MAREF-Review-Vol-2-Issue-1-2010-2011 - Malaysian Accountancy ...

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MAREF-Review-Vol-2-Issue-1-2010-2011 - Malaysian Accountancy ...

Volume 2 Issue NO: 1 2011-2012

MALAYSIAN ACCOUNTANCY RESEARCH AND EDUCATION FOUNDATION

KDNPP 17376/04/2012 (029683)

www.maref.org.my


Contents

Feature

• Green Initiatives as A Way Forward:

Are Malaysian Companies Embracing the Concept?

1

• Benefits of the Good and Services Tax 4

• Brand Proliferation: The Competitive Behaviour 6

• Mainstreaming Human Governance.... A Journey 10

Comment

Review on Global Competitiveness 8

InTouch

Be a Leader! 12

Board of Trustees

Y.Bhg. Tan Sri Dr. Abdul Samad Alias

YM Raja Datoʼ Seri Abdul Aziz Raja Salim

Y.Bhg. Datuk Raymond Liew

Mr Chow Kee Kan

Mr Damanhuri Mahmod

Prof. Madya Dr. Noorhayati Mansor

Mr Neoh Chin Wah

Y.Bhg. Datoʼ Syed Amin Aljefri

Executive Secretary

Shahrizal Muhaiyar

Article Contribution

MAREF invites members, contributors

and readers to contribute their own-written

articles in relation to corporate governance,

business administration, economics,

accounting, taxation and other topics

relevant to the profession for publication

in MAREF Review. An honorarium would

be paid for any article selected for

publication in MAREF REVIEW.

The MAREF Review is published by:

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Education Foundation

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Insights

As responsible global corporate citizens,

companies in Malaysia must record their

commitment towards the environment and get

actively involved in green initiatives to create

positive environmental impacts.

Worldwide, the growing concern of green issues,

have prompted companies to weave

sustainability capabilities into their organisational

processes and culture and most, are even

profiting by them. Going green is thinking

forward and there are lots of advantages to be

gained such as cost savings, positive cultural

change and a mind-set shift in the management

ranks.

In todayʼs corporate environment, sustainability

and profitability come hand-in-hand. Companies

that ensure compliance with environmental

standards and safeguards natural resources are

eventually positioning themselves for long-term

success. Indeed, green companies stand out as

a brand unto themselves in todayʼs business

environment.

These days standing out amid a massive chorus

of competitors is a challenge for most

businesses; this is especially so in todayʼs

business climate. Simple marketing techniques

are just not enough. To survive the declining

economy, businesses have to employ strong

brand strategies to increase and create brand

awareness.

It is a continuous battle to engage for the hearts

and minds of potential customers. So the brand

strategy must be one that is compelling,

attractive and unique. Everyone, from the senior

executives to customer service, research and

development and business development, must

have a single aspiration in mind.

The subject of green initiatives and branding has

been covered comprehensively in this second

volume of the review. Also discussed, is the GST.

The government would prefer not to implement

the Goods and Service Tax until the public has

fully understood it and its benefits.

The articles inside are a product of careful

research and study by the various individuals

who understand MAREFʼs stringent need to for

quality papers and observations to convey the

relevant message to its readers.

The MAREF Review highlights current research

practices in the accounting field.

The Trustees wishes to record their appreciation

to those who have generously donated and

support the activities of the Foundation. MAREF is

an approved tax exempt non profit foundation as

defined under Section 44(6) of the Income Tax Act

1967. All donations made toward MAREF are

exempted from Income Tax.


Feature

Increasing concerns over issues such as

climate change, pollution and depleting

natural resources among societies around

the world drives a growing preference among

various stakeholders for companies with green

initiatives orientation. Green initiative can be

referred to as activities committed by

organisations to contribute to economic

development without compromising the ability

of future generations to meet their own needs.

Given the increasing pressures to embrace

green initiatives, it is paramount that

companies recognise the importance of being

proactive in developing and implementing

green strategies that balances their green as

well as their economic performance. The ability

of companies to manage their green initiatives

can enhance their corporate reputation and in

turn, drive competitive advantage and firm

performance.

While developed countries have put

substantial efforts in improving their green

initiatives, for example, United States, South

Korea, Japan and China have announced

billion dollar green initiatives to rejuvenate the

economies (Starbiz 24 September, 2009), the

level of green initiatives in Malaysia is still at

the preliminary stage (Tay, 2009; ACCA

Malaysia, 2005). In addition, most academic

literatures highlight that most companies in

Asia are focusing on activities related to

community as part of their corporate

responsibility and comparatively lower focused

on green initiatives (Kuasirikun & Sherer, 2004;

Othman et al., 2011). Nevertheless, the

growing importance of green initiatives in

Malaysia is evidenced following the

announcement of Budget 2010, in which the

government embeds ʻGreen Malaysiaʼ. One of

the initiativesʼ in Green Malaysia is the

allocation of RM1.5 billion in soft loan for

companies employing green technology. Prior

to this initiative, the government had imposed

mandatory Corporate Responsibility Reporting

(CSR) to all public listed companies beginning

with the financial year ending 31 December

2007.

1 • MAREF REVIEW

Using the annual reports of 248 Malaysian

public listed companies, this study investigates

the effect of CSR reporting requirement on the

management decisions in disclosing the quality

of information, specifically on community and

green reporting, as well as the effect of this

information on corporate reputation. Results of

this study indicate that quality reporting in

Malaysia has progressively improved over the

years. However, the overall quality is still

lagging behind international best practices.

While management shows significant support

to regulatory calls for more accountability and

transparency in community reporting, there

appears to be lack of initiatives for green

reporting. This, in turn, has an impact on their

companyʼs reputation enhancement.

Nevertheless, the overall results indicate that

quality CSR reporting enhances corporate

reputation and these corroborated the findings

of prior studies from developed countries.

However, a closer look reveals that higher

quality of community reporting enhances

corporate reputation while green reporting

provides insignificant impact on Malaysian

companiesʼ corporate reputation. This infers

that companies in Malaysia are generally

absent from reporting quality information in

relation to their green initiatives. More efforts

need to be taken to improve the quality of

green reporting as studies in the developed

countries have proven that green initiatives

and communicating them in the corporate

reports is an emerging strategic issue in

securing sustainable economic success.

Green Initiatives in Asian

Countries and Malaysia

by Suaini Othman, Dr Roshayani Arshad, Dr Faizah Darus.

While corporations globally have become

aware of the significance of green reporting to

corporate reputation and financial evaluation

(Bertels & Peloza, 2008), companies in Asian

countries are said to be lagged behind in terms

of accountability and transparency reporting,

particularly on the quality of information

reported (Loftus & Purcell, 2008). Quality

reporting requires a company to include

inclusive, transparent, accountable and

quantifiable information (Guidry & Patten,

2010; Freeman, 2006).

CSR initiatives are not a new concept among

Asian communities. Traditionally, societies in

Asia had been characterised by their

paternalistic cultural values with particular

emphasis on the importance of obligation to

society rather than individualism. For example,

manager earns respect from his subordinates

by expressing concern for their welfare (Loftus

& Purcell, 2008). However, with the wave of

neo-liberalism that follows in the 1980s, a shift

in emphasis towards output growth had

resulted in a relationship changed between

business and society whereby, in the early

1990s, corporate citizenship had become the

most undervalued assets amongst businesses

(Loftus & Purell, 2008). Consequently, the

attitude of ʻdevelop now and clean up laterʼ

became natural and resulted in massive

environmental degradation and casualties

such as river pollutions, flash floods and

landslides (Sim, 2009). In Malaysia, for

example, property developers have been

reported to donate thousands of ringgit but

failed to address the mudslide scandals that

cost hundreds of people to loose their homes

due to poor planning and greed by the

companies (The Edge, 2009).

