Features of Effective Board of Directors in Islamic Banks
If something could be considered a teachable lesson, it is how to build an effective board which can exercise proper oversight on the management of Islamic bank.
In general, the board cannot perform its role effectively if its members do not have reputation for moral integrity and are not technically qualified. They must be aware of risks and complexities involved in the banking industry. In an Islamic system they must have the additional qualification of being aware of all Islamic teachings related to business and finance.
Key Features of Effective Boards in Islamic banks
Clear understanding of roles and responsibilities. The board, CEO and management team should develop clear understanding of the board’s role, responsibilities, authority and organizational relationships. Lack of clarity and/or misunderstanding of what is the role and responsibilities of the board often lead to governance problems. In order to have an effective board, it is necessary for the board members, management team, and employees to understand their respective responsibilities and authority.
Support and leadership of CEO. The CEO should be committed to building a strong governance structure and practices. The questions are whether or not the CEO believes in the importance of governance and how strongly he is committed to board development. Trying to build a strong board without the CEO’s interest and commitment is like driving a car with the brakes on.
Solid board development program. The concept of “board development” is not defined consistently in the conventional and Islamic banking organizations. Usually, a comprehensive board development program should include the following:
A constant process for measuring the board’s changing needs for expertise An active effort to attract board members who can meet those needs A well-planned orientation program for new board members A comprehensive, needs-based board education program An on-going board evaluation process A “governance committee” to take responsibility to oversee the board development program.
Adequate resources to assist the board and its committees. It is not possible for a board or its committees to function efficiently without staff and logistical support. Boards need good secretarial, technical, and consultative assistance. Unfortunately, in many banking organizations support is still limited to scheduling meetings, packaging and mailing meeting materials, and taking minutes. This simple support model is largely inadequate today. The quality of board performance is enhanced by top-quality staff support. For some board committees—such as Audit Committee—independent advice and counsel by persons or firms with direct responsibility to the committee is very important. Board members and CEOs who plan to have effective boards should evaluate their existing infrastructure and be prepared to invest more resources to support the board and its committees;
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