Corporate Governance: Impulses from the Middle East

Transit Stud Rev (2008) 15:335–342 DOI 10.1007/s11300-008-0011-8 MEDITERRANEAN AND MIDDLE EAST PAPERS Corporate Governance: Impulses from the Middle East Alexander Schieffer Æ Ronnie Lessem Æ Odeh Al-Jayyousi Received: 12 March 2008 / Accepted: 14 March 2008 / Published online: 7 August 2008
Springer-Verlag 2008 Abstract The sheer fact that the concept of Corporate Governance is not yet as widely spread in the countries of the Middle-East as in Western economies, may lead to our labelling, once again, this region as underdeveloped. The purpose of this article, however, is to lead the reader to let go of this Western perspective and to discover the distinctive impulses that the Arab-Muslim region has to offer for the further development of the human-social dimension of corporate governance, if not to ultimately transform it in such a ‘‘Middle-Eastern’’ light. We start then, in this article, by revealing some of the general limitations to corporate governance, before moving onto the specific impulses provided by the Muslim-Arab context. Islamic management is a new domain of knowledge that will be addressed in this paper to shed some light on how Islam can inform reform and transform the notion of corporate governance. Keywords Corporate governance
Corporate leadership
Intercultural management
Transcultural management JEL Classification G34 A. Schieffer
R. Lessem TRANS4M Four World Center for Social Innovation, Geneva, Switzerland A. Schieffer (&) University of St. Gallen, St Gallen, Switzerland e-mail: [email protected] R. Lessem Transcultural Center of the University of Buckingham, Buckingham, UK e-mail: [email protected] O. Al-Jayyousi IUCN The World Conservation Union, Amman, Jordan e-mail: [email protected] 123 336 A. Schieffer et al. Four Theses: Revealing the Limitations of a Predominantly ‘‘Western’’ Approach to Corporate Governance Thesis 1: Corporate Governance is Primarily Pragmatic-Bureaucratic and (thereby) Mainly Symptom Oriented The popularisation of the concept of Corporate Governance arose in the past 10– 15 years, mainly as a reaction to the overly individualised approach to organisational leadership. The way that Corporate Governance is applied to organisations, however, reflects a primarily technocratic attempt to institutionalise a value-oriented approach to corporate leadership through corporate guidelines. However, the root cause of non-value oriented organisational leadership is not sufficiently addressed. To an extent then, Corporate Governance could therefore be seen as mainly reactive addressing symptoms rather than underlying causes. So-called ‘‘Corporate Governance’’, here then, is seen as not proactively dealing with the causes of bad governance. Hence, it is primarily a defensive and therewith limited instrument. Thesis 2: The Causes of Structurally Deficient Leadership that are Supposed to be Alleviated by Corporate Governance are Often Rooted in the Human-Social Arena According to an opinion poll led by Gallup in 2002, 90% of all US-Americans declared that they did not trust business leaders to sufficiently represent the interests of employees; furthermore, 43% assumed that top-level leaders are primarily motivated by self-interest (Handy 2002 p. 50). Insufficient management competence is hence only one aspect of inadequate corporate leadership. Human-social aspects such as self-interest, insufficient willingness to take over responsibility, a lack of a sense of justice, play an important role. This is also confirmed by the research of Hilb (e.g. 2005: 39). These ‘‘inner’’ causes, however, can hardly be sustainably addressed by ‘‘outer’’ regulations. What is missing is the balance between inner value measurements and outer regulations (e.g. Corporate Governance codices). According to the former General Secretary of the OECD, Johnston (2003 p. 3): ‘‘…do we want a world based on values? Rules will always have loopholes, and there will always be those who will spend their time trying to wriggle through them. This thinking appears to have invaded much of the corporate world. Are our students today learning values or learning rules? I hope both, but with a good dose of the former. Because any set of rules alone, disconnected from the values which those rules ultimately meant to reflect, is like a body without a soul’’ (2000: 3). Thesis 3: Corporate Governance is One-Sidedly Focused on the Micro-level Corporate Governance is primarily focussed, moreover, on changes to the microlevel of the organisation. Potential societal causes of inefficient Corporate Governance such as, for example, an exaggerated emphasis on individual freedom 123 Corporate Governance: Impulses from the Middle East 337 or underlying distortions in the economic system (distorted understanding of competition, one-sided orientation towards shareholder value, etc.) remain neglected. The insufficient interconnection between Good Governance at macro as well as micro societal levels serves to inhibit sustainable changes even at the level of the organisation. Thesis 4: Corporate Governance, in Most Cases, Inadequately Reflects the Cultural Context of the Organisation The concept of Corporate Governance has been developed in the Anglo-American influenced economies, which by now are firmly established as a standard form of Western management curricula. As the West (USA and Western Europe) remains the ‘‘core interpreter’’ of what is to be understood