activities improve the relationship of C1 with local communities, Responsive CSR lessen the local resistance of subsidiaries, increase In C2, several Responsive CSR programmes are the morale and loyalty of local employees, facilitate developed to ensure good corporate citizenship the expansion of operations and strengthen the and mitigate potential social and environmental firm's competitive position in these areas. risks. For example, its 3R-plus programme Considering the variety of local contexts of (reduce, reuse, recycle, plus 'rethink') aims to different subsidiaries and their geographic distance increase the environmental awareness of from the headquarters, it is difficult to employees and visitors and to encourage operationalise this Strategic CSR agenda with top- employees to submit proposals on effective down, measure-based control mechanisms6. In C1, mechanisms to reduce waste. The firm's incentive the interactive use of MCS, characterised by 'Reusable Rice Box' programme for the internal frequent interactions between local units and staff aims to encourage staff to bring their own headquarters and among local units, facilitates the lunch boxes and reduce the use of disposable initiation of this programme. containers. It provides a 50-cent rebate each time an employee uses his/her own lunch box to The interactive use of MCS in relation to this purchase a main dish. C2 also provides a Strategic CSR programme takes various forms, sustainable seafood7 menu at its restaurants and such as social performance review meetings, organises staff contests and quizzes on organisational conferences on local CSR sustainability8. These programmes increase C2's programmes, and local stakeholder receptions, contribution to environmental protection and which engage various groups of stakeholders. improve employees' loyalty and morale. However, Interactive processes stimulate debate and these programmes do not have a significant impact discussion between headquarters and local on C2's strategic competitiveness or on the subsidiaries on issues including which CSR environment. Therefore, we consider these programmes may improve the strategic standing of programmes examples of Responsive CSR. Our local subsidiaries and how they may do so. In empirical data suggest that measures related to important overseas markets, local stakeholder the input or outcomes of these programmes are receptions are held to gain a deeper understanding developed and monitored in a diagnostic manner. of the expectations of the local community and the social context in which the overseas subsidiary For its 3R programme (reduce-reuse-recycle), operates. Information obtained in these meetings quantitative measures have been developed to is then transferred upwards from subsidiaries to review progress in the overall reduction of waste
6Examples of these measures include energy saving, waste reduction, donation, and safety training. 7Sustainable seafood is seafood that is either caught or farmed in ways that consider the long-term vitality of harvested species and the well-being of the oceans. 8A quiz on safety and environmental issues is conducted annually to increase employees’ awareness of Responsive CSR issues.
THE COST AND MANAGEMENT 10 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 relative to prior reporting periods. Budgeted environmental protection and fostering a deeper measures regarding the carbon footprint of C2 are understanding of the relationship between humans developed and compared with actual performance. and the environment. These indicators are reviewed by inter- C2 adopts loose control mechanisms in an departmental committees as well as the senior interactive manner to facilitate the management team. Moreover, C2 has major plans implementation of these programmes. Frequent for expansion that require sizable capital interactions between managers and programme expenditures. Prior to making decisions for these tutors communicate the firm's core value and capital projects, a multi-disciplinary team is formed strategy to tutors and encourage consistent to perform feasibility studies involving detailed behaviour. Interdepartmental meetings are held environmental assessments on potential adverse periodically to discuss the design of these impacts and related regulatory issues9. More programmes and to review their outcomes. The importantly, the performance of management and performance of these programmes is evaluated staff are evaluated with due consideration of any along key dimensions on a subjective basis instead objectives for health, safety and environmental of through quantitative measures and is discussed issues10. This particular aspect of performance by managers and tutors. Experiences are shared evaluation enables the alignment of Responsive across different training teams. This interactive CSR objectives and the behaviour of organisational process encourages debate and discussion on the participants within C2. potential expansion and improvement of these educational programmes. The local knowledge of Strategic CSR tutors about the responses of programme Compared with C1, C2, as a not-for-profit participants is shared with managers and informs organisation, perceives CSR in a more positive and their decisions regarding resource allocation. proactive manner. As one of the most popular Overall, levers of control associated with CSR are amusement parks in China, C2 formulated its core used to facilitate the implementation of values with a focus on providing quality service to Responsive and Strategic CSR agendas. The the community and consideration of the boundary system communicates the message to environment and nature. This belief system organisational participants that the pursuit of facilitates senior managers' understanding of CSR short-term profits at the expense of the firms' as a source of competitive advantage. Educating sustainable development is off-limits. The and entertaining the community while preserving diagnostic use of budget and performance the environment and nature is C2's primary management systems provides periodic operating objective. monitoring of firms' social performance, mitigates Guided by this core value, C2 developed risks and detects any deviation from pre-set CSR educational programmes for park visitors and targets. Together, with the boundary system, it students. It provides over 36 different educational encourages different divisions to achieve their key programmes to students at all levels, from pre- CSR targets and to facilitate the implementation school to college. These programmes advocate for of Responsive CSR agendas. Training on CSR animal conservation and a sustainable lifestyle11. across different levels of the firm instils the core These interactive educational programmes attract value of sustainability and social responsibility in visitors, encourage exploration of the plants and managers and directly influences their decisions. animals at the amusement park, and increase brand The interactive use of MCS related to CSR awareness among young people. In addition to focuses on the communication between different strengthening C2's competitive advantage, these levels of organisational actors, which further programmes profoundly benefit society by raising strengthens the core values of CSR across awareness among the young generation about different organisational levels. The belief and
9Life Cycle Cost measurement is implemented to fully incorporate the social and environmental costs of C2’s capital investments. 10Measures such as the number of safety accidents and the departmental reduction of waste are included in the performance evaluation. 11These programmes have considerable coverage. For example, in the 2010/2011 academic year, C2 reached over 54,000 programme participants.
THE COST AND MANAGEMENT 11 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 interactive systems induces necessary revisions of social responsibility and management control: CSR strategies and render the Strategic CSR ESSEC Working Paper. programmes operationable. Porter, M. E., and M. R. Kramer. 2006. Strategy and Society: The Link Between Competitive Advantage Implications for practical and Corporate Social Responsibility. Harvard applications Business Review 84 (12):78-93. Simons, R. 1991. Strategic orientation and top G Develop both Responsive and Strategic CSR management attention to control systems. agendas to mitigate social and Strategic Management Journal 12 (1):49-62. environmental risks and address social ---. 1995. Levers of control: how managers use issues that strengthen competitive innovative control systems to drive strategic renewal. advantage. Boston, MA: Harvard Business School Press. G Adopt diagnostic uses of budget and performance management systems to Stone, D. 1995. No longer at the end of the pipe monitor and facilitate Responsive CSR but still a long way from sustainability: a look at agendas. management accounting for the environment and G sustainable development in the United States. Instil a core value of sustainability within the Accounting Forum 19 (2-3):95-110. company and apply MCS in an interactive manner to inspire and operationalise Tuomela, T.-S. 2005. The interplay of different Strategic CSR agendas. levers of control: A case study of introducing a new performance measurement system. G Balance economic short-term interests and Management Accounting Research 16 (3):293-320. long-term sustainability as an on-going, dynamic management process. Yin, R. K. 2009. Case Study Research: Design and Methods. Fourth Edition. California: SAGE Publications.
Appendix 1: References Appendix 2: Methodology Abernethy, M. A., and P. Brownell. 1999. The role of This study adopts a multi-case qualitative field budgets in organizations facing strategic change: an study approach (Ahrens and Chapman 2006; Yin exploratory study. Accounting, Organizations and 2009). The purpose of this study is to examine Society 24 (3):189-204. how CSR strategy is implemented at the firm level Abernethy, M. A., and A. M. Lillis. 1995. The impact with the different uses of MCS in emerging of manufacturing flexibility on management control markets. The two case companies are described in system design. Accounting, Organizations and Society the following. 20 (4):241-258. Case company 1 (C1): Ahrens, T., and C. S. Chapman. 2006. Doing qualitative field research in management Based in Beijing, C1 was founded in 1950 as a accounting: Positioning data to contribute to major SOE and has long played an important role theory. Accounting, Organizations and Society 31 as a major import and export channel for metals (8):819-841. and minerals in China. C1, a Fortune 500 company, is now a multinational corporation involved in Bennett, M., and P. James, eds. 1998. The Green businesses such as exploration, mining, smelting, Bottom Line: Environmental Accounting for processing and trading in metals and minerals and Management. Sheffield: Greenleaf Publishers. is engaged in finance, real estate, mining and Bisbe, J., and D. Otley. 2004. The effects of the metallurgic technology, with operations spanning interactive use of management control systems on 26 countries and world regions. product innovation. Accounting, Organizations and Society 29 (8):709-737. Case company 2 (C2): Henri, J.-F. 2006. Management control systems and C2 is a statutory not-for-profit organisation based strategy: A resource-based perspective. Accounting, in Hong Kong that aims to provide elements of Organizations and Society 31 (6):529-558. entertainment, education and conservation at an affordable price. It owns one of the largest Mersereau, A., and N. Mottis. 2011. Corporate educational theme parks in Hong Kong, which
THE COST AND MANAGEMENT 12 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 covers more than 870,000 square metres of land and features a diverse selection of marine attractions. It was ranked among the '10 Most Popular Amusement TTrraaiinniinngg oonn CCSSRR aaccrroossss Parks in the World' in 2006 and the '50 Most Visited Tourist Attractions in the world' in 2007 by Forbes. ddiiffffeerreenntt lleevveellss ooff tthhee Empirical data are collected from these two case ffiirrmm iinnssttiillss tthhee ccoorree companies to inform the analysis of our theoretical framework. vvaalluuee ooff ssuussttaaiinnaabbiilliittyy G Five open-ended interviews were conducted aanndd ssoocciiaall with a corporate office12 manager and the Departmental Managers of the Department of rreessppoonnssiibbiilliittyy iinn Finance, Investment, Human Resource, and Risk Management at the headquarters of C1. mmaannaaggeerrss aanndd ddiirreeccttllyy All of the interviews were recorded and influences their transcribed. influences their G Fifty-three survey questionnaires on the ddeecciissiioonnss.. TThhee integration of CSR in MCS were collected from the financial managers of over 20 iinntteerraaccttiivvee uussee ooff MMCCSS subsidiaries of C1 to examine the extent to related to CSR focuses which CSR is incorporated in the operations related to CSR focuses of subsidiaries of C1. Questions in the survey oonn tthhee ccoommmmuunniiccaattiioonn were directed towards the manner in which CSR agendas are embedded in operations in bbeettwweeeenn ddiiffffeerreenntt subsidiaries of C1. levels of G Cases on the integration of CSR in MCS levels of developed by C1 were collected from C1's oorrggaanniissaattiioonnaall aaccttoorrss,, internal newsletters. G Two open-ended interviews were conducted wwhhiicchh ffuurrtthheerr with the chief financial officer/deputy executive strengthens the core director and the corporate services director strengthens the core of C2 to explore how CSR programmes at C2 vvaalluueess ooff CCSSRR aaccrroossss are selected and managed. Interviews were recorded and transcribed. ddiiffffeerreenntt G Two focus groups were conducted with senior oorrggaanniissaattiioonnaall lleevveellss.. managers responsible for financial control, health, environment and safety as well as TThhee bbeelliieeff aanndd managers responsible for the day-to-day operations of C2 to examine how CSR iinntteerraaccttiivvee ssyysstteemmss agendas affect the operations and decision- making of these managers. iinndduucceess nneecceessssaarryy G Relevant internal policy, operational procedures, rreevviissiioonnss ooff CCSSRR communication materials and reports in relation to health, the environment and safety ssttrraatteeggiieess aanndd rreennddeerr as well as social-community activities were collected for both C1 and C2. tthhee SSttrraatteeggiicc CCSSRR
[Reproduced as per MOU between CIMA, UK and pprrooggrraammmmeess ICMAB signed on November 10, 2014. ISSN 1744- operationable. 7038 (online), Volume 9, Issue 1, © February 2013] operationable.
