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Roszaini Haniffa and

institutions with the highest ethical standards and an unwavering commitment to the principles of Islamic Shari’ah (BIB Annual Report 2004, p. 2).

Unlike other IBs that tend to emphasise commit- ments to operate within Shari’ah principles, ARB and DIB did not clearly state this in their annual reports for all 3 years examined. This sends two signals: either management knows that its operations are not truly Islamic and wants to play down that image or simply management do not foresee the need to do so as their reputation as an IB is well established (given that DIB and ARB were incor- porated as IBs in 1975 and 1987, respectively). Interestingly, despite being incorporated as an IB in 1979, BIB continues to consistently emphasise this aspect.

Four IBs (except KFH, DIB and ARB) stated one of their objectives to be maximising shareholders’ return or value but none used stronger words con- cerning the assurances and commitments expected of an IB, such as maximum halal (legitimate) returns’ or returns from halal (legitimate) sources’ rather than simply maximising returns.’ The use of the latter phrase does not help in differentiating between the goals of an IB and those of conventional banks.

In terms of current and future directions in serving the needs of the Muslim community and society, BIB consistently stated its commitment to this aspect. For instance, it stated in its annual report:

... contribute towards the development of an Islamic economic model and play an important role in local events and chari- table causes (BIB Annual Report 2002, p. 3).

Dimension: BODs and top management

With regard to the dimension board of directors’, the EII of only DIB and KFH seemed to be con- sistent for all 3 years. BIB reduced communication (removing pictures of board members and manage- ment and information regarding shareholdings) in 2003, while ADIB, ABB and SIB increased com- munication, especially regarding top management. In 2004, ADIB and ARB reduced their communi- cation while BIB increased theirs. The inconsistent communication over the 3-year period regarding this aspect is a bit puzzling and we cannot find any specific corporate characteristics, for instance prof-

Mohammad Hudaib

itability or diversification, nor any significant events or corporate culture characteristics that may have caused this anomaly.

The 3-year mean EII for the seven banks under this dimension ranged from 0.08 to 0.67, the lowest being ADIB and the highest, SIB. The principal–agent relationship means entrusting the agent with resources to be put to good use and holding the agent responsible for the conduct of the business. Accordingly, this trusteeship entails assessment of the profile of those conducting the business. Hence, credentials of those entrusted to conduct the business would enable users of annual reports to make their judgement. Unfortunately, none of the IBs communicate much on their board members and top management. From the results of the survey, it also seems that good corporate governance practice (as opposed to religious gov- ernance, which is the function of the SSB) is still lacking among IBs operating in this region. Hence, the boards and top management of the organisa- tions, who shape, define and communicate their companies’ identities to achieve corporate goals and ensure long-term survival (Topalian, 2003), need to consider communicating this aspect more consistently.

Dimension: product and services

The uniqueness of the IBs is related to the type of products and services that they offer, which has to be different from that offered by conventional banks. In the interest of shareholders and depositors as well as other stakeholders, IBs need to be transparent, to give full and accurate information about their products and services, and to keep interested parties well informed. Hence, corporate communication strategy on product-related infor- mation is important for users of corporate annual reports to assess and judge the IBs’ ethical business conduct. We found BIB and DIB to have the highest EII, with the latter getting a full score in 2004 with regard to this dimension. We also found communication on this aspect dropped in 2003 for ADIB, ARB, KFH and SIB. Only DIB and KFH experienced an increase in EII for 2004. One pos- sible explanation in the case of KFH is due to close monitoring by the central bank:

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