Multiple Sharia' board directorship: a Maslahah (public interest) perspective

Abstract

Purpose The purpose of this study is to examine the legal paradigm of multiple Sharia' board directorship practice from the Sharia' law concept of Maslahah Al-Mursalah (public interest). Design/methodology/approach It uses a doctrinal research method that relies on the commonly referred sources of Quran and Sunnah, with a specific focus on Maslahah Al-Mursalah and, where applicable, commentaries by contemporary scholars, academics and practitioners as well as translations of classical book of Fiqh. This study scrutinises the polarity of views concerning the distinct Masyaqqah (necessity) surrounding the practice in discussion: the Masyaqqah that encourages and one that discourages the application of the practice. Findings This study is keen to suggest the industry to adopt a cautious approach and consider exploring a corporate governance framework that appraises the theoretical and practical Sharia' issues concerning its application in cognisance of its adversarial influence towards the sustainability of Islamic banking industry. Originality/value Since Murat Unal’s study of multiple Sharia' board directorships in 2009 and 2011, empirical works that scrutinise the practice from the Sharia' law perspective have remained limited or almost non-existent. It is aspired that this study may assist fellow readers and future researchers alike in evaluating and appreciating the divergent views surrounding the application of this practice in Islamic banking.

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“…Most of the studies examining the determinants of SCMD are theoretical, and they explore issues such as the reasons for the incidence of SC cross-memberships across IFIs. For instance, Ali (2015) and Razak (2019) reported that the Islamic banking industry, during its inception in the early 1970s until the late 1990s, suffered from a shortage of Shari'ah scholars with strong Shari'ah law and finance expertise; this has prompted the IFIs to share similar Shari'ah scholars to serve in their Shari'ah committees (Majid & Ghazal, 2012). However, the shortage of proficient Shari'ah scholars to justify the SCMD may not be accurate nowadays, where in fact, the industry possesses a sufficient number of competent Shari'ah scholars equipped with industry-relevant expertise (Razak, 2019).…”

“…For instance, Ali (2015) and Razak (2019) reported that the Islamic banking industry, during its inception in the early 1970s until the late 1990s, suffered from a shortage of Shari'ah scholars with strong Shari'ah law and finance expertise; this has prompted the IFIs to share similar Shari'ah scholars to serve in their Shari'ah committees (Majid & Ghazal, 2012). However, the shortage of proficient Shari'ah scholars to justify the SCMD may not be accurate nowadays, where in fact, the industry possesses a sufficient number of competent Shari'ah scholars equipped with industry-relevant expertise (Razak, 2019). Hasan (2014) indicates that the absence of skilled Shari'ah members is, to a certain extent, not true and the actual incentive for IFIs to appoint certain reputable Shari'ah experts is predominantly to increase the marketability of their products and services.…”

“…Garas (2012) also points out that IFIs generally desire top Shari'ah scholars (who are typically interlocking) because of their social reputation, which can function as an effective marketing tool to improve stakeholders' confidence and the IFI's reputation. Consequently, this has led to a concentration of Shari'ah board directorships amongst a specific group of scholars and neglecting other qualified and available scholars (Razak, 2019).…”

“…Regardless, it is worth stressing that busy Shari'ah committees might imply that Shari'ah-compliance assurance could be at stake. SCMD could place an excessive burden on Shari'ah scholars as it can restrain the scholar's time commitment and attention to each IFIs, hence putting the interest of both shareholders and stakeholders at risk (Razak, 2019). SC members must focus on dealing with the varying issues that could arise from Islamic banking dealings.…”

“…SC members must focus on dealing with the varying issues that could arise from Islamic banking dealings. For example, on the occasion of a Shari'ah-compliance problem, they will have to be ready to dedicate a tremendous amount of time in settling the issue and the possibility of neglecting their fiduciary obligations to other IFIs (Razak, 2019). Thus, SC members should occupy a reasonable number of directorships that will not impair their supervision and Shari'ahcompliance monitoring role.…”