Human Governance Index of Manufacturing Sector of Shariah Compliant Companies in Malaysia: A Preliminary Analysis

Authors

  • Hasnah Haron Faculty of Economics and Mualamat, Universiti Sains Islam Malaysia
  • Nurul Nazlia Jamil Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Malaysia
  • Nathasa Mazna Ramli Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Malaysia
  • Sumaiyah Abd Aziz Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Malaysia
  • Syahnaz Sulaiman Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Malaysia
  • Idris Gautama Binus Business School, Bina Nusantara University, Indonesia
  • Anderes Gui School of Information Systems, Bina Nusantara University, Indonesia
  • Synthia Atas Sari Management Department, Bina Nusantara University
  • Nurul ‘Athirah Rosli Graduate School of Muamalat, Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Malaysia
  • Nurul Kamarina Kamarudin Graduate School of Muamalat, Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Malaysia

DOI:

https://doi.org/10.15282/jgi.5.2.2022.7361

Keywords:

Human Governance Index, Shariah-Compliant Companies, Manufacturing Sector

Abstract

Human Governance refers to the governors’ commitment to improve employees’ values and ethical behaviour in the organization. Humans are capital asset and key driver to a successful organisation. The objectives of the study are to explain the development of human governance index and discuss the findings of human governance index when applied to 68 Shariah-compliant companies in the manufacturing sector. Previous study used primary and secondary data. Thus, this study will combine the indices of Human Governance from previous study and will develop a more comprehensive checklist using secondary data. Human Governance Index of this study comprises 37 items which are made up of four (4) main components which are (1) BOD Leadership - which is measured by i) BOD Job Experience Index, (ii) BOD Educational Background Index, (iii) BOD Educational Level Index, (iv) BOD Age Index, (v) BOD Gender Diversity Index; (2) Level of Integrity Index; (3) BOD Quantity of Training Index; and (4) Quality of Internal Control System Index. The index has been validated by panel experts and inter-rater consistency was also conducted. The index was then used to measure the Human Governance Index of 68 Shariah-compliant companies’ annual reports for the year 2019. 68 Shariah-compliant companies are from manufacturing companies which comprise 25 consumer products, 3 healthcare, and 40 industrial products. The results of this study revealed that consumer product sector has the highest items compared to industrial product and healthcare sectors. BOD job experience index has the highest mean of 92.9% indicates that BOD has more than 10 years’ experience and BOD gender diversity index has the lowest mean of 17.6% which comprises female. Human governance Index can be used to assist companies to improve their human capital who are important assets to the company and have been proven to increase performance of companies if they are better managed.

Author Biographies

Hasnah Haron, Faculty of Economics and Mualamat, Universiti Sains Islam Malaysia

Dato’ Dr. Hasnah Haron is a Senior Academic Fellow at the Faculty of Economics and Mualamat, Universiti Sains Islam Malaysia. She was conferred a PhD from the University of Hull in 1996 with a specialisation in Auditing. She was formerly attached to Universiti Teknologi Mara, Universiti Sains Malaysia and Universiti Malaysia Pahang.

Nurul Nazlia Jamil, Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Malaysia

Dr. Nurul Nazlia Jamil is a senior lecturer at the Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia (USIM). Her area of expertise and interest cover areas such as Accounting, Financial Reporting, Corporate Governance and Auditing. She has published in refereed journals including International Journal of Law and Management, International Journal Finance and Banking, International Journal of Business and Applied Social Science and Gadjah Mada International Journal of Business.

Nathasa Mazna Ramli, Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Malaysia

Associate Professor Dr. Nathasa Mazna Ramli is attached at the Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia. She is a chartered accountant (Malaysia) and teaches undergraduate and postgraduate courses in accounting and finance. Her research interests are in areas relating to financial accounting and disclosure, ownership structure, governance and financial management.

Sumaiyah Abd Aziz, Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Malaysia

Dr. Sumaiyah Abd Aziz is a senior lecturer in the Faculty of Economics and Muamalat, USIM, currently serve as Quality Coordinator for the faculty. She obtained her PhD from Universiti Utara Malaysia (UUM). She is a certified halal trainer (Halal Executive Program) registered under Halal Professional Board, JAKIM.

Syahnaz Sulaiman, Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Malaysia

Dr. Syahnaz Sulaiman is a senior lecturer at Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia. She holds a Ph.D. in Islamic Economy from University of Malaya. Her research areas are Islamic banking and finance and Islamic social finance. She is currently a Shariah Committee in a few Islamic financial institutions in Malaysia.

Idris Gautama, Binus Business School, Bina Nusantara University, Indonesia

Prof. Idris Gautama So obtained his doctoral degree from Universiti Sains Malaysia. He is a lecturer and Professor in Management Science at Binus Business School, Bina Nusantara University, Indonesia and he is a Life Time  member of Asian Academy of Management. His research areas are Marketing, Strategic Management, Entrepreneurship, and IS/IT-Business Management related fields.

