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Islam and Corporate Social Responsibility
Hosted by Hanniah Tariq (June 2008)
Hanniah Tariq is Research Associate, Responsible Business Solutions, with the International Business Leaders Forum (IBLF)It has been said that the problem with previous theory and practice of development was that it was rooted in the lived experience of the Western World. Critics have claimed that when these regions developed it was aided by the economic growth and changes in demographic patterns generated by the industrial revolution and different variables like colonization. Consequently, if the concept of development evolved in the West, then so did the role that business can play in the process and the responsibility of business with respect to society.
Clearly expectations with respect to business vary from region to region and developing countries in particular provide a socio-economic, religious and cultural context for corporate responsibility, which is in many ways different from developed countries. Hence it is arguable that a different path must be followed for different regions, as distinct drivers exist for them and as throughout the development of the role of responsible business in society, lessons learnt continue to characterize it as a contextual business response to external and internal drivers rather than an absolute model that can be followed and replicated in developing countries.
One region that is of incredible interest and significance with regard to the debate over cultural contextualization of corporate responsibility is the developing Islamic world, as most economies where Muslims live are classified as developing or underdeveloped. Additionally Islam as a religion has not lost its general influence on societies where it is practiced and constitutes a ‘complete way of life’ for the followers with specific implications for economic life and hence the role that responsible business can play in the development of a community/society/economy.
Due to these peculiarities, such regions are the perfect testing ground for whether corporate responsibility needs to be culturally specific to be able to address various development problems. If it is indeed true what Shaw claims, that ‘no man fully capable of his own language ever masters another’, then Islamic economics (which is based upon the principles of social justice and equity rather than efficiency or profit generation) and the influence of this stance on responsible business practice need to be further explored in order to discover the state of corporate responsibility in the developing Islamic world as well as its future potential.
The questions that follow from the discussion are:
1. Does a different socio-economic, religious and cultural context call for a different corporate responsibility strategy?
2. Islam as a religion has very specific rules concerning economic life. Is it prudent and useful for the Islamic world to try and derive principles for corporate responsibility based on Islamic economic principles?
3. If the concept of corporate responsibility evolved as a response to contextual factors, then for developing countries is it only natural that the contextual corporate response should be to attempt to fill in provision gaps for underdeveloped, disadvantaged communities in which they operate?
Join Hanniah Tariq in the conversation.
renewal
From a political-legalistic stand you are right in pointing out that the very notion of a joint stock company was invented in the west. At the same time such a notion, of “joint stock” could be renewed in a more equitable light. As such there is no hard and fast rules on the exact definition or components of corporate responsibility and hence the evolution of it, in an Islamic context would represent a kind of catalyst rather than a cut and dried equivalent. The fact is there is currently a lack of good practice benchmark exemplars in the Islamic world and we need to be able to point to such to be able to evaluate their own more innovative Islamic merits
Islam and social enterprise
Before anything else, I'd like to mention the existence of Opencaptial.net as a resource for investment models built upon non-usurous principles od sharing risk and reward that may be very congruent with a discussion about development in Islamic communities.
However, recognising that an Islamic community at risk of conflict, in the repatriated Tatars of Crimea, could be lifted out of poverty by means of targeted microeconomic development, gave my overseas founder reason to propose deployment of economic smart bombs, in a strategy to stimulate economic growth, this being no different to what had been delivered successfully elsewhere.
This proposal bore a clear political message, in a comparison with the consequences of not acting earlier in the Balkans conflict which had preceded it.
http://www.p-ced.com/Projects/Ukraine/CrimeanTatars/tabid/121/Default.aspx
The strategy had come from an earlier call, back in 1996 for a new approach to the way we do business, warning of the risks of excluding communities to the point of threatening their extinction and making a case for tackling information poverty, now recognised as a foundation for creating and competing in business.
In a recent speech in a Business Call to Action this same methodology, and reasoning for applying it was recently conveyed by UK Prime Minister in an appeal for corporations to engage in meeting the 8 MDGs.
So, with respect to the lat question. Absolutely, yes. There is real risk of conflict developing still in the community I described. it is to the great credit of that community that political attempts to provoke violent confrontation have been resisted.
Hanniah wiil know that I've made these points in attempting to communicate with the IBLF, in answering the call for New models of engagement to tackle poverty issued this February.
This particular project is still in suspense, not least because of the appearance of graft, but also in the lack of support from the development community at large. At the time, it was still acceptable to consider skimming development projects, which we were not about to tolerate.
a corporation is not a human even as it may be defined as a "legal" person in the courts and law
Is a corporation a "person"? I think this is the underlying question posed in the previous responses and implied in your questions.
