Corporate Governance in Islamic Perspective

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The purpose of this research paper is to establish the differences that exist between the Islamic corporate governance and the mainstream orientation. Corporate governance is defined as, the processes, principles and rules that govern a corporation or a company in order for it to achieve its mission. Corporate governance is also determined by the relationship that exists among the various stakeholders in a corporation which in turn affects the goal of the corporation. Corporate governance in the Islamic context involves making of decisions by employing the socio-scientific epistemology of the Islam. On the other hand, Islamic epistemology is based on the divine existence of one God. Believe in the existence of one God; make the rules and instruments of corporate governance in the Islamic community to be functionally viable. This paper will therefore consider epistemology in the in relation to the unity of knowledge in the context of Islamic corporate governance. The paper will to explore the impact of the way in which CSR policies are implemented by the retail banking industry. In order to realize this, qualitative data will be collected by focus group discussion, in this case the retail banks. Discourse analysis will be used to analyze this data so as to determine whole how corporate governance in Islamic perspective differs with corporate governance in mainstream orientation.

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Literature review

Corporate governance in mainstream orientation

The internal integrity of a corporation is based upon certain legal and organizational structures which determine the level of corporate governance (Sullivan, 2006). Organizations are same as corporations and which are protected by the laws of a state or even these laws may extend internationally as may be accepted by the rules of globalization (Bowie & Duska, 1990). In the context of globalization, there are specific policies that protect organizations, for instance: Trade Related Investment Measures (TRIMS), environmental protection, transparency and corporate responsibility. These policies employ governance tools and methods to ensure that there is high level of transparency and accountability within organizations. Defining an organization, Arrow (1974) stated that, “an organization is a group of individuals seeking to achieve some common goals, or, in different language, to maximize an objective function” (p. 224). According to the author, each individual in an organization has objectives that are completely different from the rest. Additionally, each individual has a limit for making decisions depending on the external environment of the organization and also slightly influenced by the decisions of the other members.

The major objective of corporate governance is to develop an objective criterion of working. According to Bentham (1999) “an objective criterion is achieved by understanding the relations between critical variables supported by policies, programs and strategic coalitions (p. 67). This is later followed by the identification of the rules, strategies and policies to be employed in an organization. A corporation can determine proper policies, rules and strategies through a consensus process and also by proper exercise of instruments that may be used for the specific kind of a corporation (Bentham 1999). In order to develop a good working criterion, a firm should therefore establish multiple functions that are interlinked in a way that all the variables are considered in corporate governance. Such variables are: corporate governance, competition policy, job security, labor and wages and finally the relationship between demand and supply (Bloedorn & Chingos 1991).

According to Herbert (1987) “the method of developing an objective criterion for decision making in a firm can be referred to as satisfycing behavior (p. 203)”. Herbert identified three phases that are involved in the process of making decisions at the organizational level. The first phase involves intelligence activity and whose objective is to set up a favorable environment for the making of decisions. The second phase involves design whereby, the possible means of design are analyzed and identified. The third stage involves implementation of the specific course of actions that were identified at the design stage (Herbert, 1987). However, the two methods of making decisions for corporate governance are influenced by political-economic and socio-political factors which are referred to environing factors (Trainer, 2002).

Islamic perspective of corporate governance

Shuratic process is the methodology that is employed in decision making for corporate governance by the Islamic firms (Shaikh, 1987). In this case, socio-scientific systems are employed in both the institution and organizational corporate governance models. Since Islamic governance use the two models of decision making, Shuratic process can therefore be derived from the Islamic episteme. Dreyfus & Rainbow (1983) defined episteme as “the total set of relation that unite, at a given period, the discursive practices that give rise to epistemological figures, science, and possibly formalized systems” (p. 17). From this definition, episteme considers the total relations that can be possibly discovered between sciences when analyzed using discursive regularities over a given period of time (Choudhury, 1989).

Choudhury identified specific instruments and principles that govern the economic and social conducts of the Islamic institutions. Choudhury (1989) noted that, “in the environing domain, governance is imparted by the knowledge induction of the menus of production, consumption, resources distribution, income and wealth (p. 72)”.