A shift towards embracing and implementing

green initiatives is emerging following the

Asian financial crises. The crises provide a

catalyst for towards emerging new governance

societal model in their corporate reforms that

incorporates green reporting among

companies in Asia. South Korea is the first

Asian country to introduce mandatory social

and environmental reporting following their

corporate governance reform (Loftus & Purcell,

2008). Similarly, in Malaysia the government

views CSR reporting as an extension of

corporate governance, which requires

accountable and transparent reporting. The

Malaysian government also considers green


eporting as an important element in moving

towards a competitive nation while at the same

time an ethical, caring and economically just

society. Thus, in an effort to encourage public

listed companies to embrace CSR reporting,

and in line with the growing concern over social

and environmental impact globally, CSR

disclosure in companiesʼ annual reports has

been made mandatory beginning with the

financial year ending 31 December 2007.

However, management is allowed full

discretion in deciding on the extent and nature

of CSR disclosures. The trend of quality CSR

reporting on community and environment

activities before and after the regulatory effort

is shown in Figure 1 below.

Figure 1 exhibits the trend of quality reporting

of community and environmental disclosures

from 2005 to 2008. The quality disclosures was

measured based on an index, which

comprised of 50 indicators, rated from a score

of zero to five for each indicator. The indicators

were developed from Bursa Malaysia

Framework and the Global Reporting Initiative

(GRI) guidelines. The latter is a valuable global

tool for working towards international

confidence in the trustworthiness of corporate

reporting (Clarke, 2007). In addition, expert

opinions from twelve senior management of

CSR department from various industries were

also sought to enhance the index developed

as an effective tool in measuring the quality of

information disclosed.

The trend indicates that the mean quality of

community and green (environment)

disclosures have progressively improved with

a significant improvement of more than 100%

in 2007, indicating that mandatory CSR

requirement imposed by the regulatory

authorities is an effective mechanism in

attaining enhanced reporting. However, the

overall quality scores of CSR disclosure are

generally low, with the highest mean score on

community disclosure in 2007 (8.34%). The

low quality scores infer that CSR activities are

still at the early stage in Malaysia. The trend

also affirms that companies in Malaysia place

more emphasis on community relative to green

initiatives. This could be due to the influences

of Vision 2020, the Silver Book and the 9th

Malaysia Plan, the policies of which focused

attention more on the aspect of societal wellbeing.

However, the upward trend of green

disclosures indicates that the awareness on

the importance of green reporting is growing

among management of public listed

companies in Malaysia. Given more time and

continuing initiatives taken by the regulatory

bodies such as Tax incentive, Green Policy,

Green Technology, Green Building Index and

Green Malaysia, the quality of green disclosure

is expected to gain prominence.

Green Initiatives, CSR disclosures

and Corporate Reputation

Prior studies have shown that it “pays to be

green” (Russo and Fout, 1997, Guidry and

Pattern 2010). This implies that a companyʼs

reputation can be significantly influenced by its

social, environmental and ethical performance.

This is evidenced by a large of empirical

research in this area that the inclusion of green

initiatives in corporate annual reports

contributed significantly to corporate reputation

enhancement (Toms, 2002; Brammer &

Pavelin, 2004, Hasseldine et al. 2005).

Fombrun and Shanley (1990) argue that CSR

information communicated via CSR disclosure,

particularly the credible and honest information

could establish good relations with the external

actors such as customers, investors, bankers

and suppliers. In particular, in the absence of

other official information, the external

stakeholders could rely solely on the

information disclosed in the annual reports.

This disclosure would help to build a positive

image of the company and consequently

enhance the reputation of their companies.

This in turn would provide advantages such as

easy access to capital or increase investment

from investors (Orlitzky et al., 2003). Similarly,

Hooghiemstra (2000) also found that CSR

Feature

disclosure can be an important tool to create,

protect or enhance a companyʼs reputation.

He argues that CSR disclosure is able to

create competitiveness as the information

disclosed could influence the stakeholdersʼ

perception about the companyʼs initiatives. The

good image displayed through CSR disclosure

could persuade the investors and other

stakeholders to extend the business with the

firm and consequently buy its products. Guidry

and Pattern (2010) found that a companyʼs

reputational value increased only when the

disclosure contained quality information in

terms of the breadth of social and

environmental indicators. The comprehensive

performance metrics and standardisation of

reporting appear to boost the credibility of the

reporting as well as the confidence of investors

when evaluating the companiesʼ performance.

Consequently, the higher quality reporting

leads to an enhancement of corporate

reputation. Hence, proper management of

companiesʼ CSR and green initiatives as well

as the quality of the information disclosed in

their annual reports is a necessity in protecting

a companyʼs reputation. In this regard, there is

a strong indication that there is an association

between CSR disclosures, green initiatives

and corporate reputation.

Table 2 presents the correlation analysis

between the overall quality of CSR

disclosures, quality community disclosure and

quality environmental disclosure with the

overall corporate reputation index and its

attributes. Corporate reputation in this study is

measured based on seven attributes,

comprised of corporate citizenship, workplace

climate, corporate governance, product quality,

innovativeness, leadership quality and financial

performance as suggested by Reputation

Institute, based in The Netherlands. It is

expected that the effect of CSR disclosure to

corporate reputation has a time lag. Taking this

into consideration and assuming a time lag

effect of one year, the examination of the

correlation between CSR disclosure is based

on 2007 and corporate reputation is based on

2008,

Results exhibited in Table 2 indicate that the

overall quality, community and environmental

disclosures are highly correlated with

corporate reputation and its seven dimensions.

The results support prior literature that CSR

disclosures, including community and green

disclosures are associated with corporate

reputation (Bertels & Peloza, 2008; Ferns, et

al., 2008, Fombrun, 2005). The results indicate

preliminary evidence on the relationship

between CSR disclosure and corporate

reputation enhancement.

MAREF REVIEW • 2


Feature

Table 2: Correlations Between CSR disclosures 2007 and Corporate reputation 2008

**. Correlation is significant at the 0.01 level (2-tailed).

Legend:

REP is corporate reputation (overall)

CTZ is citizenship

WP is workplace climate

CG is corporate governance

PQ is product quality

Table 3 presents regression results between

CSR disclosure (community and environment)

2007 and corporate reputation 2008. Of this

disclosure, there is a significant relationship

between quality community disclosure and

corporate reputation enhancement. The results

support the findings of Hasseldine et al.(2005)

and Guidry and Patten (2010) which

established that the quality of CSR reporting

would enhance corporate reputational value.

This is based on the fact that quality disclosure

manifest the openness and transparency of

CSR issues that are useful to multiple

stakeholders (Maclean & Rebernak, 2007).

This in turn would justify the companiesʼ

continued existence and contribute to higher

corporate reputation. On the other hand, CSR

disclosures that are self-laudatory and contain

general information will be considered as selfserving

public relation vehicle, thus resulting in

a minimal impact on corporate reputation

enhancement (Hooghiemstra, 2000). In this

respect, the insignificant result shown in

relation to the quality of green disclosures to

corporate reputation may possibly be due to

3 • MAREF REVIEW

REP08 CTZ08 WP08 CG08 PQ07 IN08 LD08 FIN08

CSRDQ07 .714** .726** .656** .354** .551** .436** .418** .366**

CCSRDQ07 .659** .641** .593** .334** .503** .497** .365** .333**

ECSRDQ07 .497** .568** .467** .224** .367** .322** .322** .215**

IN is innovation

FIN is financial performance

CSRDQ is quality of CSR disclosure

CCSRDQ is quality of community disclosure

ECSRDQ is quality of environmental

disclosure

the low quality of green reporting among the

sampled companies.

The index for the quality of green disclosure in

this study is closely based on the GRI

guidelines. Among the details required in the

quality disclosure were the quantitative

information regarding materials used; energy

consumption; water source and conservation;

significant impact on biodiversity and

information regarding emission; and effluents

and waste. However, in general, green

reporting by companies in Malaysia are

generally absent of such information. Instead,

the common attributes found in the green

disclosure of the sampled companies were

extensively focused on information related to

aesthetics and environmental management

system. However, this information is not

unique, neither valuable nor rare that can lead

to reputation enhancement (Barney, 1991). A

report that can generate reputational value

should have an aggregate of verified data that

can be interpreted quantitatively (Guidry &

Pattern, 2010; Maclean & Rebernak, 2007).

