Corporate Governance And Stakeholder Management: An Islamic Perspective

Year: 2011

Sound corporate governance practices have become essential for efficient, viable and sustainable growth of Islamic financial institutions. Accordingly, there is a shift from the traditional shareholder value centred view of corporate governance in favour of a corporate governance structure that looks after the interest of a wider circle of stakeholder. Extant literature suggests that a good corporate governance practices depends on how well companies manage the diverse expectations and interests of various stakeholder groups. Nevertheless Western scholars have noted that constructing a model to devise a principle for making trade-offs among diverse stakeholders is the toughest problem of ethics that usually emerged. For Islamic financial institutions, this issue becomes more acute especially when corporate governance objectives would include reassuring stakeholders that they are likely to receive a fair return on their investments and equally important, that the business practices are in conformity with Shari’ah. This paper, therefore attempts to address this issue by providing Shari’ah prescription that provides a framework for managers to resolve problems arising from potential conflicting responsibilities towards various stakeholders. In particular, the pyramid of maslahah may serve as a viable and effective model to devise a decision framework for managing conflicts and interest of various stakeholder groups.


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