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Opportunities for increasing CSR

Shuratic preference is a major concern in the process of developing an IIE-process which is recursive in order to achieve intra and inter governance systems (Shaikh, 1987). For the unity of systematic knowledge to by achieved, Shaikh identified the following governance instruments. Preference formation which is a tool geared towards avoiding waste during production, consumption and distribution of any kind of resources (Mawdudi, 1998). This is particularly useful in determining the inter-temporal ecological consciousness and also determines what sort of technology should be used (Haniffa, 2002). The interest rate is considered to be one sort of the social waste since the cost capital which is not used exists in the form of liquid savings (Chapra, 1992). Supporting this instrument Qureshi (1976) argued that, “the shuratic preference formation by discourse between corporation and the Islamic political economy phases out interest rate regimes and causes spending to arise by resource mobilization rather than savings, meant here in the sense of withdrawal of employable resources” (p. 112).

Research objectives

The objectives of this research paper were:

  1. Finding out how Islamic corporate governance differs from the mainstream governance.
  2. To find out what is an Islamic corporation and how it is governed in order to carry out operations that are effective and accountable to shareholders
  3. To explore how Islamic corporations achieve the objectives of corporate social responsibility

Research strategy

Qualitative data was used to gather information about the impacts of Islamic corporate governance on CSR. The research paper was carried out by reviewing the existing literature concerning the Islamic corporate governance. The literature composed of theoretical, foundational and the conceptual framework of corporate governance in the context of the Islamic corporations. The review of literature was followed by a brief discourse analysis of the components of the Islamic corporate governance instruments. The outcomes of the analysis revealed that, Islamic corporations employ governance instruments that are meant to ensure that social justice prevails across all the stakeholders including those who are not members. Social justice to the non-stakeholders was found out to be achieved through corporate social responsibility.

Anticipated result

The impacts of the Islamic corporate governance on CRS are likely to make positive contributions to the stakeholders in the retail banking. Stakeholders in this case include: the employees, government institutions and the general public. Corporations like retail banks employ policy makers to make decisions regarding the needs of the beneficiaries of the CSR programs. As a result of this, institutions can feel as being participants of the implementation of the CSR programs.

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References

  1. Arrow, K.J., 1974. The Limits of Organizations, New York: The Monthly Press.
  2. Bentham, J., 1999. An Introduction to the Principles of Morals and Legislations, London: Paynes and Sons.
  3. Bloedorn, J., & Chingos, P., 1991. Executive Pay and Company Performance. Scottsdale, AZ: American Compensation Association.
  4. Bowie, N., & Duska, R., 1990. Business Ethics. New Jersey: Prentice Hall.
  5. Chapra, U., 1992. Islam and the Economic Challenge, Leicester, UK: The Islamic Foundation
  6. Choudhury, M., 1989. Islamic Economic Co-operation, London: Macmillan.
  7. Dreyfus, H., and Rainbow, P., 1983. Beyond Structuralism and Hermeneutic: The Archeology of the Human Sciences, Chicago: Chicago University Press.
  8. Guyatt, D., & Juravle, C., 2007. Responsible Investment. London: Paynes and Sons.
  9. Haniffa, R., 2002. Social Reporting Disclosure: An Islamic Perspective, Indonesian Management and Accounting Research, Vol. 1 (2): pp. 128-146.
  10. Herbert, S. 1987. “Decision making and organizational design”. London: Harmondsworth Press.
  11. Sullivan, R., 2006. An Introduction to Corporate Environmental Management Striving for Sustainability. London: Macmillan.
  12. Mawdudi, S., 1998. Towards Understanding the Quran: Leicester, UK: The Islamic Foundation.
  13. Qureshi, A., 1976. Islam and the Theory of Interest, Lahore: Ashraf Publication.
  14. Shaikh, M., 1987. Ethics of Decision Making in Islamic and Western Environments, The American Journal of Islamic Social Sciences, 5 (1): 41-7.
  15. Trainer, T., 2002. Two common mistakes about globalization, Journal of Humanomics, 18, (2): 1-8.

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DemoEssays. (2022, February 23). Corporate Governance in Islamic Perspective. Retrieved from https://demoessays.com/corporate-governance-in-islamic-perspective/

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"Corporate Governance in Islamic Perspective." DemoEssays, 23 Feb. 2022, demoessays.com/corporate-governance-in-islamic-perspective/.

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DemoEssays. (2022) 'Corporate Governance in Islamic Perspective'. 23 February.

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DemoEssays. 2022. "Corporate Governance in Islamic Perspective." February 23, 2022. https://demoessays.com/corporate-governance-in-islamic-perspective/.

1. DemoEssays. "Corporate Governance in Islamic Perspective." February 23, 2022. https://demoessays.com/corporate-governance-in-islamic-perspective/.


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DemoEssays. "Corporate Governance in Islamic Perspective." February 23, 2022. https://demoessays.com/corporate-governance-in-islamic-perspective/.