12 A division in charge of formulating CSR strategy and implementing CSR programmes.
THE COST AND MANAGEMENT 13 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Corporate h a d e s Social l g n
Responsibility a B
Practices i n s by Multinational Companie
Shah Alam Md. Mahadi Hasan Lecturer Lecturer Department of Department of Accounting & Information Systems Accounting & Information Systems University of Dhaka University of Dhaka [email protected] [email protected]
Abstract
This paper investigates the extent of corporate social responsibility (CSR) practices by multinational companies (MNCs) operating in Bangladesh.The purpose of the study is to observe the contribution as CSR by the MNCs in Bangladesh. The study found that the contribution by the MNCs to CSR activities is very good, and has a growing tendency in the future. The study suggests that a proper guideline by the authority concerned, regarding CSR contribution, involvement of large corporation in CSR activities and mandating CSR disclosures in the annual report will fulfill the intended goals of the corporate organizations and also ensure a successful and sustainable development of the society.
Keywords: Corporate Social Responsibility, Multinational Companies, Disclosures, Sustainable Development.
THE COST AND MANAGEMENT 14 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 adaptation to change and management of Introduction environmental impact and natural resources. The Corporate social responsibility, often abbreviated external dimensions include local communities, as "CSR," is a corporation's initiatives to assess business, partners, suppliers and consumers, and take responsibility for the company's effects human rights and global environmental concerns. on environmental and social well being. The term Again, CSR may be as simple as sponsoring social generally applies to efforts that go beyond what service oriented entertainment events. In essence, may be required by regulators or environmental CSR is positive rapport with the society. In protection groups. CSR may also be referred to as Bangladeshi context, several multinational "corporate citizenship" and can involve incurring companies and local companies practice CSR. short-term costs that do not provide an CSR plays an important role in influencing all immediate financial benefit to the company, but aspects of a company's operations. The instead promote positive social and environmental stakeholders surrounding the company can have a change. Corporate social responsibility is a strong bearing on the performance of the business approach that contributes to sustainable company. The consumers aware of CSR activities development by delivering economic, social and want to buy products from companies they environmental benefits for all stakeholders. believe and trust in. Suppliers want to form Concerns for society are not a new area of business partnerships with socially sensible interest in the business world. Each and every companies they can bank on. Employees want to company has to do something to the society it work for socially responsible companies. Reputed operates. Corporate social responsibility simply large investors want to support firms that they means some of the strategies by which perceive to be socially responsible. NGOs and corporations or firms conduct their business in an other related organizations want to work ethical way.It can do such activities as working in together with companies seeking practical partnership with local communities, making solutions to common shared goals. So, a number socially sensitive investment, developing of economic and social benefits can be achieved relationships with employees and customers, and through the undertaking of CSR activities in a well involving in activities for environmental manner. conservation and sustainability. That is, in order for any business to sustain and grow in the long run, it cannot think itself as being isolated from the society around it. The societyincludes both people and the broader environment in which they live. For the sake of society, the companies should not invest in those projects which may cause CSR is a concept with many environmental damage, thereby ensuring the definitions and practices. The welfare of different internal and external way it is understood and stakeholders. implemented differs greatly for each company and country. CSR is a concept with many definitions and Moreover, CSR is a very broad practices. The way it is understood and concept that addresses many implemented differs greatly for each company and and various topics such as country. Moreover, CSR is a very broad concept human rights, corporate that addresses many and various topics such as governance, health and safety, human rights, corporate governance, health and environmental effects, working safety, environmental effects, working conditions conditions and contribution to and contribution to economic development. economic development. Whatever the definition is, the purpose of CSR is Whatever the definition is, the to drive change towards sustainability. purpose of CSR is to drive change towards sustainability. CSR has some internal dimensions such as: human resources management, health and safety at work,
THE COST AND MANAGEMENT 15 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Objectives of the Study pollution, greater participation in programs to improve the community, improved medical care, The main objective of this study is to explore the improved industrial health and safety-these and corporate social responsibilities of the other programs designed to improve the quality of multinational companies in Bangladesh and to life are covered by the broad umbrella of social evaluate the performances of the sample responsibility". CSR has been defined in general multinational companies in this regard. terms as 'the obligation of the firm to use its resources in ways to benefit society, through Literature Review committed participation as a member of society, taking into account the society at large and The purpose of business is to make money. improving the welfare of society at large However, the profit motive is sometimes viewed as independent of direct gains of the company' less than virtuous because it emphasizes self- (Weile et al., 2001: 288). It is evident that the interest. Nevertheless, self-interest is not the same importance of CSR in the first-world, questions as selfishness, which emphasizes one's own regarding the extent to which corporations interests at others' expense. Self interest is simply operating in developing countries have CSR a concern for financial reward and is arguably obligations are still to be worked out. (Jamali and necessary if society is to be maximally productive Mirshak, 2007). There has been increasing pressure and efficiently allocate its resources (Geoffrey P. on national and multinational corporations in 2002). Profit rewards hard work and innovation, Bangladesh to consider the social implications of incentives that most people need because their actions (Belal, 2001). otherwise it would be irrational to save and invest rather than consume. Consequently business In earlier times, there were hardly any concepts organizations cannot operate successfully without relating to corporate social responsibility. At that the cooperation of the society in which it is time, people did business only for earning profit. located. Businesses should assume social They did not think that business was an integral responsibilities because they are among the few part of the society in which it operated. Now, with private entities that have the resources to do so. the advent of 20th century, business has The corporate world has some of the brightest broadened its limited scope to an extended arena. minds in the world and it possesses tremendous The market has widened. The society has been financial resources (Ahamed 2010). Thus, enriched with the amenities from the business. businesses should utilize some of their human and The concept of corporate social responsibility has financial capital in order to "make the world a taken a special form that calls for an integrated better place." approach of the business towards the society. Corporate social responsibility is a concept, The literature recognizes that CSR practices differ whereby companies integrate social and from country to country (Adams, Hill & Robert, environmental concerns in their business 1998) and between developed and developing operations and in their interactions with their countries (Imam, 2000). Furthermore, the nature stakeholders on a voluntary basis (Green Paper, and patterns of CSR vary between types of 2001). Being 'socially responsible' means not only industry (Gray et al., 2001). Wise and Ali (2009) fulfilling legal expectations, but also going beyond pointed out that CSR is still an evolving concept compliance and investing 'more' into human that enables corporate executives to create and capital, the environment and in rapport-building apply self-determined policies to best meet the with stakeholders. It is relevant in all types of needs and demands of its stakeholders. companies and in all sectors of activity, from SMEs The concept of CSR is still at its infancy in to MNCs. Research (Industry week, 15 January Bangladesh. Till now, most of the businesses in 2001) has shown that about one half of the above Bangladesh are family owned and first generation average performance of socially responsible businesses. They are involved in the community companies can be attributed to their CSR image development work in the form of charity without while the other half is explained by their having any definite policy regarding the expenses performance. Socially responsible companies are or any concrete motive regarding financial gains in expected to deliver above-average financial returns many instances (Alimullah, 2006). However, the (Green Paper, 2001). recent trend shows that there is considerable Backman (1975) identified CSR activities as: pressure from various agencies for companies to "employment of minority groups, reduction of act responsibly as well as be accountable for the
THE COST AND MANAGEMENT 16 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 impacts on social, political and ecological Findings & Analysis environments. We now evaluate the CSR practices and Mohammad Sanaullah, Director, Corporate Affairs disclosures of multinational companies on the & Company Secretary of Singer Bangladesh said, basis of their extent of disclosures of contribution 'Corporate Social Responsibility is one of the new towards CSR activities. Table 2 below shows the dimensions in corporate management once if the results found from the annual reports of 6 focus was on financial management. Most of that sampled multinational companies. The table also time people were saying that maximization of shows the total and average results of profit is the main objective of the company but in contribution as CSR for a specific year as well as modern times we do not speak like that. We feel for the sample period as a whole. that the company's corporate management's main objective is to achieve the corporate goal and No Name of MNCs 2012 2013 2014 2015 incentives as well. Whenever you have to achieve 1 HSBC 107.20 133.80 160.00 173.43 the corporate goal you think about the 2 BATB 341.83 527.67 613.72 632.46 stakeholder's interest and at the same time the 3 SCB 309.19 476.42 524.52 598.74 corporate social responsibility. Corporate social 4 IDLC 24.49 52.92 65.08 74.68 responsibility is for progressive companies and 5 P&G 27.48 43.63 119.59 148.56 definitely they will look after the under-privileged 6 UBL 46.75 48.10 79.50 87.96 people, the distressed people and those who don't Total 856.94 1,282.54 1,562.41 1,715.83 have the capacity to survive in this society'. Average 142.82 213.76 260.40 285.97 Table 2: CSR expenditures reported by MNCs from 2012-2015 Methodology (amount in million taka).
The secondary data were the principal base of The above table shows us that the MNCs are information for the study. Bangladesh Bank's coming forward to the society with an increased publications, periodicals, newspapers, selected amount of contribution as CSR. It is a good multinational companies websites are utilized as symptom of MNCs to create a long-lasting the secondary sources of the study. A number of relationship with Bangladesh. In true sense, they books and related articles from several journals think business is for the people, not for the profit are also utilized to improve the basic knowledge solely. about the specific matter and numerous international determinations and creativities for Using the above table, we can draw the following increasing and executing CSR principles and graph that shows the trend of CSR practices and guidelines were inspected. disclosures of sampled MNCs.
