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Toward applied Islamic business ethics: Responsible halal business

Article  in  Journal of Management Development · October 2012

DOI: 10.1108/02621711211281889

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Toward applied Islamic business ethics: responsible halal business

Muatasim Ismaeel, Katharina Blaim

To cite this Article: Muatasim Ismaeel, Katharina Blaim, (2012),”Toward applied Islamic business ethics: responsible halal business”,

Journal of Management Development, Vol. 31 Iss: 10 pp. 1090 – 1100

Permanent link to this document:

http://dx.doi.org/10.1108/02621711211281889

Corresponding Author: Muatasim Ismaeel

Email: [email protected]

http://dx.doi.org/10.1108/02621711211281889

Toward applied Islamic

business ethics: responsible

halal business
Muatasim Ismaeel

UniKL School, University of Kuala Lumpur (UniKL),
Kuala Lumpur, Malaysia, and

Katharina Blaim
Faculty of and Economics,

University of Eichstaett/Ingolstadt, Ingolstadt, Germany

Abstract

Purpose – The purpose of this paper is to explore the opportunities of using halal regulation
and certification as a mechanism for applying Islamic business ethics in contemporary world.
Design/methodology/approach – The current practices of halal regulation and
certification and literature on Islamic ethics were reviewed, to identify a practical approach for
Islamic business ethics. Findings – Islam allows and accepts different levels of ethical
commitment. A multi-level Islamic ethics framework and a multi-level halal certification
approach are proposed to facilitate the
implementation of Islamic business ethics in a relative context. Two major developments can enrich
halal business practices: harmonization of global standards and governance structure, and integrating
responsibility and ethical issues in halal standards.

Practical implications – The proposed framework and developments can enrich halal
regulation and certification practice.
Originality/value – The paper emphasizes the importance of flexibility and adaptability in
Islamic business ethics implementation, and proposes a new framework and approach to
apply Islamic business ethics.

Keywords Islam, ethics, Social responsibility, Corporate governance, Islamic ethics, Halal,
Corporate responsibility

Paper type Research paper

Introduction
Despite (or maybe because of) the advancements in science and technology, humanity
is facing serious challenges that cannot be resolved without effective ethical systems.
During centuries of human intellectual activities, ethics and morality was a preferred
area of debate for philosophers. Most of the philosophic debate was normative in
nature, which means it was tried to identify, what humans should do, or in other words:
what is right and what is wrong? What are the best rules to guide ethical judgment?
In order to develop and take roots, normative ethics – especially business ethics – need
to be applied practically. Only by application they can be tested, criticized and emerged
continuously. ethics researchers need to pay more attention to applied ethics
in addition to their interest in normative ethics. “The business ethicists also have to
develop ways of applying their ideas in concrete practices. The current situation of
injustice – intra- as well as intergenerational – is simply so serious that we ought not to
understand business ethics merely as intellectual endeavor of moral reasoning”
(Beschorner, 2006).

Social institutions bear great importance in the application of business ethics.
International organizations, NGOs, business associations and regulating bodies are

examples of social institutions which play an essential role in applying business
ethics through mechanisms like regulation, certification, disclosure, media
coverage, advocacy, codes of ethics and other mechanisms. Social institutions

provide enforcement, socialization and incentives (Possumah et al., 2012) that influence
individuals and organizations to adhere to ethical standards in their business activities.
To contribute to the advancements of business ethics theory and practice, academic
research need to focus on the effectiveness of current social institutions and
mechanisms in applying business ethics and on how they can be improved.

This paper aims to contribute to research in business ethics application, by
analyzing one of the contemporary mechanisms of applying business ethics. The paper
will focus on Islamic business ethics and discuss its application using the example
of Halal regulation and certification.

Islamic business ethics
While the mechanisms and tools of Islamic business ethics application change over
time, the underlying concepts of Islamic ethical system are constant since they were

derived from a transcendental source (i.e. revelation from Allah (the God)). When trying
to develop its application, Islamic business ethics need to remain congruent with its
fundamental concepts.

Philosophy and epistemology
According to the Quran, humans are the vicegerents of Allah (The God) on Earth:

Behold, thy Lord said to the angels: “I will create a vicegerent on earth” (The Holy Quran,
2:30, Yosuf Ali translation, available at: www.quran.com, accessed March 9, 2012).

