Corporate governance in Islamic banks Essay Example | Topics and Well Written Essays - 2250 words

Corporate governance in Islamic banks - Essay Example In order to understand the value of this study it would be necessary to refer to the content of corporate governance. Various definition have been given for corporate governance. An indicative one is that of Pedersen who noted that ‘corporate governance - the mechanisms by which companies are controlled and directed - is a complex subject that consists of owner-manager relations, stakeholder relations, board structures and practices, management compensation, capital structure, company law, and other variables’; from another point of view corporate governance is characterized ‘as the top management process that manages and mediates value creation for, and value transference among, various corporate claimants in a context that ensures accountability to these claimants’; in the same context, corporate governance is described as a tool for enhancing the control of stakeholder on a specific organization. It is clear from the above that corporate governance is usu ally developed in accordance with the interests and the perceptions of a firm’s leading team – usually the firm’s board; however, there are specific rules that needs to be applied. OECD presents the legal framework in which a firm’s corporate governance has to be developed. In the context of these rules it is stated that ‘all shareholders should be treated equally’. In the case of banks, the development of corporate governance practices may be differentiated compared to the organizations in other industrial sectors; the high risk involve in banking activities would be the major criterion for the rules including in the corporate governance scheme developed by firms in the banking industry.