The Cass MBA Perspective: Corporate Governance

A big welcome to this special corporate governance edition of the Cass MBA Perspective eNewsletter – all the way from Dubai. In this issue, we tackle many of the current disputes surrounding corporate governance, with features and articles from students, lecturers and alumni.

There’s a great feature by Santiago, one of our London students who took part in the UAE International Study Tour. This tour offers MBA students an opportunity to visit Dubai and Abu Dhabi, giving them the opportunity to enjoy all it has to offer, while finding out more about how business operates differently compared to the UK.

The tour has a financial focus and includes meetings at the Dubai International Financial Centre. At these meetings, several influential speakers cover the historical and cultural context of Dubai, along with an economic and political overview of the region. On this year’s tour, Nick Nadal, Head of Hawkamah (Institute for Corporate Governance in Dubai) gave an excellent overview of corporate governance in Dubai.

Corporate governance, in short, is the system that oversees and directs any large company. In this edition, Tim Travers (Cass EMBA Dubai alumus) examines the Shariah governance systems of Islamic financial institutions in different countries – and how they work in practice.

The Cass network helped Tim get his Business Mastery Project recognised by one of the leading Islamic Financial Institutions regulators, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). His highly relevant and informative research led to an invitation to sit on the subcommittee of the AAOIFI, responsible for corporate governance.

The Cass Executive MBA in Dubai prepares students for business in the Middle East and its neighbouring regions – allowing students to tailor their studies to match their career goals. They can choose from specialist streams, including Leadership and Change Management, Islamic Finance, Mainstream Finance, Entrepreneurship and Energy. The qualification offers excellent grounding for business in Dubai and the wider region.

I hope you enjoy this edition of the Cass MBA perspective newsletter. Don’t forget to comment and share your views on articles you find interesting.

Ehsan Razavizadeh 

Regional Director, MENA & Head of Dubai Centre

Shari'ah governance systems: An international comparative study

Shari’ah corporate governance, in its broadest terms, is the single most important current issue for the Islamic finance and insurance industries. There are many current drivers towards further developments. The global financial system continues in a state of flux and is not without further threats and stresses. Infrastructural changes to the way such a system works, and should work, have been, and remain, a source of major debate. An alternative, or parallel, financial system based on Islamic economic principles is one option. 

Corporate governance is generally in a constant state of change as graphically demonstrated by the trends in country and pan-country governance codes and guidelines issued over the last 20 years. 

Shari’ah corporate governance has special features in addition to the commonly accepted components of corporate governance as applied to conventional banking and insurance businesses, namely the ultimate stakeholder, Allah, the Investment Account Holders and observance of the Maquasid Al-Shari’ah (which is that the goals and objectives of Shari’ah law are to support five essential benefits to human and community life on earth). It also contains inherent overarching features derived directly from the core principles of Islamic economics. Finally, Shari’ah corporate governance has a further defining overarching feature, which is that Islamic Financial Institutions (IFIs) continue to operate within the institutional framework of a conventional financial system. Mirakhor and Krichene (2009) argue this is completely inappropriate as a regulatory and supervisory framework and challenge the industry to aspire towards a single global regulatory-supervisory framework for Islamic finance and insurance. 

Not only does good corporate governance require the existence of available models of good practice, but more importantly, corporate governance requires organisations to have a good stock of human resource capital throughout the organisation in order to be able to implement the corporate governance framework and execute in operational practice.

To read more on my report examining the different components of Shari’ah governance systems of IFIs in different countries and how they operate in practice please take a look at the following:

PDF - Download Shari’ah governance systems study (Part 2 Executive Summary)

PDF - Download Shari’ah governance systems study (Part 18 Survey and Analysis)

Tim Travers
Cass EMBA Dubai Alumnus

*Please note the context of this article is based on Tim’s report completed 1st November 2010.

Cass and corporate governance

In the last ten years since the corporate scandals at Enron and WorldCom, corporate governance has developed from an issue that was mainly (if not entirely) of interest only to compliance and audit professionals into a topic that has almost daily media coverage. Since the beginning of the financial crisis in 2008 public awareness has grown even more, and issues such as board behaviour and ethics are now regular discussion points in financial and popular media. Fortunately not all the current issues in corporate governance are defensive and negative: alongside the outrage and reaction to unethical and self-centred management practices are very positive and constructive initiatives to innovate and renew management principles and practices across the world.

Cass has long been a strong advocate of corporate governance, and it has been a central part of our MBA programme for many years. During this time both academics and students have carried out ground breaking research into the key issues that managers in all types of enterprise need to address. Two major themes that have emerged recently; are how businesses should react to the financial crisis and be better prepared for the future, and the development of the body of knowledge of governance and Islamic finance.

It is clear in hindsight that while there was no single cause for the financial crisis; it follows that there will also not be a single solution. But some clear issues can be identified as helping to create the conditions that were necessary for systems to break down as catastrophically as they did. These issues can be placed in both organisational and personal contexts: poor or ignored corporate governance principles, and a low appreciation and acceptance of ethical principles. This is not to say that enterprises deliberately set out to act unethically or illegally, rather that core principles of trust and respect for stakeholders were placed behind personal gain. A very positive investigation into how the problem of trust among businesses was initiated by the Lord Mayor of London last year, and several Cass academics were actively involved in a major survey of city institutions and individuals from some of London’s best known companies. Our findings will contribute to how individuals and companies can raise the profile of ethical standards and the recognition that actions do not take place in a moral vacuum.

Our research into Islamic financial systems, and in particular the related corporate governance issues has grown massively since we established our MBA programme in Dubai. For several years now collaboration between students, local and regional businesses and Cass academics has been examining the infrastructure and implementation issues of Islamic finance. This research has led to contributions to the knowledge and guidance that professionals from all over the world need to understand in order to understand this important area. Recent activities include practical guidance to support Sharia compliant financial practice, development of corporate governance codes for Islamic financial services, Corporate Social Responsibility (CSR) initiatives in the Middle East and the governance of sovereign wealth funds in the Gulf. There has never been a more important, nor as interesting a time to be involved in corporate governance research.

Professor Rob Melville

Join the debate

Corporate disasters/scandals/fraud - who is responsible? The auditor, the individual directors, the employees who ignored dealings?

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Cass Talks

Want a good example of Corporate Governance? Look East. 

Professor of Internal Auditing, Rob Melville gives an enlightening overview of corporate governance in the Gulf.

 

 Watch now >