ISLAMIC MANAGEMENT AND BUSINESS ETHICS IN THE MEDITERRANEAN

To more and more European companies, the Mediterranean area is seen becoming attractive in terms of commercial outlets, cost-effectiveness and partnership opportunities. This is one of the key outcomes of an A. T. Kearney research carried out in May 2009 on “geographical changes in delocalization”, which stated that the difference in workforce prices is now in favour of MED countries, as Eastern Europe gradually becomes more expensive and less attractive.

 

Despite some cyclical difficulties, the UfM (Union for the Mediterranean) project, launched in 2008 by President Sarkozy, is the most recent step of an economic regionalization process taking place all over the world. This latest stage has been characterized by the acknowledgment that large economic areas must integrate developing countries in order to survive and be sufficiently competitive, or else they will lack the assets they need to address the challenges of globalization.

 

As far as the emerging economies from the “Southern shore” are concerned, globalization itself requires clinging to the EU rather than remaining isolated. For this reason, regionalization is nothing but a networking process aimed at connecting national economic systems to one another within a transnational framework, in order to open them and to spur domestic economies through external factors (financing, know-how, organization and management structure), thereby creating additional wealth.

 

In this context, teaching and research have logically been included among the UfM six priority action plan. So far, however, other than the European Commission’s funding of the Euro-Mediterranean University of Protoroz in Slovenia, efforts in this direction have been limited. As for the teaching of management, it  has been left to private actors and no plan has been foreseen to support a common approach.

It is more convenient therefore to look for a common basis in management practices that could help to develop economic exchanges. From this point of view, it seems necessary to take into account current trends in management practices around the Mediterranean, and to foster a common managerial approach that could be called “Euro-Mediterranean management”.

 

The emergence of Islamic management might be a good starting point for this, as the values it conveys, inspired by ethics more than by religion, show what a scholar has called “Market Islam”:  a special access lane to globalization for the Muslim world.(I)  Examining “Market Islam” will help to better understand the need for shared business ethics, which should raise awareness about the negative impact of some North European companies’ practices, and which should on the contrary foster co-sustainable development. (II).

 

  1. 1.     Taking into account the emergence of “Islamic business”

 

At the end of the 19th century, the psychological shock caused by colonialism, a symbol of Western economic and technological leadership, led to greater awareness within the Muslim world, which tried to discover its own access to modernity. The Manar (the lighthouse) review, to which many Muslim reformist thinkers such as Muhammad ‘Abdu and Rachid Rida collaborated, intended to demonstrate that Islam contains all elements of modernity.

This particular way of drawing lessons for renewal from a comparison with the West seems to have repeated itself one century later, and not surprisingly, the Muslim Brotherhood, which took over the review in 1935, are today indirect yet important actors in transforming Islamism from politics to economics.

Over the last years, “Islamic business” has emerged, and its most important developments may be observed in the field of finance and marketing.

 

11. New Muslim managers

 

The way all fields of management seem to have been influenced by values conveyed by Islam has been perfectly described in the book “Market Islam” [1]. After a description of the context – how political Islam is gradually running out and Islamic activism has been called into question due to the lack of flexibility and efficiency of its authoritarian and pyramidal structures –, the author explains how a new way of thinking has emerged under the aegis of a new actor: “the frustrated Islamist”. Though remaining sincerely religious, this actor has distanced himself from the political movements in which he was formerly active, and has turned out to be a kind of cultural mediator, who no longer points at an (Islamic) alternative, but rather at an Islamic redefinition of Western culture.

The interaction between politics and religion, which is a key element of political Islam, is thus turning into a new interaction between religion and economics, which provides this new Islam with supports and means to spread through the market.  The objective is no longer to convince people about what the supreme truth is, but to adapt a religious offer to the new expectations – real or supposed – of target audiences.

This new religious manager wants to break with fatalism and localism, both often associated with traditional Islam, and advocates a market-friendly, upper-class, cosmopolitan and pro-active religion, which aims at fostering the Islamic capitalist spirit in order to make them more competitive on a global scale.

Market Islam is thus located in a universe where cosmopolitism, piety and wealth, through a “prosperity theology” free from inhibition as far as making money is concerned, are now one step forward from traditional and political Islam ascetic conceptions and ideals of social justice. However, we should not consider this movement as the result of a self-interest and commercial strategy: beyond concerns about material welfare, there is a collective symbolic challenge in building a new Muslim pride on an individual scale, which has more to do with economic success than with politics.