The concept of Khilafa (vicegerency) is the basis for human existence and
consequently for their ethical commitment according to Islamic teachings.
Whenever a Muslim behaves as a vicegerent, he/she is performing an act of
worship. The concept of worship is broad and applicable to all aspects of life
(Beekun and Badawi, 2005).

Consequently, humans are responsible for all their actions and will be judged in the
hereafter based on their degree of commitment to their mission on Earth; the mission

is understood as worshiping Allah through establishing and maintaining a just and
prosperous life on Earth (E’amar Al-Ardh). This responsibility is related to every
single action in all aspects of life. Islamic teachings cover different aspects of life either
in clear and detailed instructions or general guidelines, and in both cases Muslims are
asked to commit to these teachings.

Islamic teachings are usually referred to as Shari’a. It is common in the literature to
describe Shari’a as Islamic , “but the boundaries of Shari’a extend beyond the
limited horizons of law” (Sardar, 2003 cited in Dusuki, 2008). Shari’a is “a set of norms,
values and laws that make up the Islamic way of life” (Ahmad, 2003 cited in Dusuki,
2008). The norms and values components of Shari’a can be used to enhance business
ethics in Muslims business practices.

While aiming to fulfill their obligations as vicegerents of Allah on Earth, Muslims
face obstacles and challenges in different historical and geographical contexts. To
answer these challenges and questions of different times and places, Shari’a is
dynamic and uses a methodology to derive rules which is based on interpretation,
reasoning and judgment. This methodology is the called Usol Al-Fiqh (Abdallah, 2010).
Moad (2007) referred to Usol al-Fiqh as the moral epistemology in Islam. Scholars of

http://www.quran.com/

Usol Al-Fiqh developed maxims to be used in deriving Shari’a rules. The main aim of
these maxims is to enhance benefits and eliminate harms for individuals and the public
as well (Kamali, 1991 cited in Abdallah, 2010). Examples of these maxims are (Kamali,
1991 cited in Abdallah, 2010):

● harm must be eliminated;

● harm is not to be inflicted nor reciprocated in Islam;

● harm is eliminated to the extent that is possible;

● harm is not eliminated by another harm;

● preventing harm is given preference over gaining benefit; and

● public interest takes precedence over personal interest.

Usol Al-Fiqh methodology and its maxims can be used to answer contemporary
ethical issues. However, effective application of this methodology needs a solid
understanding and awareness of different elements and forces affecting the relevant
issue. Abdallah (2010) presented a practical example of applying these maxims to a
very contemporary ethical issue: information security and privacy.

Application of Islamic business ethics
The main challenge facing any ethical system is the application. In the past, Muslims
were successful in applying their ethical system through effective mechanisms. For

example, markets were regulated through the institution of Hisba that functioned as
a trading standards authority (Wilson, 2006). The business environment has since
changed, and traditional mechanisms of applying Islamic business ethics find it
difficult to meet the new contemporary challenges.

There is a considerable number of published papers on Islamic business ethics

(examples are: Beekun and Badawi, 2005; Rice, 1999; Kula, 2001; Possumah et al., 2012;
Dusuki, 2008; Wilson, 2006). Most of these papers are normative; they explain the
Islamic value system and ethical guidelines that can form a strong and effective
ethical system, but when we look at the reality in Muslim countries, we will find clear
discrepancies between the normative Islamic business ethics and practices of Muslims
(Beekun and Badawi, 2005; Rice, 1999; Kula, 2001). For instance, one of the concepts
which has potential to be applied in business ethics is the concept of “moral filter” that
works with the price mechanism to regulate markets. “Moral filter” is a mechanism
that minimizes unnecessary claims on resources (Chapra, 1992 cited in Rice, 1999). The
concept is very promising and can add to the domain of business ethics, but: where is
the application? How will this “moral filter” work in reality? In a paper on Islam

and environmental conservation, Kula (2001) presented a number of Quranic
verses and Hadiths (teachings of the Prophet Mohammed) that are very clear in
encouraging Muslims to protect the environment. There are examples of Hadiths
that prohibit excessive use of water (or any other resources). Conspicuous or wasteful
consumption is clearly prohibited in Islam (Kula, 2001; Chapra, 1992 cited in Rice,
1999), but these norms cannot be effective in reality without practical definitions,
mechanisms and tools designed to apply them in a contemporary context.