under ‘‘good and right corporate leadership’’ and as Western management and executive development programmes are considered international standards, such a form of governance is (in most cases) adopted unquestioned; this phenomenon can also be observed in nonWestern economies (mainly so-called ‘‘developing societies’’ to which most economies of the Middle East belong). In addition, there is a growing global pressure on corporations to adopt the terminology and respective applications (guidelines, codices etc.) of Corporate Governance. The insufficient relationship of such concepts to the respective local culture makes the application of Corporate Governance in many cases into a purely technical procedure. Though there are international experts, such as Hilb, who advocates in his ‘‘Integrated Corporate Governance’’-approach the consideration of the corporate context (‘‘keep it situational’’) (2005: 17ff), a much stronger relation to the value base of a particular society is necessary. Four Antitheses: The Potential Contribution of the Middle East to a Further Development of the Human-Social Dimension of Corporate Governance Antithesis 1: In the Arab-Muslim World, the (Human-Social) Relational Dimension is of Higher Importance Compared to Western Economies, in which Structures, Procedures and Processes are Emphasised At this stage we would like to alert the reader to the abundance of literature about inter- and trans-cultural management, where this particular topic has been discussed in detail (e.g. Lessem and Palsule 1997), highlighting the differences between ‘‘Western’’ and ‘‘Eastern’’, ‘‘Northern’’ and ‘‘Southern’’—if not specifically Middle Eastern or Arab-Muslim—approaches to management and organisation. In the Islamic world, norms and values are co-created through a social contract based on a set of beliefs (Akeeda). The manifestation of rituals in daily prayers and fasting and social responsibility is evidence and a validation of ensuring an enlightened human, conscious of his/her role in the construction of the World (Emmarat Al Kawn). Hence, the cornerstone of Corporate Governance starts from the inner self (self-consciousness); the rest, organisation and society, will follow. 123 338 A. Schieffer et al. Antithesis 2: Islam Contains a Number of Precise Attributes that Serve to Develop a Human-Social Dimension of Corporate Governance A distinctive feature of Islamic perspectives in management is that it encompasses a belief in God (Allah) and in the Hereafter (the Day of Judgement). The belief in the Hereafter (Akhera) instils the belief in the individual’s responsibility and accountability. These are the cornerstones on Islam that underpins individual actions and interactions of individuals, organizations and societies. The main sources of knowledge are Quran (revelation) and Hadith (Prophet’s saying and judgments). However, wisdom (Hikmah) is to be sought from all cultures and discipline. Ethics play a key role in informing and defining transactions, allocation of resources, and decision-making processes. The following selected approaches (found within Islamic culture) are introduced which can be regarded as influential on the topic of Corporate Governance (Al Jayyousi and Al Rasheed 2007): • • • • • Adl: Adl (justice) is a core value of Islam. The institutional sustainability of both society and governments is an outcome of justice (Adel). Hisbah: Maintaining quality standards is strongly emphasised in Islam. Al Buraey (2003) p. 262 describes an organisation infused with Hisbah as ‘‘the office in which the officer, called muhtasib (also known as sahib as-suq, the market inspector or supervisor), has the task ‘to promote good and prevent evil’ as outlined in the Islamic ethical code.’’ Self-consciousness/mindfulness (alertness): Islam puts strong emphasis on the conscious recognition of the interdependence between the invisible and the visible, whereby the invisible is regarded as the cause of the visible (‘‘software leads hardware’’). Hence, Good Governance starts on the psychological level of the individual. Al Tawheed: Connectiveness (‘‘unity’’) of all parties within an organisation (Hammoudeh 2008) Shura: The obligation to take part in dialogue and consultation (McBrierty and Al Zubair 2004 p. 62) Antithesis 3: In the Arabic-Muslim Region, there are a Number of Integrated Economic Approaches, Linking the Micro-Level of the Organisation and the Macro-Level of Society There are a number of macro-economic approaches (widely unknown in the West) which are deeply rooted in Muslim religion and philosophy and which provide valuable inspirations for an evolved Corporate Governance (on micro- and macrolevels). It is remarkable that given the wide-ranging crisis (at the time of writing in January 2008, the financial markets are once more in turmoil) within the Western economic system of so-called free markets up to now, the assumption remains that this ‘‘developed’’ system is a ‘‘panacea’’ also for developing countries. Fukuyama’s (2002) thesis on ‘‘The End of History and the Last Man’’ claiming that the 123 Corporate Governance: Impulses from the Middle East 339 combination of Western democracy and the free market economy represents the peak of human achievement, whose global export he saw as a foundation for sustainable peace and poverty alleviation, seems absurd given current social and economic developments. It is worthwhile, however, to have a closer look at the broad