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ARTICLE REVIEW PRESENTATION

FROM KNOWLEDGE TO WISDOM : THE CASE

OF CORPORATE GOVERNANCE IN ISLAMICBANKINGAUTHORS :

SAMY NATHAN (NEW YORK INSTITUTE OF TECHNOLOGY, BAHRAIN)

VINCENT RIBIERE (NEW YORK INSTITUTE OF TECHNOLOGY, USA)

(ARTICLE PUBLISHED IN THE JOURNAL OF INFORMATION ANDKNOWLEDGE MANAGEMENT SYSTEMS, VOL 37 NO 4, 2007, pp 471-483)

PREPARED BY : GHAZANA SAID ATAN



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ِم ِحي ّر ِن ل ـ َ ح ّر ِه ل ل م ِ س ٱِب ٰ ۡ ٱ ٱ ۡ

(In the name of Allah, theBeneficent,

the Merciful)



CONTENT OF PAPER

IN T R O D U C T IO N

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

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

C O N C LU S IO N



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PRESENTATION OUTLINE :



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PART ONE

SUMMARY OF

ARTICLE



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INTRODUCTION

IFIs are radically different from theirconventional counterparts in majoraspects such as foundation,

management and products

IFIs also operate under a differentstructure of corporate governance than

the one used in conventional banking :Ø obliged to appoint a board of Islamic

scholars, i.e., ShariahSupervisoryBoard (SSB)



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RESEARCH QUESTIONS

Research objective :

Ørole of SSB in corporate governance of IFIs



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LITERATURE REVIEW

Ø The existence of SSB is central for ensuringintegrity and credibility of IFIs (IFSB, 2005)

•

•

Ø SSB acts as steward on behalf of equityholders as well as investors to protecttheir rights and ensure completetransparency between the two parties andthe management (Karim, 1990; Hassan,2001; Abdulla, 2001)

•

•

Ø Role of SSB is vital in creating trust betweenIFIs and their stakeholders bydisseminating timely and sufficientinformation (financial and non-financial)



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INTELLECTUAL CAPITAL

The concept of Intellectual Capital iscalled/identified as :

Ø goodwill (Brooking, 1996)

Øknowledge that can be converted intoprofit and increases the value of the

firm (Wiig, 1994)

Ø by-product of organizational designthat is aligned with organizational

success (Sullivan, 1998)

Ø intangible assets or knowledge assets(Lev, 2001)

Recently, INTELLECTUAL CAPITAL



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INTELLECTUAL CAPITAL MODEL OFIFIs

Individualcomponent Codified

knowledge

Represents internal andexternal environmental factor



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FROM KNOWLEDGE TOWISDOM

WISDOM = KNOWLEDGE + ETHICS + ACTION

In the case of IFIs, the wisdom is “enforced” by the SSBwhich controls and supervises the transactions of the bankto ensure their compliance to the Shariah, and stakeholderstrust them because of their wisdom.



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CONT’D

Question : How similar wisdom can beintegrated into western conventionalbanking?

Ø the pattern could be replicated byproviding more transparency, ethicalbehaviour, respect for stakeholdergroups and attempt to maximize social,environmental and economic goods thatare in fact the core components of

corporate social responsibility (CSR)Ø

A similar approach could be consideredby conventional banks if clear CSR

regulations were established, and if a CSRsu ervisor board was created



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FINDINGS

1.The proposed model conceptualizes theneed and benefits for organizations notonly to better manage knowledge, butalso to manage it in a wiser way

2.3.The concept of trust, knowledge and

wisdom brought about by the SSB addsvalue to the role of BoD in the context of IFIs, thus influencing the organization’s

performance4.5.Even the conventional organizations in the

West are adopting the CSR approach and

demonstrate that they can be profitableand ethical at the same time



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CONCLUSION

SSB adds value to the BoD in the

context of IFIs. A model was proposed thatpresents, through an intellectual capitalslens, how the SSB influences and impactsfirm’s performance. More importantly, SSBbrings about the concept of trust,

knowledge and wisdom.

The concept of CSR in the West is alsoemerging to demonstrate corporatewisdom to the organization’s operationsand goals.

This wisdom will help organizations togain a competitive advantage by not only

doing things the right way, but by doingthe ri ht thin s that will ultimatel



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PART TWO

CRITICAL REVIEW OFARTICLE



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CRITICAL REVIEW

q The authors made a commendable effort toadapt the existing intellectual capitalmodel and applied it to the IFIs, where itshowed the different roles played by thetwo independent parties, i.e., BoD and

SSB, but with the same ultimate goal, i.e.,overall organization’s performance.However, the article does not explainfurther on the following aspects :

Ø

the inter-relationship between the twoindependent parties

Ø what happens if there is any conflictbetween the decisions made by the twoparties? Which party will prevail – profit

versus religion?



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CONT’D

q The article also tried to relate theunderlying concept of Islamic wisdom tocorporate governance, which was alsogaining popularity in the West which goesunder a different caption, i.e., corporatesocial responsibility (CSR). Unfortunately,not much is being addressed on corporategovernance or CSR.

q

qMinimal literature review and too much

focus given to explain the intellectualcapital model, thus abandoning itsrelations to corporate governance and/orCSR of IFIs which is actually the mainpurpose of the article.

q

AREAS OF



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AREAS OFIMPROVEMENT

1.Elaboration of the corporate governance conceptand how it fits into the IFIs paradigm. Even within the conventional system,

corporate governance became a thornier issuewith respect to banks because first, banks are

generally more opaque than other financialinstitutions, which intensifies the agencyproblem. Secondly, banks are exposed to extremeregulations; and thirdly, government ownership of banks makes the governance of banks differentfrom other types of organisation.

2. The complications of practicing full corporategovernance in IFIs, especially when the law statesthat organizations and their management owefiduciary duties to their shareholders only, in

contradiction to fiduciary duties of Islamic banks



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CONT’D

3. The comparative views of corporategovernance from mainstream and Islamicperspectives

In mainstream perspective, corporategovernance is driven by the objectivecriterion of competition and conflict in theshareholder wealth maximization objective;while in the case of Islamic corporate

governance, the conflict is overcome by theorganic participatory nature of the Shuraticprocess, where the social wellbeingcriterion replaces the criterion of maximization of shareholders wealth. Hencesystemic unity is sought both between the



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CONT’D

4. To include the potential areas of valueadded in corporate governance , inter alia :

a)corporate evolution – since organizationsevolve, the BoD needs to assess thechange and has to balance and managesuch change accordingly

b)value and code of conduct of everyone inthe organization

c)transparency and accountability

d)effectiveness of core processes

e)personnel choices, especially selection of top management and setting incentive

plan



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اوصلبمعأهلا

(Allah Knows Best)

THANK YOU

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