In order to compute the trend of CSR practices over time, contribution and donation as CSR are Trend of CSR Prctices used in this study from the sample of 6 companies with a sample period of 4 years from 2012 to 350.00 2015. The sample was extracted from listed 300.00 250.00 companies in the Dhaka Stock Exchange. Random 200.00 Average CSR sampling method has been followed to select 6 150.00 (in million taka) companies from 11 listed companies. Table 1 below 100.00 50.00 presents the details of companies taken as samples. 0.00 2012 2012 2012 2012
Type of Companies y e a r s o f Y The above graph shows us that the MNCs in e a r s o f
Y Bangladesh are coming forward to serve their o f C m p a n i e s o f C m p a n i e s o f o f F i r m e n a s S m p l e n a s S m p l . . . . society with greater contributions. This may be a k a k N o L i s t e d w h D S E N o T % o f C m p a n i e s T N o S a m p l e C o n N o S a m p l e C o n i s due to the efforts of the Government, and other Multinational regulatory and law enforcing authorities. Companies (MNCs) 11 6 54.54% 4 24
Table 1: Details of companies taken as samples
THE COST AND MANAGEMENT 17 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Conclusions The MNCs in Bangladesh have a long history of involvement in different benevolent activities. Recent trends of these engagements indicate that MNCs are gradually organizing these involvements in more structured CSR initiatives. They have Recent trends of these engagements taken the idea of "Social Responsibility" indicate that MNCs are gradually with that of "Achieving Highest Profit." organizing these involvements in Through CSR activities they can carry out more structured CSR initiatives. They social and philanthropic activities for have taken the idea of "Social furthering equitable and sustainable social Responsibility" with that of development. The study revealed that the "Achieving Highest Profit." Through overall CSR activities of the sample MNCs CSR activities they can carry out are very good, and on an increasing trend social and philanthropic activities for to the future. So the customers should be furthering equitable and sustainable more conscious about the CSR of MNCs social development. The study and they should prefer those companies revealed that the overall CSR which have higher contributions to CSR. It activities of the sample MNCs are is also to be mentioned that the CSR very good, and on an increasing trend disclosure is not mandatory in Bangladesh. to the future. So the customers As it is voluntary in nature, there is no should be more conscious about the specific guideline to disclose such activities CSR of MNCs and they should prefer in the annual report. Thus, Bangladesh those companies which have higher Security and Exchange Commission (BSEC) contributions to CSR. It is also to be should provide a guideline to be followed mentioned that the CSR disclosure is to disclose CSR related activities at least not mandatory in Bangladesh. for the listed companies in Bangladesh. Since, CSR is very important, further study should be conducted for motivating companies to contribute in this area. References Though utmost efforts have been given to reveal the sector wise CSR activities of the Alam S. M. S. , Hoque S. M. S. and Hosen M. Z., listed MNCs in Bangladesh, exclusion of "Corporate Social Responsibility of Multinational factors like how much they contribute in a Corporation in Bangladesh: A case study on specific area of CSR out of the total fund in Grammen Phone" Journal of Pathuakhali Science and Technology University Vol. 02 No. 01 June 2010, that sector and the output derived from Pp. 51-61 their contribution constrained the expected results of the study. In this regard, Ataur Rahman Belal, Corporate Social Responsibility Reporting in Developing Countries, Ashgate there is wide scope for future research to Publishing, Online version, viewed on 20 August, find the effect of CSR activities in the socio 2009. economic development of Bangladesh as well as survey can be conducted to explore Azim, MI, Ahmed, S, & Islam, MS 2009, 'Corporate Social Reporting Practice: Evidence from Listed the impact of such activities of MNCs on Companies in Bangladesh?, Journal of Asia-Pacific their clients in choosing the MNCs with Business, vol.10, no. 2, pp. 130 -145 good CSR performances.
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New creating codes of conduct in multinational York: McGraw-Hill. corporations. Hoboken, NJ: John Wiley & Sons, Inc. Farook, S 2007, "On Corporate Social Responsibility of Sharma N., "CSR Practices and CSR Reporting in Indian Islamic Financial Institutions", Journal of Islamic Banking Sector" International Journal of Advanced Economic Studies, vol. 15, no. 01, pp. 31-46. Economics and Business Management Vol. 1 No. 2, 2011, Pp. 58-66 Francis Weyzig, Political and Economic Arguments for Corporate Social Responsibility: Analysis and a Shrivastava, P. (1987b). Managing industrial crises: Lessons Proposition Regarding the CSR Agenda, Journal of of Bhopal. New Delhi: Vision Books. Business Ethics (2009) 86:417-428 Sultana N, "Corporate Social Responsibility in Bangladesh: Ghoshal, S. & Nohria, N. (1989). Internal differentiation Barriers and Opportunities experienced by SMEs within multinational corporations. Strategic when undertaking CSR" The Business and Economic Management Journal, 10, 323-337. Review, August, Vol. 01, No.3, 2009, Pp. 165-180 Gray R.H, Owen, D and Maunders, K, Corporate Social Swift T, Zadek S. 2002, Corporate Responsibility and the Reporting: Accounting and Accountability, Prentice-Hall Comparative Advantage of Nations. Copenhagen International, London, 1987 Centre - Accountability: Copenhagen and London. Hansen, M. W. (2002). Managing the environment across Victoria,W & Mahboob, AM, 2009, "Corporate Governance borders: A study of TNC affiliates' environmental and Corporate Social Responsibility in Bangladesh practices in China, Malaysia and India. Denmark: with special reference to Commercial Banks?, AIUB Samfundslitteratur. Business & Economics Working Paper Series, July 2009. Henderson D. 2001. Misguided Virtue: False Notions of Visser, W 2005, "Citizenship in South Africa: A Review of Corporate Social Responsibility. 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THE COST AND MANAGEMENT 19 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 the impacts of ASSET LIABILITY MANAGEMENT ON PROFITABILITY of selected Banks in Bangladesh
Dr. Md. Salim Uddin, MBA, FCA, FCMA Professor, Department of Accounting University of Chiitagong, Chittagong [email protected]
Anamul Haque Lecturer Department of Banking & Insurance University of Chittagong [email protected]
Abstract
There is no underlying fact to ignore the importance of asset-liability management policy to ensure profitability and long-run sustainability of financial institutions in any economy. The study has been conducted to investigate the impacts of ALM policy on the profitability of sample banks working in Bangladesh. The rationality of this study is to observe the degree of relationship of different assets and liability variables with profitability through applying Statistical Cost Accounting (SCA) model using time series data from 2003 to 2014. Financial ratios and different statistical tools like Pearson Correlation, Descriptive analysis and regression analysis have been applied to identify the relationship among the variables. After analysis, Loans & Advances is found to have a significant positive relationship with banks' profitability.
Keywords: Asset-Liability Management, Banks, Loans and Advances, Statistical Cost Accounting Model.
THE COST AND MANAGEMENT 20 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Introduction Managing Assets and Liabilities to foster a To have an idea about their impact on profitability sustainable growth is one of the key issues of this study considers two first generation and one banking industry (Bangladesh Bank, 2015). As the second generation commercial bank of landscape of the financial services, industry Bangladesh. Statistical Cost Accounting Model1 is becomes increasingly competitive, with rising costs applied to test the sampled banks' performances of intermediation due to higher capital in managing assets and liabilities. This study has requirements and liquidity requirements, financial tried to have significant impact to the existing institutions face a loss of spread income. In order literature relating to the Asset and Liability to protect the loss in profitability due to such Management of financial institutions. First, it developments, financial institutions may be forced examines the factors that create income from to deliberately mismatch asset/liability maturities assets and costs for liabilities. Secondly, it focuses in order to generate higher spreads. Asset Liability the degree of relationship among the factors. Management (ALM) is a mechanism to address the risks faced by financial institutions due to Along with this introduction, the study has been mismatch between assets and liabilities and due to shown in six sections. Section two provides a brief liquidity or changes in interest rates (Oracle overview of banking industry in Bangladesh. Corporation, 2008). An insightful view of ALM is Section three gathers the existing literature that it simply combines portfolio management relating to the Asset and Liability Management of techniques (that is, asset, liability and spread financial institutions and their impacts on management) into a coordinated process. Thus, the profitability. Section four deals with methodology central theme of ALM is the coordinated - and not of the study. Section five ascertains the analyzed piecemeal -management of a bank's entire balance results and findings. After all, section six provides sheet. summary of the study. Banks bear costs for their liabilities and earn income from their assets. Thus, profitability of Overview of Banking them is directly affected with the management of System in Bangladesh their assets and liabilities. In addition, there are A bank is a financial intermediary accepting other macroeconomic and market concentrated deposits and granting loans offering the widest factors that affect the profit making capacity of the menu of services of any financial institution (Rose, financial institutions (Sayeed et. al, 2012). There are 2012). According to Economic Review of substantial number of researches in the field of Bangladesh (2015), there are four types of asset-liability management strategies and their scheduled banks operating in the banking sector in direct impact on profitability of banks (Hester & Bangladesh such as state owned commercial banks Zoellner, 1966; Kwast & Rose, 1982; Vasiliou, 1996; (SOCBs), specialized banks (SBs), local private Kosmidou et al, 2004; Asiri, 2007 and Sayeed et. al, commercial banks (PCBs) and foreign banks (FBs). 2008). These studies profoundly focused on both As of June 2015, there are 56 scheduled banks developed and developing countries. But, asset- among them 6 state owned commercial banks liability management and its impact on profitability (including BASIC Bank and Bangladesh in developing countries has received little Development Bank Ltd), 2 specialized banks, 39 attention. Among the studies most recently Sayeed local private commercial banks and 9 foreign et. Al (2008) studied impact of ALM on profitability commercial banks. Apart from these banks, 6 non- of Bangladesh commercial banks using the time scheduled banks such as Ansar VDP Unnayan series data from 1995 to 1996. In the eve of global Bank, Shamobaya Bank, Karmasangsthan Bank, economic contraction and share market crisis in Grameen Bank, Jubilee Bank Ltd. and Probashi Bangladesh, it is necessary to find out how banks Kalayan Bank are also operating in the banking at present are managing their assets and liabilities sector in Bangladesh. The structure of banking to sustain profitability trends. Therefore, the system and share of total deposits and assets objective of this study is to bring down the because of types of banks are shown in Table 5.6. existing research gap.
1Statistical Cost Accounting (SCA) model is described by Hester & Zoellner (1966) as a regression method by which "rates of return are imputed to earning assets and deposit liabilities" (P-373).