Table 3: Multiple Regression Results on the Relationships Between CSR Disclosure 2007

and Corporate Reputation Index 2008

Dependent Variable: Corporate Reputation 2008

R Square = 0.655, Adjusted R2 = 0.639, Std. Error = 8.27 , F =40.71, Sig. = 0.000

Durbin-Watson = 2.006

B Std Error Beta t .Sig

Constant 12.428 1.601 7.764 .000

Profitability07 1.897 .572 .135 3.317 .001***

Size07 2.403 .692 .172 3.471 .001***

CCSRDQ07 .709 .108 .425 6.532 .000***

ECSRDQ07 .080 .099 .049 .811 .418

*** Significant at the 0.01 level

** Significant at the 0.05 level

* Significant at the 0.1 level

Summary and Conclusion

The growing concern of environmental and

green issues around the world is driving

various initiatives in coercing companies to

increase their green activities. The ability of

companies to respond to these issues and

communicating their green initiatives to various

stakeholders are expected to result in greater

support from various stakeholders and

consequently earned their reputation as green

orientation companies.

The significant increase in the overall trend of

quality of CSR disclosure indicates that

companies in Malaysia are responding

conscientiously in response to regulatory

demands in moving and placing Malaysia as a

green hub. However, the level of quality green

reporting is still at a much lower level relative to

the international best-practice. This should be

of concern to the management of Malaysian

public listed companies as green agenda has

become one of the worldwide issues in todayʼs

political, business and social discourse

(Clarke, 2007). In order to be acceptable and

survive in the global market, it is paramount

that companies improve the quality of their

green reporting as well as uphold their green

reputation. The realisation of green orientation

companies in Malaysia is certainly achievable

with the various initiatives in the pipeline. The

prospects of green economy is tremendously

bright if all the relevant parties involved

cooperate and collaborate with all synergistic

efforts to make the move towards green

economy a success.

Main articles:

1. Othman, S., Darus, F., & Arshad, R., (2011).

The Influence of Coercive Isomorphism on

Corporate Social Responsibility Reporting and

Reputation. Social Responsibility Journal,

Vol.7. No.1, 2011, pp. 118-135.

2. Othman, S (2009). Corporate Responsibility

Disclosure and Corporate Reputation: Are

they Converging? In Roshayani Arshad,

Faizah Darus, Suaini Othman, Mustaffa

Mohamed Zain, Tay Kay Luan (Ed.),

Corporate Responsibility: Concepts and

Emerging Issues. Shah Alam: University

Publication Centre (UPENA), UiTM, 2009, pp.

1-32. ISBN 978-967-305-360-5.

About the Authors

Suaini Othman, Senior Lecturer, Dr

Roshayani Arshad, Associate Professor and

Dr Faizah Darus, Associate Professor are

from Accounting Research Institute, Faculty

of Acccountancy, Universiti Teknologi MARA,

Shah Alam, Malaysia.

Corresponding author

suain388@salam.uitm.edu.my


Introduction

The Malaysian Government first proposed the

idea to integrate and restructure the existing

sales tax and service tax into the new value

added tax or the Goods and Services Tax

(GST) in the 2003 Budget. Then, in the 2005

Budget, the Government announced that it

intended to introduce the GST on 1 January

2007. However, this was deferred thereafter

due to increases in prices of certain goods

such as petrol and other essential items as well

as the view that the timing of its introduction

would not be appropriate. On 16 December

2009, the Government decided to introduce

the Goods and Services Tax Bill 2009 for its

first reading in Parliament and proposed to

implement the tax in 2011. However, the Bill

was subsequently not presented for the

second and third reading as the Government

felt that more feedback from various parties

was required. The Prime Minister, Datuk Seri

Mohd Najib announced that the Malaysian

Government is not rushing to implement the

GST until the public has fully understood and

accepted the tax (The Star, 2011).

What is GST?

GST is a type of broad-based consumption tax

that covers all sectors of the economy. It is

imposed on a wide range of local and imported

goods and services. Under this system, the tax

is levied on the supply of goods and services at

each stage from the supplier to the retail stage

of production. The crucial point to bear in mind

is that the trader who acquires good/services

on which a GST has been imposed will be

entitled to claim the GST against the GST the

trader charges on its sales. This is the set-off of

the GST on outputs against the GST on the

inputs. This thus prevents the cascading

impact that occurs under the current sales tax

and service tax system. The trader then only

pays the net amount (where the output tax

By Morni Hayati Jaafar Sidik

exceeds the input tax) to the Government.

Therefore, GST is only paid when one

consumes the goods or products. It is also a

form of indirect tax because the sellers will be

collecting the tax. The sellers will be the thirdparty

that will collect the tax and will pay it to

the Government. In other words, it is a kind of

tax that will be borne by the end consumers

rather than producers or suppliers (Pinto,

2001). There are also various concepts one

needs to be aware of in GST such as

exemptions, zero-rated and standard rated

goods/services.

Experience of GST in other

countries

GST is not a new tax system as more than 140

countries around the world have implemented

GST. In some countries, GST is also known as

Value Added Tax (VAT). France was the first

country that introduced VAT in 1954. Initially,

it was applied only to transactions entered into

by the manufacturers and wholesalers and

was extended to all activities following tax

reforms in 1968 (Department of Trade, India).

In the United Kingdom, a Green Paper 1971

was published to inform about the VAT

proposals. Based on 12 months of consultations

from various parties, a White Paper 1972 was

published to set out the structure of the tax, the

draft clauses and schedules for further

discussion (James and Alley, 2008). Finally, the

VAT was introduced in 1973 after two years of

discussion at a standard rate of 10% (James,

2000). In 1974, this rate was reduced to 8% and

a range of luxury items was taxed at 25%. As

the administration of two rates was difficult, they

were amalgamated at 15% in 1979 (James,

2000; James and Alley, 2008) and further

increased to 17.5% in 1991 and was reduced to

15% in 2008 due to the then recession.

However, on 4 January 2011, the VAT standard

rate was raised to 20%.

Feature

In New Zealand, GST was implemented on 1

October 1986 at a rate of 10% (Bolton and

Dollery, 2004). According to the New Zealand

Inland Revenue (2011), GST is imposed on

most goods and services in New Zealand,

most imported goods, and certain imported

services at a current rate of 15%. Businesses

that engage in ʻtaxableʼ activities are required

to register for GST. A taxable activity is an

activity carried out continuously or regularly by

a business, trade, manufacturer, professional,

association or club and the turnover is

expected to exceed NZ$60,000 for the next

12 months. Certain financial services and

residential accommodation were exempted

and exported goods and services and sales of

businesses were zero-rated (Bolton and

Dollery, 2004). Among the objectives to

introduce GST in New Zealand were to make

the tax system fairer by taxing people more

equitably, to broaden the tax base rather than

relying on high rates of personal income tax

and to reduce tax avoidance and evasion

(Muir, 1993).

The GST came into effect in Australia on 1

July 2000 after several decades of political

discussions (Qiuggin, 1998 as cited in Bolton

and Dollery, 2004). The standard rate of GST

in Australia is 10%. All entities that carry on an

enterprise in Australia are required to register

under the GST legislation. This condition is

applicable if their annual turnover meets the

registration turnover threshold of AUD $75,000

or AUD $150,000 for not-for-profit

organisations. The reason for introducing GST

was to improve the simplicity and equity of the

indirect tax system.

The idea of introducing GST in Singapore

arose in the mid-sixties. It was put forward

again in 1977 but was rejected by a committee

set up by the Ministry of Finance and became

popular again in the mid-80ʼs due to tax reform

all around the world (Jenkins and Khadka,

1998). In 1990, the Finance Minister

MAREF REVIEW • 4


Feature

announced that a comprehensive tax would

be introduced and in June of the same year, a

working committee on GST was set up to draft

GST legislation. A White Paper on GST was

issued in 1993 to explain the reasons for

introducing GST and the structure of the GST

in Singapore. As noted by Jenkins and Khadka

(1998), GST was developed to shift the

burden of tax from direct tax to indirect tax, to

make Singaporeʼs economy internally

competitive and to develop a broad-based and

more stable source of revenue. GST was

introduced in 1 April 1994 at a low fixed rate

of 5%. The current rate is 7%.

