ETHICAL CORPORATE GOVERNANCE BASED ON ISLAMIC PERSPECTIVE: A PROPOSED EQUATION MODEL

Abstract

Financial crises in various countries in the last two decades were resulted by poor corporate governance. The failure of some companies and the emergence of financial malpractices that occurred due to crisis are the evidence of the weak practice of good corporate governance. One of the weak practices of good corporate governance is the separation of religious values with economic activity. Good corporate governance actually is not only about how to be excellence or to win the hearts of the shareholders and stakeholders. More than that, good corporate governance can be the engine of economic and social transformation because there is actually a relation of economics to social values. This paper takes a theoretical approach and reviews the existing literature to develop ethical corporate governance based on Islamic perspective. The paper develop the variable of the ethical corporate governance through a proposed mathematical equation model. This paper shows that the features of the ethical corporate governance should be driven also by faith-based rationalism and the ethical-religious values criterion.