An Examination of the Principles of Corporate Governance from an Islamic Perspective: Evidence from Pakistan

Abstract

AbstractThis article attempts and establishes a positive and direct link between Islamic law and the principles of corporate governance, using practical examples from the banking and finance industry. Several theoretical approaches are implemented to analyse the subject of corporate governance. Commentators have previously linked theories to explain the elements of corporate governance and its essential principles, ranging from board activities to internal control mechanisms such as auditing. Once proven that there is a link, this research attempts to analyse how well or how this Islamic approach to corporate governance is enriched within organisations based in Pakistan. However, at the same time, despite the Islamic element involving accountability to God and individual responsibilities under Islam as a religion, one finds immense similarities to the types of internal and external control mechanisms. There is a similarity in the way an Islamic organisation is counselled by the Shariah Supervisory Board just as a conventional Board would perform their actions. Similar problems are associated in organisations implementing Islamic principles of corporate governance. The main difference unearthed by this research is the element of religious beliefs. Pakistan as a country exemplifies how the development of corporate governance code is more inclined towards the Anglo-Saxon model than towards the Islamic perspective, despite a strong Islamic law background. However, this does not mean that one perspective is better than the other. It just illustrates the flexibility of the subject of corporate governance and its principles. The task to choose the type of principles to adhere to is entirely up to the region, culture, and the corporate structure.