We argue that this discrepancy between normative ethics and practices in
Muslim societies can be attributed to the lack of well-developed and effective
institutions which would be able to translate the normative concepts into practice.
The application of Islamic business ethics needs flexibility and consideration of

different contextual and situational factors. This is a significant challenge in
establishing an effective and practical Islamic business ethics system.

Multi-level Islamic ethics framework
Although religious ethics and especially Islamic ethics are sometimes considered as
idealistic, it was found that there is no significant difference in idealism or relativism

between Muslims and other religious groups (Cornwell et al., 2005). The fact that
Muslims were able to build up a strong civilization and control international trade for
centuries supports the idea that Islam does not enforce an idealistic view on life and
ethics; rather Muslims were successfully practical because of the room of flexibility
and adaptability in Islamic ethics.

Flexibility and adaptability of Islamic ethics are part of the dynamism of Shari’a.
Also, they can be supported by one of the fundamental concepts in Islamic theology;
levels of religion (Deen). According to the famous Hadith known as Hadith Jibril, there
are three levels of religion (Deen); Islam, Iman and Ihsan. The first level Islam is
concerned with obeying the instructions and teachings of Allah (the God). The second
level Iman is concerned with strengthening believes and values in one’s heart. While
the third and ultimate level Ihsan is concerned with living a spiritual experience by god
watching in every single action. Muslims have different levels of ethical awareness
and commitment according to the richness and depth of their religious experience
(level of religion).

Frederick Carney (1983) has proposed that any religious ethic consists of an
obligation, a virtue and a value component (Carney, 1983 cited in Moad, 2007). Moad

(2007) proposed that the three levels of religion in Islam “Islam, Iman and Ihsan
represent what Carney calls the obligation, value and virtue components, respectively,
of the Islamic ethic” (Moad, 2007). Based on that, we can conclude that Muslims can
have different levels of ethical awareness and commitment according to their level of
religious experience. This approach of different ethical levels is also supported

by Shari’a objectives as defined by Usol Al-fiqh scholars. Shari’a objectives were
grouped into three categories: essentials (Daroriyyat), complimentary (Hajiyyat) and
embellishment (Tahsiniyyat) (Hallaq, 2004; Kamali, 1991 cited in Abdallah, 2010). We
can easily find the link between these three levels of Shari’a objectives and the levels
of religion and ethics components. Another support for the multi-level approach can be
found in the normative theories of ethics; “normative theories of ethics are traditionally
classified into three main categories: deontological ethics, consequentialist ethics
and virtue ethics” ( Jonsson, 2011). In deontological ethics, ethical judgment is constant
for any action, in other words, any action is either right or wrong because of its
intrinsic nature. While in consequentialist ethics, the rightness of any action depends
on its consequences rather than its intrinsic nature, so a certain action can be right in a
given context and wrong in another context based on its consequences. Virtue ethics
theory is more holistic; it does not judge every action as right or wrong, rather it looks
at ethics as a living experience for those who have an ethical personality. Islamic ethics
system “can be conceived as being a synthesis between deontological, consequentialist
and virtue ethics theories” (Abdallah, 2010). Islamic ethics consist of some clear rules

on rights and wrongs (deontology, obligation, Islam level), general guidelines that help
Muslims to decide what is right and wrong by themselves (consequentialism, values,

Iman level) and motivation and inspiration of Muslims toward moral living based
on spiritual experience (virtue theory, virtue component, Ihsan level). We should state
that this paper is not aiming to provide a comprehensive and solid explanation of

the religious concepts of Islam, Iman and Ihsan, which are essential concepts in Islamic
theology and they should not be limited to their ethical implications only. The proposed
multi-level Islamic ethics framework is illustrated in Table I.

Based on the proposed framework, the application of Islamic ethics should consider
the fact of different levels of ethical awareness and commitment among Muslims, and
find a way to meet the different needs of Muslims.

