Beyond Good Practices and Standards: An Islamic Framework of

Sustainable Business Practices for Corporate Organization

ABSTRACT
This article is an attempt to critically examine the economic logic of
corporate organisation business practices. It is a clarion call to go beyond
what is considered in our contemporary time good business practices. The
aim of this paper is to explore why, how and when a business organisation
may choose to go beyond good business practices and standards. In
writing this article, the researcher sought to engage with modern secular
insights about sustainable business practices for corporate organisations
and to be in critical dialogue with those insights.The researcher have also
sought to look critically at the Islamic traditions about good business
practices and standards and restate some of them in the light of modern
discourse. The researchers stand is within the Islamic tradition. This is an
effort to bring religion into our economic lives, which invariably means
bringing religious ethics into what is supposed to be free of such values.
This article addresses the questions of how can corporations develop into
responsible moral agents and what effective framework can be used for
sustainable business practices within an Islamic setting? These questions
are important because Muslims in business are sometimes confronted with
the question: How can I do business and act ethically in a system that is
not? This article proposes Islamic principles such as ikhlas (sincerity), ilm
(knowledge), hikmah (wisdom), hilm (forberance) and rifq (gentleness),
sabr (patience), tawaadu (humility), qudwah (good example), husnulIstimaa (good listening), shajaaah (courage), karam (generousity). The
article will also explore how these Islamic principles can be incorporated
into business practices in order to have a sustainable business practices
for corporate organisation.

Corporate governance is one of the most important failures behind the

present financial crisis. De Larosi re Group (2009)
This Report concludes that the financial crisis can be, to an important
extent, attributed to failures and weaknesses in corporate governance
arrangements. OECD report (2009)
The business of business should not be about money, it should be about
responsibility. It should be about public good, not private greed. Dame
Anita Roddick

INTRODUCTION
In 1970, Milton Friedman wrote an interesting article in New York Times
Magazine where he was given credence to the idea that social
responsibility of business is to increase its profits. When considering the
implications of this statement some questions arises about the aim of
businesses and whether it solely should be based on profits. This concern
as led into the discussion on the social responsibilities of corporate
organizations

to their investors, employees, customers, and other

individuals. It has also raised questiones, such as, how can corporate
organizationsor more precisely the managers of corporate organizations
- conceive business and their responsibilities? This is important because
the manner in which a corporate organization understands business and
responsibilities will determine how they deal with their local host
communities, the attention they give to their employees and their product
safety, and other similar matters.

Over the last few decades, millions of individual business investors

and stakeholders who have experienced significant reductions in the
values of their investment portfolios can confirm the tremendous
importance of trustworthy behavior. Financial markets lost much ground as
a direct result of misleading statements and fraudulent accounting
statements by analysts employed by highly respected investment
corporate organizations. Instances like these have helped to teach a hard
but important lesson: that a solid moral/ religio-spiritual foundation is
necessary to our well-being as individuals and as a broader community
with strong economic and moral interconnections. As a result, the climate
of business seems to be open, once again, to discussion and action
concerning moral matters. However, countervailing forces, such as shortterm expectations and global competition, have also been at work to make
the ability to actually practice good behavior in the marketplace more
difficult. These forces seem to make the climate of business more hostile
to ethical change.
The discussions into the responsibilities of corporate organizations
have led into the believe that a corporate organization should basically
focus on increasing profits, provide stockholders with high returns on their
investments, obey the law, and avoid deceptive business practices. All
these we have termed in this paper the good business practices and
standards. However, from Islamic business ethical stand corporate
organizations are presumbly expected to do more than just fulfill these,
but how much more? What in practical terms does it mean for a corporate
organization

to

conduct

business

within

an

Islamic

framework

of

sustainable business practices? All these and much more will be discussed
in this paper.
This paper dilates on the Islamic dimension to sustainable business
practices for corporate organizations. Section II

describes the issues at

stake when business and mangement scholars talk about good business
practices and standards. Section III examines the Islamic framework for
sustainable business practices by focusing on the ethical values that
makes corporate organizations sustainable. Section IV discusses in detail
specific challenges corporate organizations are currently facing and how
the Islamic Framework can help to ameliorate the challenges. In addition, I
gave an example of a company that has incorporated some of these
frameworks in its to show the universal nature of the value, since the
company using these frameworks does not have Islam at the back of its
mind but still show Islamicity in its dealing. The paper concludes that in
order to have a sustainable business all sort of exploit or injustice are to
be

avoided

by

corporate

organization.

An

Islamic

framework

for

sustainable business practices for corporate organization encompass the

interests of all stakeholders and management of corporations for the
promotion of social justice and the avoidance of practices that involves
greed, deceit, misrepresentation, and the misuse of wealth. It encourages
a strong commitment to all stakeholders of corporations and transparency
by board management in decision-making. Such a structure is important to
the sustainability of any corporate organization.
What is good practices and standards in business?