 

1.1        “Islamic business” developments

 

The issue of the relationship between marketing and Islam has been dealt with in a research paper [2], which showed the importance of Islamic values, as well as the role of religious authorities in adapting and rethinking Islam in this context. The result is a large variety of marketing patterns and consumer behaviours, as well as competitive strategies to respond to this complex environment.

An example is given by an “Islamic” alternative to one of globalization leading products, that is to say Coca Cola. In November 2002, Mecca Cola was created by a French-Tunisian businessman,  Tawfiq Mathlouti. In a contesting attitude, this French company announced its intention to turn part of its profits to humanitarian associations, particularly those working in the Palestinian Occupied Territories. The company’s founder, inspired by Zam Zam Cola, a similar Iranian product which had already taken over the market in Saudi Arabia and Bahrein, decided to launch his own brand as he got no positive answer from the Iranian company from which he had requested a distribution contract. Mecca Cola, in turn, has inspired the creation of Qibla Cola in the UK, as well as Arab Cola and Muslim Up in France. Mecca Cola is now distributed in 60 countries and its slogan is displayed on its label – “Drink engaged!” -, which is a perfect illustration of the product’s spirit and objective.

Mecca Cola may be specific, because of its mixed character between market-oriented ways of thinking and political ideology, but it should not be considered an isolated case, since the European Muslim community itself has also to do with the wider phenomenon of self-identity consumption patterns, or “ethical business”.

This phenomenon has mainly to do with the food industry, although the textile industry seems to have equally high potential. It is also leading to changes as far as retailing patterns are concerned, as these moved from traditional channels (groceries and hallal butcheries) to mass-market retailing, sometimes watering down some of the product’s Muslim peculiarity. The 17th of August 2009 a commercial was broadcast on TV that showed for the first time a young couple of “beurgeois” (high income North African third generation immigrants) advertising some ready meals produced by Zakia Hallal, a brand designed for a Muslim public but sold in large retail stores: they were lasagnes and hachis parmentier, two typical European meals, but cooked in a legal (hallal) way for Muslims.

 

This trend shows how Islamic business, which had been on the fringes of global market, is now gradually becoming integrated. Economic competition is indeed putting pressure on large retail stores to take on a market which potentially represents many millions of consumers, most of whom are already their customers. As for producers, they cannot stay outside a retail network that reaches consumers who do not have enough time to dedicate to traditional small shops, though they wish to remain faithful to their roots.

These new opportunities have fostered the emergence of specialized agencies such as Islah Consulting in France or Etnocom, the first advertising agency in Italy specialized on multiethnic and multicultural communication. There is no doubt that Islamic business is expected to grow rapidly and deserves an in-depth analysis. An example is given by the increasing success of Muslim community websites and forums (such as oumma.com), which may be useful to influence consumer practices, and support advertising and survey panels.

 

1.2        The development of Islamic finance

 

Islamic Finance, which is based on Muslim law, relies on two pilasters: the interdiction of interest rates, and the concept of social responsibility. Financial return on investment is linked with the results of the related project. Islam forbids civilian or commercial transactions relying on interest (riba), speculation (gharar) or risk (massir).

The value of Islamic Finance in the world is estimated to amount from 600 and 800 billion USD in 2006 or 2007, and may rise up to 1000 billion in 2010, according to the projections published in 2008 [3]. In Europe, France is currently trying to catch up with the UK: the Strasbourg Management School was the first to devote a master program to Islamic Finance, and has been recently followed by the University of Paris-Dauphine.

A study carried out on this subject [4] showed that, far from representing an handicap, ethical and religious constraints imposed on Islamic banks have actually allowed them to grow rapidly: the authors show how, in fact, competition and financial institutions foster new strategies as well as product innovations which enable these banks to address the challenge of global competition, while at the same time taking advantage of the increasing willingness of the public to consume ethical products.

Generally speaking, growth dynamics make them focus less on the Islamic dimension, so as to reach a new audience of non-Muslim consumers as well. As far as the producers are concerned, the fact itself of targeting non-Muslim consumers advocates for a limitation of the product’s Islamic visibility and a use of ethics as a more inclusive concept, speaking of values (individual effort and meritocracy at the individual level, justice, equity and solidarity at the collective level) instead of religious prescriptions.

