Corporate Social Responsibility ("CSR") is a strategic management concept through which a company achieves a balance of economic, environmental and social imperatives, whilst still addressing the expectations of shareholders and stakeholders. A stakeholder is often generalised as an individual or a group that is affected by the organisation's policies or actions, such as employees, customers, suppliers and the community within which the corporation operates.

The concept of CSR addresses environmental management, ecoefficiency, responsible sourcing, stakeholder engagement, labour standards and working conditions, employee and community relations, social equity, gender balance, human rights, good governance and anticorruption measures.

CSR CLAUSES ARE OF LIP SERVICE

Contract clauses are included in a contract with reference to legal principles; be it the identification of parties and subject matters of the contract, structuring of payment methods and timelines, and other relevant expressions of legal principles, precedents and applicable laws; for example, S40 of the Contracts Act 1950 provides for the effect of a refusal of a party to perform the promise wholly. This would be embodied into a contract by way of breach and termination clauses, which would attract obligations and liabilities for the parties of a contract.

Unlike other clauses in a contract which are derived from legal principles and the law, CSR clauses are derived from frameworks such as those provided by Bursa Malaysia (Malaysian Code on Corporate Governance 2012) or the Companies Commission of Malaysia (Corporate Social Responsibility Agenda 2009) for the implementation of CSR initiatives. Such frameworks provide companies with scorecards and guidelines to measure the effectiveness of their proposed CSR policies and evaluate the CSR ideas propounded. It is opined that a CSR clause does not attract obligations and liabilities in the same manner as other clauses of a contract. It is a clause of lip service because it has no actual legal implications and therefore is not a contract clause in the strictest sense for the reasons stated below.

A CSR clause merely encapsulates the vision or manner in which the party wishes to carry out the strategic management concept of the business as a long term business plan. Whilst clauses that are derived or based on law governs the rights and liabilities of business practices that arise from execution of the business plan, the business plan of a company does not give rise to rights and liabilities unless they are codified under statute or embodied as a condition or warranty under the contract. Some laws of Malaysia are based on and/or have arisen due to the principles from CSR general practices in determining labour standards and working conditions. For example, the implementation of the Industrial Relations Act 1967 found its roots in CSR principles, and the Act has been utilized by the Industrial Courts of Malaysia to reach their judgments.

However, it should be noted that although CSR principles are more often than not encapsulated in our statutes, the enforcement of such practices in Malaysia are a separate matter altogether. The prominent case of Zakaria bin Abdullah v Lembaga Perlesenan Tenaga Atom [2013] 5 MLJ 206 where a judicial review proceedings were instituted against Lynas Corporation by Kuantan residents regarding the disposal of radioactive wastes in Malaysia illustrated that the parties should not have initiated a judicial review application in the Malaysian courts but exhaust the internal appeal procedure that was provided in the Atomic Energy Licensing Act 1984 instead. Thus, although some CSR practices are encapsulated in statute, it does not mean that the enforcement of such CSR practices is within the jurisdiction of the Malaysian Courts.

Hence, if CSR clauses are not law and does not attract rights and liabilities under the contract, what is the purpose of including a CSR clause in a contract?

CSR CLAUSES ARE OF SERVICE

CSR goes beyond mere compliance with the applicable legal and regulatory requirements and the safeguarding of financial interests of the shareholders and stakeholders.

Bursa Malaysia is one of the driving forces behind CSR for listed companies in Malaysia as listed companies are required to submit reports detailing their compliance in accordance with the Malaysian Code on Corporate Governance 2012 and Part A of Appendix 9C (paragraph 29) of the Listing Requirements which states, "A description of the corporate social responsibility activities or practices undertaken by the listed issuer and its subsidiaries or if there are none, a statement to that effect." Whilst this is of great service to shareholders and stakeholders, there are no sanctions for noncompliance with CSR practices. Instead, shareholders and the general public as stakeholders are allowed to judge for themselves the conduct of the companies.

The CSR frameworks and guidelines are arguably of service to shareholders when assessing whether a director of a company is acting in the best interest of the company by virtue of the Companies Act 1965. For example, S132(1) of the Companies Act 1965 provides that: "A director of a company shall at all times exercise his powers for a proper purpose and in good faith in the best interest of the company." The term "best interest of the company" is difficult to define and determine, but CSR frameworks and regulations, or a company's CSR policy can provide corporations guidelines and key areas which will be of great assistance to parties when determining whether directors are indeed ensuring that the best interests of a company are taken into account. It can be surmised that CSR practices are merely instructive and not conclusive, as it is not utilised to date by the Malaysian courts to determine whether a director is guilty of a breach of fiduciary duties towards the company.

As illustrated above, CSR practices are of service but CSR clauses do not have the force of law nor enforcement or application by the Malaysian Courts of law. Such clauses will be of lip service in a contract in a strict legal sense but will be of service for the shareholders and stakeholders of a contract to determine whether the company has a management concept crucial to a company's sustainability.

CSR CLAUSES TO BE ON PAR WITH OTHER CONTRACT CLAUSES

Whilst it is clear that CSR clauses have no legal weight in a contract, its qualitative weight reaps benefits that cannot be quantified. Should the parties to a contract determine and provide for CSR clauses to be enforced in the same manner as all other clauses of the contract, then a CSR clause will not only be of service but also carry legal weight in a contract. CSR clauses are often included in a contract by parties in the manner of a standalone or severable clause. However, if parties were to implement CSR clause(s) as an essential term of the contract to the extent that it is a condition of a contract, it can be enforced by the Malaysian courts in the same manner as all other contract clauses by the provisions of Contracts Act 1950.

In conclusion, whether CSR clauses are of service or mere legal lip service in a contract is dependent on the intention of the parties of the contract and the choice of implementation of the CSR practices. Thus, considering the merits that can be reaped from implementing CSR practices as a condition of the contract, parties should determine the manner of implementing CSR clauses in their contract, for whether CSR clauses are of lip service, of service or enforceable is entirely up to the parties to the contract.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.