THE COST AND MANAGEMENT 21 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Table 1: Structure of the Banking System in Bangladesh and the interpretive framework of asset-liability (End June 2015) management in order to identify and interpret the Types of No. of Branches Percentage of Percentage of foreign and domestic balance sheet strategies of Banks Banks Urban Rural Total Total Assets Total Deposits large U.S. banks in the context of the "crisis in SCBs 6 1357 2312 3669 27.53 25.66 lending to LDCs." Their study found that the least SBs 2 110 1295 1405 3.65 5.30 profitable very large banks have the largest PCBs 39 2402 1580 3982 63.30 64.05 proportions of foreign loans and the most FCBs 9 75 0 75 5.52 4.99 profitable very large banks have the smallest Total 56 3944 5150 9131 100 100 proportions of foreign loans. Source: Bangladesh Bank 2015, Ministry of Finance, GOB Kosmidou et. al (2004) at their study of asset- According to Table-1, 63.30 percent of total assets liability management of domestic and foreign is held by PCBs where 27.53 percent by SCBs, Banks in the UK found that liability management 3.65 percent by SBs and 5.52 percent by FCBs and contributes more in creating the profitability in case of total deposits, 64.05 percent is differences among the banks, which is contrast controlled by PCBs, 25.66 percent by SCBs, 5.30 with the findings of Vasiliou (1996). percent by SBs and 4.49percent by FCBs. Asiri (2007) examined eight Kuwaiti banks Literature Review applying Statistical Cost Accounting method and found that assets are positively and liabilities The amount of literature addressing asset-liability negatively related to the profitability. management in banks is considerably high. Various researchers (Hester & Zoellner, 1966; Kwast & Sayeed et. al (2012) attempted to examine the Rose, 1982; Vasiliou, 1996; Haslem et al, 1999; impact of asset and liability management on the Kosmidou et al, 2004; Asiri, 2007 and sayeed et al, profitability high profitable and low profitable and 2012;) have made significant contribution in the private and public banks working in Bangladesh field of asset liability management by studying it in applying Statistical Cost Accounting (SCA) different contexts. Among them, the most burning methods and found high earning banks experience issues the extent at which the composition of higher returns from their assets and lower returns assets liabilities management affects the from their liabilities than the low earning banks. profitability of banks. They further articulated that assets management of large commercial banks is better than that of Hester and Zoellner (1966) reviewed the extent small banks, but there are no significant differences of relationship between standardized assets and in terms of liability management. liabilities with total assets and return on assets using statistical cost accounting method for the first time and found significant level of relationship Objectives and Hypothesis of assets and liabilities. This study is an attempt to understand the impact of Assets and Liability Management (ALM) on Kwast & Rose (1982) articulated in their most profitability of private commercial banks in comprehensive study on the impact of banks asset Bangladesh. As such, the objective of this study is portfolio composition on its earnings, expanding to complete this existing research gap and to the traditional SCA model by including a firm's provide a descriptive analysis of assets and liability income to its asset and liability mix and they found positions held by the sampled banks. Therefore, no evidence that differential returns and costs on the objectives of this study are: different categories of assets and liabilities exist between high and low profit banks. G To have a descriptive view of selected assets and liabilities variables of sample banks. Vasiliou (1996) analyzed the portfolio of assets and G liabilities between high-profit and low-profit Greek To understand the trend of the selected banks by employing SCA method and found that variables. assets management rather than liability management that plays more prominent role in To verify the hypotheses through multiple explaining interbank differences in profitability regressions analysis and following alternative because high profit banks enjoy higher returns hypotheses have been designed- from assets and lower expenses for liabilities. H1.1: There exists a significant relationship between loans & advances and profitability. Haslem et al (1999) conducted canonical analysis H1.2: There exists a significant relationship
THE COST AND MANAGEMENT 22 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 between balances with other banks and variables of equation (1) are divided by a profitability. banks' total asset (Abt). Thus equation (2) takes the form of: H1.3: There exists a significant relationship between investment and profitability. H1.4: There exists a significant relationship between term deposits and profitability. Here, ubt; the stochastic term is assumed to H1.5: There exists a significant relationship be normally distributed by a zero mean is between total other liabilities and profitability. found by dividing ebt by Abt. H1.6: There exists a significant relationship This study uses a multiple regression model between borrowing from other banks and assuming only net operating income (Ybt) as profitability. dependent variable where Hester & Zoellner (1966) and Kwast & Rose (1982) considered both total operating income and net operating Methodology income in their studies. The rationality for the To examine the impacts of ALM on commercial exclusion of total operating income as banks' profitability working in Bangladesh, the dependent variable is that total operating Statistical Cost Accounting (SCA) model is income structure consists of several income described by Hester & Zoellner (1966) with some heads where ALM can affect in no way. modification proposed by Kwast & Rose (1982) is Nevertheless, these income heads usually used. The model works as a regression method require different level of operating costs. assumes that the rate of return on earning assets Therefore, using Net Operating Income can be is positive and varies across assets, and the rate of rational reflection of ALM efficiency. cost on liabilities is negative and varies across Net operating income (Ybt) is the portion of liabilities. total income that is left out after deducting Financial institutions generate revenue from their operating costs from the total income which is lending, investment and other services and the dependent variable in the regression, each brokerage functions provided. On the other hand, element of 2i is assigned to reflect the market they also admit costs for their liabilities and other rate of return earned on the appropriate asset financing contracts and also their other operating and therefore, should have a positive value. The expenditures. Operating profit is the subtracted return on liability, 3j; may also be positive or result of operating income by operating costs. The zero for banks as they impose service charges variation in commercial banks' operating income is on deposit accounts but for the NBFIs it is expressed by the traditional SCA model which negative as they are allowed only to have term was developed by Hester and Zoellner (1966) for deposits. Such coefficients are negative for bank b in time t which will be used in this study is other liabilities. The 1 coefficient, the constant as follows: term, will measure income flows that are unrelated to ALM issues. In the total income regression, 1 is expected to be positive. Where, All assets and liabilities are not included as Ybt = net operating income independent variables in this model. The Ai = ith asset reasons are: to conduct the comparison only Lj = jth liability the identical assets and liabilities are 1 = net fixed income that is not dependent on considered. Again, since balance sheet identity assets and liabilities. is that total assets are equal to total liabilities ebt = stochastic term and owners? equity, inclusion of all assets and 2i = marginal rates of return on assets liabilities would create perfect co-linearity a3j = marginal costs of liabilities. within the independent variables (Sayeed et.al, 2012). Actual figures of explanatory variables Due to wide variations in their business volume of i.e. assets, liabilities and total assets are used in sampled institutions it would be inefficient to use the calculations. The explanatory variables the book value of the assets and liabilities used in the study have been mentioned below: (Kosmidou et al, 2004) and that's why all the
THE COST AND MANAGEMENT 23 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 This study considered three domestic commercial This study considered three domestic commercial banks (Pubali Bank Ltd, AB Bank Ltd & Bank Asia Ltd) for the period from 2003 to 2014. banks (Pubali Therefore, the number of observation is 210. Data is mainly collected from the annual reports of the sampled banks and from Bangladesh Bank, central Bank Ltd, AB bank of Bangladesh. Bank Ltd & Analysis & Findings Bank Asia Ltd) The descriptive statistics of all explanatory and explained variables with for the period their absolute value in this study have been presented through Table-3. It is based on a panel data set organized from three commercial banks from 2003 to operating in the Bangladeshi banking market during the period from 2003 to 2014. 2014.
Table-3: Mean Values of Explanatory and Explained Variables (Amounts in Million Taka) Therefore, the number of observation is 210. Data is mainly collected from the annual
Source: Data collected from Annual Reports of Sampled Banks and compiled by researchers using MS Excel. Figures in the parentheses indicate the percentage of total assets. reports of the
Table-3 represents data in absolute value and percentage as of total assets. sampled banks Loans & advances (A1) has been received the core concentration in the sampled banks' asset portfolio. Over the study period loans & advances and from andbalances with other banks (A2) components maintained relatively stable proportions of total assets. But, there are some ups and downs in case of Bangladesh investment (A3) proportion. It has the highest ratio; 39.56 percent in 2007 and lowest in 2005 as 10.38 percent. In liabilities part, fixed and time Bank, central deposit (L1) remained as dominating one. Almost 80 percent of total assets has been financed through fixed and time deposits over the study period. bank of Current and other non-interest bearing liabilities (L2) and other borrowing and funding (L3) did not change so extremely in assets proposition over Bangladesh. the study period. Return on Assets (ROA) was increasing to 3 percent till 2010 then it remained constant by 1 percent.
