Principles of Islamic corporate governance

While the focus of this chapter is on developing the basic principles of Islamic corporate governance, Islam in fact contains a set of general guidelines applicable to all forms of governance, whether it be governance of the economy, governance of the nation state and the public sector, or governance of market and state-owned enterprises, that is, corporate governance. Shura, hisba and the shari’a supervisory process and religious audit are the basic building blocks of a system of Islamic governance. The type of involvement implicit in shuratic decision-making procedures provides a vehicle for ensuring that activities and strategies are fully discussed and that a consensus-seeking consultative process is applied. The institution of hisba offers a framework of social ethics, with the objective of encouraging the correct ethical behaviour in the wider social context. It also empowers individual Muslims to act as ‘private prosecutors’ in the cause of better governance by giving them a platform for social action. The third pillar is the discipline provided by Islamic religious auditing, which is a device to solicit juristic advice, monitor compliance with Islamic precepts and collect zakat. The chapter explores the application of these principles in the context of the governance of corporations, in the process examining the differences between Islamic and conventional theories of corporate governance. It concludes by comparing the religiously derived principles with the practical reality of political and commercial life in Muslim countries.