In other words, we may consider that Islamic management has been able to transform itself into a set of deontological and universal principles, in a similar way to that of North Mediterranean companies increasingly interested in sustainable development and fair trade.

To what extent does an increased awareness about ethics on both sides of the Mediterranean mean fulfilling one of the basic conditions of sustainable co-development in the area? At this stage, it is necessary to wonder about the difficulties that might hinder or slow down the achievement of this particular objective.

 

  1. 2.     Promoting business ethics to support sustainable development in the Mediterranean

 

Many difficulties actually hinder the spreading of ethical behaviours to support a sustainable development of economic exchanges: deriving from the gap existing in social and legal situations, they lead to a variety of negative effects that cannot be overcome, except within the framework of an increased level of social responsibility from companies.

 

2.1. Ethical and universal rules – the Gresham law

 

In the context of North-South economic relationship, which are still deeply influenced by the heritage of colonialism initiated in the XIX° century, European companies could tend to see themselves as being the messengers of universal business ethics, notwithstanding these actually have Anglo-Saxon origins. By “ethics” we mean here a set of common rules related to accounting and finance, intellectual property, law, etc., which sometimes conflicts with other traditions and habits.

One of the issues to be addressed is whether a company should abide by the laws of its country of origin or, on the contrary, should only refer to those of the country where its business is located – which are usually less restrictive. For instance, US law forbids bribery both inside the US and abroad while, in other countries, bribery is considered a common practice to make business. Similar difficulties may occur concerning labour laws or children workforce, HSE, duration of working hours, wages, or discriminations.

 

In this respect, the implementation of the OECD anti-bribery convention helped to be more aware of some pitfalls:

 

-         on the one hand, some companies were trying to be seen as exemplary under such a profile, but that was mainly for communication purposes, with the aim of discrediting their competitors and accusing them of bad practices;

-         on the other hand, the risk of losing a bid due to disrespect of local habits was leading other companies to find out new ways to operate, by-passing the new regulations.

 

We may conclude that as far as ethics are concerned, Gresham’s law, which states that bad practices drive out good ones under legal tender laws (“bad money drives out good”), often applies: in a competitive environment, the companies that will survive are well aware that they are mainly expected to maximize profits; they may thus get into a vicious circle that eventually does not foster ethics.

Yet, non-respect of ethics is undoubtedly of more concern in the Arab-Islamic world, as it has been going through political tensions and social violence for many decades.

 

2.2 Negative effects of Gresham’s Law

 

The attack that caused the death of several members of DCN (nota: a French Defence industrial company) staff in Pakistan illustrated how dramatic security issues could be for western companies operating in the Muslim world, although we still do not know what the conclusions of the inquiry will be (and could either confirm the hypothesis of a retaliation act due to non-respect of a secret bribery agreement, or bring some evidence about the involvement of an extremist Islamic group not directly linked with the context of DCN activities in the country).

Terrorist attacks and political or criminal kidnappings are now one of the threats multinational companies are faced with, and this has led consulting firms to offer both risk assessment services and operational solutions aimed at making their clients’ international development safer protecting their staff and physical infrastructures.

On the other hand, a number of small and medium enterprises, which do not have enough resources to face this kind of risks, are sometimes obliged to give up the idea of investing in a given country, due to unstable business environment: beyond the terrorist threat that we previously referred to, they also consider that the importance of the underground economy in South Mediterranean countries makes it difficult for them to open local branches.

We do not aim here to launch a debate about the reason for such an unstable political and economic environment; yet, we may point out the fact that the same consulting firms have perfectly understood the link between criminal risk management and sustainable development, and now include this dimension in their services. It is obvious that cynical investors, who prefer to rely on corrupted local ruling elites, are in part responsible for the reactions of Islamic opposition groups, which are all the more prone to violence as they have no other opportunity to give their views and make their voices heard. Whether involved or not in condemnable practices, multinational companies have unfortunately become the target of regular attacks, as they are seen to convey behaviours opposed to ethics and Muslim dignity.