In this section, we address how economist and business management

scholars have explained what good business practices and standards are
and should be for corporate organizations. Some scholars support the idea
that the role and purpose of the corporation in society is to primarily seek
to maximize profit for its shareholders while there are scholars who also
maintain that beyond profit maximization for shareholders, corporations
have the responsibility to serve other constituents and hold up broader
social goals, even when these pursuits may sometimes reduce financial
gain.
Milton Friedman, a Nobel laureate in economics, in his classic essay
The Social Responsibility of Business Is to Increase Its Profits argues that
the primary duty of a corporation is to increase shareholder wealth. He
states that when managers of corporations act in what we might call a
socially responsible manner that in one way or the other directly resulted
in reduction of profits, they violate their trustee duties to the owners of the
enterprise. This theory is now known as the Shareholder Wealth Model or
Custodian of Wealth Model of social responsibility.
Carson (1993) wrote a critique of Friedmans theory and points out
the inconsistencies in the theory. Carson insist that the idea of the one
and only obligation of business is to maximize its profits while engaging in
open and free competition without deception or fraud can be seen as
contradictory to the idea that business executives are obligated to follow
the wishes of shareholders while obeying the laws and the ethical customs
of the society. Although in critiquing Friedmans Social Responsibility of
Business, Carson also examines the theory in Friedmans earlier work

Capitalism and Freedom. Carson notes that Friedmans position was first
stated in Capitalism and Freedom while a substantially different version is
presented in his later essay (p. 3).
Carson (1993) in presenting the two formulations of Friedmans
position, explains how they differ, and illustrate the differences by giving
examples in which the two formulations yield different results. What
Carson was able to prove from his examples is that both formulations have
serious consequences which are seriously at odds with Friedman's
intentions and stated views about specific issues. He went further to state
that the problem of inconsistency can be resolved by opting for one or the
other of the two formulations. However, in opting for either one of the
formulation Friedman's intentions will not be fully served.
Friedman also claims that when corporations management give to
charity is actually stealing from shareholders, in fact he believes this is a
tax imposition on the shareholders, which he describes as taxation with
representation. This position is questionable because

according to

Carson in any corporation, it is possible for a group of shareholders to

band together to try to force the company to pursue social objectives at
the expense of profits. All investors are aware of these facts. Thus, all
persons who buy stock in a company consent to a set of rules and
procedures whose implementation may slightly reduce their return on their
investment. In that case, reducing profits for the sake of social objectives
would not constitute theft. Any use of my property in accordance with
rules and procedures to which I freely consent cannot be a case of theft
(p. 14).

An alternative position on the idea corporate responsibility or what is

called theory of the firm is the stakeholder approach. This has gained
tremendous popularity in recent years among corporate executives,
business and management scholars. Among the famous proponents of this
approach is R. Edward Freeman. He observes that it may be more proper
to talk about stakeholder approach in a discussion of this nature because
corporate organizations are in a position to choose from a number of
viable normative cores to help in balancing the claims of various
stakeholder groups. Proponents of this approach also put forward the
argument that the idea of sole consideration of shareholder interests can
be considered ethically and morally insufficient. Rather, corporations
should seek to broaden their duties and responsibilities to a large group of
what they call stakeholders.
Goodpaster (1991) details out the basic points of this approach, but
the core of it is that corporations have obligations to those who have
vested interest or stake in the company, rather than to owners
exclusively. Since business transactions affect many constituents from
business owners to consumers of products, corporations also have a
ethical and moral duty to address the concerns of consumers, suppliers,
employees, and broader members of the community. Goodpaster in his
essay began by asking What is ethically responsible management? How
can a corporation, given its economic mission, be managed with
appropriate attention to ethical concerns? (p. 53). In answering these
questions,

Goodpaster

observes

that

the

connection

between

management and stockholders is ethically distinct in kind from the

connection between management and other parties (like employees,

suppliers, customers,etc.). This point was further explained when he notes
that in thinking through the proper relationship of management to
stakeholders, the fundamental features of business life which is the idea of
good and proper manner of doing business must undoubtedly be
recognized. Goodpaster describes this proper relationship of management
to stakeholders and fundamental features of business life as that
corporations have a principally economic mission and competence; that
fiduciary obligations to investor and general obligations to comply with the
law cannot be set aside; and that abuses of economic power and disregard
of corporate stewardship in the name of business ethics are possible (p.
73)
Although

it

must

be

noted

that

Goodpaster

and

Friedman

postulations may appear similar, in that, they both recognise the

important position of the shareholders, the major difference is who or what
they regard as the shareholders. Where Friedman speaks of shareholders,
Goodpaster

prefers

the

terms

stockholders

and

stakeholders.

However, the crust of Goodpaster argument is not the ethical importance

of stakeholder analysis (which he observes describes an ethically
responsible management as management that includes careful attention
not only to stockholders but to stakeholders generally [emphasis not mine]
in the decision-making process)

but with comparing the ethical

relationship between managers and stockholders with their relationship to

other stakeholders (p. 53). He states that this is almost as problematic as

ignoring stakeholders (ethically) altogether, leading to what he calls

stakeholder paradox.
Also, Goodpaster suggests that the non-fiduciary interests of
stakeholders be taken seriously on the basis that they can positively or
negatively influence the short- or long-term strategic interests of a
corporation. Goodpaster deems the consideration of the interest of
stakeholders as strategic because they are seen instrumentally, that is,
as factors potentially affecting the overarching goal of optimizing
stockholder interests (p. ). An external force with lots of potential for
either good will or retaliation. This idea of relaliation leads to another basis
for taken the non-fiduciary interests of stakeholders seriously which is the
legal aspect since they potential legal claimants. The significance of this is
also seen in the fact that both conservatives and liberal view stakeholders
interest recognise law and regulation as ground for stakeholders that goes
beyond

market

dynamics,

however,

they

differ

about

how

much

government regulation is socially and economically desirable.