Anderes Gui, School of Information Systems, Bina Nusantara University, Indonesia

Dr. Anderes Gui obtained his doctoral degree from Universiti Sains Malaysia. He is a lecturer at School of Information Systems, Bina Nusantara University, Indonesia and is a professional member of ISACA Indonesia Chapter. His research areas are  Management Information System, Information System Governance, Information Technology Project Management, Information System Security and Cloud-based solution.

Synthia Atas Sari, Management Department, Bina Nusantara University

Synthia Atas Sari is a Ph.D. student in the School of Management at the Universiti Sains Malaysia and senior lecturer in Management Department, Bina Nusantara University. She holds a master’s degree in finance management from the University of Indonesia. Her main research interest is entrepreneurship, change management, and corporate governance.

Nurul ‘Athirah Rosli, Graduate School of Muamalat, Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Malaysia

Nurul 'Athirah Rosli is a postgraduate student in Islamic Finance from Graduate School of Muamalat, Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia. She holds bachelor's degree in Muamalat Administration from Universiti Sains Islam Malaysia.

Nurul Kamarina Kamarudin, Graduate School of Muamalat, Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, Malaysia

Nurul Kamarina Kamarudin is a postgraduate student in Islamic Finance from Graduate School of Muamalat, Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia. She holds bachelor's degree in Muamalat Administration from Universiti Sains Islam Malaysia.

References

Abdullah, W. M. T. W., Hanapiyah, Z. M., & Daud, S. (2020). Developing Human Governance Index Using Partial Least Squares (PLS) Approach. International Journal of Business Management (IJBM), 3(2), 20-38.

Bakar, A. B. S. A., Ghazali, N. A. B. M., & Ahmad, M. B. (2019). Sustainability reporting and board diversity in Malaysia. International Journal of Academic Research in Business and Social Sciences, 9(3), 91-99.

Barnes, L. L., & Spangenburg, J. M. (2018). When Leadership Fails: A View from the Lens of Four Employees. American Journal of Business Education, 11(3), 49-54.

Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99–120.

Bauer, M. W. (2000). Classical content analysis: A review. Qualitative researching with text, image and sound, 131-151.

Bhagat, S., Bolton, B. J., & Subramanian, A. (2010). CEO education, CEO turnover, and firm performance. Available at SSRN 1670219.

Bhasin, S. (2012). An appropriate change strategy for lean success. Management Decision.

Bowling, A. (2007). Aspirations for older age in the 21st century: What is successful aging? The International Journal of Aging and Human Development, 64(3), 263-297.

Campbell, J. M., & Park, J. (2017). Extending the resource-based view: Effects of strategic orientation toward community on small business performance. Journal of Retailing and Consumer Services, 34, 302-308.

Carver, J. C., Nagappan, N., & Page, A. (2008). The impact of educational background on the effectiveness of requirements inspections: An empirical study. IEEE Transactions on Software Engineering, 34(6), 800-812.

Chebbia, K., Aliedanb, M. M., & Mohammed, A. (2020). Women on the board and environmental sustainability reporting: Evidence from France. International Journal of Innovation, Creativity and Change, 14(11), 231-258.

Endraswati, H. (2018). Gender diversity in board of directors and firm performance: A study in Indonesia Sharia Banks. Review of Integrative Business and Economics Research, 7, 299-311.

Fadzil, F. H., Haron, H., & Jantan, M. (2005). Internal auditing practices and internal control system. Managerial Auditing Journal.

Fasterling, B. (2006). Introducing Integrity to Corporate Governance Research. Available at SSRN 906550.

Grace, M., Ireland, A., & Dunstan, K. (1995). Board composition, non-executive directors' characteristics and corporate financial performance. Asia-Pacific Journal of Accounting, 2(1), 121-137.

Grant, Robert (1991). The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation. California Management Review. 33(3), 114-135.

Gray, R., Kouhy, R., & Lavers, S. (1995). Constructing a research database of social and environmental reporting by UK companies. Accounting, Auditing & Accountability Journal.

Hanapiyah, Z., Daud, S., & Abdullah, W. M. T. W. (2016). Human Governance Determinants. Proceedings of 73rd The IIER International Conference, ISBN: 978-93-86083-29-6

Haniffa, R. M., & Cooke, T. E. (2002). Culture, corporate governance and disclosure in Malaysian corporations. Abacus, 38(3), 317-349.

Harjoto, M., Laksmana, I., & Lee, R. (2015). Board diversity and corporate social responsibility. Journal of Business Ethics, 132(4), 641-660.

Hashim, H. A., Abidin, A. F. Z., Salleh, Z., & Devi, S. S. (2020). Panel Dataset of Ethical Commitment Disclosures in Malaysia. Data in brief, 30, 105624.

Husain, W. A. F. W. (2020). Insights: The Conceptual Framework for Building the World Class Good Governance Ethics. Journal of Governance and Integrity, 4(1), 1-5.