THE COST AND MANAGEMENT 24 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Table-4: Growth rate of Mean Value of Explanatory Variables ratio (L2) and other borrowing to total assets ratio(L3) have the means of 0.637, 0.0263, 0.138, Year A1 A2 A3 L1 L2 L3 TA 0.732, 0.079 & 0.043 with the standard deviations 2003 ------of 0.129, .0111, 0.0351, 0.129, 0.0218 & 0.028 2004 2.74 26.64 45.95 10.9 20.22 128.31 8.81 2005 27.44 -30.93 -24.6 10.8 9.5 24.79 17.81 respectively. 2006 30.65 29.32 23.4 28.42 10.62 -39.8 19.88 Table-5: Descriptive Statistics of explanatory and 2007 27.67 -41.72 369.31 21.83 44.95 158.25 26.8 explained variables 2008 48.82 39.33 -62.25 30.16 41.66 12.76 30.99 Variables Sampled Banks 2009 9.46 14.34 23.24 23.24 14.27 67.83 24.57 Mean Std. Deviation 2010 31.51 26.68 22.66 22.66 30.41 159.44 29.49 ROA .0179375 .00938116 2011 13.06 22.66 20.38 20.38 25.97 -45.33 17.34 A1 .6372042 .12864894 2012 12.77 27.78 19.66 19.66 29.48 -5.08 18.49 A2 .0262817 .01115602 2013 19.68 -35.28 18.09 18.09 21.51 46.31 18.36 A3 .1375287 .03514877 2014 15.97 15.92 12.41 12.41 20.66 35.01 14.24 L1 .7322374 .12876705 Average 21.80 8.61 42.57 19.87 24.48 49.32 20.62 L2 .0790167 .02175653 Source: Data collected from Annual Reports of Sampled Banks L3 .0429893 .02763498 and compiled by researchers using MS Excel. Source: Data collected from Annual Reports and complied by the *[Year 2013 has been considered as base year therefore it researchers using SPSS h as been remained blank in growth figure]. Table-4 shows that total assets have been Most of the commercial banks operating increased by almost 14 percent in 2014 where it inBangladesh have financed their source of funds was just 9 percent in 2004. On an average the through total deposits (L1) that is used the fund growth of total assets is 20.62 percent over the for provision of loans and advances (A1). study period. Total assets experienced an Surprisingly, these two variables have same level increasing growth till 2010 after that it has variations in the sampled banks' study period. decreasing growth. Loan & Advances (A1) has a moderate increasing growth but decreasing Pearson's Correlation Matrix growth is in Balances with other institutions (A2). Investment (A3) also tends to be decreasing. These From Table-6, it can be observed that dependent all indicate that banks' total assets position is variable, ROA has a significant positive relationship largely approaching to loans & advances portfolio. with A1 (0.598), poor positive relationship with A2 Among to liabilities variables, banks are found to (0.054) and A3 (0.045). ROA has significant have increasing focus on total deposits (L1) and negative relationship with L2 (.566) and poor money market borrowing (L3) through decreasing negative relationship with L1 (0.61) and L3 (.386). other liabilities. On an average there are 21.80 There is also significant negative relationship percent growth in loans and advances, 8.61 between L1 and L3 (.752). percent growth in balances with other banks, Table-6: Pearson's Correlation Matrix 45.57 percent growth in investment, 19.87 percent in time deposits, 24.48 percent in current and ROA A1 A2 A3 L1 L2 L3 other non-interest bearing liabilities and 49.32 ROA Correlation 1 percent in other borrowings and funding over the Sig. (1-tailed) study period. A1 Correlation .598* 1 Sig. (1-tailed) .020 Table-5 provides the summary descriptive statistics A2 Correlation .054 -.448 1 analysis of all dependent variables and independent Sig. (1-tailed) .434 .072 variables. Looking at them, generally, the statistics A3 Correlation .045 -.018 -.138 1 indicate a wide variability exist in among the Sig. (1-tailed) .445 .478 .334 balancesheet variables which have effect on L1 Correlation -.061 .020 .201 .114 1 commercial banks profitability Return on Assets Sig. (1-tailed) .426 .475 .265 .362 L2 Correlation -.566* -.152 -.113 .197 .065 1 that is, the profitability ratios of banks has a mean Sig. (1-tailed) .027 .319 .363 .270 .420 of 1.79 percent with standard deviation of 0.94 L3 Correlation -.386 -.033 .177 -.070 -.752** -.386 1 percent. The independent variables, total loans& Sig. (1-tailed) .108 .460 .291 .414 .002 .108 advances to total assets ratio (A1), balances with *. Correlation is significant at the 0.05 level (1-tailed). other banks to total assets ratio (A2), investment **. Correlation is significant at the 0.01 level (1-tailed). to total assets ratio (A3), deposits to total assets Source: Based on data collected from Annual Report and compiled ratio (L1), other current liabilities to total assets by the researchers using SPSS
THE COST AND MANAGEMENT 25 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Regression Result
Table-7: Regression Model References:
AB Bank Ltd (2016). Annual Report 2003-2014. Dhaka, viewed on 05/02/2016, http://www.abbl.com Bank Asia Ltd (2016). Annual Report 2003-2014. Dhaka, viewed on 05/02/2016, http://www.bankasia-bd.com Bangladesh Bank (2016). Annual Report 2015, Dhaka, viewed on 10/03/2016, Source: Based on data collected from Annual Report and compiled by the http/www.bangladeshbank.com. researchers using SPSS Economic Review of Bangladesh (2015), Ministry of Based on the 210 observations (three banks, seven variables & Finance, Bangladesh, viewed on 08/03/2016, twelve years data), the reported explanatory power of the http/www.financeministry.gov.bd model, R-square is at satisfactory level respectively by .742. The Gupta, A.D, Yesmin, A. & Khan, M.O. F. (2013). "Growth of result of adjusted R-square is 43.1 percent which indicates that Non Bank Financial Institutions Over Time and the model has explained the 43.1 percent variations in Contribution to Economy: Evidence from dependent variable caused by independent variables. As Durbin- Bangladesh". Global Journal of Management and Business Research. Volume XIII Issue VI Version I. Watson for both model are 2.240, here we can assume that there is no first order autocorrelation either positive or Haslem, J. A., Scheraga, C.A. and Bedingfield, J.P. (1999), negative. The t statistics of all variables are below minus two "DEA efficiencyprofiles of U.S. banks operating internationally," International Review of Economics & and plus two except loans & advances to total assets ratio Finance, Vol. 8, Issue 2. (A1). Through analyzing the results, the hypotheses decisions have been mentioned on Table-8. Hester, DD & Zoellner, JF 1966, "The relation between bank portfolios and earnings: an econometric analysis". Review of Economics and Statistics 48, 372- Table-8: Hypotheses Assessment 386. Hypotheses Decision Islam, M. A., & Osman, J. B. (2011). "Development impact of H1.1: There exists a significant relationship between Accepted non-bank financial intermediaries on economic loans & advances (A1) and profitability (ROA). growth in Malaysia: An empirical investigation." H1.2: There exists a significant relationship between Rejected International Journal of Business and Social Science, balances with other banks (A2) and profitability (ROA). 2(14), 187-198. H1.3: There exists a significant relationship between Rejected Investment (A3) and profitability (ROA). Kwast, M. L. & Rose, J. T. (1982). "Pricing, operating H1.4: There exists a significant relationship between Rejected efficiency, and profitability among large commercial term deposits (L1) and profitability (ROA). banks." Journal of Banking And Finance Volume 6, Pp: 233-254. H1.5: There exists a significant relationship between Rejected total other liabilities (L2) and profitability (ROA). Kosmidou, K.Pasiouras, F. & Floropoulos, J.(2004). "Linking H1.6: There exists a significant relationship between borrowing Rejected profits to asset-liability management of domestic and from other institutions (L3) and profitability (ROA). foreign Banks in the UK." Applied Financial EconomicsV-14, Pp: 1319-1324. Conclusion Oracle Corporation (2008). Asset Liability Management: An Overview (2008). Viewed on 10/02/2016, The main purpose of this study is to bring out the impacts of http/www.oracle.com Asset Liability Management Strategies on Banks' profitability Pubali Bank Ltd (2016). Annual Report 2003-2014. Dhaka, based on twelve years' secondary data. Results indicated loans viewed on 05/02/2016, http/www.pubalibangla.com & advances (A1) of sampled banks has a significant positive relationship with profitability in the study period. However, Rose, P.S. 2012. Commercial Bank Management. 5th Edition. McGraw-Hill Irwin findings do not support other alternative hypotheses, as the relationships are found insignificant. We assume that further Sayeed, M. A, Edirisuriya, P. & Haque, M. (2012). "Bank Profitability: The Case of Bangladesh."International research option is available here to focus the validity of the Review of Business Research Papers Vol. 8. No.4. May hypothesis considering more time series data. The findings of 2012. Pp.157 - 176. the study have implications for bank management, bank Vasiliou, D. (1996). "Linking profits to Greek production regulators and policy makers in Bangladesh. There should be management." International Journal of Production optimum asset and liability portfolio mix to overcome the Economics, 43, 67-73. problems of mismanagement in the banking sector of Bangladesh.
THE COST AND MANAGEMENT 26 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 EMPLOYEE ENGAGEMENT: does it matter for employee performance?
Alima Aktar PhD Candidate, Department of Human Resource Management (HRM) Universiti Utara Malaysia (UUM) [email protected]
Abstract
Employee engagement is critical to achieve the competitive advantage which, ultimately, affects the employee performance in the contemporary knowledge-based economy. The purpose of this study is to propose a model assists to understand the impact of employee engagement on various employee performance measures such as innovative work behavior, organizational citizenship behavior, organizational commitment, job satisfaction, task performance, turnover intention, counterproductive work behavior and absenteeism. In fact, organizations can achieve a sustainable employee performance by ensuring the high level of employee engagement. This study contributes to academic literature by extending the knowledge of engagement-performance relationship under the tenet of Social Exchange Theory (SET). Moreover, it may provide a roadmap for future researchers towards understanding the linkage between employee engagement and employee performances.
Keywords: Employee Engagement, Employee Performance, Social Exchange Theory.
THE COST AND MANAGEMENT 27 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 1. Introduction construct to measure employee performance rather to give focus on comprehensive analysis of Employee engagement is an emerging concept in employee engagement on employee performance. business, management, organizational psychology Based on the backdrop of importance of employee and human resource development fields (Wollard engagement to employee outcomes, along with the & Shuck, 2011). Around the world there is higher level of disengagement among employees currently great deal of interest in the concept of around the world, the crucial issue is how employee engagement. Employee Engagement is employee engagement may enhance the level of the extent of employees' involvement to their employee performance at work. Therefore, the works which depends on organizational practices main objective of this study is to develop a to achieve organizational goal. Gruman & Saks conceptual model suggesting the linkage between (2011) have identified employee engagement as the employee engagement and various types of key to achieve organizational success and employee-performance measures. competiveness. In fact, engaged employees are significant for organizations since they were said to The remaining part of this paper is organized as significantly contribute to the bottom line follow: the section 2 explains the concept of (Demerouti & Cropanzano, 2010). Prior studies employee engagement, which followed section two showed a positive influence of employee with the discussion of different performance engagement on employee attitude, behavior and measures. Section 4 presents the development of performance such as job satisfaction (Hakanen & proposition linking employee engagement and Schaufeli, 2012); work ability (Bakker et al., 2012) various performance measures. The paper is ended and innovative behavior (Slatten & Mehmetoglu, up with the conclusion and implication of this 2011) and negative influence on turnover intention conceptual research. (Agarwal et al., 2012); deviant behavior (Shantz et al., 2014) and absenteeism (Schaufeli et al., 2004). 2. Employee Engagement Macey et al. (2009) also asserted that organizations can achieve a competitive advantage through In the contemporary period, employee employee engagement. To curb this issue, scholars' engagement draws enormous attention of attention has given the focus upon the researchers in the area of human resource enhancement of employee engagement. Though management. The concept of employee employee engagement found as an important engagement is introduced for the first time by determinant for organizational competitiveness, at Kahn (1990). According to kahn (1990), ''the the recent time, many researches have shown the harnessing of organization members' selves to declining pattern of employee engagement which their work roles; in engagement, people employ has created a deepening disengagement among and express themselves physically, cognitively, and employees as well (Richman, 2006; Bates, 2004). emotionally during role performances''. In this line, For example, Gallup's survey (2012) have identified Schaufeli et al. (2002, p. 74) define that employee that around the world, 63% of employees are not engagement is a positive, fulfilling, work-related engaged at their job suggesting that most of the state of mind that is characterized by vigor, employees are not motivated to do their job dedication, and absorption. There are numerous properly which leads to a poor employee definitions of employee engagement has been performance. Kahn (1990) stated that disengaged derived by several scholars form different employees are found as psychologically absent perspectives. For example, Harter et al. (2002) during their role performance which ultimately defined employee engagement as "the individuals' have the negative impact on their productivity. It involvement and satisfaction with as well as has been also noted that the most of the workers enthusiasm for work (p. 269). Hewitt (2004) today, around half of all Americans in the defines engagement as the state of emotional and workforce, are not fully engaged or they are intellectual involvement that motivates employees disengaged which will lead to an engagement gap to perform in the best way. In fact, employee (Bates, 2004; Johnson, 2004). engagement refers to the extent of employees' commitment built on their physical, cognitive and On the other hand, despite the recognized emotional attachment with an organization and its importance of engagement, it has been found that value to achieve organizational goal. a limited research on employee engagement in the academic literature (Robinson et al., 2004). More Kahn (1990), for the first time, promulgates the specifically, different studies took different Psychological Contract Theory (PCT) highlighting the specific psychological conditions essential for