Benefits of GST in Malaysia

There are various benefits GST can offer to

taxpayers, Government and businesses. Some

of these are discussed below:

Better tax system

GST is proposed to replace the current

consumption taxes in Malaysia i.e. the sales

tax and service tax (SST). As noted by Palil

and Ibrahim (2011), this move is in line with the

Government policy to form the ASEAN Free

Trade Area. The introduction of GST is part of

the Government's tax reform programme to

enhance the efficiency and effectiveness of the

existing taxation system. According to the

Ministry of Finance, GST can overcome the

weaknesses of the SST. Among the

weaknesses are the cascading and pyramiding

effects, double taxation, tax erosion and

leakages through transfer pricing and other

means. Experiences in other countries such as

UK and New Zealand have shown that the

introduction of GST had improved their tax

revenue and efficiency (Palil and Ibrahim,

2011). Furthermore, the International Monetary

Fund (IMF) has suggested that the introduction

of GST is a way of raising the efficiency of the

Malaysian tax system (The Star, 2009).

In addition, by having GST, the tax system will

be fairer as everyone who consumes products

or services (which are subject to GST) will

contribute revenue to the Government. This is

in contrast to the other forms of taxes like

income tax where some individuals or

companies are more likely to seek to avoid or

evade the income tax. Furthermore, with SST,

the tax is collected at a single point, as it is

basically a single stage tax. Thus, if the sellers

evade the tax, the Government loses its

revenue. GST in contrast, will be imposed

throughout the production-distribution chain,

from manufacturer to wholesaler, from

wholesaler to retailers and from retailers to the

end consumers and this enables greater

control and facilitates more effective auditing

and monitoring than a single stage tax would

allow.

5 • MAREF REVIEW

GST will also improve tax compliance.

According to the Ministry of Finance, GST will

be easier to administer due to its self-policing

feature. This is because businesses will collect

taxes when sales are made (output tax) and at

the same time they will make claims from the

Government on purchases made (input tax).

Beneficial outcome for consumers

According to the Ministry of Finance, GST is to

be levied and charged at a proposed rate of

4%. This is much lower than the current

prevailing standard rate for sales tax and

service tax that varies from 5% to 10%. Thus,

consumers will benefit from a potential price

reduction in a number of goods and services

such as clothing and footwear,

communications, hardware and maintenance.

GST will also not discriminate the lower income

group as no GST will be charged on various

basic necessities such as rice, sugar, flour and

essential basic services such as public

transport, health and private education.

Apart from that, the Malaysian Government

has announced that with the introduction of

GST, there is an opportunity to reduce

corporate and individual tax rates. This is

because through a broad-based and effectively

implemented GST, the revenue for the

Government is expected to increase. In other

words, GST will offset the loss of revenue from

the income tax.

Beneficial outcome for businesses

In general, GST is not a cost to the business.

This is because the GST paid on the business

inputs can be claimed as tax credits against

the output tax collected on sales. In other

words, businesses can claim the input taxes

that they have paid on purchases of

intermediate goods and services against the

GST charged on the final goods and services

that they have managed to sell. Thus, the cost

to the business will generally reduce and will

make their products and services more

competitive in the local and international

markets as compared to the current situation

where sales tax and service tax is imposed on

the goods and services. Furthermore, GST will

be imposed on imports but not on exports.

Experience from Singapore showed that total

exports increased from S$119,473 million in

1993/4 to S$147,327 million in 1994/5 and

made Singaporeʼs economy internally

competitive after GST had been implemented

(Jenkins and Khadka, 1998).

In addition, GST will also require businesses

to have good and proper record keeping. As

noted by Dr Veerinderjeet Singh (The Star,

2010), this will lead to improvements in the

maintenance of proper accounts and financial

records.

Conclusion

GST is not a new tax for Malaysia, as it will

replace the current sales and service tax.

Experience from other countries has shown

that GST is a good system because it will lead

to a better taxation system for the nation.

However, to make GST an effective tax, the

Malaysian Government must ensure that GST

is well accepted by the public. As noted by

Jenkins and Khadka (1998), careful planning,

detailed preparation, mass participation, an

extensive taxpayer education programme and

good timing are the essential ingredients in the

recipe for any country to successfully

implement the GST.

References

James, Simon and Alley, Clinton (2008),

“Successful tax reform: the experience of

value added tax in the United Kingdom and

goods and services tax in New Zealand”.

Journal of Finance and Management in Public

Services, 8(1): pp. 35-47.

James, Simon (2000) “VAT/GST: The UK

Experience Revisited”, Revenue Law Journal,

10: 72-87.

Jenkins and Khadka, (1998) “Tax Reform in

Singapore” Harvard University Development

Discussion Papers Taxation Research Series,

644.

Mohd Rizal Palil. and Mohd Adha Ibrahim

(2011) “The Impacts Of Goods And Services

Tax (GST) On Middle. Income Earners In

Malaysia” World Review of Business

Research, 1(3): 192-206.

Muir, Roger S. (1993) "The Goods and

Services Tax : Reflections on the New Zealand

Experience, Six Years On," Revenue Law

Journal: Vol. 3: Iss. 2, Article 2. Available at:

http://epublications.bond.edu.au/rlj/vol3/iss2/2

Pinto, Dale. (2001), "The impact of a goods

and services tax (GST) on sport." Legal

Issues in Business 3: 39-46.

Tom Bolton and Brian Dollry. (2004), “Effects

of the GST in Australia, Canada and New

Zealand” Working Paper Series in Economics.

Co-authors

Rahizah bt Abd Rahim, Farah Waheeda bt

Jalaluddin, Ng Kean Kok and Fitriya bt Abdul

Rahim. They are lecturers in UTAR, Sg Long.

Corresponding author: morni@utar.edu.my


INTRODUCTION

Branding is not merely viewed as a marketing

and communication function in todayʼs

competitive business environment. It

encompasses all facets of business and

market differentiation strategies. Many brands

builders have adopted the ʻbrand value chainʼ

approach as cohesive strategic responses to

identify target brand position and implemented

through the value chain, ranging from research

and development to commercialisation. A

brand includes a name, logo, slogan with its

fixed colour design schemes, and acts as a

symbolic embodiment of information that may

represent implicit values, ideas, and

personality of a good or service. The top

brands in the old days such as Colgate and

Kelloggʼs have sustained their lead in todayʼs

market.

During the 1990s, the media focused on brand

power, and companies are realising their

commitment to develop strong brands, and the

important of good image management. Brands

are synonymous with classiness,

sophistication, and gorgeous, and as symbols

of the modern prestige world. Strong brand

encourages lifelong brand power that helps

firmsʼ survival position strategically. The market

power of brands is astonishing since strong

brand transform ordinary business into

influential one. Strong brands are longevity.

Brand longevity has becoming more relevant

and brand building is an essential weapon in a

companyʼs arsenal because strong branding

also reflects one of the survival kits during the

adverse economic recession period. Powerful

brands enhance long-term growth and profits

and increase asset values due to its higher

sales volumes, greater demand, premium

prices, significant differentiation of the

products, and economies of scale in

production. Strong brands benefit consumers,

retailers and producers. For consumers, brand

helps removing uncertainty by signifying a

guarantee of origin, quality and consistency

about the trusted brand choice. For retailers,

well known brands provide guarantee of sales

and act as a generator of store traffic with its

premium prices. The retailers enjoy higher

profit margin from selling branded goods than

unbranded commodities. For producers, brand

helps conveying messages to the end users

and provides them with a mean of competition.

The added values from strong brands create

consumers preference and most importantly,

strong brands provide a continuity guarantee

of future income as producer keep his side of

bargain.

