Emergence of Corporate Governance and Shariah Governance

The corporate governance mechanism stems from two major theories, the Shareholders Theory and the Stakeholders Theory. The Shareholders Theory states that the shareholders’ interest lies only in maximizing the company’s returns. On the other hand, according to the Stakeholders Theory, a business owes a responsibility to a wider group of stakeholders and shall create value for all of them, other than just shareholders. Among the two theories, the Stakeholders Theory is closer to Islamic values and principles. Hence, a business that operates in a Shariah-compliant way, needs to aim far and beyond the typical goal of economic output. A Shariah-compliant business, in addition to meeting its fundamental requirements, should also be ethical and philanthropic as ideal.