We may express the same idea under the form of a paradox: non-respect of ethics from multinational companies systematically legitimizes radical Islamist groups, while these are gradually running out and giving way to a new phenomenon- the emergence of Islamic management- from which multinational companies should profit.

 

2.3 Ethics and cross-cultural management to support sustainable development

 

As managing risk through promoting sustainable development consists mainly of raising awareness about ethics, it may be translated into concrete actions:

 

- A commitment to safeguard the environment in operation areas (see some oil industry companies called into question by NGO for their polluting practices) ;

- Implementation of humanitarian policies for the benefit of local people;

- Elaboration of anti-corruption codes;

- etc.

 

Obviously, using codes of ethics for marketing and communication purposes only would be a mistake which could have serious and negative impact. The principle of responsibility should consequently prevail, so that Gresham’s Law does not apply to Euro-Mediterranean relationships.

The objective of a better acknowledgement of ethics will also be achieved through enhanced cross-cultural management, which could help to fight all kinds of misunderstandings and prejudices that hinder trade development.

From this point of view, Southern entrepreneurs undoubtedly have a better understanding of Northern societies than the other way round, and European schools and universities should make an effort to learn managers how to operate within the Euro-Mediterranean framework.

It does not seem excessive to state that to many Europeans no other area inspires more negative clichés and negative images than does the Southern Mediterranean. In one of his books about Islamism [5], political scientist François Burgat provided a rigorous criticism of mass media responsibilities in lumping together Muslims, Islamists and terrorists. 

In comparison, we can state that people perceive Asia in a far more positive way: China and Japan are seen as exotic countries and therefore raise curiosity. As far as the Muslim world is concerned, on the contrary, the images that mainly come to mind have negative connotations; we may quote three of them, which come up quite frequently: religious fanatism; the status of women; supposed inclination to corruption (c.f. the most used word “bakchich”, which derives from Persian and Arabic) and to cheat and deceive, associated with a supposed “Oriental psychology”.

As Edward Said noted in his famous book on Orientalism [6], these images were built over centuries and are therefore difficult to eradicate. In this context, we should rather encourage education to address the Muslim world without prejudices and to show that its values are fully coherent with European managers’.

 

Final remarks and proposals

 

Networks such as UNIMED and the Réseau Méditerranéen des Ecoles de Management (Mediterranean Schools of Management Network – RMEM) are expected to convey such “business ethics” in the Mediterranean area, as a fundamental condition for sustainable development in the region. In this regard, many ways may be envisaged, which have to do with research and education.

 

Enhancing research on Islam and corporate management

 

Up to now, most of the research conducted on Islam has rarely addressed the issue of corporate management, except for aspects mentioned in the first part of this article. It mainly comes from experts specialized in political and social issues, having little interaction with business schools. However, this is an interesting and strategic issue, and many aspects are still to explore, both theoretically and empirically, as far as traditional management is concerne.

On the theoretical level, a new reading of Quran, of sunna (the tradition, i.e the sayings and living habits of Prophet Muhammad) and sîra (biography) of the Prophet with a corporate perspective will first allow us to highlight the reference embodied by Muhammad himself for the new Muslim managers, who focus on the fact that he was a successful entrepreneur operating with his wife Khadija, as well as a very good manager, both in conducting war and organizing the Islamic state.

Theoretical aspects will also include:

 

-         the decision-making process and dispute resolution in Islam, where shûra (conciliation) is part of the summons made by Allah to Muhammad [7] and thereby of Muslim law;

-         trade ethics, widely dealt with in fiqh, which establishes the prohibition of selling goods without  owning them, speculating on the market without purchase intentions, selling fruits still hanging on the tree, and so on;

-         the importance of membership feeling – belonging to the Muslim community (umma) -, which marketing and Islamic finance try to capitalize on;

-         female managers (cf. Khadija, already quoted above);

-         the re-discovery of Sufism in a way that is similar to the European interest in different personal development techniques.  

From an empirical point of view, we need to elaborate case-studies that help to address some specific issues, as has been done to relate the successful implementation of a total quality management plan in a Moroccan branch of a multinational company [8].

On this issue, it could be useful to study success stories of Muslim businessmen, to analyse their links with Islam as a religion and the way they claim it played a positive role in their carrier as businessmen. There are many examples, but some of them may be quoted, such as Saudi prince al-Walid bin Talal bin Abdulaziz al-Saoud, a well-known top-ranking businessman whose success has more to do with his talent than with his initial heritage, and who is presented as a devout person willing to act for the sake of his community.