What is
Practices?

the

Islamic

Framework

for

Sustainable

Business

In conceiving the idea of an Islamic framework for sustainable business

practices emphasis are placed on the noble qualities that Islam expects in
humans such as; ikhlas (sincerity), ilm (knowledge), hikmah (wisdom),
hilm

(forberance)

and

rifq

(gentleness),

sabr

(patience),

tawaadu

(humility), qudwah (good example), husnul-Istimaa (good listening),

shajaaah (courage), karam (generousity). These qualities are originally
the qualities expected from one who calls people to what is good and

forbids that which is evil or bad as listed by Mohd Yusri Jusoh (2014). In
order for such callers to be successful in their endeavour they are
expected to imbibe these qualities. In this paper I have decided to bring
these qualites to bear on the sustainable business practises since business
are also engaged in a form of calling i.e. they want more people buy or
use their product and for the businesses to grow and be sustainable.
Hence, according to Islam, a corporate organisation - by virtue of its
vested interest and responsibility towards shareholders, customers,
employees, suppliers, neighbours, regulatory bodies, and society at large is required or expected to have the qualities mentioned above for a
sustainable business.
In addition, what I regard as the Islamic framework in this paper
alludes to Peter A. French (1979) postulation that corporation is a moral
person. This is because corporations have internal decision making
structure, rules and policies which qualify them for moral agent status.
These

controls

make

them

beings

with

intention

having

same

responsibilities and rights as persons. French argues that a moral person

is the referent of any proper name or description that can be a noneliminatable subject of the second type. The first type being when
someone or thing did something. The second type is along the line of
accountability or having a responsibility to act or having a liability to
answer. This implies the presence of some sort of authority or relationship
tying them to the act over the other person. In other words, in placing
corporations under this scheme, one must attribute their actions to the
corporations themselves and not to the people that comprise them such

10

as the execs, directors and CEOs. Besides, if we attribute the actions to

the people that comprise the corporation then we cannot distinguish
logically between the corporation and a mob (he refers to the mob as an
aggregate collectivity with no identity over and above that of the sum of
the identities of its component membership). The main question French
attempts to answer in his essay are: Do corporations really cause events
to happen through their employees, or do the employees actually cause
the events? Does the corporation have a reason for its actions (like a
person would)? These questions were answered through what is called
Corporate Internal Decision (CID) concept and its managerial influence on
its corporation employees. This led to the conclusion that a corporate
structure is greater than the influences of its executives or directors since
a corporations aims go beyond the personal gains of its executives.
Now let us look at the qualities that a corporate organization must imbibe
as a moral person:
Ikhlas (Sincerity)
This is needed in transactions of corporate organizations. It is to engage in
business or trade that is lawful and aiming for good. The Quran describes
sincerity in relation to business when it says O ye who believe! Eat not up
property among yourselves in vanities, but let there be amongst you traffic
and trade by mutual good-will ... This shows that Islam promotes the
need to trade but not just trading only for trading sake it must also go
along with certain level of sincerity of purpose and encourging that which
is good in business as well as avoiding the eating up of peoples properties
and wealth unjustly. In engaging in business a corporation organization

11

should be seeking to please those are dealing with and this can only be
achieved if it is done with sincerity.
Ilm (knowledge)
This is another way in which a corporate organisation can sustain its
business. This is an important requirement for a sustainable business for
corporate organisation since the organisation must know what good
product are available and how good their product is or can be and how to
improve upon it to make it better. To extend this point further, for
corporate organisations, it is necessary to they possess the knowledge of
what is good and bad of their products and services as well as the
differences between them, and it is necessary to know the situation they
are appropriate to be used in order to guide those they will sell to or serve.
This can also be linked to knowledge of the environment of the
neighbourhood the business serves.
Hikmah (Wisdom)
This can be described as right and balanced way of dealing with issues
that affects the corporation. It is to say and do the right thing in the right
way at the right time to the right person. This has to do with soundness of
management, the excellence of mind, penetration of the ideals of the
company, the rightness of opinion and the awareness of the subtle actions
that can distrupt the organization if not dealt with appropriately
(Muhammad, 1975). The Quran also talks about Invite (all) to the Way of
thy Lord with wisdom and beautiful preaching; and argue with them in
ways that are best and most gracious. This can also be extend to the
12

manner a corporate organization go about marketing and advertising its

product and services. Corporate organizations must strive towards a wise
and a beautiful approach that is devoid of rancour or hatred.
Hilm (Forberance) and Rifq (Gentleness)
This is needed by a corporate organization, especially when faced with
opposition from opponents or competitors. The Quran in highlighting the
importance of the quality says to Prophet Muhammad (and by implication
to all Muslims): It is part of the Mercy of Allah that thou dost deal gently
with them. Wert thou severe or harsh-hearted, they would have broken
away from thee, so pass over (their faults) (Suratul Imran 3: 159). Since
no corporation will like to loss its customers or people involved in the
sustaining the company, this quality is highly required. A corporate
organisation can not succeed without imbibing the culture of forberance
and gentleness. In addition, Prophet Muhammad was reported to have
said: Indeed gentleness does not enter into anything except it beautifies it,
nor is it removed from anything except that it makes it ugly (Imam
Muslim).
Sabr (Patience)
A business organization can not be sustainable if there is no quality of
patience when dealing with challenges. Patience is required of those who
wants to get as many people as possible to their sides. This is a quality
required as a caller and this by extension can also benefit a corporate
organization. This is because in doing business a corporation realises that
there are quite a number of people that needs tremendous amount of
13

