The Corporate Ethical Identity of Shari’ah Compliant Companies

Abstract Purpose The number of Shari’ah Compliant companies is tremendously increasing year by year in Malaysia. In an attempt to win the trust and confidence of its Muslim investors and stakeholders, the Shari’ah Compliant companies must portray their sincerity and earnestness in complying with Islamic values which may have implications on winning the trust of Muslim investors largely from oil-rich Arab Gulf Region which have flush of funds currently. Thus, the purpose of the study is to gauge the extent of the corporate ethical identity (CEI) that is being incorporated by the Shari’ah Compliant companies in Malaysia. Design/methodology/approach This study used the content analysis to develop CEI by adding all the items covering the four themes, which were underlying philosophy and values, interest-free and Islamically acceptable activities, developmental and social goals and environment theme. This CEI index was developed by using the dichotomous, which the score of ‘1’, if the company disclose the items and ‘0’, if it is not. The process will add all the scores and equally weighted. Findings The study showed that the level of communicated ethical identity disclosed in annual reports of Shari’ah Compliant companies for the year ended 2008 is relatively low with average of 23.66%. Overall, the findings of the study showed that the Shari’ah Compliant companies revealed more communicated ethical identity on Theme 1 (underlying philosophy and values) in the annual reports for the year ended 2008. In addition, in the year 2008, the findings showed that the dimension of developmental and social goals has the most influence towards the ethical identity index of Shari’ah Compliant companies. Research limitations/implications The source of data in this study is limited to companies’ annual report. In other words, the extent of communicated ethical identity index is constructed limited to company’s annual report. The study has shown that annual reports is not the only means or medium of disclosure. Hence, studying other forms of disclosure on communicated ethical identity could possibly complement and add value to any investigation on the nature and extent of communicated ethical identity through annual reports in the future. Practical implications The study is expected to alert the Securities Commission with regard to the definition of Shari’ah Compliant companies which should not just include ‘good public perception and image company’ but also the extent of the application of Islamic values in the conduct of their businesses. Originality/value The study provides a new benchmark of an ideal Islamic communicated CEI index based on Shari’ah principles and also past literatures. The study developed a checklist from preliminary checklist with 88 items based on Berrone, Surroca, and Tribo (2005), Haniffa and Hudaib (2007) and Roshima, Yuserrie and Hasnah (2009). In order to develop the checklist, the researchers also look on the definition of Islamic ethics defined by Khan (2009).