A corporation having attained the "status" of a legal person in the courts but does that reflect that it is a person in the sense of religious beliefs nor human dignity.
A suggested reading and expression of the "ideals" of Islam in human development can be found in a recently published book titled "Three Cups of Tea" which examines different aspects of and approaches to human dignity and development.
Can, on the other hand, a corporation engage in "good" acts and activities that have ingrained in their deeds the fundamental principals of Islam, or any other religion, for that matter? I would suppose that the response to this question would be in direct correlation to those "humans" who control the corporation at the time to which reference is made while this could dramatically change with the change of such "humans" in the leadership of the corporation.
Corporations and morality
We might agree that corporations are the means by which personal responsibility is avoided and shifted to that which has no beliefs or dignity. Sadly, it's still the case that in the UK at least, avoidance of payment to suppliers is the way that many operate. Humans shift responsibility to the unaccountable corporation.
A social commitment showcase may fall short of negating the corrosive influence of harming others in business, by starving them of working capital.
It goes further. An example that I recently referred to Chris, as the oil business is his background. In spite of current consciousness over scarce resources, we have offshore registered companies set up specifically for the purpose of avoiding tax and concealing corporate ownership. This is benefit of the few at the expense of the many which is diametrically opposed to what Islam prohibits.
We have those who have gained, bringing vast resources to our inshore leaving destitution in their wake, where poverty manifests in human disposability, children are prostituted by themselves and others , are trafficked to our shores, find refuge in street life and drug abuse and fuel an epidemic of HIV infection.
We, our business leaders and politicians, focus on the short term interests of developing finnacial agreements with new sources of wealth, with complete oblivion toward the juggernaut that follows. This is more than evident, now that we have on-line access to Hansard records of parliamentary debate.
legal issues aside
The religious affiliations of the some of the first proponents and pioneers of responsible business practice such as the Cadburys and Rowntree have been identified as important features of their view on business’s role in society. In fact ‘their religion introduced several key features to their world-view …(and) introduced two further dimensions to their approach to wealth and industry. First it gave a strong sense of community… (and) emphasized the responsibilities associated with wealth and success’ (Cannon, 1994; 13). Keeping that in mind would it not be important to study individual motivations?
Note: reference: Cannon, T. (1994) Corporate Social Responsibility: A textbook on Business ethics, governance, environment: Roles and responsibilities. London: Pitman Publishing
Issue with Islamic Companies
Hanniah,
I have an issue with the concept that, Islamic Companies CANNOT make profits or CANNOT be highly efficient. The only restriction on profits is that the profit margin be fair in the eyes of both seller as well as buyer.
As far as the questions are concerned, I have the following inputs: 1. No 2. Yes 3. Charity begins at home, the first beneficiaries should be the surrounding communities.
Regards
Profits not allowed?
I can understand your issue. But if that was actually the case then it would be my issue too. The point is not about the fact that Islamic Companies CANNOT make profits or CANNOT be highly efficient. The point was that it places equal importance on the profit generation as well as the rights of all the stakeholdrs. In fact ISlamic Ecnomic principles are perfectly logical in that ofcourse it is a business that needs to produce profit to be able to survive.
question for our moderator or others
Hi Hanniah,
I wonder if you can more clearly specify what are the values which you would like to identify as being "Islamic" in nature and would seek to promote via corporate activities?
Thanks.
the principles
I would love to give a detailed account to answer your question but i am afraid it is a rather detailed answer depending on which scholars one refers to when extracting the principles. It is a good idea to mention some though becuase it does provide nessesary background for the discussion.
For one thing there is no separation between the spiritual and material world in Islamic economics. It is important to note at the very onset of the discussion that Islamic economic principles differ greatly from classical economics in that they are not ‘value-free’. In fact, Islamic economic thought is laced with ethics and does not succumb to the western notion of economics as science which reduce the individual to an economic man whose sole purpose is maximizing his objectives in every economic pursuit but considers man to be motivated both economically and spiritually. Consequently the individual must not pursue material wealth without considering the ethical and moral implications. Similarly the community must not pursue economic growth without justice and equality.
Another important principle is that of ‘balance’ and a Muslim’s conduct is considered perfect when he avoids both access and deficiency. Hence a Muslim is to find a way to gain material rewards while seeking the reward of the afterlife
Universal brotherhood and justice is another important principle in Islam which influences Islamic economic thought. All of mankind is seen as one fraternity in Islam with a special bond existing between Muslims as they are seen as an ‘Ummah’ (family) bound by common faith indicating encouragement of mutual cooperation and help. Additionally, this undifferentiated view of humanity in which no individual is considered dearer in the eyes of Allah as they are all one family, lends itself to the concept of social and economic justice.