THE COST AND MANAGEMENT 28 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 magnify the level of employee engagement. in this study. Firstly, as engaged employees hold According to him, three psychological conditions positive emotions (Bindl & Parker, 2010) which are crucial for motivating employees to engage enhance their confident and optimistic attitude more. These are psychological meaningfulness, towards work (Cropanzano & Wrigth, 2001), they psychological safety, and psychological availability. may perform better (Bakker et al., 2012).Secondly, The arguments of PCT is similar like Social engaged employees have more physical resources Exchange Theory (SET) that if organizations can which lead better performance than dis- ensure these three psychological conditions, in engagement counterparts. For example, Schaufeli exchange, employee are tend to higher level of et al. (2008) found that engaged employees have engage at their work. However, another model is lesser psychosomatic complain that disengaged called Job-Demand Resources (JD-R) Model ones. Thirdly, according to social exchange theory, suggested by Demerouti et al. (2001) argued that when employees receive economic and socio- though employees sometimes expect to engage at emotional resources from organization, they work personally, they cannot produce engagement realize an obligation to respond in kind and repay due to absent of favorable condition in the work the organization due to the "rules" of exchange environment. Though there are numerous studies philosophy (Cropanzano & Mitchell, 2005). Saks in the academic literature have used different (2006) argued that one way for employees to model to explain employee engagement, it has repay their organization by higher level of been found that SET is the stronger logical model engagement. Therefore, when the psychological to explain the engagement of employees (Saks, contact of employees has been fulfilled (Khan, 2006). In this regard, this study also considered this 1990), their obligation towards organization lead model arguing that parties who are involved in a them engage more in work to perform at higher reciprocal interdependence abide by rules of level. Finally, engaged employees are capable to exchange and will experience a more trustworthy, transfer their level of engagement from one faithful, committed relationship (Cropanzano & employee to another (Demeruuti & Cropanzano, Mitchell, 2005). Saks (2006) stated that highly 2010), which will increase the company engaged employees experience a higher level of performance as organizational performance job resources which ultimately helps to enhance depends on a combined effort of all the individuals employee performance. (Bakker &Demerouti, 2008). In fact, empirical studies have confirmed the transferable The major reason behind the emerging concern relationship of engagement from individual to team about employee engagement is its positive (Bakker et al., 2006; Salanova, Agut & Peiro, 2005). consequences in both individual level and Westman (2001) asserted that engagement could organizational level. As employee engagement is an be transferred through the transfer of positive or individual level constructs, it firstly affects negative emotions and experiences of employees. individual-level outcomes which in turn lead In summary, engaged employees can lead the organizational-level performance. For example, positive employee outcomes (i.e. performance when employee engagement enhances job measures) and curb the negative outcomes, which, satisfaction of an employee, the performance of in turn, enhances organizational performance. the satisfied employee enhances the organizational Figure 1 shows the matrix to highlight the goal ultimately. In his empirical study, Saks (2006) relationship among employee engagement, found the positive impact of employee engagement disengagement, positive employee outcomes and on job satisfaction, organizational commitment and negative outcomes. organizational citizenship behavior while engagement negatively affects intention to quit. Moreover, scholars suggested that employees with high level of engagement have the inspiration to Positive Negative develop new knowledge, respond to opportunities, Outcomes Outcomes go the extra mile, (Lockwood, 2007; Schaufeli & Engagement Positive Negative Salanova, 2007), stand with the company and involved themselves in mentoring and volunteering activities. Disengagement Negative Positive Existing literature demonstrates several reasons why an engaged employee can perform better than disengaged one. Bakker and Demerouti (2008) presented four critical reasons which are discussed Figure 1: Relationship employee engagement and employee outcomes
THE COST AND MANAGEMENT 29 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 3. Employee Performance and that basically will lead to establish the most trusting, loyal and committed relationship Employee performance defined as financial or non- (Cropanzano & Mitchell, 2005). Therefore, this financial results of employees which have a direct study intends to establish the proposition between relation to the organizational performance and engagement and employee performance. success. In fact, it is mostly about the achievement Proposition 1: Employee engagement has the positive and accomplishment that employees have during influence on employee performance. the doing of job. According to Kahn (1990), employee engagement may leads to the both individual level outcome such as the quality of 4.1 Employee engagement &Innovative employees' work and their experiences during the work behavior role performance and organizational outcome i.e. Innovative work behavior referred to the organizational productivity and growth. Several employees' creative and novel ideas during studies have measured employee performance in a performing at work (West & Farr, 1989). Prior different way. For example, Guest (1997) proposed studies showed the positive relationship between that employee performance outcome could be employee engagement and innovative behavior. For measured by productivity, quality, innovation, instance, Slattenand Mehmetoglu (2011) revealed absenteeism and turnover. On the other hand, Rich that employees who are highly engaged at their et al. (2010) suggested that employee performance work are more likely to show a more innovative not only limited to their in-role behavior but also behavior during their role performance. They include their proactive performance (Sonnentag, argued that highly engaged employees have a 2003) and extra-role work behavior like positive state of mind that helps employees to organizational citizenship behavior. Though various broaden their though-action process. Similarly, studies have considered different performance Agarwal et al. (2012) have found that engagement construct to measure the employee performance, has a positive correlation with innovative work this study has taken job satisfaction, organizational behavior and employee engagement mediated the commitment, task performance, innovative work relationship between Leader-Member Exchange behavior, organizational citizenship behavior, (LMX) relationship and innovative work behavior. turnover intention, absenteeism and According to Bakker and Leiter (2010), engaged counterproductive behavior to give a more employees always hold a positive attitude which comprehensive framework to measure employee encourage the integrative and creative perception performance. to create value to the service enterprises. Thus, this study expects to have a positive link between 4. Employee Engagement & employee engagement and innovative work Employee Performance behavior. Proposition 1a: Employee engagement has a positive Several number of studies showed that an influence on innovative work behavior. important way to enhance employee performance is to focus on fostering employee engagement and there is a positive relationship between 4.2 Employee engagement & engagement and individual performance (Mone & Organizational Citizenship behavior London, 2014; Halbesleben, 2010). According to (OCB) Saks (2006), employee engagement could affect business results through individual performance as The relationship between employee engagement engagement is an individual level construct. and extra-role behavior such as organizational Scholars argued that there are various reasons to citizenship behavior of employees at work has assume that engagement has a direct relationship been found as an interesting research area among with job outcomes. For example, Schaufeli and academics and practitioners. Organ (1997) defined Bakker (2004) described engagement as the OCB as the enthusiastic behaviors of employees fulfilling, positive job-related experience and state that are not basically recognized and rewarded by of mind that is linked to good health and have a the organization, but those behaviors may help to positive impact on work outcome (Sonnentag, enhance the organizational function such as 2003). This can also be explained by the norms of exceed in doing role performance or helping other SET which argued that in the exchange rules, both people. Prior studies found that engaged parties will be abide by the reciprocal relationship employees are more likely to involve in extra-role performance i.e. OCB and there is a positive
THE COST AND MANAGEMENT 30 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 relationship between employee engagement and be further investigated (Schaufeli & Bakker, 2010). OCB (Sulea et al., 2012). Furthermore, researchers However, scholars posited that employee argued that higher level of engagement has the engagement has the positive correlation with job positive impact on OCB as engaged employees satisfaction as highly engaged employees are full of have the capability to achieve the professional goal energy and have a strong involvement with their and feel confident to show extra-role performance job that may help them to identify themselves (Christian et al., 2011). In fact, under the tenet of strongly in their workplace (Burke et al., 2009). SET, it has also claimed that highly engaged Moreover, studies also explained job satisfaction employees experience a better psychological and under the engagement-burnout synthesis arguing mental health, feel obliged to the organization and that increasing level of job demands lead want to reciprocate by showing an extra-role employees to the more stress at job i.e. employee work behavior. Therefore, this study intends that burnout and that is inversely linked with job there is a positive relationship between employee satisfaction (Alarcon & Edwards, 2011). On the engagement and OCB. other hand, engaged employees get enough job Proposition 1b: Employee engagement has a positive resources and will experience a positive feeling at influence on organizational citizenship behavior. their job that leads them to higher level of job satisfaction (Sonnentag, 2003). Thus, current study expects to derive a proposition that employee 4.3 Employee engagement & engagement will positively affect job satisfaction. Organizational Commitment Proposition1d: Employee engagement has a positive Porter at al. (1974) defined organizational influence on job satisfaction. commitment as the employees feeling of obligation which exerts the efforts towards organizations 4.5 Employee engagement & goals. In fact, organizational commitment is the Task performance emotional attachment of employees in that particular organization (Allen & Meyer, 1990). Prior literature has proved that engaged Though there are various studies that showed the employees have the better task performance than positive association between employee disengaged one (Demerouti & Cropanzano, 2010) engagement and organizational commitment as they have full of energy, better mental health (Hansen et al., 2014; Karatepe et al., 2014), it has and highly enthusiastic to do their job in a better been found a debate that whether organizational way even in the time of difficulty (Fredrickson & commitment is the antecedent of employee Losada, 2005). In fact, engaged employees have the engagement or the outcome of it. Researchers capability to exert extra resources at their job that have identified that commitment is the outcome of may help them to enhance their level of engagement (Albrecht, 2012) which is similar with performance (Leiter & Bakker, 2010). Several the Kahn's (1990) conceptual model that studies have found the positive relationship employees with high level of engagement have a between engagement and task performance. For strong attachment in their organization. So, this example, Alfes et al., (2013) conducted a research study expects that employee engagement has a among 1796 service sectors employees and found positive correlation to commitment. that employee engagement is positive and Proposition 1c: Employee engagement has a positive significantly related to task performance. Similarly, influence on organizational commitment. Shantz et al., (2013) also confirmed the positive association between engagement and performance by arguing that engaged employees are more likely 4.4 Employee engagement & to be directed by their intrinsic inspiration and Job Satisfaction that help them to go extra hour (Bakker & Bal, Job satisfaction has defined as the extent to which 2010). Moreover, scholars stated that employees an employee feel good at work and the degree to with high level of engagement feel that their which an employee has a positive emotions that organizations create such an pleasant environment they show during performing their work role that reduce their health hazards and feel obligated (Robbins & Judge, 2007). Though studies found to repay organizations by creating a high level of that job satisfaction as an outcome of employee energy and effort, leading to better task engagement (Zopiatis et al., 2014), there is an performance (Bakker & Leiter, 2010), which is argument that it is found as the key driver of similar to the norms of SET (Cropanzano & engagement (Yalabik et al., 2013) and it needs to Mitchell, 2005). So the next proposition is,
THE COST AND MANAGEMENT 31 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Preposition 1e: Employee engagement has a positive influence on their surroundings at workplace that influence on task performance. is more likely to low the level of CWB (Bakker & Demerouti, 2008). In fact, Sulea et al. (2012) have 4.6 Employee engagement & found that employees with high level of engagement are likely to show a positive extra-role Turnover Intention behavior rather deviant behavior at work. Thus, A considerable literature has suggested that this study expects a negative impact of employee employee engagement is negatively correlated with engagement on CWB. employees' turnover intention (Saks, 2006).The Proposition 1g: Employee engagement has a negative term turnover intention refers to the extent to influence on counterproductive work behavior. which an employee has the plan to quit his/her membership in an organization (Mobley, 1982). 4.8 Employee engagement & Shantz et al. (2014) pointed out that intention to Absenteeism quit is the negative outcome of engagement, as engaged employees are likely to have a greater Around the world, the cost of absenteeism has attachment to their organization and a lower been increasing, even for the emerging economy, tendency to leave their organization (Schaufeli & this cost is more higher (Ramsey, 2006). Different Bakker, 2004). Furthermore, Albrecht and studies have researched on absence from different Andreetta (2011) confirmed the direct and perspectives such as employees' demographic indirect outcomes of employee engagement by characteristics, personality etc. (Martocchio, 1989; using a sample of 139 employees in a healthcare Bernardin, 1977). Kahn (1990) conceptualized service area. This study suggested that engaged engagement as the resources that have the direct employees will feel motivated and experience a relation to the presence at one's job. As engaged sense of attachment within the organization, in employees have physical, cognitive and emotional turn, they will be less inclined to entertain resources, they will be happily absorbed to their thoughts of leaving the organization. Collini et al., work (Saks, 2006) and that may reduce (2013) found that healthcare organizations in the absenteeism. Management study described that USA were facing high nurses' turnover rate engaged employees "are deeply committed to their because of decreasing level of engagement. Based employer, leading to key improvements in business on the above discussion, this study proposes an outcomes, including reductions in absenteeism, inverse correlation between employee engagement turnover, shrinkage, safety incidents, and product and employee intention to quit. defects" (Robinson, 2012, p. 1). In this line, Soane et Proposition 1f: Employee engagement has the negative al. (2013) showed that engagement has a influence on turnover intention. correlation with lower level of absenteeism among 625 service sectors employees in UK. Therefore, 4.7 Employee engagement & this study indents to derive that employee engagement has a negative association with Counterproductive work behavior absenteeism. (CWB) Proposition 1h: Employee engagement has a negative Counterproductive work behavior termed as the influence on absenteeism. negative behavior of employees that will create harm or intends to create harm for the In summary, employee engagement may have organizational success such as intentionally slow possible association with the various types of the work, make fun of other people during work employee-performance measures, the direction of etc. (Spector & Fox, 2005). According to Vardi and the relationship, primarily, depends on the measure Weitz (2004), the cost of CWB of employees used to assess the performance of the employees. could be either financial such as theft or mental All of the above propositions, thus, are and relational such as withdrawal of emotional conceptualized considering the possible role of the attachment from the organization. Researchers employee engagement in enhancing performance identified that these deviant behavior of employees along with the nature of performance measures. could be lower if they have high level of Figure 2 demonstrates the possible linkage engagement towards the work (Sulea et al., 2012), between employee engagement and various as engaged employees will have the enthusiastic performance measures.