 

An appropriate educational framework to meet contradictory requirements 

 

The Islamic banks referred to in the Part 1 were the first to advocate setting up of an Islamic MBA, since they were having difficulties selecting professionals that would be trained both in general management and shari’a: most often, the second category would prevail. The demand for a specific course of study seems thus to be extremely high from banks, insurance companies and hedge funds.

The question is to understand if such a programme might prove successful in North Africa and in the Middle East, while best students generally choose to study in the US or in Europe; yet, the low development of Islamic finance in these countries may hinder their capacity to take full advantage of their training. On the other hand, European students who are likely to deal with Islamic finance at a certain stage of their carrier, seem reluctant to study in Saudi Arabia or in any other Gulf state, but European Schools of Management offer them very few opportunities in this particular demain.

The first attempt to respond the challenge of a multicultural teaching that could be adapted to audiences coming from both sides of the Mediterranean was given by the Euro-Arab School of Management (EAMS), established in 1994 in Granada within a joint initiative of the European Commission, the Arab League and the Spanish government, but it closed in 2006. Let me quote the comments posted by Professor Walter Baets on the Euromed blog on the 26th of September 2007 [9]:

 

“It proved extremely difficult to create an MBA that would at the same time address a large community (hence being mainly virtual) and being culturally relevant for Europe and the Arab world. The school was mentioned in the Barcelona declaration as an example of Euro-Arab cooperation.  In the meantime, it was closed last year. Not since there would not be any interest, but most probably since we are not yet able to define an MBA that is culturally relevant for non mainstream thinkers.”.

 

Another priority is to carry out an in-depth analysis of the reasons for EAMS failure, beyond some anecdotic factors which might have played a role [10]. What was the percentage of students by geographical origin? What were their expectations? Was their satisfaction rate tested? What kind of openings were given after this course, etc. These are some of the questions, both quantitative and qualitative, to which a research work should try to give answers.

 

In any case, while it seems that the main difficulty consists of bringing people from different cultural origins to work together – even in a virtual place, as was the case of EAMS- the solution might consist of new agreements between schools and universities, allowing them to deliver courses “on demand”, without the limitation of insufficient internal resources and keeping in mind the objective of solving the problem of geographic selection (Europe-US vs. Universities of the Southern shore). From this point of view, a networking strategy can be the only basis on which to build a kind of Mediterranean course (with a degree as a potential recognition), which would allow to share the investment needed to achieve such a goal.

 

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[1] P. Haenni, 2005, L’Islam de marché: l’autre révolution conservatrice, Paris, Le Seuil.

[2] B. Pras, C. Vaudour-Lagrace, 2007, Marketing et Islam- des principes forts et un environnement complexe, Revue française de gestion, n° 171, pp. 195-223.

[3] D. Johner, T. Rocafull, 20/3/2008, “La finance islamique de plus en plus courtisée”, La Tribune.

[4]T. Hafsi, L.Siagh et A-O Diallo, 2007, « Environnement intense et choix stratégiques. Le cas des banques islamiques », Revue française de gestion, n°171.

[5] F. Burgat, 2005, L’islamisme à l’heure d’al-Qaida, Paris, éditions la Découverte.

[6] E. Saïd, 1980, L’Orientalisme.. L’Orient créé par l’Occident (traduit par Catherine Malamoud), Paris, éditions du Seuil.

[7] Cf. Coran, III, 159.

[8] P. d’Iribarne, 2007, « Islam et management. Le rôle d’un univers de sens », Revue française de gestion, n°171

[9] http://euromed.blogs.com/baets/2007/09/an-islamic-mba.html.

[10] Former EAMS managing director, Alberto Ribera, seems to have been very controversial inside the institution ; his Opus Dei membership may not have been the best way to be legitimated.

 

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Thomas Giudicelli obtained a master’s degree in Management from the ESCP Europe, and a degree in Arabic and Islamic studies from the PISAI. This text should have been at first presented at the “3° colloque du Réseau Méditerranéen des Ecoles de Management”, scheduled at Marseille last December and subsequently cancelled

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