The concept of ‘Rights’ is a very unique point. Islamic Economics establishes a just relationship between the employer and employee with both having rights and obligations. It is the obligation of the employer to provide the employee with a ‘just wage’ which is derived from two principles. It should be equal to the labour put in and also confirm to a standard which allows the labourer to obtain a ‘sufficient quantity of reasonably good food and clothing for himself and his family’ (Chapra, 1979a; 11). In return the employees’ obligations to the employer include diligence and honesty.
Additionally the concept of ‘God as Owner’ is also of extreme importance. In Islamic economic thought Allah is seen as the owner of all resources and man merely entrusted with what has been given to him (wealth property etc). Consequently in Islamic economic thought it is ‘Gods’ right to designate other individuals of the community as the rightful claimants to a share of that wealth’. This is done through two inbuilt systems of redistribution in the Islamic economic system which include , Zakat (a progressive tax applying to the upper and middle class in the society aimed at redistribution of wealth) and a formula for the estate division upon the death of an individual that ‘accelerate(s) the distribution of wealth in a society’ (Chapra, 1979a; 19).
So anyway here are some of the basic princples to ponder over.
From an Islamic country, congruence
Ramla Aktar from Pakistan presents the people-centered model which embraces all aspects of a persons economic social and cultural needs.
http://www.triplebottomline.com.pk/response.asp?id=1&sub_id=7
Thank you
Re: Thankyou
Corporations, people and values
Oh dear, oh dear, what a cynical group you are!. Allow me to dive in with a little sunshine in your lives - or at least to try..
I am in the glass-half-full camp and, as I say that, I do appreciate I have been lucky enough to work in a big corporation which genuinely lived by a set of values which its employees could both share and take pride in. For example (and there are plenty) when, as early as 1997, BP (and Shell by the way) took a precautionary stand on climate change by setting internal carbon reduction targets, it was a human leadership response to a global social issue and was one in which we, the staff, felt very proud to be a part.
Corporations are, in the end, nothing more than a collection of people working together. Sure people work for the money, but they also do it because they enjoy working for their company and, at best, identify with a set of shared values exhibited by the company in its business activities. Companies (i.e. the executives) realised a long time ago that when people have this kind of positive relationship with the corporation they work better and stay longer = better profits. My point is I simply don't buy this notion that companies are setup to avoid litigation and to enable bad things to be done with recourse (maybe a very trans-atlantic view?). In my experience, it is when companies perform consistent with a set of values with which their multiple stakeholders can identify that the best long term performance results.
This is not to say there isn't a challenge (at worst conflict) between short term profit delivery and long term value and growth. Balancing that trade-off is one of the reasons executives get paid so much. But a company that only satisfies short term delivery is out of business tomorrow when everyone looses including the capital investors. So quarter by quarter profit delivery need not constrain companies to behave badly and then cover it up with CSR. Best companies use their relationship with society to ensure their own sustainability by delivering products and services which cater to the developing needs of their customers. Get behind that ball and your dead (commercially).
As I write this, I know its a western view. And the values of the companies I am talking about are based on the Judao-christian systems. I don't know how this model is influenced by Islamic- based corporate values and it would be really interesting to hear from some people who have worked in that cultural domain.
So let's stay positive and hear experiences from the world of Islam. What is the difference between the expectations of business in society in a Muslim culture and what can we in the west learn from this?
Hi, Hanniah!
I'd like to greet Hanniah again - and to say very briefly that I believe the question she's raising here is an important one. I look forward to learning more about the topic as our conversation progresses.
Equity: how well some of the different meanings of this term reflect the very issues we are considering here.
welcome charles
It is lovely to see a friendly face (and thankyou for support)! i really think it is an important question too and i would love to see some practical examples of challanges and sucesses in addressing the debate on cultural contextualisation.
A postmortern interview
In this context then, you may be interested in an interview with a diaspora leader where the obstacles in implementing a business development project, as I described above, are explored.
http://www.iccrimea.org/scholarly/economicdev.html
P-ced
Thank you for pointing me out the interview. Having gone through the model before while discussing social entrepreneurship in feb I think this adds a more relavent dimension to my research interests. What strikes me is that it is people attempting to work in places where traditional capitalism has been imported and not naturally evolved who notice the affects more glaringly. It is quite easy to see that traditional capitalism is an insufficient economic paradigm to address the challenges of development in such countries. It only relies on growth without sufficient redistribution of the effects. As put by Mr. Hallman in the interview 'there are no rules in the previous capitalist system to fix that. Profit and numbers have no conscience, and anything done in their name has been accepted as an unavoidable aspect of capitalism'. Cleary alternate ways of thinking need to be initiated.
equity---
Charles, as always you raise an interesting and important topic..."equity."