THE COST AND MANAGEMENT 32 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Absenteeism Innovative Organizational Work-behavior commitment The significance of employee engagement Counterproductive Employee Organizational work behavior Engagement citizenship behavior has broadly been increased among practitioners and Turnover intention Task performance Job satisfaction researchers. It has been Figure 2: Conceptual Model of Employee Engagement and Employee Performance proven that engaged 5. Conclusion & Implication employees can The significance of employee engagement has broadly significantly contribute to been increased among practitioners and researchers. It the organizational has been proven that engaged employees can significantly contribute to the organizational success as success as they are they are highly enthusiastic and devoted to their work that leads them to better performance. Now-a-days, highly enthusiastic and therefore, organizations are trying to explore a devoted to their work that comprehensive ways and introduce several ideas by which they may develop and improve the level of leads them to better employee engagement. performance. In this article, we have discussed about the theoretical model that is related to employee engagement and the expected that the current study framework outcomes of engagement. This study has specified SET will contribute significantly to the academic under which the study framework has been explained literature by enhancing the understanding of derived propositions. Therefore, the significant employee engagement construct and how contribution of this study is that it has given a engaged employees will foster the firm theoretical ground by which researchers can identify performance. hypotheses that could have the empirical implications to test the theory. Basically, it is proposed that future research can include three steps of methodology such as, identifying key terms for empirical indicators, References developing hypotheses and practically test the hypotheses to verify the research framework. Agarwal, U. A., Datta, S., Blake-Beard, S., & Bhargava, S. (2012). Linking LMX, innovative work behaviour This study will have important implications to and turnover intentions: The mediating role of managers and policymakers. More specifically, the work engagement. Career Development model of this study will help to enhance the International, 17(3), 208-230. understanding of employee engagement and how it Alarcon, G. M., & Edwards, J. M. (2011). The will affect to the various individual performance Thus, relationship of engagement, job satisfaction and this study may be considered as a strategic tool for turnover intentions. Stress and Health, 27(3), the management to understand that how important to e294-e298. enhance the level of engagement among the Albrecht, S. L. (2012). The influence of job, team and employees to foster their level of performance. organizational level resources on employee well-being, engagement, commitment and extra- The study will significantly contribute to extend the role performance: Test of a model. International understanding about the application of SET in Journal of Manpower, 33 (7), 840-853. explaining the engagement-performance relationship. Under the tenet of SET, highly engaged employees are Albrecht, S. L., &Andreetta, M. (2011). The influence of empowering leadership, empowerment and likely to feel full of job resources that may reduce engagement on affective commitment and their job stress and they will be in reciprocal turnover intentions in community health service relationship with the organizations by showing better workers: Test of a model. Leadership in Health performance at work (Saks, 2006). In conclusion, it is Services, 24(3), 228-237.
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THE COST AND MANAGEMENT 35 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 ENVIRONMENTAL REPORTING PRACTICES: A Study on selected manufacturing companies in Bangladesh
Mohammed Fazlur Rahman Khan Rokeya Parvin Jui Assistant Professor Associate Professor Department of Accounting Department of Accounting Govt. Gaibandha Mohila College, Gaibandha Dhaka College, Dhaka [email protected] [email protected]
Abstract
This study aims at evaluating the environmental reporting practices of 15 manufacturing companies enlisted in Dhaka Stock Exchange. It is based mainly on secondary data. Findings reveal that over all environmental reporting practices of selected companies are unregulated due to lack of compliance with specific accounting standards and some other provisions of BSEC. There are no consistent or regulated pattern for disclosure of such information of the companies. Virtually sustainable information is disclosed through descriptive basis but nominal part is monetary in nature.. They emphasis on their image and success factors rather than to fulfill stakeholders' needs and expectations. We need strong regulatory framework to develop the practices of disclosing environmental impact of the concerned companies. Necessary provisions should be made mandatory for the listed companies so that non compliance might be easily controlled and satisfaction of the stack holders would be maximized.
Keywords: Environmental Reporting, IAS/IFRS, Regulatory Framework, Social & Environmental Disclosures, Compliance, BSEC, Environmental Impact, Need for Disclosures.
THE COST AND MANAGEMENT 36 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Introduction Reporting Guidelines. Moreover, United Nations' Conference on Trade and Development Environmental reporting is a process through (UNCTAD) plays a significant role in the matter of which companies disclose their environmental Environmental Accounting and Reporting. As its performance related information - to the parts, intergovernmental Working Group of stakeholders (Gray, et al, 1995). According to the Experts on international Standards of Accounting United Nations (1998) accounting and reporting and Reporting (ISAR) was formed in 1982. ISAR for the environment has become increasingly has been working for developing a possible relevant to the enterprises. Environmental conceptual framework for environmental reporting practices of the industrial organizations accounting and reporting (United Nations, 2000). have become crucial issues in the development process for ensuring environmental protection. An increasing number of countries impose Because, many development activities, specially requirements on companies to report on their manufacturing activities gradually increase environmental performance. Denmark was the environmental hazards such as global warming, bio- first country to adopt mandatory legislation on diversity degradation and pollution of air, water, public environmental reporting. In this country, the soil and marine etc (Qureshi, el al, 2012).The companies are required to prepare a so-called limitations of conventional accounting system and 'Green Account'. In the Netherlands, new the issue of corporate responsibility towards legislation on mandatory environmental reporting sustainable development have given birth to a new has been adopted. Both Danish and Dutch branch of accounting i.e. Environmental regulations require reporting to the authorities Accounting. Environmental accounting can be and to the public. In Norway, the new Accounting expressed within the context of Global Act requires that all companies include Environmental Accounting, National Environmental environmental information in the annual report Accounting and Corporate Environmental from 1999 onwards. In Sweden, similar legislation Accounting. Corporate Environmental Accounting has been adopted for mandatory environmental is further sub-divided into Environmental disclosure in annual report. In U.S.A. the Management Accounting and Environmental companies are required to submit data on Reporting (Coopers and Lybrand, 1998) emission of specific toxic chemicals to the Environmental Protection Agency under the Toxic Environmental reporting is an emerging significant Release Inventory (TRI). In addition, the Securities tool in introducing environmental cost and other Exchange Commission (SEC) requires disclosures relevant environmental information to the on legislative compliance, judicial proceedings and attention of the stakeholders which is necessary liabilities in relation to the environment. In to identify the ways of reducing or avoiding such Canada, The Securities Commission requires environmental cost and hazards for achieving public companies to report the current and future sustainable development. There is increasing financial or operational effects on environmental demand from various stakeholder groups for protection requirements in an Annual Information companies to publicly report information Form (Zhao, 2011). regarding their environmental performance in a global scale. There has been a growth in the Government of Bangladesh (GoB) has recently voluntary environmental reporting practices of the enacted very important laws regarding corporate organization worldwide (United environment such as the Bangladesh Environment Nations,2002).As regard environmental reporting Conservation Act, 1995 (hereafter the Act), and of business organizations, many national and the Environment Conservation Rules, 1997. Under international organizations have been working for the Act, companies may be asked to disclose the development of specific conceptual and environmental information as and when required. regulatory framework such as UNEP, UNSD, Moreover, the Act, requires, environmental UNCTAD, US EPA, KPMG Sustainability, European clearance from the Ministry of Environment and Commission, FASB'S Emerging Issues Task Force Forest before the establishment of a new etc. An influential and pioneering effort on industrial plant. Other strategic responses of GoB environmental reporting is Global Reporting to the environmental protection include initiative (GRI). The GRI was established in 1997 in formulation of the National Environment Policy partnership with the United Nations Environment and the National Environmental Management Programme (UMEP), whose mission is to develop Action Plan (NEMAP).Moreover, the legal and disseminate globally applicable Sustainability framework for accounting and reporting requirements of Bangladeshi listed companies is
