Theory, Practice and Education
Edited by Mohamed Ariff and Munawar Iqbal
Chapter 7: Corporate Governance and Islamic Banks
Michael T. Skully 1.0 INTRODUCTION Corporate governance has been a buzzword of the decade with governments worldwide seeking to strengthen their rules and regulations on how the management and directors of publicly listed companies behave toward their shareholders. While much recent academic research has been directed at the impact of these changes – particularly the Sarbanes Oxley Act of 2002 – the governance of banks has received less academic attention. This is odd given that most researchers realise that banks are different and so exclude them from their samples. These differences are many and include such factors as the opaqueness and lack of transparency in bank operations and reporting, their excessively high leverage (two-centuries-old capital adequacy problem) compared to normal corporations, the presence of other stakeholders particularly depositors, their special regulatory treatment (special laws and regulators), any moral hazard issues related to deposit insurance and ‘too-big-to-fail’ policies, and all the important externalities associated with bank failure. If commercial banks are different, then Islamic banks are probably even more so. True, they have all of the characteristics of a commercial bank but some important differences too. This chapter examines Islamic bank governance in respect to its goals and objectives, Shari’ah supervisory boards, investment account holders, internal governance structure and external governance matters. 2.0 GOALS AND OBJECTIVES If Islamic banks are different from conventional commercial banks, then it is probably a result of the function of their goals and objectives. As Akhtar (2006, p. 2) explains, their uniqueness ‘stems from two principle elements: (i)...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.