Feature

Brand Proliferation:

The Competitive Behaviour

by Poon Wai Ching

It is always wise to choose a brand name that

is distinctive, easy to pronounce, remember,

and recognise because brand name identifies

the product. Brand names justify the typical

premium paid for brands. Customers are

willing to pay more for brand, and this is one

measure of brand equity. Brands with strong

equity have relatively high competitive

advantages, such as high consumer

awareness, less susceptible to price

competition, and strong brand loyalty. Brand

equity raises three important concerns. First, it

is critical to ensure the long-term triumph of a

product to build brand equity by emphasising

on five dimensions, namely brand loyalty,

brand awareness, perceived quality, brand

association and other brand assets such as

competitive advantage. These five dimensions

of brand equity provide value to customers by

enhancing confidence in the purchase

decision, as well as provide value to firm by

enhancing efficiency and effectiveness of

marketing programs or brand extension

activities. Second, the question of product-line

extensions becomes pertinent. The third issue

is to what extent the managers view the

management and sustenance of brand equity

as an important task.

RECOGNISED INDIGENOUS

BRANDS

A nation branding effort is closely linked to

quality excellence of the products and

corporate brands. They speak of someoneʼs

lifestyle, taste, status, choice, heritage,

character and preference. To name a few

examples of a nationʼs branding pertaining to

its products globally, Italy is associated with

romance and verve, Germany with engineering

excellence in automotives, Switzerland with

fine craftsmanship in its distinctive watches,

Japan with cutting-edge design and reliability

consumer electronics, France is famous for its

fashion and cosmetic industries, and United

States with its cutting edge in IT industries.

Among some Asian brands are the Sony

brands (stand for high quality entertainment),

LG (a Korean brand that emblazoned on

electrical products across Southeast Asia), Lee

Kum Kee (the Hong Kong famous oyster

sauce producer), Creative Technology (which

is originated from Singapore, have been the

worldʼs largest maker of soundcards), Acer

(the Taiwanese producer); and the PenDrive

(the Malaysian producer). Other global brand

names well verse globally including shoemaker

Jimmy Choo, the Shangri-La Hotel chain, and

Sugar King of Asia Tan Sri Dato Dr Robert

Kuok have clearly proved that Malaysians

brand name can compete on a global stage.

Generally, we can classify Malaysian brand

name into the following categories: i) Ownermanaged

brands emerge from family or owner-

managed companies, with a history of strong

corporate performance and leadership. They

are generally long-established companies,

where family or owner interests have sustained

commitments and investments to long-term

brand learning and capabilities. Examples

include Royal Selangor, Boh, Lewre, Bonia,

Shangri-la, Brahimʼs, Top Glove, YTL, Hong

Leong, Habib, Silver Bird, and etc. ii)

Government-Linked Company (GLC) brands

are associated with companies with first-mover

advantages, where access to relatively stable

market opportunities enables them to gain

early brand visibility and develop strong market

reputation. Examples include Petronas,

Malaysia Airlines, Proton, Maybank, Perodua,

MISC, TheStar, AirAsia, and etc. iii) Acquired

Brands refers to global brands with strong

brand market value and goodwill acquired by

Malaysian companies. Examples include

Lotus, York, Dunham-Bush, Laura Ashley,

Mistral, Crabtree & Evelyn and Guthrie. iv)

Company-driven brands are brands built by

companies through market-oriented

leadership, where brand-driven leaders

contribute to the creation and

institutionalisation of strong brand cultures and

values. Examples include Celcom, Pensonic,

Jasmine, Carotino, Hotlink, Astro, and PLUS.

Malaysia has been working very hard in

competitive brand building and is able to

integrate branding into their business

strategies and practices. Acquisition of skills

and capabilities on brand building will enable

the development of strategic and intrinsic

values, as well as strengthen brand positioning

in the domestic and global markets. In addition

to the importance of branding at the product at

company levels, there is a need to build

national icons, which are associated with

projected and perceived values. Among the

well-recognised Malaysian brands in the global

marketplace, to name a few, i) Petronas Twin

Towers: - It is the truly global iconic symbol for

Malaysian brand; ii) Royal Selangor (leading

pewter industry in the world since 1885,

producing handcraft authenticity of decanters,

goblets, tankards, and other artifacts); iii)

Padini Holdings, a fast-growing company for

apparel fashion world, has based on a sound

strategic positing, with its philosophy to allow

customers having the opportunity to

experience global fashion in an affordable way.

Padini Holdings own brands such as Vincci

(offers shoes and accessories), Miki Kids

(offers colourful clothing for children), PDI

(offers low price easy styles clothing for all),

Padini (the original brand intended for men,

offers younger professionals classic shirts and

pants), Padini Authentics (offers casual wear

to younger professionals), Seed (offers

modern and trendy clothes for teenagers and

children) and P&Co (offers teenagers and

young adults with fashionable casual clothing).

MAREF REVIEW • 6


Feature

THE LONG-RUN COMPETITIVE

BEHAVIOUR

Managing brands are important for product

managers as well as for account managers.

Brands information can be transferred through

word of mouth, web search, personal

experience, advertising, and etc. Every staff in

the company represents the brand itself, and

as such companies need to run a brand audit

occasionally. Brand managers report to

marketing directors, not to the chief executive

officers or boards of directors; expenditures on

branding are associated more with advertising

and promotion and recorded accordingly by

statutory accounting practices. Such

expenditures are normally written off each year

and not routinely tracked to rationalise or

support future brand investment decisions.

Therefore it appears to have lack of

information on brand investment models.

Branding strategy is of important to decide on

whether to use line extensions, brand

extensions, brand revitalisation, multi-brands

stretch, or brand deletion to suit the

competitive market. Powerful brand positioning

is critical to brand building. Brand positioning

is a strategic concern with managing

perceptions that could results in brand image

and positive reputation. The strength of

powerful brand names allows companies to

venture into different industries. Air Asia Tune

Talk, for example, has ventured into mobile

prepaid services in telecommunication sector,

apart from its airline and hotel industries. The

common brand strengths are brand passion,

the CEO persistence, brand culture,

understanding of market segments, product

differentiation from competitors, speed of

response to the competitive market, brand

analysis, strategic positioning, long-term brand

investment and etc.

The key to success is the perception of a

difference between competing brands. With so

many countries in the region selling

homogenous products, how are we going to

compete with the rest of the world? It is the

connotations of quality, excellence and

innovation that matter. The key to success is to

identify the opportunity area of an unlimited

needs and wants of the consumers, and

produce a real deep consumer relevant

appealing product, develop a solution that is truly

innovative follow timely trends and preferences.

Understanding market dynamics, consumer

habits, attitudes and motivations; assessing

potential new idea; and developing the product

to optimise market opportunity are crucial.

For Malaysian companies, which have initiated

branding activities, several shortcomings

should have been reminded. For instance,

branding is practiced more at the promotional

or launch phase of products and services, and

often not sustain throughout the product

lifecycle or service brand development. Not

many companies have strategic brand

blueprints to drive and integrate enterprise

brand building activities at corporate or

executive planning level. Hence lack of brand

competencies at strategic levels of

organisation might lead to ineffective brand

strategies and outcomes, and insufficient

7 • MAREF REVIEW

investments in the drivers of a brand along its

value chain.

Brand name advertising is a cornerstone of

many firms marketing products. A wellrecognised

brand name product enjoys

enormous profits. Product differentiation

including many forms such as quality

differentials, packaging, credit terms, and

maintenance and after sales services, apart

from price characteristics, time and place

attributes. All these are important factors of

product differentiation that lead to brand-name

identification. Though the multiplicity of existing

brands can have effect of dispiriting the entry of

new firms, in the absence of significant barriers

to entry especially in the monopolistic

competitive industry, potential new entrants will

enter the industry and grind down the profits of

the existing incumbent firms, because there is

a substantial amount of brand switching by

consumers. Hence, the larger the variety of

brands sold by the incumbent firms, the

smaller the market share and/or expected

sales of the potential new entrant, making a

new firm more difficult to enter the industry. If

the new firm wants to compete over the wide

range differentiated products, it has to enter on

an economies scale of production. Otherwise,

new firm faces difficult task ahead to establish

its brand images with a few products.

