There are many examples in the Gulf of Shariah scholars serving on the Shariah boards of five or more institutions. In Malaysia the Central Bank has prohibited this, the argument first being that no individual can serve on multiple boards and give sufficient time to the job. Secondly this limitation provides more openings for new Shariah scholars to enter the industry. If Shariah scholars serve several institutions they gain much useful experience however, and as they have a wider overview this helps to ensure consistency in decision-taking and the issue of fatwa. The parallel would be with non-executive directors, who often serve on the boards of several companies in the UK. These companies benefit from their experiences. Clearly there is a need for balance. It could be argued that serving on two or three boards is acceptable, especially if one is overseas as this widens experience, but that serving on more than four boards is excessive.
PROFESSOR RODNEY WILSON:
Yes, but in an advisory role on Shariah only, not as a product specialist.The difference is defining what the role of the Shariah advisor is – they should advise on core Shariah principles and not get into product development, which is a commercial decision. Brett King: American Academy of Financial Management
Depending on the position taken, members of a Shariah Supervisory Board do not often need to be involved in the daily “going concern” decisions (business opportunities and business strategies), they only have to scrutinize compliance with Shariah. They have to be independent enough to withstand pressure from within the company to accept certain behaviour as “compliant.” As such they are a compliance auditing instrument on “technical” rather then on “business” issues. Whether an investment or contract is acceptable falls under their responsibility. Whether it is advisable and a good business opportunity is not. Good “roadmaps” should be drafted and made available to the business management and maybe software locks inserted in monitoring software to automate compliancy as much as possible. Shariah Supervisory Boards could even be outsourced externally (as is now often the case). Therefore, given substantiated regulatory, corporate and contractual frameworks (professional secrecy, confidentiality, disclosure and non-disclosure and reporting of conflicts of interest, Chinese walls, insider dealing, etc) there should not be a problem. Most jurisdictions will not grant professional secrecy to Shariah scholars, but stringent non-disclosure agreements coupled with reporting can be set in place. Paul Wouters: Resident Of Counsel, Bener Law Office
Two companies may rival for the same business but the role of the Shariah board is completely different and should not be driven by business motives. Members of the Shariah board are expected to provide guidance on Shariah compliance issues. Whether they sit in one company or more is quite irrelevant, as the opinions expressed should be consistent and objective, independent of the business interest of the company(ies) they serve. Asri Awang: Chief Executive Officer, Malaysian Rating Corporation
In theory, yes, of course: in practice, extremely unlikely. That is the conclusion that I must come to in response to this question. The reason underlying the reluctance of rival companies to share Shariah expertise is a concept which I would argue is distinctly problematic Islamically – “Intellectual Property”. The “Creative Commons” of knowledge would surely have been classified – had it even been conceived of all those years ago – alongside pasture, fire and water as capable of being “owned” only by God and therefore freely available to all. There is an analogy here with questioning whether a hedge fund (which exists to make money out of money) may EVER be Islamically sound: in view of the clarity of the basic underlying ethical issue, it should not even be necessary to ask the question Chris Cook Principal, Partnerships Consulting LLP, London
An expert in Islamic law (Shariah) should be on all advisory boards of rival corporations. The function of a Shariah advisor is but to audit the contracts to ensure that they comply with the Islamic law. The Shariah advisory board is supposed to be an independent body to avoid conflict of interests. This approach will allow conformity and unity in decision-making. This provides each firm in competition with unified guidelines from the Shariah advisors to engage in product development with the same level of expert knowledge in Islamic economics. The idea of having a centralized Shariah advisory board minimizes controversial issues between rival corporations and gives them a fair chance to compete in the free market economy. Islam promotes pure competition in which firms are allowed to earn normal profits and this will eventually serve for the benefit and welfare of the society. Rehan Saeed: UM Financial
In an industry which offers generic/homogeneous products and with a clientele base focused predominantly on retail customers (i.e. Takaful and commercial banks), the success factor of dominant market share is product pricing and network of branches. In this regard, having the same person as Shariah advisor in two rival companies is acceptable, due to the fact that his role is merely supervisory on Shariah compliance and since the product offered is generic/homogeneos, the impact of the confidentiality risk is minimal. In short, sharing the same Shariah advisor does not affect the competitiveness of the bank. For investment banks, the business strategy is based on the concept of “total solution provider.” Revenue generation is focused on fee and trading/investment income, which is dependent on its ability to secure mandates. Number of potential deals up for grabs is a function of economic activities (supply side) and issue size is usually voluminous. Hence, to be competitive, an investment bank has to be innovative. To remain profitable it must be able to market its product at the right time, otherwise the investment bank is subject to market risk arising from underwriting obligations. As such, in a competitive environment, sharing Shariah advisors with its rival is not the best practice, due to confidentiality and timing reasons. Confidentiality is a key factor to ensure dominance in product innovation. There is no effective way to fully mitigate confidentiality risk; the best way to manage this risk is to avoid it. As for the “timing factor”, having a dedicated Shariah advisor will enable the investment bank to market its product in a timely fashion due to undivided commitment and zero possibility of being biased. Farida Kee Illias: Fixed Income Research, Aseambankers
The question seems to be triggered by concerns either of “conflict of interest”, or of “leakage of proprietary competitive information”. On both counts, I see no issue with the same person being on the Shariah supervisory boards of two or more rival companies. The role of the Shariah board is to review products and procedures and bless (or reject) them from a Shariah vantage point. In this regard, it would be customary that the agreement between the company and the Shariah board members calls for confidentiality of proprietary information – as is general practice for persons who sit on boards of different companies. Most importantly, since the persons qualified to sit on the Shariah boards can be assumed to be of impeccable character and of the highest ethical standards, there should be no concerns regarding this exposure. It is possible that a company devise a particularly clever solution and the Shariah board member inadvertently gives some aspect of it away, but again given the high integrity and seasoning of these persons, this should not be an issue. As for conflict of interest, it can stem from unduly large compensation packages. However, the same recognition of the impeccable character, ethics and integrity of qualified persons would nullify such concern. In fact, given the huge demand for such qualified persons, it is likely that they can command significantly higher compensation than they receive. Finally, I strongly recommend that serious consideration be given to the formation of a “Central Shariah Board” who would be part of an independent organization, and who, for a certain charge, would perform the reviews of products and processes, and opine on them from a Shariah perspective. While some may have concerns of bureaucracy and priority, this has many advantages from an overall industry perspective — and a healthy, robust, quality industry is good for everyone. It would give access to quality Shariah reviews to everyone, not just the larger and wealthier companies who can afford to have their own boards. There are only a few persons who qualify to be on Shariah boards. This would allow them greater independence and the ability to focus by not splintering them in multiple boards. The “Central Shariah Board” organization can also be a developmental institution and establish a research function whereby Shariah-related matters for the betterment of the industry as a whole can be addressed. It could also be a fertile training ground for additional and future scholars who would service these needs for the exponentially growing demands of this burgeoning industry. Salim Manzar: Executive Director, Princeton Advisory Group, LLC |