A. Explain what you understand by corporate governance.

The Organisation of Economic Co-operation and Development has defined it as the "set

of relationships between a company’s management, its board, its shareholders and other

stakeholders" This is a value neutral definition in the normal tradition of Economics and

does not indicate the objective of corporate governance, which is bound to be value

oriented.

Corporate governance is process which implements by the Board in order to manage

structure of organization, it also observer the activities of the organization toward the

success of its objectives. Corporate governance main propose make honest

relations among shareholders, boards of directors and managing directors.

The aim of the governance is explain the role and work of the board of executives

and manager of enterprises and therefore make it easier for them to fulfill their

responsibilities. However it is significant that the corporate should accept its

obligations and takes good practice working way and actions, by following this

enterprise will be able to make trustful relation with general public.

Companies need to be more transparent in their business processes and it’s only

possible when companies follow good corporate governance practice, it’s not

possible to establish truthful and effective institution without governance. Without it

institutions are considered unethical or nepotism.

Corporate governance is processes which controls the institute with vision of

reaching long term objectives and satisfy the investors, consumers and its
employees, and following authorized regulatory necessities.

B. Discuss the particular features of corporate governance in the case of

financial institutions.
The corporate governance industry is growth business. Management view of the

institution is not always same as the way corporate governance wants to control the

structure of the institution. Sometimes management day to day judgments can bring

poor results, which didn’t essentially direct to structural failure. Management failure is

not always based on governance, these two are separate. Enron failures have been

construed as governance failure in some recent corporate failures in the UK, but

basically it was a consequence of incorrect policies. There is not a single code of

governance which will defend you totally from strategic inaccuracy. Thus it is not

possible in financial institutions to build comprehensive theory of the sources of

success by individuals. But seem likely to be that one can draw out the risks of

uncertainly for institution.

Particular feature of corporate governance in the case of financial institutions, to

regulate the Board of Directors and all other sub-committees.

BOARD OF DIRECTORS

Board of directors got more responsibility and main power in any financial institution
among investors meetings. The leading part of the board can be summed up in the
following way.

 Board is responsible to direct and supervise the institutions concerns for success of
institution.
 Its board’s responsibility to set the value and principles for growth of institution,
and also short as well as long term aims.
 Board need to ensure that the institute’s obligations are understand and met the
shareholders trust.

Board of directors need to understand their duties, and they must have necessary

knowledge and experience. Unfortunately, directors do not necessarily play their roles

effectively. There are a number of reasons for this. One of these is that Board members
may not always have the professional competence and the moral integrity that are needed

to manage a financial institution.

C. Discuss the additional aspects of corporate governance applicable or Islamic

Financial Institutions and how they may affect the governance of these
institutions.

Corporate structures as well as the environment for governance vary widely from

country to country; the principles of corporate governance cannot be a 'one size fits

all' proposition. A number of factors, including the social values, the political climate,

and the laws of the country, the regulatory and supervisory framework, and the

accounting system determine the business and legal environment for corporate

governance and need to be taken into account. Together they determine issues like

protection of shareholder rights and enforceability of contracts that are exogenous

to the financial institution. Therefore, while good corporate governance is essential

for all financial institutions, the principles related to it need to be applied in a flexible

way to be in harmony with the varying environment and individual circumstances of

financial institutions. This implies that good corporate governance is not just a matter

of complying with a number of hard and fast rules.

Within an Islamic financial institution, just as in a conventional one, the key players

who can be directly held responsible for establishing sound corporate governance

practices are the Board of Directors, the Management, the auditors and the Shariah
Board. The Board is responsible for the operations of the institution on behalf of the

shareholders, depositors and other stakeholders. The most important stakeholder in

case of Islamic Finance is Islam itself. If the institutions do not perform well, those

who assume that Islamic system to be out of tune with the modern world may try to

blame Islam for the poor performance of these institutions even though Islam may

itself have nothing to do with it. The Sharia Board is expected to assure that the

operations so the institution conforms to the principles of Islam. The auditors must

ensure the preparation of financial statements in compliance with international

practices as well as the policies, rules, and regulations of the institution.