proves in order for them to be convinced. This type of people, in a manner

of speaking, will test the patience of the corporate organisation. A
corporation that has imbibed the quality of patience will be able to
maintain its ground and be willing to wait and keep trying in patience.
Tawaadu (Humility)
A corporate organization that show elements of arrogance in its dealing
can not be sustainable in the long run. This is because no one will be
interested in a corporate that tends to force itself or its views or way on
others. It is also a way of building unique relationship between the
organization and the consumers of their products and services. It helps to
prevent the organization from behaving in a harmful way toward those
they deal with.
Qudwah (Good example)
The idea of showing good example is also encourage in Islam. A corporate
organization that wants its business to be sustainable must at all times
show good example for others to follow. This good example will go a long
way in making those having dealings with the organisation to be loyal and
dedicated. It must be willing to a model for the people they serve and
working towards all that bring good to them. The Quran chastise those
who do not show good example thus: O you who believe! Why say ye that
which ye do not? Grievously hateful is it in the sight of Allah that ye say
that which ye do not (Suratul Saf 61: 2-3).
Husnul- Istimaa (Good listening)

14

Good listening is a very pertinent quality that a corporate organization

requires. In order for the organization to grow and be sustainable, it must
be attentive to the needs and feelings as well as the complaints of
shareholders, employees, neighbours, suppliers and all stakeholders in
general. This is a major way in which the organization can better improve
itself

and

best

serve

the

community.

This

is

because

without

understanding what the stakeholders want the corporation can not be

sustainable.
Shajaaah (Courage)
This is a quality that is encouraged in Islam. Courage is required in
following through a decision that is right and might be a bit uncomfortable.
It is needed in order to achieve at times long term goal. Courage is the
strength that the corporation must show from within and without to be
sustainable. This is because sacrifice must be made to maintain the
organization and for the objectives of the company to be achieved,
however,

true

courage

and

not

recklessness

(courage

devoid

of

knowledge) must be shown.

Karam (Generousity)
This is an important quality of a caller. A corporate organization that does
not have element of generousity in its dealing can not sustain itself.
Generousity helps the organization to move and place its products and
serves not just in the hands of the consumers but in their hearts. It helps
an organisation to move away from qualities that can annihilate it such as
cupidity, greed, shamelessness, impurity, extravagance, miserliness,
15

ostentation,

tendency

to

defame

others

or

even

competitors,

preoccupation with useless endeavours, flattery, rejoicing in others

misfortune and despising the poor. This annihilating qualities can not help
an organization to maintain a sustainable business practice.

How can it (Islamic Framework) help practices of Corporate

Organization?
Askari, Iqbal, Krichene & Mirakhor (2010) and Iqbal & Mirakhor (2011) in
their discussion on the corporate governance mention reasons for
recurrent financial crisis that we often experience in our contemporary
time. Some of the reasons highlighted

are: failure of market discipline,

short-sighted approach, breach of trust, failure of board oversight, failure

of risk controls, and deteriorating business ethics and values. They argue
that even the International Corporate Governance Network (ICGN) has
argued that although corporate governance failures did not cause the
financial crisis, they certainly aggravated it (p. 344). Let us discuss some
these corporate governance failures and how Islamic framework for
sustainable business practices as discussed in this work can help alleviate
it.
On Failure of Market Discipline, the financial crisis is said to have
dealt a great blow to the widely held position that the invisible hand of the
market would invariably make market players resolve conflicts through
market discipline. This has been used to support the claim that there is no
need to regulate the market. However, the realization that not only is the

16

financial market information imperfect and deficient but that the market is
been manipulated by market players for their personal interests. From the
Islamic framework for sustainable business practice concept such as
Hikmah and Shajaaah can best tackle this. Since what is needed is a
robust enforcement plan that can help bring appropriate disciple and
proper regulation of the market.
On the issue of Short-Sighted Approach, this has to do with the fact
that corporate organization are only interested in maximizing their share
value. This has often led to failure to see the long term effect of some
dealings (de Larosire, 2009). In addition, Shareholders are also known to
pressurize management to dish out higher dividends for investors. This
invariably lead to a situation whereby to exceed expected quarterly
earnings is standard for many corporate organization. This can be
countered from Islamic sustainability framework with the idea of Tawaadu
and Sabr. These are qualities needed when faced with challenges that are
beyond ones control. However, it does not mean one has to be lethargic.
But that the corporation realizes the situation it has found itself and willing
to go about resolving it carefully and cautiously.
On Breach of Trust, the financial crisis that is currently been
experience has affected the level of trust business executives, directors
and CEOs of corporate organizations. This can be remedied with HusnulIstimaa (Good listening), Hilm (Forberance) and Rifq (Gentleness). These
are ways in which trust can be nurtured. An organization that show
willingness to listen to those who are affected by its activities will go a
long way in achieving its business objectives. Corporate organizations