Halal regulation and certification
Whether a product is Halal or not is a critical factor in Muslims consumption decisions.
Therefore, Halal regulation and certification was developed to help consumers
identifying products, which comply with the Islamic principles. Already in the 1970s,
first efforts were made to set up a system declaring and certifying food products as
Halal. In this time, western fast food chains started entering the uprising Muslim
countries and naturally, those restaurants were not always applying Islamic standards
in their food production. Besides, more and more international food brands appeared in
the markets of Muslim countries and likewise pushed the matter of Halal certification
(Chaudry and Riaz, 2004). While in former times, the mechanisms were more built on
confidence and common values among Halal food producers and customers, this
system does not work in today’s business environment. The Muslim customers
demanded more transparency for product ingredients and did not trust in simple Halal
marks – even less when the product was imported from non-Muslim countries. There
aroused a demand for trustworthy Halal certificates – the governments in Malaysia,
Indonesia and other Muslim countries complied by establishing governmental bodies
to supervise and regulate the food markets. Bills were passed (e.g. already in 1975 in
Malaysia) to prohibit the erroneous use of the word “Halal” (Chaudry and Riaz, 2004).
Institutes like the Malaysian Jabatan Kemajuan Islam Malaysia (JAKIM), which is one
of today’s leading institutes in Halal matters – have its seeds in this time. Also in
Singapore and Indonesia official bodies were established to supervise and develop the
national Halal market. The Singaporean counterpart to JAKIM is the Majlis Ulama
Islam Singapura’ (MUIS), the Indonesian institute is called “Majelis Ulama Indonesia”
(MUI) (Chaudry and Riaz, 2004).

Today, Halal or Shari’a compliant products are already common in food and
financial industries, but the concept is constantly expanding to new industries
(i.e. cosmetics, pharmaceuticals, tourism, entertainment, etc.). The most topical
example is a Halal social network called “Salamworld”, which will be accessible from

July 2012. It was established in order to provide a Shari’a compliant communication
platform for Muslims – just like Facebook – but without critical content like
pornographic advertisements, etc. (available at: www.salamworld.com, accessed May
20, 2012).

The Halal market is one of today’s fastest growing markets – even in non-Muslim
countries like France, Halal already overtook organic and bio-products in market
volume (Ahmed, 2011). The global Halal market volume is estimated to be US$580

Religion level Ethics component Shari’a objectives Ethics theory

Table I.
Multi-level Islamic
ethics framework

Ihsan Virtue Embellishment Virtue ethics
Iman Values Complimentary Consequentialism
Islam Obligation Essentials Deontology

http://www.salamworld.com/

billion a year and the Halal food industry is expected to grow at a rate of 7 percent
annually (Saad and Patrick, 2008 cited in Alam and Sayuti, 2011).

Development of Halal regulation and certification
New systems are required, which permit Muslims to live in accord with their
traditional values also today – when living in between a modern society with new life
styles and all its impacts from a changing global economy. Applying Islamic business
ethics – especially in times of globalization – also means to encounter other ethical
systems and mechanisms. Having this in mind, one of the challenges in applying
Islamic business ethics is also to accommodate them to other ethical systems and
practices which are present in the world.

To make the proposed steps for a better and faster development of the Halal
market possible, collaboration between key stakeholders is required. Till now, the
Halal market barely discovered the potential of integrating the concept of CSR and
corporate citizenship. At the moment, companies and certifying bodies mainly focus on
fulfilling the product requirements of a Halal (food/finance) product, such as “not
containing pig.”

Harmonization of standards and governance structure
Halal certification in the nutrition sector is already well developed, at least in countries
with a Muslim majority. Nevertheless, the current situation in Halal certification is
lacking in some fundamental points and urgently needs further development. First of
all, there is no common basis of Halal standards, neither in the Muslim countries nor

worldwide. There is more than 100 Halal certification agencies worldwide (The Halal
Journal 2008 cited in Lada et al., 2009) and there is no functioning mechanism for
mutual recognition between the countries (Lada et al., 2009). Therefore, the customer
has to deal with a broad variety of different Halal logos, each of them based on different
standards, but those standards are barely communicated to the customer, which makes
it hard to tell, if a specific certificate matches one’s personal requirements and level
of religious commitment or not. The sense behind Halal certification is to provide a

trustworthy signal for Shari’a compliant products, facing the current in-transparency
in the certification market, for now this mission is not fulfiled.

