One of the most important aspects that deserves due attention in corporation is Corporate Social Responsibility (CSR). The emergence of CSR in business organization for the past three decades triggers the need of Islamic corporation to be more socially responsible. In view of the moral failure, corporate collapse and lack of ethical values in business organization, CSR outlines the ideal standard of behavior of the firm from social oriented value perspective. CSR as its own discipline was developed extensively in the western academia but little is written on the subject from Islamic perspective. Although, CSR is commendable in Islam, its theoretical foundation is actually distinct from the western theory of CSR.
The trend of CSR is very appealing worldwide. It has been a common practice in the market particularly for listed companies to produce their annual CSR report. Companies with good CSR record enjoy high reputation and able to attract investors especially institutional investors who are very concerned with their ethical investment. In fact, the popularity of Social Responsible Investment (SRI) has boosted the CSR initiatives worldwide. SRI is a form of ethical screen to ensure that the SRI fund does not invest in firms that have poor records of CSR. In the UK, Financial Times Stock Exchange Index introduced the FTSE4 Good Index formulated based on the CSR criteria. This is followed by the US whereby the Dow Jones Stock Exchange introduced its own Sustainability Index. These initiatives obviously indicate positive development on the needs for social dimension in investment and business activities.
Basically, the term CSR has been broadly used to refer the firms’ social obligations on voluntary basis. This is in parallel with definition of CSR by the European Commission (EC) where it refers to “a concept whereby companies integrate social and environmental concern in their business operation and in their interaction with their stakeholder on voluntary basis”. Unlike the definition by the EC, which is very narrow, the definition of CSR by the World Business Council for Sustainable Development (WBCSD) extends the framework by not limiting it to voluntary form of CSR. The WBCDS defines CSR as “the commitment of business to contribute to sustainable economic development, working with employee, their families and local community and society at large to improve their quality of life”. This definition enhances the scope of CSR by including any kinds of initiatives for social purpose whether they are voluntary or obligatory.
From Islamic perspective, corporation is expected to have two-fold objectives i.e. profit-oriented and social-oriented functions. Good corporate governance with strong ethical consideration will determine the state of initiatives on CSR. Special characteristic of Islamic corporation to comply with Shari’ah rules ethical principles in all their activities requires for a specific kind of governance. Islamic corporation shall avoid any involvement with all kind of Shari’ah prohibitions such as riba (interest), gharar (uncertainty), speculation and maysir (gambling), to stay away from investing in any unlawful activities and to observe the principle of Islamic morality or Islamic ethical code.
In line with the ideal aspiration of Islamic economic, corporation is not only required to fulfill their economic functions but also to play significant roles in addressing the socio-economic issues as part of their corporate responsibilities. This foundational dimension is based on the holistic approach of corporate governance whereby its framework is beyond the relationship between the shareholders, Board of Directors, management and stakeholders but to include as to how maintaining the relationship with the God. In this aspect, Islamic corporation requires additional framework of Shari’ah and ethical in character to safeguard and maintain not only the relationship with the God but to include correlation with the human being as well as the environment. As such, CSR can be the most appropriate platform and mechanism for Islamic corporation to fulfill their social responsibilities as part of their religious obligations.
In conclusion thereof, the Islamic ethical dimension denotes a solid epistemological orientation for Islamic corporation as motivation to fulfill these ethical responsibilities via CSR initiatives. In addition, corporate governance plays important roles as one of the factors that determine and influence the Islamic corporation’ initiatives on CSR. Strong corporate governance with pro-active roles of stakeholders, appropriate organizational structure, ownership structure, sound monitoring and supervisory frameworks and proper corporate social reporting would be able to stimulate and induce the Islamic corporation to play more roles in social and moral initiatives.