17

must make stakeholders feel comfortable in discussions by listening

carefully and more importantly show sensitivity to stakeholders points of
view. With good listening skills, corporation can accurately understand
those they are dealing with and build trust. Same also goes for forberance
and gentleness. Corporations organization need to understand that life is
not an eternal bed of roses. There are bound to be knotty patches such as
financial losses or even betrayal, but this does not give room for cutting
corners thereby giving room to loss the trust of those they (corporations)
deal with. Husnul- Istimaa (Good listening), Hilm (Forberance) and Rifq
(Gentleness) are ways in which people hearts can be opened and trust can
be strngthened. It can also lead to more good will for the organization, so
that what needs to be done gets done quickly and effectively.
On Failure of Board Oversight, this has to do with inability of some
board members of corporate organizations to make appropriate policy and
do a follow up. It is a situation in which board members do not simple do
their job. This has even led to debate on the money being paid to some
board

members

and

whether

they

really

worth

such

outrageous

alllowances. At times, failure of board oversight is a result of lack of timely

invention in a some matters that requires that needed to be prioritize.
Failure to use proper risk management framework in place, they have
been criticized for being too complacent and unable to prevent collapses.
lax corporate governance meant that often no action was taken by senior
management. Failure on strategy and oversight, misaligned or perverse
incentives, empire building, conflicts of interest, weaknesses in internal
controls, incompetence and fraud. The Islamic approach to solving this is

18

the concept of Qudwah (Good example) and Ilm (Knowledge). Corporation

organization should show exemplary character in their dealings. This can
be done through being persuasive and positive and can also counter the
issue of board oversight. In showing good example and knowledge through
a persuasive and positive outlook corporations can sell their ideas and
product effectively. In otherwords, by making their positions known in a
well organized, clear and compelling manner; corporations and by
extension board members of corporation will be respected as well as
inspire enthusiasm among employees and other stakeholders.
Another problem corporate organization is faced with is Failure of
Risk Controls. This is a situation in which little control is shown in
safeguarding against excessive risk. Even when signs of trouble appears,
senior management are known to have judged it to be of little importance,
apart from that the information was used in organizations was also a major
contributor to this. From the Islamic point of view of sustainable business
practices the problem of risk control can best be tackle with the concept of
Hikmah (Wisdom). This can be seen as the outstanding ability to anticipate
potential problems and developing effective measures to correct them.
The concept of wisdom as referred to in this paper it is believed will lead to
an effective risk control measure for corporate organization. This is in the
sense that excessive risks can be checked immediately it is noticed and
resolved before they become a serious issue.
On Deteriorating Business Ethics and Values, this is a result of a
decline in moral and ethical values in corporate organization. The
management of these companies seem to be more interested in

19

circumventing regulatory bodies and looking for shortcomings in the law

rather than looking for what is the most appropriate thing to do. This is
also a result of increasing love to show off personal empire rather than
showing moral and ethical business leadership. A counter measure to this
is a combination of all the ethical precept highlighted on the Islamic
framework; Ikhlas (sincerity), Ilm (knowledge), Hikmah (wisdom), Hilm
(forberance) and Rifq (gentleness), Sabr (patience), Tawaadu (humility),
Qudwah (good example), Husnul-Istimaa (good listening), Shajaaah
(courage), Karam (generousity). This is due to the seriousness of
deterioration of business ethics and values. It does not only affects the
corporation, but also various strata of the society. That is why the ethical
values to solve it must touch both the external and the internal part of the
problem. A combination of all these all ethical precept will lead to a
suituation

where

all

important

decisions

are

taken

carefully

and

methodically. The corporation will base decisions on relevant facts and

input with consideration of long and short-range factors. The sensitivity of
the organization to the impact of its decisions on other sections and on the
organization as a whole will also be heightened. When the corporate
organization decisions affect others, the corporation will solicit input and
make effort to reduce any negative affects. This will invariably lead to wide
acceptance and support for organization. Above all, the corporation will
show clearly its understanding of its mission and the values by which it
operates and that it is aware of how its mission and values is linked to the
advancement of the society. The commitment and dedication to the
corporation to these values will make it an excellent role model for those

20

seeking to understand the values and how they impact day-to-day

runnings and sustainability of the business organization.
Another issue that has been noted to lead to crisis in corporate
organization

is

Inappropriate

and

faulty

remuneration

system.

Remuneration and incentive systems have played a key role in influencing

the

financial

institutions

sensitivity

to

shocks

and

in

developing

unsustainable balance sheet positions. Where there is disparity and

asymmetry in the levels of remuneration that is awarded, it often affect
the financial health of firms. This problem can best be resolved through
the concept of Karam (generousity) and Ikhlas (sincerity). These two
concept from the Islamic point of view have embedded in them the
understanding and need for social justice and welfare. To this end,
corporation organizations will do well when this understanding of social
justice and welfare are ingrained in their system of remuneration. In other
words, the inappropriate disparity in renumeration is morally obscene,
economically unjust, socially intolerable and will ultimately lead to crisis.
That is why through the concept of generousity and sincerity in
remuneration corporate organization will also be seen as showing high
moral and ethical conduct.

Table 1

Corporate Organization Failures and Islamic Solutions

Corporate
Lapses
1
.
2
.
3
.