Jamil, A., Ghazali, N. A. M., & Nelson, S. P. (2020). The influence of corporate governance structure on sustainability reporting in Malaysia. Social Responsibility Journal.

Laverock, G. (2016). HR’s Emerging Role in Human Governance. Retrieve from: https://rmrecruiting.com/2016/09/15/hrs-emerging-role-in-human-governance

Leng, J. and Ding, Y. (2011). Internal Control Disclosure and Corporate Governance: Empirica; Research from Chinese Listed Companies. Technology and Investment, 2, 286-294.

Li, G., Shrotriya, V., Huang, J., Yao, Y., Moriarty, T., Emery, K., & Yang, Y. (2011). High-efficiency solution processable polymer photovoltaic cells by self-organization of polymer blends. In Materials for Sustainable Energy: A Collection of Peer-Reviewed Research and Review Articles from Nature Publishing Group, 80-84.

Ling. C. Y. (2011). Quality of Internal Control System, Service Quality and Patient Satisfaction: An Analysis in Obstetric Wards of Malaysian Public Hospitals. Unpublished Phd Thesis, Universiti Sains Malaysia.

Md Som, A., Zainal, R., Mohamed, N., & Ali, S. A. (2019). Corporate integrity analysis via decision support system (DSS): Evidence from Malaysian organization. Asia-Pacific Management Accounting Journal, 14(3), 1-13.

Mohamud, H. A. (2013). Internal auditing practices and internal control system in Somali Remittance Firms. International journal of business and Social science, 4(4).

Post, C., Rahman, N., & Rubow, E. (2011). Green governance: Boards of directors’ composition and environmental corporate social responsibility. Business & society, 50(1), 189-223.

Said, R., Rahim, A. A. A., & Hassan, R. (2018). Exploring the effects of corporate governance and human governance on management commentary disclosure. Social Responsibility Journal.

Sajari, A.,Haron, H., Ismail, I. (2017). Level of Ethics and Integrity: Case Studies of Malaysian Public Sector Organizations. In: The 12th Asian Academy of Management International Conference (AAMC 2017), 6-9 October 2017, Penang, Malaysia. 1-20

Salleh, A., & Ahmad, A. (2010). Human Governance Bringing the Meaning of Integrity in the Life of Professional Accountants. Articles of Merit E-Book, 30-39.

Setiawan, A., & Djajadikerta, H. (2017). Impact of Internal Audit Function on Internal Control Disclosure. Advanced Science Letters, 23(9), 8078-8084.

Shaukat, A., & Trojanowski, G. (2018). Board governance and corporate performance. Journal of Business Finance & Accounting, 45(1-2), 184-208.

Snell, S. A., Youndt, M. A., & Wright, P. M. (1996). Establishing a framework for research in strategic human resource management: Merging resource theory and organizational learning. Research in personnel and human resources management, 14, 61-90.

Storey, D. J. (2002). Education, training and development policies and practices in medium-sized companies in the UK: do they really influence firm performance? Omega, 30(4), 249-264.

Ting, I. W. K., Azizan, N. A. B., & Kweh, Q. L. (2016). Managerial overconfidence and leverage decision. The moderating effect of human governance in Malaysia. Journal for Global Business Advancement, 9(1), 38-51.

Ting, I. W. K., Azizan, N. A., & Kweh, Q. L. (2014). Human Governance and Firm's Leverage Decision: Evidence from Malaysian Listed Companies. Pertanika Journal of Social Sciences & Humanities, 22(3).

Westphal, J. D., & Milton, L. P. (2000). How experience and network ties affect the influence of demographic minorities on corporate boards. Administrative science quarterly, 45(2), 366-398.

Wibowo, A.J. (2012). Interaction between Corporate Social Responsibility Disclosure and Profitability of Indonesia Firms. UMT 11th International Annual Symposium on Sustainability Science and Management, 373-380.

Yaseen, H., Iskandrani, M., Ajina, A., & Hamad, A. (2019). Investigating the relationship between board diversity & corporate social responsibility (CSR) Performance: Evidence from France. Academy of Accounting and Financial Studies Journal, 23(4), 1-11.

Zainal, D. (2012). Ownership structure, board of directors, regulation and corporate responsibility reporting in Malaysia. Unpublished doctoral dissertation

Downloads

Published

2022-07-09

How to Cite

Haron, H. ., Jamil, N. N., Ramli, N. M. ., Aziz, S. A. ., Sulaiman, S. ., Gautama, I. ., … Nurul Kamarina Kamarudin. (2022). Human Governance Index of Manufacturing Sector of Shariah Compliant Companies in Malaysia: A Preliminary Analysis. Journal of Governance and Integrity, 5(2), 283–296. https://doi.org/10.15282/jgi.5.2.2022.7361

Issue

Vol. 5 No. 2 (2022): Journal of Governance and Integrity

Section

JGI Vol. 5 Issue 2, July 2022

License

Copyright (c) 2022 University Malaysia Pahang Publishing

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Most read articles by the same author(s)

1 2 > >>