ARTICLE REVIEW PRESENTATION

FROM KNOWLEDGE TO WISDOM : THE CASE

OF CORPORATE GOVERNANCE IN ISLAMIC
BANKING
AUTHORS :
SAMY NATHAN (NEW YORK INSTITUTE OF TECHNOLOGY, BAHRAIN)
VINCENT RIBIERE (NEW YORK INSTITUTE OF TECHNOLOGY, USA)

(ARTICLE PUBLISHED IN THE JOURNAL OF INFORMATION AND

KNOWLEDGE MANAGEMENT SYSTEMS, VOL 37 NO 4, 2007, pp 471-483)

PREPARED BY : GHAZANA SAID ATAN

  ِ ‫ن ٱلّر‬
ِ ‫حيم‬ ِ ‫م ٰـ‬
َ ‫ب ِ ۡسم ِ ٱللهِ ٱلّر ۡح‬


 (In the name of Allah, the

Beneficent,
 the Merciful)


2
CONTENT OF PAPER
IN T R O D U C T IO N

R E S E A R C H Q U E S T IO N S

L IT E R A T U R E R E V IE W

C O N C LU S IO N
PRESENTATION OUTLINE :

4
 PART ONE

SUMMARY OF
ARTICLE

5
 INTRODUCTION

 IFIs are radically different from their

conventional counterparts in major
aspects such as foundation,
management and products


 IFIs also operate under a different

structure of corporate governance than
the one used in conventional banking :
Ø obliged to appoint a board of Islamic
scholars, i.e., ShariahSupervisory
Board (SSB)

6

RESEARCH QUESTIONS
Research objective :
Ørole of SSB in corporate governance of IFIs

7
 LITERATURE REVIEW
Ø The existence of SSB is central for ensuring
integrity and credibility of IFIs (IFSB, 2005)
•
•
Ø SSB acts as steward on behalf of equity
holders as well as investors to protect
their rights and ensure complete
transparency between the two parties and
the management (Karim, 1990; Hassan,
2001; Abdulla, 2001)
•
•
Ø Role of SSB is vital in creating trust between
IFIs and their stakeholders by
disseminating timely and sufficient
information (financial and non-financial) 8
 INTELLECTUAL CAPITAL


The concept of Intellectual Capital

 is
called/identified as :
Ø goodwill (Brooking, 1996)
Ø knowledge that can be converted into
profit and increases the value of the
firm (Wiig, 1994)
Ø by-product of organizational design
that is aligned with organizational
success (Sullivan, 1998)
Ø intangible assets or knowledge assets
(Lev, 2001)


 Recently, INTELLECTUAL CAPITAL 9

 INTELLECTUAL CAPITAL MODEL OF
IFIs

Individual
component Codified
knowledge

Represents internal and

external environmental factor

10
FROM KNOWLEDGE TO
WISDOM
WISDOM = KNOWLEDGE + ETHICS + ACTION

In the case of IFIs, the wisdom is “enforced” by the SSB

which controls and supervises the transactions of the bank
to ensure their compliance to the Shariah, and stakeholders
trust them because of their wisdom.
11
 CONT’D

Question : How similar wisdom can be
integrated into western conventional
banking?
Ø the pattern could be replicated by
providing more transparency, ethical
behaviour, respect for stakeholder
groups and attempt to maximize social,
environmental and economic goods that
are in fact the core components of
corporate social responsibility (CSR)
Ø
 A similar approach could be considered
by conventional banks if clear CSR
regulations were established, and if a CSR 12
supervisory board was created
FINDINGS
1.The proposed model conceptualizes the
need and benefits for organizations not
only to better manage knowledge, but
also to manage it in a wiser way
2.
3.The concept of trust, knowledge and
wisdom brought about by the SSB adds
value to the role of BoD in the context of
IFIs, thus influencing the organization’s
performance
4.
5.Even the conventional organizations in the
West are adopting the CSR approach and
demonstrate that they can be profitable 13
and ethical at the same time
 CONCLUSION

SSB adds value to the BoD in the
context of IFIs. A model was proposed that
presents, through an intellectual capitals
lens, how the SSB influences and impacts
firm’s performance. More importantly, SSB
brings about the concept of trust,
knowledge and wisdom.


 The concept of CSR in the West is also

emerging to demonstrate corporate
wisdom to the organization’s operations
and goals.


 This wisdom will help organizations to

gain a competitive advantage by not only
doing things the right way, but by doing14
the right things that will ultimately
 PART TWO

CRITICAL REVIEW OF
ARTICLE

15
CRITICAL REVIEW
q The authors made a commendable effort to
adapt the existing intellectual capital
model and applied it to the IFIs, where it
showed the different roles played by the
two independent parties, i.e., BoD and
SSB, but with the same ultimate goal, i.e.,
overall organization’s performance.
However, the article does not explain
further on the following aspects :
Ø the inter-relationship between the two
independent parties
Ø what happens if there is any conflict
between the decisions made by the two
parties? Which party will prevail – profit
versus religion? 16
CONT’D
q The article also tried to relate the
underlying concept of Islamic wisdom to
corporate governance, which was also
gaining popularity in the West which goes
under a different caption, i.e., corporate
social responsibility (CSR). Unfortunately,
not much is being addressed on corporate
governance or CSR.
q
q Minimal literature review and too much
focus given to explain the intellectual
capital model, thus abandoning its
relations to corporate governance and/or
CSR of IFIs which is actually the main
purpose of the article.
q 17
AREAS OF
IMPROVEMENT
1. Elaboration of the corporate governance concept
and how it fits into the IFIs paradigm.
 Even within the conventional system,
corporate governance became a thornier issue
with respect to banks because first, banks are
generally more opaque than other financial
institutions, which intensifies the agency
problem. Secondly, banks are exposed to extreme
regulations; and thirdly, government ownership of
banks makes the governance of banks different
from other types of organisation.


2.
 The complications of practicing full corporate
governance in IFIs, especially when the law states
that organizations and their management owe
fiduciary duties to their shareholders only, in
contradiction to fiduciary duties of Islamic banks
18
CONT’D
3.
 The comparative views of corporate
governance from mainstream and Islamic
perspectives


 In mainstream perspective, corporate

governance is driven by the objective
criterion of competition and conflict in the
shareholder wealth maximization objective;
while in the case of Islamic corporate
governance, the conflict is overcome by the
organic participatory nature of the Shuratic
process, where the social wellbeing
criterion replaces the criterion of
maximization of shareholders wealth. Hence
systemic unity is sought both between the 19
CONT’D
4.
 To include the potential areas of value
added in corporate governance , inter alia :


a)corporate evolution – since organizations

evolve, the BoD needs to assess the
change and has to balance and manage
such change accordingly
b)value and code of conduct of everyone in
the organization
c)transparency and accountability
d)effectiveness of core processes
e)personnel choices, especially selection of
top management and setting incentive
plan 20
 THANK YOU
 ‫بالصواب أعلم والله‬


 (Allah Knows Best)



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