Standards in Islamic finance are well developed and are harmonized comparing to
other industries. International organizations are established to standardize and
harmonize governance practices among Islamic financial institutions. Examples of
these organizations are: the Accounting and Auditing Organization for Islamic
Financial Institutions (AAOIFI), the Islamic International Financial Market (IIFM)
and the Islamic Financial Standard Board (IFSB) (Garas and Pierce, 2010). Such
international governance institutions are missed in the Halal food industry as well as
in other industries. In some industries (i.e. hospitality and tourism) rating approach is
used instead of certification. The governance structures of Halal regulation and
certification in different industries are presented in Figure 1.

To work effectively as a mechanism for applying Islamic ethics on the long run,
Halal regulation and certification needs to develop more standards also in sectors other
than finance and food. Those can be integrated or build on existing Halal standards.
Considering the current inconsistency in the Halal regulation and certification, global
harmonization is needed in order to facilitate international trade and provide more
clearness for the customer. This cannot be achieved without a strong and effective
global institutional network and governance structure.

JMD
31,10

International level

Other industries Food

109

6

National level

Figure 1.
Governance structure
of Halal regulation
and certification

Micro level

Enhancing ethical and responsibility practices in halal regulation and certification:
Halal industry offers a great potential from an ethical point of view: Halal standards
can easily extend beyond the Halal product attributes, enhancing its already
existing ethical component and integrating corporate social responsibility (CSR)
practices and general ethic values. By doing this, the Halal business can become
a role model for modern business development and contribute to more responsible
business practices.

At the moment, Halal business and certification mainly focusses on the product
attributes – although many people consider Halal more than just the end product.
A more holistic approach in Halal certification is required.

Applying CSR practices can help to integrate more criteria and herewith further
develop a responsible Halal business. Islamic business ethics and CSR by nature have
similar elements; both practices are built on strong values, responsible behavior and
sustainability. Both subjects are based on the ethical permissibility of things and
behaviors. Therefore, CSR has good chances to be successfully integrated in Halal
business practices and contribute to a successful future movement of Halal.

CSR is an already well-developed and mature discipline. Different tools are used in
CSR: certification, rating, external auditing, obligatory disclosure and reporting.
It is noticed that non-governmental actors are dominating the governance structure
of corporate responsibility (governance without government) (Albareda, 2008).
Self-regulation instruments and multi-stakeholders initiatives have appeared to help
corporations adopt CSR practices (Albareda, 2008; Pattberg, 2006). Halal business
practices can benefit by using and adapting already well-proven tools from CSR.

By integrating CSR, there is potential to build up an overall ethical brand, based on
Islamic business ethics and enhanced with product attributes like organic, animal
welfare, healthy, environmentally friendly, fair working conditions, etc. By doing this,
Halal companies can broaden their target group and attract – if providing reliable
certificates – also non-Muslims to Halal products, especially in times of recurrent food
scandals and the financial crisis with its discredited banking practices. For instance, in
the Islamic finance sector, non-Muslim consumers of Islamic banks “equated Islamic
finance with ethical living. They expressed that they were attracted by the prospect
of their money not being invested by the bank, in such things as pornography and
arms. In addition, they also supported the Islamic position of wealth being only
generated through legitimate trade and investment in assets, and not by making

AAOIFI, IIFM, IFSB

Government body,
Ulama Councils,Muslim

Society Organizations

Shari’a Supreme

Councils, Central banks

Shari’a supervisory

boards, consulting and

auditing firms,Shari’a

advisors

Consulting, auditing and
rating companies

Consulting, auditing and
certification companies

money from money” (Wilson and Liu, 2010). Another example of potential expansion
and development of Halal business practices is to integrate animal welfare issues in
Halal standards, especially considering slaughtering practices. The International
Islamic Fiqh Academy (IIFA), which forms a supreme council for Islamic faith and
justice, approved already in 1997 certain allowed stunning methods (IIFA, 1997).
Modern Halal business has to focus on animal welfare and apply accepted stunning
methods. This simplifies Halal production – especially in non-Muslim countries –
where until now Halal production is sometimes blocked due to animal welfare laws.
Besides, engagement in animal welfare will calm down animal welfare activists and
improve the vocation of Halal food among non-Muslims. This can help to develop the
Halal market on an international level.

Multi-level Halal regulation and certification
In order to integrate CSR and ethical issues in Halal standards, a new approach to
Halal regulation and certification is needed. This new approach can be built based
on the multi-level Islamic ethics framework proposed earlier in this paper. Halal
regulation and certification bodies can set different standards to meet the needs of
different groups of Muslims. All …