THE CHALLENGES AHEAD

There are challenges in creating brand

awareness and promoting value chain in terms

of brand planning, development and

promotion. First is the ineffectiveness of

corporate structures and culture of the

organisation. While CEO and boards of

directors are aware of the importance of

brands, this recognition, however, has not

been translated into institutionalised brand

practices. Lack of integrated support within a

company in pursuing investment decisions

impedes the implementation of branding

strategy as a cross-functional process. In

addition to an effective corporate structure,

appropriate levels of commitment, from the

executive leadership down to the entire

organisation, are necessary to create a

sustainable brand culture. Second is the

absence of recognised brand valuation

processes. This is compounded by the

absence of expertise within the financial

services community to adequately advise on

the treatment of brand investments under the

current financial and accounting practices.

Third is lack of the integration of brand support

clusters. There are dispersing skills and might

experience absence of effective brand building

knowledge and skills. The brand challenges

the knowledge and skills to integrate their

competencies. Fourth global branding can be

promoted through effective distribution

channels. The development of new channels

and intermediaries in the global supply chain

poses a challenge to companies pursuing

brand promotion. The Internet and e-business

influence the ways products and services are

manufactured distributed and traded.

Technology-enabled business transactions

necessitate a rethinking of current distribution

strategies, and encourage the adoption of

multi-channel delivery for the creation of a

larger customer base. Fifth is the lack of R&D

activities to support innovation and branding.

Sixth is the development and protection of

indigenous intellectual property. The protection

of brand investments, through ease of

registration of trademarks, copyrights and

patents, and effective enforcement of

intellectual property rights is important in

maintaining differentiation opportunities for

products and services. Seventh is the problem

of supply chain inefficiency. As a value chain

process, capable logistics management is an

important process in an efficient brand delivery

system, as it affects the flow and storage of

goods, services and information along supply

and distribution chains. Strategies to address

the inadequacies in the logistics industry will

contribute to sustainable brand development.

Eighth is country of origin effects. Companies

have often been associated with stereotyped

labels or images. Apart from communication

efforts to project a favourable image of the

country brand, a related challenge is the

development of an integrated initiative to

enhance the drivers of positive market

perceptions. These include brand-aligned work

cultures, values, technological developments

and industry performance of all national

stakeholders. The stronger the synergy

between national, corporate, product and

service branding, the clearer and stronger the

message will be to target stakeholders.

Effective branding for Malaysia will depend on

the consistency and sustainability of a positive

perception by the target market.

References

Grace, D. and OʼCass, A. (2002). Brand

associations: looking through the eye of the

beholder. Journal of Qualitative Market

Research: An International Journal, 5, 96-111.

Gregory, J.R. and Wiechmann, J.G. (2001).

Branding across borders: A guide to global

brand marketing. McGraw-Hill: NY.

Keller, K.L. (2002). Strategic Brand

Management: Building, measuring and

managing brand equity. Prentice Hall: NJ.

Moorthi, Y.L.R. (2002). An approach to

branding services. Journal of Services

Marketing, 16, 259-274.

Simoes, C. and Dibb, S. (2001). Rethinking the

brand concept: new brand orientation. Journal

of Corporate Communications: An International

Journal, 6, 217-224.

Temporal, P. (2001). Branding in Asia: The

creation, development and management of

Asian brands for the global market. John Wiley

& Sons (Asia) Pte Ltd: Singapore.

Temporal, P. (2002). Advanced brand

management from vision to valuation. John

Wiley & Sons (Asia) Pte Ltd: Singapore.

Temporal, P. (2006). Asiaʼs star brands. John

Wiley & Sons (Asia) Pte Ltd: Singapore.

About the Author

Poon Wai Ching is

from Monash

University Sunway

Campus

Corresponding author:

poon.wai.ching@

monash.edu


Review on

Global Competitiveness

2011-2012

By T Parthiban.

Malaysian politicians have bandied about the

word transformation with the buzz coming right

from the top. Prime Minister Datuk Seri Mohd

Najib Tun Abdul Razak has been tirelessly

pushing for transformation in the local political

and economic landscape, and also the

Government. Has it helped Malaysia in making

itself more competitive vis-à-vis the other

regional countries?

Looking at some of the big picture ranking,

Malaysia seems to be faring well. Take, for

example, the Global Competitiveness Report

2011–2012 produced by the World Economic

Forum (WEF). In the latest report for

2011/2012, Malaysia ranks second to

Singapore amongst the regional countries. The

large economies like Thailand, Indonesia and

the Philippines rank much lower. While that

may be so, Malaysia has some catching up to

do in certain areas.

COMPETITIVE

First, what is being competitive all about? How

do you measure it? Since 2005, WEF has

based its competitiveness analysis on what it

calls the Global Competitiveness Index (GCI),

a tool that measures the microeconomic and

macroeconomic foundations of national

competitiveness. It defines competitiveness as

the set of institutions, policies, and factors that

determine the level of productivity of a country.

The level of productivity, in turn, sets the level

of prosperity that can be earned by an

economy. The productivity level also

determines the rates of return obtained by

investments in an economy, which in turn are

the fundamental drivers of its growth rates. In

other words, a more competitive economy is

one that is likely to grow faster over time.

"The concept of competitiveness thus involves

static and dynamic components: although the

productivity of a country determines its ability

to sustain a high level of income, it is also one

of the central determinants of its returns to

investment, which is one of the key factors

explaining an economyʼs growth potential," it

said in its latest report.

The body had identified 12 pillars of

competitiveness. They are institutions,

infrastructure, macroeconomic environment,

health and primary education, higher education

and training, goods market efficiency, labour

market efficiency, financial market

development, technological readiness, market

size, business sophistication and innovation.

SOME RANKING RESULTS

In the latest WEF ranking, Malaysia ranked

21st, up five positions from the year before. In

another global ranking by the World Bank,

again, Malaysia showed some improvements

in its standing. The World Bank Doing

Business Report 2012 saw Malaysia moving

up five notches to 18th place, even coming

ahead of developed economies such as

Germany, Japan, Taiwan and Switzerland.

While these two surveys has seen Malaysia

moving upwards, a survey by the Vancouverbased

Fraser Instituteʼs Economic Freedom of

the World saw Malaysiaʼs ranking on the

Economic Freedom Index going south. In fact,

it suggests that Malaysia has been slipping

over the past few years. It has gone from the

53rd position in 2006 to 78th place in 2009,

with a summary rating of 6.68 out of 10. The

Comment

2009 Economic Freedom Rankings saw the

top spots taken up by Hong Kong, Singapore

and New Zealand. The report, which ranks 141

nations, measures the degree to which a

countryʼs policies and institutions are

supportive of economic freedom.

WEF ON MALAYSIA AND THE

REGION

The WEF report suggests that Malaysia is still

holding on well when compared to its regional

peers. At 21st position, Malaysia is still a far

distance from neighbouring Singapore, which

had retained the second spot. Now, Singapore

is another ball game, altogether. However,

when compared to the other neighbouring

countries, Malaysia has managed to outrank

them in this survey. The closest is Brunei at 28,

followed by Thailand (39), Indonesia (46),

Vietnam (65) and Philippines (75).

On Malaysia, the report noted that it had

registered improvements across the board and

that the countryʼs progress was particularly

noteworthy in the institutions and

macroeconomic environment pillars, as well as

in several measures of market efficiency.

"Among the prominent advantages of this

strong and consistent performance are its

efficient and sound financial sector— which

places among the worldʼs most developed, just

behind Singapore and Hong Kong—and its

highly efficient goods market, ranked 15th. In

addition, its macroeconomic situation has

improved markedly over the past year to reach

29th place, even though the country continues

to run a budget deficit of about 5 percent of

GDP. As it moves toward becoming more

MAREF REVIEW • 8


Comment

innovation-driven, Malaysia will need to

improve its performance in education and

technological readiness. In the latter

dimension, the country places a low 44th, with

room for improvement in technological

adoption by both businesses and the

population at large. In terms of higher

education and training (38th), improving

access remains a priority in light of low

enrolment rates of 69 percent (101st) and 36

percent (66th) for secondary and tertiary

education, respectively," it said.

