1-3 Explain Institutions As External Control Has Not Able To Prevent Corporate Governance
Table 1-3 explain institutions as external control has not able to prevent corporate governance failure. It was proven by the scandals, including for Islamic Financial Institutions. The main difference from the implementation of corporate governance is the governance structure and employee’s representative. Meanwhile, in the corporate governance rules, all countries have tried to do their best, but some scandals still occur from year to year. What causes the financial scandals? According to Ghoshal (2005) were caused by fraud10, done by management. The involvement of management dominates fraud cases. Beasley, et al. (1999:5) found that 72% of fraud cases were done by directors (CEO), 43% by CFO, and 83% were done together by both. The next
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Capitalism is rooted in Calvinist ideology (Weber, 2006; McGowan, 1999; Kaletsky 2010), which accumulates capital based on the goal of achieving material satisfaction. This trait fosters individualism in human beings. Capitalism is built on the truth of human nature, which is giving reward and opportunity to individuals who work diligently to advance and succeed (Eberle, 2014: 37). Countries that implement capitalism believe that they can get a good position in the global competition (Nasr, 2009) because they bring improvement on the standards of living (Kasser, 2007: 60). Preservation of individualism (self-interest) is only objected to material, which comes from human nature, which is a powerful way to prosper themselves and the environment. This understanding naturalizes the application of capitalism in business activity. It means that the thought and ideology that human is self-interest in nature, which must compete to obtain material prosperity, paint their social life, and the though and the ideology are believed as something natural. The criticisms on this understanding are four: material objective, psychological assumptions, the nature of self-interest, and the reality of life. First, people who see the reality of life limited only to material awareness will only be motivated by material (Kasser, 2007: 68). Individuals in this stage have the lowest awareness. They see and understand their self and their environment in narrowly based on sensory pleasure or physical needs (Mustafa, 2005). This consciousness is limited. Second, when the psychological assumptions are not clearly identified, the nature of individuality will be simplified and claimed as human nature, natural reasonable thing possessed by every human being (Kasser, 2007: 68). In fact, individuality in capitalism leads to injustice (Kaletsky, 2010), social inequalities (Hertz, 2004), and the
Capitalism is rooted in Calvinist ideology (Weber, 2006; McGowan, 1999; Kaletsky 2010), which accumulates capital based on the goal of achieving material satisfaction. This trait fosters individualism in human beings. Capitalism is built on the truth of human nature, which is giving reward and opportunity to individuals who work diligently to advance and succeed (Eberle, 2014: 37). Countries that implement capitalism believe that they can get a good position in the global competition (Nasr, 2009) because they bring improvement on the standards of living (Kasser, 2007: 60). Preservation of individualism (self-interest) is only objected to material, which comes from human nature, which is a powerful way to prosper themselves and the environment. This understanding naturalizes the application of capitalism in business activity. It means that the thought and ideology that human is self-interest in nature, which must compete to obtain material prosperity, paint their social life, and the though and the ideology are believed as something natural. The criticisms on this understanding are four: material objective, psychological assumptions, the nature of self-interest, and the reality of life. First, people who see the reality of life limited only to material awareness will only be motivated by material (Kasser, 2007: 68). Individuals in this stage have the lowest awareness. They see and understand their self and their environment in narrowly based on sensory pleasure or physical needs (Mustafa, 2005). This consciousness is limited. Second, when the psychological assumptions are not clearly identified, the nature of individuality will be simplified and claimed as human nature, natural reasonable thing possessed by every human being (Kasser, 2007: 68). In fact, individuality in capitalism leads to injustice (Kaletsky, 2010), social inequalities (Hertz, 2004), and the