ARTICLE REVIEW PRESENTATION FROM KNOWLEDGE TO WISDOM : THE CASE OF CORPORATE GOVERNANCE IN ISLAMIC BANKING AUTHORS : SAMY NATHAN (NEW YORK INSTITUTE OF TECHNOLOGY, BAHRAIN) VINCENT RIBIERE (NEW YORK INSTITUTE OF TECHNOLOGY, USA) (ARTICLE PUBLISHED IN THE JOURNAL OF INFORMATION AND KNOWLEDGE MANAGEMENT SYSTEMS, VOL 37 NO 4, 2007, pp 471-483) PREPARED BY : GHAZANA SAID ATAN
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Ø The existence of SSB is central for ensuringintegrity and credibility of IFIs (IFSB, 2005)
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Ø SSB acts as steward on behalf of equityholders as well as investors to protecttheir rights and ensure completetransparency between the two parties andthe management (Karim, 1990; Hassan,2001; Abdulla, 2001)
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Ø Role of SSB is vital in creating trust betweenIFIs and their stakeholders bydisseminating timely and sufficientinformation (financial and non-financial)
In the case of IFIs, the wisdom is “enforced” by the SSBwhich controls and supervises the transactions of the bankto ensure their compliance to the Shariah, and stakeholderstrust them because of their wisdom.
Question : How similar wisdom can beintegrated into western conventionalbanking?
Ø the pattern could be replicated byproviding more transparency, ethicalbehaviour, respect for stakeholdergroups and attempt to maximize social,environmental and economic goods thatare in fact the core components of
corporate social responsibility (CSR)Ø
A similar approach could be consideredby conventional banks if clear CSR
regulations were established, and if a CSRsu ervisor board was created
context of IFIs. A model was proposed thatpresents, through an intellectual capitalslens, how the SSB influences and impactsfirm’s performance. More importantly, SSBbrings about the concept of trust,
knowledge and wisdom.
The concept of CSR in the West is alsoemerging to demonstrate corporatewisdom to the organization’s operationsand goals.
This wisdom will help organizations togain a competitive advantage by not only
doing things the right way, but by doingthe ri ht thin s that will ultimatel
q The authors made a commendable effort toadapt the existing intellectual capitalmodel and applied it to the IFIs, where itshowed the different roles played by thetwo independent parties, i.e., BoD and
SSB, but with the same ultimate goal, i.e.,overall organization’s performance.However, the article does not explainfurther on the following aspects :
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the inter-relationship between the twoindependent parties
Ø what happens if there is any conflictbetween the decisions made by the twoparties? Which party will prevail – profit
q The article also tried to relate theunderlying concept of Islamic wisdom tocorporate governance, which was alsogaining popularity in the West which goesunder a different caption, i.e., corporatesocial responsibility (CSR). Unfortunately,not much is being addressed on corporategovernance or CSR.
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qMinimal literature review and too much
focus given to explain the intellectualcapital model, thus abandoning itsrelations to corporate governance and/orCSR of IFIs which is actually the mainpurpose of the article.
1.Elaboration of the corporate governance conceptand how it fits into the IFIs paradigm. Even within the conventional system,
corporate governance became a thornier issuewith respect to banks because first, banks are
generally more opaque than other financialinstitutions, which intensifies the agencyproblem. Secondly, banks are exposed to extremeregulations; and thirdly, government ownership of banks makes the governance of banks differentfrom other types of organisation.
2. The complications of practicing full corporategovernance in IFIs, especially when the law statesthat organizations and their management owefiduciary duties to their shareholders only, in
contradiction to fiduciary duties of Islamic banks
3. The comparative views of corporategovernance from mainstream and Islamicperspectives
In mainstream perspective, corporategovernance is driven by the objectivecriterion of competition and conflict in theshareholder wealth maximization objective;while in the case of Islamic corporate
governance, the conflict is overcome by theorganic participatory nature of the Shuraticprocess, where the social wellbeingcriterion replaces the criterion of maximization of shareholders wealth. Hencesystemic unity is sought both between the