However, the battle for competitiveness is far

from over. The neighbouring countries are also

pushing ahead, though some of them may be

far behind in terms of ranking "Asiaʼs rise to

economic prominence has been accompanied

by a remarkable dynamism in terms of

competitiveness. Over the past five years,

several countries in the region—including

China, Indonesia, Vietnam, and Sri Lanka—

have made important strides in the GCI

rankings," the report commented on the Asia

Pacific region.

On Indonesia, the WEF report noted that it had

made an 'impressive improvement' of 11

places over the past two years, being the best

performing countries within the developing

Asia region, behind Malaysia and China yet

ahead of India, Vietnam, and the Philippines.

"Sound fiscal management has brought the

budget deficit and public debt down to very low

levels, attributes that contribute to further

upgrading the countryʼs credit rating and to

raising the countryʼs ranking on the

macroeconomic environment pillar to 23rd this

year (up from 89th in 2007). The situation is

also improving, albeit from a much lower base,

in the area of physical infrastructure (76th, up

six places), yet the quality of port facilities

remains alarming and shows no sign of

progress (103rd, down seven places, with a

score of 3.6) and the electricity supply

continues to be unreliable and scarce (98th),"

it said.

Because it is now close to entering the

efficiency driven stage of development,

according to the GCI classification, Indonesiaʼs

competitiveness increasingly depends on more

complex elements, such as market efficiency, it

added. Addressing the many rigidities (120th)

and inefficiencies of the labour market (94th)

would ensure a more efficient allocation of

labour. Additional productivity gains could be

reaped by boosting technological readiness

(94th), which remains very low, with slow and

scant adoption of ICT by businesses and the

population at large.

A neighbouring country to watch, in not too far

a distance, is the Philippines. It had a leap in

9 • MAREF REVIEW

the latest WEF ranking, going up 10 places to

75th. Yet the challenges are many, especially

in the areas at the foundation of any

competitive economy, even at an early stage

of development, the report cautioned.

TRANSFORMATION STORY

One of the key contributors to the betterment of

Malaysia's ranking has to be the

transformation process that is being driven by

Prime Minister Najib. He has pushed forward

the Economic Transformation Programme

(ETP) and the Government Transformation

Programme (GTP).

One that that plays a crucial role in driving

forward the programmes is the Performance

Management & Delivery Unit, known as

Pemandu. Formally established in September

2009 under the Prime Ministerʼs Department,

it has been tasked to oversee the

implementation and assess the progress of the

ETP and GTP.

One of the key contributions by Pemandu is

assisting in cutting through the bureaucracy to

push through items on his reform agenda. This

becomes important when the item on the table

involves multiple ministries and agencies.

Najib himself chairs a monthly meeting where

officials with ʻproblemsʼ come to the table for

resolutions. ʻOur matter was once brought up

at one of the monthly Pemandu meetings. You

have the top guns from the various relevant

agencies sited at one spot. It makes the

decision process move faster,ʼ said an advisor

of a public listed company involved in the oil

and gas sector.

Chief Secretary to the Government Tan Sri

Mohd Sidek Hassan has credited Pemandu to

partly increasing the nation's competitiveness.

When commenting on the World Bank Doing

Business Report 2012, Mohd Sidek Hassan

said the report came in the wake of concerted

efforts and initiatives launched by the

government to improve public service delivery.

"The world ranking showed that the reform

measures implemented by the government is

beginning to show results," he said.

Mohd Sidek, who co-chairs Special Task Force

to Facilitate Business (PEMUDAH), said over

the last 24 months, various recorded changes

had been implemented in public sector

agencies to simplify procedures and improve

transparency and efficiency. However, he said,

the private sector, on its part, needed to take

more determined measures to simplify

procedures and reduce unnecessary

bureaucracy to improve business efficiency.

"Only when this happens can the broader

reform of the government in making a simpler

and efficient delivery system in Malaysia be

fully realised," he said in a report by Bernama.

PEMUDAH has defined its scope of work as

facilitating businesses in Malaysia by

identifying improvements to existing

Government processes and regulations, based

on public feedback and global benchmarking

reports. It aims to oversee the implementation

of identified improvements and to recommend

business-related policy changes to the

Cabinet, based on public feedback.

On the World Bank report, Mohd Sidek said it

highlighted the lead Malaysia took in

introducing electronic filing in the courts,

setting up specialised civil and commercial

courts in Kuala Lumpur, and merging

company, tax, social security and employment

fund registrations at a one-stop centre for

business start-ups. The country was also cited

for being one of 24 countries that had set up

regulatory reform committees reporting directly

to a prime minister or president, he said.

"Among other Asian countries ranked above

Malaysia in the report is Singapore which is

ranked in the first place, Hong Kong and China

shared the second position, South Korea was

in eighth place and Thailand 17th," he said,

reports Bernama.

ROOM TO IMPROVE

Still, there are areas where Malaysia has some

room to improve, as shown by the Fraser

Instituteʼs Economic Freedom of the World.

When commenting on the report, the chief

executive of the independent think- tank

Institute for Democracy and Economic Affairs

(Ideas) had suggested that Malaysia's 'big

Government' approach could dampen investor

confidence. He stressed that the government

should learn to trust market forces. He added

that it is difficult to see the government letting

go of control on the economy but its role can

be progressively limited.

On balance, it looks like Malaysia has set itself

on the path to compete with its neighbouring

nations. Still, it cannot rest on its laurels, as its

neighbours are equally hungry to push forward

in the present challenging economic

environment.


Mainstreaming Human Governance....

A Journey

by Arfah Salleh & Aziuddin Ahmad

That the global financial crisis is at heart

about the lack of human governance

needs no further debate. The most

recent European debt crisis is yet another

manifestation of the flaws in the existing

accountability structure of the system that have

been allowed to perpetuate. Against such

backdrop, accountants, as guardians of public

trust should pause for direction: whether to go

on with business as usual or whether they are

human enough to want to address the now

default-state imperfections.

Are accountants happy to continue just talking

at many more discourses, conferences and

workshops but with the same take away

message that it is beyond accountants to

change the system? Do we continue to fuss

with process, leaving the very philosophy of

undertaking the process in the first place,

conveniently forgotten? Do we really believe

that we in Malaysia are insulated from the

financial turmoil of the world and continue to

tick the boxes as our standard operating

procedure in our zeal to comply with the rules

of corporate governance only? Or do we want

to proverbially join the dots to get the puzzle

solved by going back in origin?

The Journey Starts

A year ago this month, the maiden issue of the

MAREF Review was published. In that issue,

we shared the meaning of human governance,

the need to work towards making human

governance the eventual goal by practising

accountants and ended imploring accountants

to have faith in a journey that might seem

unclear then. Nearly a year has passed by too,

when human governance took to the world

stage at the World Congress of Accountants

(WCOA) 2010 following an earlier introduction

through the International Federation of

Accountants (IFAC) Articles of Merit platform.

And it has been more than three years since

the Malaysian Institute of Accountants (MIA)

first initiated the drive to promote human

governance through various publications both

in print and virally. What has happened since

then? Has human governance gone into the

syllabus of any accounting curriculum? Has

human governance penetrated practice yet?

Appreciating that business has taken over the

role of government in effecting human wellbeing,

we believe that eventually it is within the

business community that human governance

must find its abode.However, the educators

too, have a role to play. They must not typecast

themselves as agents to “stupidise” human as

chided by Bertrand Russell. Lest we have

forgotten, Russell reminded that, “Men are

born ignorant, not stupid, they are made stupid

by education.”

Armed with a very strong conviction for human

governance as the maingoverning principle

and corporate governance a consequence, we

continued with our journey, steadfast to the

cause, to bring back human governance into

the realm of business and education. What

transpired during the last one year gives us

hope that human governance does have a

future for corporate Malaysia.

In this article we share our story based on the

experiences in our journey to recover the lost

meaning of human in the landscape of

corporation – the artificial human. In this article,

we continue the sharing of our concern for an

effective roadmap in bringing back ethics

through inculcating human governance into the

equation of the accounting profession and

education.

