Corporate Governance in Islamic Ethics

Corporate governance plays an important role in economic performance because it provides mechanisms that affect returns on investment. Organisations need a set of institutional and market mechanisms that allow managers and board members to maximise the value of the residual cash flows to the shareholders. If domestic markets including labour, goods, and capital markets of the economy are working efficiently, maximum possible growth rate can be achieved as efficient functioning also implies efficient utilisation of resources. Besides maximising the growth, it is also important to maintain the growth for sustainable performance through sound legal system, effective regulations, and transparency. These factors coupled with effective disclosure facilitate smooth and efficient functioning of markets. The purpose of this chapter is to develop an understanding of the corporate governance codes and practices according to the Islamic teaching of the Prophet Muhammad (PBUH).