Organization

Failure of Market Discipline

Islamic Framework of Sustainable

Business Practices for Corporate
Organization
Hikmah and Shajaaah

Short-Sighted Approach

Tawaadu and Sabr

Breach of Trust

Husnul- Istimaa (Good listening), Hilm

(Forberance) and Rifq (Gentleness).

21

4
.
5
.
6

Failure of Board Oversight

Misaligned
and
remuneration system

Qudwah
(Good
(knowledge)
Hikmah (Wisdom)

Failure of Risk Controls

Deteriorating
and Values

Business

Ethics

faulty

example),

Ilm

ikhlas
(sincerity),
ilm
(knowledge),
hikmah (wisdom), hilm (forberance) and
rifq
(gentleness),
sabr
(patience),
tawaadu
(humility),
qudwah
(good
example),
husnul-Istimaa
(good
listening), shajaaah (courage), karam
(generousity)
karam (generousity), ikhlas (sincerity).

An example that illustrate the importance of the values highlighted

above for corporate organization can be seen in the In Albert Erisman and
David Gill interview with Jim Sinegal, CEO of Costco. In the interview
Sinegal mentioned some unique business practices he has incorporated
into his organization. According to Rae & Wong (2004) Costco serves as
an outstanding example of a firm that is trying to honor the interests of a
broad range of stakeholders while managing shareholder expectations and
the tensions produced by operating in competitive markets. CEO Jim
Sinegal clearly describes the importance of emphasizing company values
in building an organization that is sustainable and profitable for the long
term (p. 162). Jim Sinegal was only trying to show

how ethics and

corporate responsibility play out in the retailing business that he knows

well about. In the interview Sinegal gives a well-defined, sincere answers
about the uniqueness of a corporate organisation that has a strong value
in order to build a sustainable business firm that benefits a broad number
of stakeholders (Rae & Wong, 2004).
Table 2

Jim Sinegal on Ethics and Corporate Responsibility

The Issue

Jim Sinegal Approach

On Low Prices and High

Jim

Sinegal

explained

22

it

Islamic
Value
Reference
His
response
a

Wages

On
the
idea
that
investors
might
pressurize the company
to increase quarterly
profits
and
raise
shareholder value by
cutting
wages
and
raising prices as the
market
dictates
or
allows.

should not surprise anyone

that if you find good
people, give them good
jobs, and pay them good
wages, good things will
happen (p. 146). Another
reason is that the company
decided that it would take
away any objections or
questions a customer might
have, such as perhaps it
could
be
treating
our
employees unfairly in order
to sell things at low prices.
The company also decided
to establish a stronger and
better
guarantee
of
satisfaction
on
every
product it sold, that would
exceed
the
warrantee
ofered
by
any
other
company.
According
to
Sinegal, the company has
the same attitude toward
our suppliers and everyone
else who has contact with
our business.We operate
this
way
because
we
believe philosophically that
this is what we should be
doingbut we also do it
because of the nature of
our business... (cited in
Rae & Wong, 2004, p. 146).
Sinegal
explains
that
although
that
is
not
unreasonable for those in
business since many many
often see business as buy
low sell high. He states But
thats not our job. Our job is
to build the company,
hopefully one thats going
to be here fifty years from
now. You dont do that by
changing every time the
wind blows in a diferent
direction. The things that
we do are basic and
intrinsic to our business and
our
company.
Our
reputation for pricing is an

23

reference to the
qualities of Karam
(generousity),
Ikhlas (sincerity).

His
response
a
reference to the
concept of Hikmah
(Wisdom)
and
Shajaaah
(Courage).

When Sinegal was asked

about the incentive for
investors
since
customers
and
employees have theirs.

example.We have sweated

over this for years. Why
would we sacrifice that just
to make a quarterly target?
It wouldnt make sense
sacrificing
everything,
risking
our
whole
reputation. We believe our
strategy
will
maximize
shareholder value over the
long term. We have a
reputation for pricing. Why
would we sacrifice that just
to
make
a
quarterly
target? (cited in Rae &
Wong, 2004, p. 147)
He reponded that The
record shows clearly that
we are successful over the
long term. I dont know
what the exact number is
but look at our return over
the past five or ten or
fifteen years. Our mission is
to do four essential things:
obey the law. . . . take care
of our customers . . . take
care of our people . . . and
respect our suppliers. If we
do these four things, and do
them consistently, we will
succeed as a business
enterprise that is profitable
and
rewarding
to
our
shareholders. It is possible
for some to ignore these
things and reward their
shareholders in the short
term but not for the long
term.We feel an obligation
to build businesses so that
communities can count on
us being there, suppliers
can count on us being
there, employees can count
on the security of jobs, and
customers who shop with us
know that they can count
on us. When they buy a
washing machine or a
television, were still going
to be around a couple of

24

His
response
a
reference to the
idea
of
HusnulIstimaa
(Good
listening),
Hilm
(Forberance)
and
Rifq (Gentleness).