Our Initial Hope

Feature

History shows that change, though always

claimed as but a constant, is on the other hand

the least practised. Hence, with human

governance, which is beyond just external

cosmetics but a revolutionary thinking

philosophy, we were not expecting a

groundswell for change. Yet, in light of the

efforts expended by MIA as the regulator of

Malaysiaʼs accounting profession culminating

with the WCOA 2010, which in effect means

that human governance has reached more

than 6,000 accountants globally, we could not

be blamed for harbouring a 2011 New Year

hope that at least a champion if not many from

the local accountantsʼ fraternity would emerge.

On our part, we continued disseminating the

message for human governance to a wider

audience including government agencies and

within our own institutions. We tried to fulfil

invitations for talks and training and at the

same time created room for human

governance as a topic during discussion with

potential collaborative partners, whether local

or from abroad. At a very minimum, if not

practised yet, we hope human governance will

continue to be the mantra of governance – a

frame of reference if not the main.

Our Discovery

If invitation as guest speakers is a measure of

success, we would say out rightly that our effort

has borne fruition. In fact, we have had a

difficult time declining many. But what we found

disconcerting was the lack of invitation from

academia, local that is.Between the two of us,

put together, the invitations we had received

mostly came from the corporate world and the

government machinery and interestingly also,

from consultants.

- Industry Practitioners

We were overwhelmed by the reception from

industry practitioners. The companies that

consulted us are mostly Government-linked

companies (GLCs). And, to be fair to the

accountantsʼ fraternity, all these GLCs are

headed by accountants. We can only say that

human governance has not only reached the

accountants but is now entering into the dawn

of a new beginning: that of actualisation –

made possible by some accountants!

The continuum of efforts ranges from the

creation of awareness of the human

governance concept and the inclusion of

human governance as training contents for

staff on one end to the initiation of programmes

to make human governance an agenda of

transformation in the culture of the organisation

on the other end. These accountant leaders

have exhibited full conviction for the

philosophical construct of human governance

MAREF REVIEW • 10


Feature

to be operationalized. Indeed they embody

authentic,real human leaders.

Although human governance in essence does

not need justification to be actualised, since as

human, it is only natural that we observe

human governance, the financial and debt

mega crisis at the global front has provided

further credibility to our call. Deep-rooted in the

saga is the ugly head of greed which if not

abated will only bring catastrophic impact.

Despite many organisations having made

compliance to rules almost a religion,

indications that these very organisations doubt

the ability of the rules to curb unethical

behaviour, abound. Judging from the

discussions with consultants, many

organisations appear no longer keen to seek

only temporary solutions to symptomatic

glitches. Transformation is the buzz word but

the kind that reaches the DNA of the

organisation. And towards that end, human

governance has found a place.

- Public Sector

Moving on to the public sector of government

ministries and other agencies, the reception if

not overwhelming, has indeed been

encouraging. With enhancing integrity as the

motivational drive, several ministries and

agencies have been consistently providing

human governance a dedicated slot in their

training programmes for middle and top

management decision makers. Recognising

the size of the government machinery, we do

not anticipate speedy transformation that

matches the efforts in the corporate world. But

the stance in not wanting to be passive

bystanders watching the wave of human

governance passes by is enough indication of

their sincerity to support the human

governance agenda. We are very much

comforted by such positive display of

commitment towards change by the respective

pool of public servants.

Now that the story regarding the acceptance of

human governance within the community of

business and government leaders has

unfolded, what is leftto be delved next is only

about academia.

- Academia

To put on record, since the WCOA 2010, on

aggregate, we have performed invitational

speakersʼ role on the subject of human

governance at twoprivate higher education

institutions while having to decline one from a

public university due to time mismatch. At our

own institutions though, human governance

has by now become a permanent feature, at

least as a spoken language. Interestingly, in

the Ministerial speech at the launching of the

second phase of the National Higher

Education Strategic Plan (PSPTN) 2011-2015

in June 2011, human governance was cited as

a niche area that local business schools could

11 • MAREF REVIEW

pursue. The call in particular, was for business

schools to hasten the strengthening of niche

areas different from the Western constructed

ones before they are made popular by others.

That human governance was identified in such

an auspicious event epitomises the

endorsement by the Ministry. With such

development, we stay hopeful that someday,

human governance would form the

underpinning of Malaysian higher education if

not for all programmes of study, at least for

accounting.

In the meantime, appreciating that the belief

system of academics is instrumental in order

for human governance to be embraced, we

embarked on a research to uncover

accounting educatorsʼ epistemological and

ontological stance of reality. Our justification is

that a belief system that is founded upon the

positivist framework shaped by classical

science tenets which views reality through the

lens of objectivity and external stimulus would

impede the faith for human governance. This

is because human governance as a guide to

human behaviour is about being internally

motivated to demonstrate good conduct.

Human governance is about accepting the

spiritual sentient being of human where

consciousness and conscience determine

oneʼs values rather than the material

mechanistic human. It is also about viewing the

universe as a web of interconnected

relationship instead of a collection of object for

which the behaviour is deterministic hence

predictable. In order to espouse human

governance, one would have to let go of the

legacy of material, linearity and cause-andeffect

mindset, among others mentioned

earlier. But in view of the accounting discipline

being steep in the tradition of classical science

of value-free, objectivity, standardisation and

compliance norms, accounting educators

would need phenomenal re-adjustment to

move to human governance. This is where the

contribution of our investigation especially lies

– seeking if indeed accounting educators,

having been exposed to the many writings on

human governance have now moved on to the

ontological pillar of subjectivity with human

being value-laden.

Generally, the 75 educator respondents

indicate their beliefs depicting a conviction to

the construct of ethics as that which is internal

and representing accountability to the Creator,

humankind and universe. They also view that

rightness and wrongness is determined by

Godʼs law. Their epistemological grounding

too, reflects a belief that knowing is when

meaning has reached the soul and that

experience is knowledge regardless of whether

it can be observed or not. The organisation is

viewed as made up of a web of relationship

between human and the world is volatile,

uncertain, complex and ambiguous. In short,

they indicate a belief for the spiritual human.

Yet, at the same time, almost all believe that

science is about objectivity and that scientific

approach in acquiring knowledge is for

generalisation – the Classical Newtonian

science frame of reference.

On the basis of the response provided by the

academic fraternity, we share our cause for

concern.

The above findings with the academic group

while showing consistency between their

epistemological worldview and perception of

ethics, reflect contradictory thinking paradigm

of science. Strangely, it appears that their

epistemological stance is not shaped by their

perception of science of objectivity. Perhaps

their epistemological bearing is founded upon

religion. The implication of this phenomenon is

deep and one which deserves a dedicated

discourse in a separate paper.

For the purpose of this discussion, suffice to

say that the findings imply that accounting

educators have not managed to migrate fully

to a thinking paradigm that reflects the reality of

the subjective world. To many accounting

educators, science is still about objectivity and

bifurcated from human nature which to them is

of internal non-material composition. This

enigma is in need of reconciliation. In the

Maiden MAREF Review, we broached the

issue regarding the development in science.

Here, we wish to only remind that the nonlocality

principle and the wave-particle duality

discovered in quantum physics since 1900 had

debunked the objectivity principle as the

general premise of science. Consciousness,

which was alien in the classical Newtonian

science now is a widely accepted

phenomenon, paralleling religion and ancient

traditions.

The HOPE continues

From the discussions in the preceding

sections, what can be concluded is that while

Malaysian accounting educatorsʼ

epistemological world view is appropriate and

relevant to the ethos of human governance,

their deep-set loyalty to objectivity may stand in

the way for full integration of human

governance in accounting education. Perhaps

such world views are also held by many other

accountants. Regardless, the fact that it is

practising accountant leaders who are leading

the way to implement measures to mainstream

human governance as a work culture makes

us believe that human governance is here to

stay. Our hope lives on …...

About the Authors

Arfah Salleh, PhD,

FCPA (Aust) & Aziuddin

Ahmad, PhD

Corresponding author:

arfahsalleh@gmail.com

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