THE COST AND MANAGEMENT 37 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 primarily governed by the Companies Act, 1994 which are derived from manufacturing activities and the Bangladesh Chartered Accountants Order, threatening human health, ecosystems and overall 1973. Other relevant laws are the Securities and economic growth of the country. Toxic discharges Exchange Commission Rules 1987 and the Income from manufacturing industries pollute both Tax Ordinance-1984. All these laws do not surface and ground water sources. More than 200 prescribe any periodical mandatory environmental rivers of Bangladesh directly or indirectly receive a disclosure by the companies (Ahmad, 2012). large quantity of untreated industrial wastes and effluent. The Department of Environment (DoE) Bangladesh is facing the challenge of very fast has listed 1,176 factories that cause pollution degrading environment due to industrial activities throughout the country. Industrial growth also (Ullah et al, 2013). We know that Manufacturing creates a range of problems. As a consequence of activities are recognized as one of the prime rapid and largely unregulated industrial sources of environmental pollution in this development, many aquatic eco-systems are now country/Environmental reporting practice can play under threat and with them the livelihood systems a vital role in creating environmental of local people (DoE, 2010).The Department of responsiveness in this sector. That is why; Environment (DoE) in the early 1990s carried out Environmental study focused on the corporate a survey of industries, principally tanneries. The environmental reporting practices of the listed report found that acidic emissions from tannery manufacturing companies in Bangladesh. effluents had the potential to cause serious respiratory disorders to the employees and Statement of the Problem residents of the area and damage to buildings (Chowdhury 2011; Shikder, 2009). Similarly, the Bangladesh is one of the most densely populated Society for Environment and Human Development countries in the world in which approximately 29 (SEHD) published a report in 1998 which percent of the population live below the poverty provided an overview of the key environmental line (MOF, Bangladesh Economic Review-2015). To issues in Bangladesh. It showed that treatment of accommodate the available manpower and reduce industrial wastes was considered a low priority the poverty rate employment intensive and that due to the absence of strong preventative industrialization programmers have been measures and lack of awareness, the practice of emphasized. That is why manufacturing sector of discharging untreated industrial waste into water Bangladesh received serious attention even in the bodies was almost universal. As a result, acute First Five Year Plan (1973-1978) of the country to environmental pollution due to manufacturing accelerate economic growth, increase investment, activities is now threatening the sustainability of earn foreign exchange, create employment and the resources and increasingly impacting on the reduce poverty. The Perspective Plan of Vision public health (BSEHD, 2001; Alam, 2002). 2010-2021 / and Sixth Five Year Plan (2011-2015) have also recognized the importance of So it is the demand of time to incorporate manufacturing as vehicle for creating productive environmental responsiveness among the high income jobs and development (Nath, 2012). manufacturing organizations in Bangladesh. In this As a result, the manufacturing sector grew at a regard, reporting on environmental performance rate of five percent between 1972 and 1992 of the manufacturing organization can play a vital (Bhattacharya et al., 1995). The growth of industrial role. But there is no mandatory standard or code activities in Bangladesh has a positive development in prevailing accounting and reporting system that dynamic in macro-economic terms. The can consider the environment unfriendly activities contribution of manufacturing sector to GDP has of the corporate entities (Enahoro, 2009). been increased from 10% in 1970 to 17% in 2010. Moreover, the existing environmental laws and Moreover, employment share of the sector was other corporate related laws do not prescribe 11.90% of total employment in 2011 (Nath, 2012). adequate environmental disclosure to be made by the listed manufacturing companies in Bangladesh Growth of manufacturing sector has (Ahmed, 2012). Avoidance of environmental simultaneously accelerated severe environmental information in accounting system can create a gap hazards in Bangladesh (SEHD, 1998). According to in financial reporting of companies. lf vital Ahmed (2012) Bangladesh is to pay huge environmental issues are not disclosed, the environmental costs for its economic financial statements cannot be considered as true development. But it is not expected to have more and fair view of affairs (Enahoro, 2009). Thus, the corporate profits at the cost of large scale of eco- traditional reporting system cannot provide the system. Because the air, water and noise pollution
THE COST AND MANAGEMENT 38 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 real picture of the organizations' environmental purposively from the available sub-sectors. The performance, though it is essential for the decision rationale for selecting these sub-sectors is that making process of management and stakeholders these industrial sectors are highly environmentally (Uwalowma, 2011). sensitive. The population of this study comprises all the manufacturing companies of Cement, On the other hand, Company's environmental Tannery and Pharmaceuticals Industries which are performance affects its financial health as well as listed in the Dhaka Stock Exchange (DSE). The the overall environment, and environmental total number of the listed Cement, Tannery and reporting is a tool for the companies to Pharmaceuticals companies in DSE as on communicate their environmental performance to December 31st, 2013 are 7, 5 and 12 respectively the stakeholders (Boysen, 1997). That is why; there (DSE, 2013). The study includes a total of 15 is increasing demand from various stakeholder companies which are listed in the Dhaka Stock groups for companies to publicly report Exchange (DSE) and situated in Dhaka, Gazipur, information regarding their environmental Narayanganj, Narsingdi, Sylhet and Chittagong activities in a global scale (United Nations, 1998).ln districts. Sample companies include 5 line with this trend, there has been a growth in the Pharmaceuticals companies, 5 Tannery companies, voluntary environmental reporting practices of the and 5 Cement companies. The sample companies corporate organizations worldwide (Kolk, 2003: are selected based on purposive method. Bebbington et al, 2009). Some developed countries have initiated mandatory disclosure for corporate organizations. But in case of most developing Secondary Data countries, like Bangladesh, corporate Secondary data have been collected from annual environmental disclosure is still in its embryonic reports of the sample companies for the period of stage (Belal, 2011). Bangladeshi companies have 2008 to 2012. Because annual reports are readily been adopting environmental reporting practices available and accessible, and annual reports are voluntarily in recent years (Dutta and Bose, 2008; common and popular means of communication to Ahmad, 2012). However, it is not clear that what stakeholders and they have enough credibility factors motivate the companies to disclose (Nie, 2009). environmental information and what are the perceptions of stakeholders regarding the reporting practices of the manufacturing Data Processing and Presentation companies in Bangladesh. The collected data have been edited, scrutinized, verified and reviewed by the researcher to avoid Objectives of the study the overlapping, inconsistency and errors. Edited data have been classified and coded at the same The general objective of the study is to explore time. the nature and extent of environmental reporting practices in the selected listed manufacturing i) The content analysis method: has been companies currently operating in Bangladesh. The adopted in this study. Because this method specific objectives of the study are: allows corporate environmental disclosures to be systematically classified 1. To analyze the nature and extent of and compared. This method is useful for environmental reporting practices of the determining trends and extent of selected listed manufacturing companies in disclosures. Bangladesh. ii) Social and Environmental Disclosure 2. To identify the real challenges of Index: An important task for using content environmental reporting practices in the analysis method is the construction of a suitable listed manufacturing companies in categorization scheme or a disclosure index to Bangladesh. measure the environmental disclosures incorporate annual reports (Haque,2011; Hossain Research Methodology et al, 2006). This involves the selection and development of content-category items into There are many product based sub-sectors in the which content units can be classified. For the manufacturing sector of Bangladesh. For the purpose of this study, a disclosure index purpose of this study, Cement, Tannery and comprising 63 items of Pharmaceutics sub-sectors were selected
THE COST AND MANAGEMENT 39 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 environmental information within three testable Statistical Techniques of dimensions was developed (see Appendix-B). This is based on "Sustainability Reporting Analysis Guidelines (G3)" issued by the Global Quantitative data were analyzed by using Reporting Initiative (GRI) and other relevant appropriate statistical techniques such as previous studies such as Hossain et al., 2006; frequency, mean, median, standard deviation, Uwalomwa, 2011 and Ullah et at.,2013. co-efficient of variation, percentage, The three testable dimensions of social and correlation and ANOVA test etc, through environmental information are evidence, location SPSS to show the relationship among the and news-type of disclosures. variables. iii) Research Coding Method: An un weighted disclosure index has been used in this study Environmental Reporting: to easure the extent of social and environmental disclosures. Under an un Conceptual Aspects weighted disclosure index all items are Various terms are used in introducing treated equally important to the average Environmental Reporting on the basis of users. Here, the only consideration is purpose and contents of the report, such as whether a company discloses an item of "Social and Environmental Reporting", which social and environmental information in its describe the social and environmental corporate annual report or not. lf a company aspect of the organization's activities, and provides a social and environmental "sustainability Reporting", which provide indicator in its annual report, it is awarded 'l' economic, social and environmental and if not it is awarded '0'. The items of performance related information of the Disclosure index are added independently to organizations. ln a broad sense, provide total scores for measuring the environmental reporting is used to disclose extent of social and environmental the socio-economic and environmental disclosures by the selected companies. outcomes and results that occurred during Consequently, a company could score a the reporting period in the context of the maximum of sixty three (63) points and a organization's commitment, strategy and minimum of zero (0). The formula used in management approach. this study to calculate the reporting score is as follows: Japan Ministry of Environment (2004) defined environmental reporting as a set of TD= reports and publications which are periodically disclosed and which holistically Where, and systematically show-s the state of TD = Total disclosures, environmental burden caused by D = 1 if the item Di is disclosed and 0 if organizations' activities and environmental the item Di is not disclosed. efforts that mitigate them, and which are in n = number of items accordance with general reporting i = 1, 2, 3...63. principles of environmental reporting. Therefore, for the purpose of the study, iv) The findings of the study were presented by environmental reporting is deemed to tables, charts, graphs and diagrams to make present as a process of communicating the those more meaningful and easily realizable social and environmental effects of to the readers. organizations' economic actions and environmental performance related efforts of the company such as environmental policy, objectives, programs and their outcomes and operational structure of the company through the corporate annual report to particular interest groups within the society.
THE COST AND MANAGEMENT 40 ISSN 1817-5090, VOLUME-44, NUMBER-4, JULY-AUGUST 2016 Conceptual Frame of Environmental Reporting
Accounting
Core branches of Accounting
Cost Accounting Management Accounting Auditing Taxation
Inadequate Environmental Disclosure L e a d
T Adverse impact of Industrial Activities on Environment o G Deforestation G Biodiversity degradation G Pollution of air, water, soil and marine etc.
BRUNTLAND Commission Concept of Environmental Accounting sustainable Development
Global Environmental National Environmental Corporate Environmental Accounting Accounting Accounting
Environmental Management Accounting Environmental Reporting
Involuntary Mandatory Voluntary
Principles of Environmental Reporting Key Performance Indicators of G Sustainability Environmental Reporting c h e r s G Materiality G Economic Performance Indicators G G Stakeholder inclusiveness Environmental Performance Indicators e s a r G Completeness G Social Performance Indicators G Completeness G Labor y t h e r G Relevance G Society and Product Responsibility G Reliability G Human Rights G Clarity (Each category includes corresponding e l o p d b G Comparability set of Core and Additional Performance v