The Garden of Knowledge

بسم الله الرحمن الرحيم

24 Dhul Qa’dah 1446 / 23 May 2025

All praise is due to Allah, the Cherisher, Sustainer, Nourisher and Provider of the entire creation. May peace, blessings and salutations be upon our Beloved Prophet Muhammed ﷺ.

Corporate governance is a broad phrase that refers to a variety of difficulties arising from interactions between senior management, shareholders, the board of directors, and other corporate stakeholders. In its most basic meaning, the phrase can refer to a formal system of senior management openness and accountability to shareholders. (Investopedia, 2021)

A company’s direction and control are governed by a set of rules, procedures, and processes known as corporate governance. Corporate governance is balancing the interests of a company’s various stakeholders, including shareholders, top management executives, consumers, suppliers, financiers, the government, and the general public.

Corporate governance involves nearly every aspect of management, from action plans and internal controls to performance assessment and corporate transparency, because it offers the foundation for achieving a company’s objectives.

Definition of Corporate Governance: “A set of relationships between a company’s management, its board, its shareholders and other stake-holders. Corporate Governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.”

1. How do Muslims conduct business in terms of ICG

Islam is a religion that encompasses more than just a set of beliefs. Rather, it describes the style of life of the Prophet Muhammad ﷺ and his companions, as well as those who came after them. Even in the complex field of finance, an Islamic answer exists to give the world with a Shariah-compliant and ethical solution. Islamic financial organizations have an advantage in terms of ethics because of their nature. To be considered an Islamic financial institution, it must be free of interest, gambling, uncertainty, and other Islamic prohibitions. However, other Islamic ideals such as fairness, justice, accountability, openness, and others should be incorporated into an Islamic financial institution’s corporate governance system.

The Quran provides us with guidance on this matter in the following verse:

وَلَا تَأْكُلُوٓا۟ أَمْوَٰلَكُم بَيْنَكُم بِٱلْبَـٰطِلِ وَتُدْلُوا۟ بِهَآ إِلَى ٱلْحُكَّامِ لِتَأْكُلُوا۟ فَرِيقًا مِّنْ أَمْوَٰلِ ٱلنَّاسِ بِٱلْإِثْمِ وَأَنتُمْ تَعْلَمُونَ

Do not consume one another’s wealth unjustly, nor deliberately bribe authorities in order to devour a portion of others’ property, knowing that it is a sin. [Surah Baqarah, Verse 188]

The stakeholder relationship concept of corporate governance, which emphasizes promoting the interests of a broader set of stakeholders, is prominently emphasized in the King Code on Corporate Governance. Only after the world was jolted by the financial crisis have ethical issues been given considerable attention. Accountability, openness, fairness, and responsibility are ethical values drawn from human interaction and society standards, and are now basic building blocks of every corporate governance architecture. An Islamic ethical framework, on the other hand, is based on the divine book of the Quran and Prophet Muhammad’s ﷺ way of life.

The following are some ethical issues that could be included in a corporate governance framework from an Islamic perspective:

(1) Justice – This necessitates that all individuals act in a just and equitable manner toward one another.

(2) Trust – Justice is extended into trust when people recognizes that they are God’s vicegerents and are responsible to Him for all of their activities.

(3) Benevolence – the concept of benevolence is to motivate someone to go above and beyond their responsibilities in order to deliver the finest service possible, knowing that God is always watching.

This concept assumes that all stakeholders will work together for the organization’s benefit, not only for their own personal interests.

Islamic financial institutions must have a comprehensive governance policy framework that outlines the strategic duties and activities of each organ of governance, as well as procedures for balancing the Islamic financial institution’s responsibilities to various stakeholders.

Islamic Account Holders (IAH) have the right to monitor the performance of their investments and the risks associated with them, and Islamic financial institutions must recognize this right and put in place suitable measures to guarantee that it is exercised.

Material and relevant information on the investment accounts that Islamic financial institutions administer must be disclosed to IAH and the public in a timely and adequate manner. Due to the distinctive profit and risk-sharing characteristic of accounts based on Mudharabah contracts, the nature of investment accounts and their operations must be adequately explained. Such disclosure will provide investment account holders confidence in their risk exposure as well as the rationality of their rate of return.

In conclusion it is important for Muslims to ensure that they apply the concepts of corporate governance in their day to day businesses. As Muslims, we are supposed to set the tone in this regard and we are supposed to lead the way and guide those that are out of the fold of Islam towards Islam with our behaviour and business practice.

May Allah accept our efforts from us and grant us understanding In Sha Allah!