literature on ‘‘Islamic economics’’. Though its manifest global relevance remains insignificant, a number of its particular approaches such as ‘‘Islamic Banking’’ gain (at least on a regional or on an industry level) increasing recognition and, at the same time, become a valuable source for Good Governance. The expositions of Chapra (1992) in ‘‘Islam and the Economic Challenge’’ or the writings of one of the leading contemporary Muslim intellectuals, Ziauddin Sardar (e.g. Inayatullah and Boxwell 2003) are good examples of an approach that explicitly combined equity with efficiency. Approaches infused by the Qu’ran underline the intensive interconnection of the micro- and macro-level as well as the integration of individual, organisational and societal perspectives. Simultaneously, strong connections between material, moral and spiritual aspects are highlighted. The Waqf and Awqaf (endowments funds developed by civil society) were sources of securing public water, education and environmental protection. (Al Jayyousi and Al Rasheed 2007). Antithesis 4: The Cultural Dimension Needs to be Incorporated into the Design of Local Corporate Governance In our own work, in the area of Transformation Management and Social Innovation, we are cooperating closely with private enterprises as well as civic and public institutions in the Middle East, who are purposefully orienting their leadership guidelines and governance structures towards Arabic-Islamic principles, and who furthermore remain true to specific local needs. We are, for example, able to refer to a number of precise transformation projects in the region, which contain new approaches and (most importantly) an authentic integration of Western approaches towards management and economics (e.g. Corporate Governance, CSR, Business Ethics, TQM); with Muslim-Arab culture (e.g. Hammoudeh 2008). We now turn from the micro to the macro, and indeed back again. Realistic Synthesis? The Case Stories of the Arabic Nation Oman and of the Egyptian Enterprise Sekem as Inspirations for a Human-Social Corporate Governance The development of Oman since 1970 under the leadership of Sultan Sayyed Qaboos bin Sa’id Al Bu Sa’id, as well as the Egyptian corporation Sekem, are seminal Muslim-Arab examples of human-social (Corporate) Governance. In both cases, the organisational (micro) as well as the societal (macro) level are taken into consideration, though the starting point of each one is very different. In the cases of the two ‘‘main actors’’—Sultan Qaboos and Sekem’s founder Ibrahim Abouleish—there is intensive knowledge and a strong personal relationship and 123 340 A. Schieffer et al. affinity towards Western culture: a synthesis between Western and local forms of governance is a conscious objective in both cases. In addition, in both cases, the personal (= human) as well as the organisational and societal (= social) integrity is emphasised. Synthesis 1: The Case Story of Oman—Elements of Integrated National Governance The development of Oman in the past 40 years deserves a detailed examination. Sultan Qaboos, who came to power in 1970, led the country systematically from massive underdevelopment in all sectors to a modern nation. ‘‘Today Oman is recognised as one of the most impressive examples of socio-economic recovery in modern times.’’ (McBrierty and Al Zubair 2004 p. 1). Compared to other Arabic nations, it is striking to witness the progressive introduction of democratic institutions, which make the whole country a classic example of ‘‘Good National Governance’’ in the Middle East and beyond. Despite the intense relationship of the Sultan with European culture (parts of Qaboos’s earlier education took place in England and Germany and he remains a strong supporter of European classical music) Oman until today has been remarkably true to its Arabic-Muslim roots. The governance institutions of the country, which had been introduced by the Sultan, are not copies of Western institutional models, but relate directly to Oman’s cultural traditions. This includes, for example, the ‘‘Maglis Al Shura’’ and the ‘‘Maglis Al Dawlah’’, both mainly democratically elected organs of local government, whose main duty is the evaluation of the performance of the national government (McBrierty and Al Zubair 2004 p. 62f). Every year for a period of three to 6 weeks, Qaboos himself tours the country, accompanied by a number of his ministers, virtually as a ‘‘mobile government’’. Qaboos made it a task for himself to personally meet as many local representatives as possible to gain an accurate picture of the needs of his countrymen and women. In the words of Qaboos: ‘‘To fail to give one’s people a voice in their destiny, to regard them as automatons only to be directed and not consulted, is a sure way to disaster. This has never been the Omani way, and I have every intention of ensuring that this popular form of participation is further developed to the benefit of my people and country’’ (Plekhanov 2004). Many sources underline the enormous impact that such sensible incorporation of local culture has also had on the corporate sector. This is confirmed by, for example, McBrierty and Al Zubair: ‘‘The institutions that underpin the developing ‘knowledge economy’ within Oman have capitalised on a deep-rooted Omani entrepreneurial spirit and its long tradition as a trading nation. Objectively, the basis for this transformation … is to be found in the initiatives taken by the Sultan’’ (2004: 5f). Altogether, the urban design and the build environment in Oman is inspired from the Islamic notion of harmony and balance between the financial capital, social capital and natural capital. All species and human are viewed as communities and they are governed by the same laws of succession and survival. The world of ideas (reformed by Islam) shape and form the material world; one follows the other like a shadow. 