In responding to the
question What in your
view makes a good
CEO?

years from now (cited in

Rae & Wong, 2004, p. 147).
Sinegal answers:
Good
leaders
make
the
determination how to run
the company and then
communicate it to everyone
in the company so that they
all understand it. Honesty
and doing the right thing
cannot be the responsibility
of
management
alone.
Every level of the company
should understand what the
rules
are
and
every
employee in the company
should be mortified if the
company and its people
dont do what they are
supposed
to
do.
The
attitude has got to be
pervasive throughout the
organization:We dont do
that kind of stuf around
here! Period!( cited in Rae
& Wong, 2004, p. 147)
He further explains that the
company is not just looking
for character and ethics, but
also
intelligence,
industriousness,
integrity,
for someone faster than a
speeding bulletall of those
things you want in a
manager. If you start of
with
integrity,
financial
integrity
as
well
as
intellectual integrity, youre
starting on a pretty good
base (cited in Rae & Wong,
2004, p. 147). In addition,
Sinegal explains that values
and integrity runs through
the ranks of company from
way down to the forklift
driver to the mail delivery
person. That is because as
an organization, they make
sure they are consistent. By
consistent he meant You
put
in
place
simple
guidelines on how you run

25

His
response
a
reference to the
notion of Qudwah
(Good
example),
Ilm (Knowledge).

your business and then

follow them (cited in Rae &
Wong, 2004, p. 147). He
then went further to give
examples One guideline
we follow at Costco is that
no employee who has been
with us for more than two
years can be fired without
the approval of a senior
officer in the company.We
think an employee who has
been with us two years is
entitled
to
that.
No
manager can come in on a
bad day and decide some
employee is history. There
has got to be a review
process. Is it perfect? Of
course not.Were fallible.
But it is one of the things
that we do to show respect
to our employees. Another
example is our open-door
policy. People have a way to
voice their grievances and
get them addressed. All
100,000 employees cannot
run
to
me
(although
sometimes it feels like they
do) but I do take on some. It
would be a very rare day
that I dont get a couple of
calls from employees. But
think
about
this:
if
warehouse managers know
that their own regional
bosses have open door
policies and will talk to any
employees
about
their
issues, then they are going
to be a little faster to talk to
the troubled employees
themselves.
They
dont
want the problems to come
back to them through their
bosses. They are smart
enough to figure out that it
is their responsibility to take
care of things at their level
(cited in Rae & Wong, 2004,
p. 147).

26

Consistency
in
the
companys culture and
values

Extensively
incorporated technology

Eventhough
Costco
has
around 100,000 employees
Sinegal says he tries as
much
as
possible
to
maintain consistency in the
companys
culture
and
values by going get to every
warehouse owned by Costco
at least once a year. He
states that that is easy for
him since it is what he does
for a living and because I
love the business and I
enjoy
doing
it.
It
is
important that those in
management get out there
and understand where the
business is. Otherwise your
business is going to fall
apart on you (cited in Rae
& Wong, 2004, p.148).
The company has also
extensively
incorporated
technology
because
as
Sinegal mentions it helps
us become more efficient
and productive but our
business still has a lot of art
as opposed to strictly
science (cited in Rae &
Wong, 2004, p. 148). He
further asserts the reason
that the dot-com companies
didnt succeed is that they
were very good at the
science end but they didnt
understand anything about
the art of buying and selling
merchandise. They thought
that was the easy part but it
turned out to be the most
difficult...But buying and
selling merchandise is the
business.
These
other
things
augment
your
running the business but
they arent the driving
force. If you dont have the
right merchandise in the
right place at the right time
you
can
forget
about
everything else. All the

27

His response show

the
qualities
of
Ikhlas
(Sincerity),
Ilm
(Knowledge),
Hikmah (Wisdom),
Hilm
(Forberance)
and
Rifq
(Gentleness), Sabr
(Patience),
Tawaadu
(Humility), Qudwah
(Good
example),
Husnul-Istimaa
(Good
listening),
Shajaaah
(Courage),
Karam
(Generousity)

The response shows

the importance of
Hikmah
and
Shajaaah

Support
for
Businesses

Small

On
the
idea
of
globalizing the company

satellites in the world arent

going to help you. The
reason
the
dot-com
companies didnt succeed is
that they were very good at
the science end but they
didnt understand anything
about the art of buying and
selling merchandise. (cited
in Rae & Wong, 2004, p.
148).
He notes that for any
business
to
survive
it
depends on the quality of
the individual merchant.
Those
who
run
their
businesses in an efficient
manner
are
going
to
survive (cited in Rae &
Wong, 2004, p. 149) That is
why Costco also emphasis
on supplying and also
preserving small businesses
rather than replacing them
entirely. Sinegal recognises
that
importance
of
a
business
customer.
However, the company does
not only focus on them but
also deals with nonprofits
organizations like churches,
schools, and sports teams.
In addition, Costco helps
small businesses improve
their operating structure by
giving business advices on
how to run a business, how
to get staff, how to hire
consultants, among others.
Sinegal notes that every
country
is
different,
however their recognition of
value is constant. That is
because value is welcome
everywhere, although how
the value works may be
different. He also notes that
[t]he
keys
to
doing
international business are
to understand local rules
and laws, recognize what
customers want to buy, and

28

The response shows

the understanding
of the concept of
Karam
(Generousity),
ikhlas
(Sincerity),
Qudwah
(Good
example),
Ilm
(Knowledge).

The response shows

the importance of
Tawaadu(Humility)
and Sabr (Patience).

On expansion of the
company
into
new
product areas

On whether there are

policies for buyers to
investigate
how
products
are
manufactured,
e.g.,
probably there is child
labor or slave labor
involved.

