The Practice of Multiple Shari'ah Board Directorship and Fiduciary Duties

Introduction

In our modern life, it is not uncommon for an individual to undertake multiple jobs or responsibilities at the same time – either in a personal, social or professional capacity. This is due to the presence of several enabling factors such as the availability of time, the ability to multitask, contractual obligations, or simply due to personal passion. For instance, a research student who undertakes a part-time job; a politician who normally handles two or more designations – one in his political party and another in the government’s cabinet; or even a man, who practices polygamous matrimonial relationship, illustrate such a phenomenon in our modern world.

A layman who engages in the practice of undertaking multiple obligations in either his personal or professional life may not encounter too much bother. However, the engagement in such a practice by an important figure such as a prime minister, or a board director, who plays a decisive role in their profession, may give raise to several questionable issues from the governance perspective. As much as the subject of interlocking directorship has attracted substantial attention and discussions within the Western corporate governance hemisphere (Chiranga & Chiwira, 2013; Ferris, Jagannathan, & Pritchard, 2003; Fich & Shivdasani, 2006; Jiraporn, Kim, & Davidson, 2008; Sarkar & Sarkar, 2009), the practice, which only became noticeable in Islamic banking in the last two decades, remains a ‘terra incognita’ in the Islamic corporate governance world. In fact, there remains a dearth of references, discussions, case law or empirical research dealing with the subject of interlocking directorates or multiple Shari’ah board directorships; neither within the vast nor specific field of the Shari’ah law such as Fiqh Al-Muammalat (Islamic law of commerce). This renders the study of this subject challenging.

During the early inception of the Islamic banking industry in the 1970s, it was uncommon for a Shari’ah scholar to occupy multiple Shari’ah board directorships across the IFIs. However, it certainly was the case considering the limited collective number of IFIs around the globe and the absence of a formal Shari’ah compliance organ in the form of a Shari’ah board within most of the IFIs’ corporate governance structure at that time (Elasrag, 2014; International Shari'ah Research Academy for Islamic Finance (ISRA) & Thomson Reuters, 2016). As the global demands for Islamic financial products and services increased, so did the number of IFIs. From the modest start-up of the Mit Ghamr Savings Bank of Egypt in 1963, the industry began to witness a global ‘domino effect’ in the formations of IFIs worldwide such as, inter alia, the Tabung Haji of Malaysia (1969), Dubai Islamic Bank (1975), Faisal Islamic Bank of Sudan and Egypt (1977) and Bahrain Islamic Bank (1979). Nonetheless, the robust development of Islamic banking dwarfed the collective supply of Shari’ah scholars with the necessary knowledge and practical experience in Shari’ah law (Rafay & Farid; 2018) and banking respectively to serve as the IFI’s Shari’ah board members, which created a Masyaqqah (a severe or difficult situation) that had prompted the IFIs to share similar Shari’ah scholars as their advisors¹.