123 Corporate Governance: Impulses from the Middle East 341 Synthesis 2: The Case of Sekem—Elements of Integrated Corporate Governance Sekem started in 1977 with biodynamic agriculture in the midst of the Egyptian dessert and has become a successful and diversified corporation with approximately 2,000 employees. Sekem, whose ancient Egyptian name means ‘‘Vitality of the Sun’’, is deeply rooted in Egyptian culture and tradition, underlined by the fact that various of its affiliates carry names of ancient gods of Egypt and Greece (e.g. Isis, Hathor, Mercury). Sekem’s founder Dr. Ibrahim Abouleish describes the organisation, which in 2003 received the Right Livelihood Award (alternative Nobel Prize) as the first business enterprise that is a synthesis between oriental and occidental culture. Sekem does not see itself purely as an economic enterprise but— in a much extended interpretation—as a kind of integrative community, which simultaneously seeks to combine economic, cultural, social, ecological and political aspects; furthermore, as one of the few enterprises of the region it is actively engaged in intercultural communication between peoples and it also takes on an active role in environmental protection. Sekem’s philosophy is rooted simultaneously in the Egyptian, the Arabic-Muslim as well as in European culture. Abouleish (2005), who himself lived and worked for about 20 years in Western Europe and gained deep insights into Western culture, describes Sekem as ‘‘encounter between the orient and the occident that changed Egypt.’’ For him, Sekem’s source of success is not primarily the market compatibility of its products, but: ‘‘The secret of Sekem’s success is not to be found in the company’s agricultural activities only, but rather in its efforts to bring about integration of economic, social and cultural spheres of life in all aspects’’ (Sekem 2006). From the very beginning, Abouleish, himself a devout Muslim, saw Sekem as a model for sustainable business and economics in Egypt and in the long term for the world. Abouleish does not regard Corporate Governance as a technocratic tool; rather for him, it is only relevant if it is organically embedded in the cultural context of the organisation as well as being in accordance with the integrity of the individual and of the community. Abouleish claims that every enterprise has to play a significant role in the design of a sustainable economy and he is proving his case on multiple levels. On the one hand, Sekem has generated a true societal micro cosmos as it incorporates on its campus not only the relevant corporate institutions but also various cultural centres, a mosque, a hospital, a kindergarten, a school and a vocational school. However, Sekem does not rest on its (by now acknowledged) role as a case example: with the foundation of the Egyptian Society for Cultural Development as well as a national association of biodynamic farmers and with the foundation of its own university (Heliopolis University) Sekem is connecting its entrepreneurial-cultural striving with active societal engagement. Summary and Outlook Innovations, in many cases, emerge at the periphery, exactly where they are not expected. This article serves to acknowledge the inspiration and valuable input that the Arabic-Muslim region can have on a further development of a human-social 123 342 A. Schieffer et al. component of Corporate Governance. Such approaches, on the one hand, can be found in the specific tradition of the culture of this region; on the other hand, as illustrated through the cases of Oman and Sekem, they can be found in a fertile synthesis between the West and the Middle East. We can substantiate our findings with a number of further case stories and projects, which have been initiated through our educational programme in the Middle East. In such programs, we could witness how the human-social dimensions and the relevance of originally Western topics (e.g. TQM, CSR) only became evident through a re-routing of such concepts in local soil. Going beyond a mere pragmatic-technical adaptation of an imported concept, such cultural substantiation allows for an authentic, human-social addition to Good Governance. References Abouleish I (2005) Sekem—a sustainable community in the desert. Floris, Edinburg Al Buraey MA (2003) Management and administration in Islam. Bangalore Iqra Welfare Publications, Bangalore Al Jayyousi O, Al Rasheed A (2007) Interviews. Amman Chapra U (1992) Islam and the economic challenge. Leicester Islamic Foundation, Leicester Fukuyama F (2002) The end of history and the last man. Free Press, Ohio Hammoudeh M (2008) Quality and organisational transformation. An Islamic perspective. Doctoral Thesis. University of Buckingham Handy C (2002) What’s a business for. Harvard Business Review 12:49–55 Hilb M (2005) Integrierte Corporate Governance. Springer, Berlin Inayatullah S, Boxwell G (eds) (2003) Islam, postmodernism and other futures a Ziauddin Sardar reader. 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