There are many definitions for this word and these definitions depend, to some considerable extent, on the context in which the base word is found.
In the context of this discussion, can we identify the word "equity" with the idea of "compassion?" Should or even can this be a driver in the effort to create/develop different ideals for corporate responsibility?
equity
I don't think that one generally identifies the word 'equity' with compassion; even in the context of english. In the discussion many connotations come up with regard to equity. I think (for lack of better terms) it would mean the general principles of fairplay and even-handedness...
Muhammad Yunus - and Baqir al-Sadr
I'd be fascinated to know what Muhammad Yunus would say about all this.
I took a brief look through some of his published writings, and didn't find much beyond this, in Banker to the Poor, p. 110:
QUOTE: Many Islamic scholars have also told us that the Shariah ban on the charging of interest cannot apply to Grameen, since the Grameen borrower is also an owner of the bank. The purpose of the religious injunction against interest is to protect the poor from usury, but where the poor own their own bank, the interest is in effect paid to the company they own, and therefore to themselves. UNQUOTE
Obviously, though, that quote is about banking, and that's just part of social entrepreneurship - and even of Yunus' own work!
*
I'm also interested in the Sadr family for various reasons, and know that the Ayatollah Muhammad Baqir al-Sadr was developing an Islamic economics to replace both marxist and capitalist versions as he knew them, finding both inadequate to the balance needed between private and public ownership and obligations.
Are there any major Islamic writers, Sunni or Shiite, discussing such questions today?
Iqtisaduna
I am very impressed by your general knowledge on everything under the sun.
I think one of the most interesting points about his work particularly Iqtisaduna (which means our economics) is that it discards the notion that most scholars on the subject reach, which is that it is a blend of capitalism and socialism. He instead claims that arguing that both of these emerged as the “natural conclusion of certain ideologies”, while Islamic economics originates from Islamic ideology and is therefore completely autonomous of other systems of economics. This really speaks to me.
I would love to hear from other participants about which major Islamic writers discussing such questions speak to them...
some further thoughts
I would like to make two more points:
(1) I have recently begun to wonder at Grameen Bank and its quite high interest rates being run as an Islamic institution. If there is a sense or a legal status of ownership for all who borrow, then that provides one explanation. On the other hand, perhaps it is "necessary" to allow the collection of interest in this type of operation as the benefits are so substantial.
(2) If "compassion" cannot be equated with "equity," then there should be no room either for love, or consideration, or respect, or the dignity of humanity, or the importance of considering and including the total valuation of natural resources that cannot be replenished. Compassion, as with love, consideration, respect, and the dignity of each human, offers a reason for consideration for the formation or reformation of corporate responsibility for without such values the value of the profit over-rides all and it becomes only the bottom line profitability based on $$$ or Euro or whatever is the currency measure.
compassion...
That being said however, passion and emotions have an immense role to play in social movements as emotions are social constructs. How to draw on these to mobilize individuals for collective action is something that needs to be studied and exploered further.
Islam and CSR
Hi Hanniah
Good questions, but based upon a fundamantally flawed premise, I think.
The problem lies IMHO in the nature of the "Enterprise Model" or legal and financial structure of the "Joint Stock Limited Liability Company" or "Corporation" which is - with bank credit - the bedrock of the "Western" system.
I would argue (and I know there are many Sharia'h scholars and not a few Christians who share this view) that the very concept of "free" limitation of liability for investors is fundamentally unIslamic in the way it fails to share risk and reward adequately.
"Corporate Social Responsibility" is in any case IMHO an oxymoron if - as is the mainstream Friedmanite economic consensus - the fundamental purpose of a Corporation (and the fiduciary duty of its management) is to make profits for its owners - the investors.
It follows that I find it very difficult to understand how investment in a Corporation can ever be Islamic.
On the other hand, the emergence of new trust and partnership-based legal forms (eg the US LLC and the UK LLP) open up new possibilities for "Capital Partnership" (aka "musharakah") investment which are absolutely, and fundamentally, consistent with Islamic values in the way risk and reward may be shared as between Investor and User of Investment.
Moreover, I believe that these partnership forms are in fact emerging simply because "they work".
ie Ethical is Optimal.
If I am right, then the debate about Islamic CSR will fall away, since Islamic investors will simply have other, better, alternatives to conventional "Equity".
Best Regards
Chris Cook