Corporate Governance 335
managers and leaders all contributed to the chaos. Collins (2009) has
observed the corporate behavior of leaders and identifi ed the different
stages they might go through during the course of a fall — from the hubris of
considering success as an entitlement, to the undisciplined pursuit of more
(more scale, more growth, more acclaim, more of whatever they see as “suc-
cess”), to putting a positive spin on ambiguous data and being unable to
accept responsibility for setbacks. Such behavior was prevalent across the
industry in the lead - up to the current fi nancial crisis.
Leaders who are fully conscious of their responsibilities, limitations,
and obligations as expected in Islam would never fall into behavior which
would promote arrogance, ignorance, greed, deceitfulness, non - transparency,
and delinquency. To assist the development of leaders with higher moral and
ethical values, integrity, introspection and humility, the governance infra-
structure needs to be strengthened.^24 These principles defi ne the social
norms in Islam which determine the behavior expected of individuals and
institutions and establish a set of socially approved values. While the values
and expectations in any given society may shift or change with the passage
of time, Islamic values are inviolable at all times. Therefore, these values set
a benchmark against which the behavior of individuals and institutions will
be judged.
CORPORATE - GOVERNANCE ISSUES OF IFIS^25
Corporate governance relates to the manner in which the business of the
bank is conducted, including setting corporate objectives, the bank’s risk
profi le, aligning corporate activities and behavior with the expectation that
management will operate in a safe and sound manner, running day - to - day
operations within an established risk profi le, while protecting the interests
of depositors and other stakeholders. It is defi ned by a set of relationships
between the bank’s management, its board, its shareholders, and other
stakeholders.
The key elements of sound corporate governance in a bank include:
■ (^) A well - articulated corporate strategy against which the overall success
and the contribution of individuals can be measured.
■ (^) Setting and enforcing a clear assignment of responsibilities, decision -
making authority and accountabilities that are appropriate for the bank’s
risk profi le.
■ (^) A strong fi nancial risk management function (independent of business
lines), adequate internal control systems (including internal and exter-
nal audit functions), and a functional process designed to incorporate
the necessary checks and balances.
■ (^) Adequate corporate values, codes of conduct and other standards of
appropriate behavior and effective systems used for ensuring compli-
ance. This includes special monitoring of the bank’s risk exposures