Applicability of the Islamic Corporate Governance for Shariah Companies in Malaysia

Abstract

The Islamic Capital Markets (ICM) have become part and parcel of the modern financial system which not only assists in the growth and expansion of the heavily monetized economy but often becomes a very major indicator of the business cycle movements as well as the confidence and the sentiments of the business community and investors. Of late, ICM has also been a very important vehicle to raise the necessary amounts of funds to affect the national savings needed for rapid economic growth. Most of Shariah companies in Malaysia do not implement an Islamic corporate governance system because of the lack of regulations and exposure from regulators as well as low demand from investors. In line with this development, this paper compares the corporate governance concepts in the conventional and the Islamic perspective. The discussion then proposes an Islamic corporate governance system and requirement of Shariah supervisory board for Shariah companies that could ensure that firms are operating according to Islamic principle thus improve the quality of monitoring role in firms listed on FTSE Bursa Malaysia EMAS Shariah Index.