On corporate scandals

take care of our employees.

Whether in the UK or
Canada or in Mexico, were
going to measure ourselves
against every other retailer
and make sure that were
paying higher wages than
anyone else.We would like
to be able to turn our
inventory faster than our
people because excessive
turnover of people is very
costly (cited in Rae &
Wong, 2004, p. 150).
there is always a strategy
of trying to bring new
products and new services
to the customers on an
ongoing basis. However, the
question that the company
mangement always keep in
mind is whether we can we
do it well and provide value
for the customer. If we think
we can, were prepared to
try it (cited in Rae & Wong,
2004, p. 150).
Sinegal states: We also
have a code of conduct for
our suppliers that demands
that they have to meet the
laws of their own country,
pay the right wages, and
not use child, slave, or
prison labor, etc....Bribery is
clearly the worst. As an
American company we cant
get involved in bribery
because of the Foreign
Corrupt Practices Act.We
have a conduct policy for
our suppliers. We visit our
supplier factories on a
regular basis to make
certain they are complying
with our standards and
values (cited in Rae &
Wong, 2004, p. 150).
Sinegals view on corporate
scandals
also
highlight
some of the cogent issues
raised in this paper. He

29

His response shows

and understanding
of Qudwah (Good
example),
Ilm
(knowledge).

The response can

be linked to the
reference
on
HusnulIstimaa
(Good
listening),
Hilm
(Forberance)
and
Rifq
(Gentleness).

His response shows

the importance of
this values Ikhlas
(Sincerity),
Ilm

On the issue of time,

reflection, pace of the
world, the quantity of
information,
and
competitive pressures;

On the future plans of

the company

believes that the gates

were too wide open, with
too many opportunities.
Clearly thats something
that has to be taken care of.
But no matter what types of
rules and regulations, no
matter
how
many
committees are set up, bad
guys are still going to figure
out some way to do wrong.
The good news is that there
arent that many bad guys.
Most business leaders are
trying
to
run
their
businesses in an ethical
fashion. I think the biggest
single thing that causes
difficulty in the business
world is the short-term
view.We become obsessed
with it. But it forces bad
decisions (cited in Rae &
Wong, 2004, pp. 150-151).
Also Sinegal notes: You
have to schedule it. You
have
to
plan
the
opportunity to think about
your business and plan
what youre going to do.
Otherwise youre just a
hamster running on a
treadmill;
youre
never
going
to
get
anywhere.Youve
got
to
schedule
it.
Strategic
planning is an important
part
of
running
any
business and the more so
for businesses that are
operating in multiple states
and countries (cited in Rae
& Wong, 2004, p. 151)
Sinegal as got this to say:
Were
not
kamikaze
pilots.We want to do things
in a sensible fashion. If we
can speed up our growth,
without outdistancing our
management team, and
provide a quality product,
then we will do so. Aside

30

(Knowledge),
Hikmah (Wisdom),
Hilm
(Forberance)
and
Rifq
(Gentleness), Sabr
(Patience),
Tawaadu
(Humility), Qudwah
(Good
example),
Husnul-Istimaa
(Good
listening),
Shajaaah
(Courage),
Karam
(Generousity).

A reference to the
importance
of
Ikhlas
(Sincerity),
Ilm
(Knowledge),
Hikmah (Wisdom),
Hilm (Forberance).

Response shows the

importance of the
concept
of
Ilm
(Knowledge),
Hikmah (Wisdom).

from the quality issues and

wanting
to
grow
the
business in a sensible
fashion, we dont have any
grand scheme that says, for
example, that we have to
be in Latin America by the
year 2015 or have 1000
Costcos in ten years (cited
in Rae & Wong, 2004, p.
151).

CONCLUSION
This paper examines the centrality of strong ethical values in building a
sustainable business enterprise through an Islamic eyes. The paper
scrutinizes what is often regarded as good business practices and draws
on Islamic ethics to get behind, go beside, and move beyond it in an effort
to understand how deep, engaging and socially rich Islamic practices to
business are when it steps into the corporate world. This paper also
reveals how bringing this Islamic approach as highlighted in this paper
requires enormous will and dedication on corporate organizations.
To be sure, the message here is that improving the ethical climate of
business is that ethics derived from the Islamic tradition has much to
contribute to sustainability of business. Although the business world may
not be Islamic and may not readily accept ethical guidance couched in
faith-based language, many of the ethical constructs derived from the
Islamic faith can also be communicated in language that appeals to the
broader marketplace. My goal is to encourage instilling values that are
based soundly on the Islamic faith in corporate organization.

31

It must be emphasis that my aim is not to condemn profit-making

but the narrow pursuit of profit should be avoided. Profit-making should be
within a framework of what is right and balanced. As in all human pursuit,
self-interest is a natural motivating force but self-interest has to be linked
to the overall concept of good and justice. Reward for effort and suffering
for failure in effort provide the best framework for human society and the
economy. Islam acknowledges it and accepts it as a first principle for
economic and social effort. But Islam also lays down a moral framework for
effort, spelling out values and disvalues, what is desirable and what is
reprehensible from a moral, spiritual, and social perspective. This is a way
of slowly constructing an operational framework that is beyond good
business practices and standard but also based on ethics, justice, and
morality.

32

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33