Abou-El-Fotouh was speaking at Islamic Finance & Investment World – Africa 2008, held last week in Johannesburg, South Africa. He said that corporate governance is the system by which companies are directed and controlled as defined in UK Combined Code. It involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders.

According to this definition, shareholders appoint directors of the board. The board oversees management, appoints CEO and is accountable to shareholders. The management team manages the organization and in turn is accountable to the board and shareholders for long-term shareholders value maximization

Addressing the delegates about the main stakeholders in Islamic banking corporate governance framework, Abou-El-Fotouh said “ the stakeholders include, among others, law- & rule makers; Central Bank; stock exchange; regulations, listing rules, Islamic Accounting Standards Board, employees, Murabaha Investment account holders; Murabaha financing partners; Current account creditors and the Islamic community. Islam itself is the most important stakeholder, he added.

About the Islamic concept of corporate governance, Abou-El-Fotouh said that it stresses the three main areas of accountability, transparency and trustworthiness. Additionally, good governance is consistent with Islamic principles, such as preventing gharar (risk, uncertainty, and hazard) and avoiding business transactions that cause injustice to any of the parties. Islamic financial institutions abide by the Shariah which governs the operations and transactions in accordance with Islamic principles derived from the Quran and Hadith. As to supervisions, Islamic financial institutions must have Shariah boards which review and ensure that all transactions, contracts, products and applications relating to the Islamic financial institution comply to Shariah rules and principles with the specific fatwa, rulings and guidelines that have been issued.

Abou-El-Fotouh explained that every Islamic bank should be headed by an effective board, which assumes specific responsibilities. The vision, strategy and corporate values of the Islamic bank should be clearly specified and understood. He further pointed out that there should be an effective board composition, with a strong independent element where no individual or small group of individuals should be allowed to dominate the board’s decision making. Additionally, there should be a clear division of responsibilities at the helm of an Islamic bank, which will ensure balanced and clear lines of role, responsibility, authority and accountability throughout the Islamic bank

He explained that an Islamic bank must have a formal and transparent process for the appointment of directors to the board and the appointment of CEO. Additionally, the directors must be persons of caliber, credibility and integrity with the necessary skills and experience and be able to devote time and commitment. The board as a whole, the directors and CEO must be subject to a formal and an ongoing assessment of their effectiveness.

Abou-El-Fotouh concluded by saying that there is no “single model” of corporate governance that can work well in every country. Each Islamic financial institution should develop its own model that can cater for its specific needs and objectives. Similarly, there is no hard and fast rule that can be applied in nurturing good governance culture in Islamic financial institutions

About Hany Abou-El-Fotouh

First vice president and group head of corporate governance and compliance, ABC Bank, Egypt, he is a leading expert on money laundering and terrorist financing controls in the Middle East-North Africa region with extensive experience in AML compliance and training. Founder of the Middle East Compliance Officers’ Forum, he has been honored for his work in promoting compliance awareness in Egypt and the MENA region. Previously, he held top compliance positions in multinational institutions, such as HSBC Bank Egypt, Banque Saudi Fransi, and Oman International Bank.