Abstract—This paper discusses a new model of Islamic code of ethics for directors. Several corporate scandals and local (example Transmile and Megan Media) and overseas corporate (example Parmalat and Enron) collapses show that the current corporate governance and regulatory reform are unable to prevent these events from recurring. Arguably, the code of ethics for directors is under research and the current code of ethics only concentrates on binding the work of the employee of the organization as a whole, without specifically putting direct attention to the directors, the group of people responsible for the performance of the company. This study used a semi-structured interview survey of well-known Islamic scholars such as the Mufti to develop the model. It is expected that the outcome of the research is a comprehensive model of code of ethics based on the Islamic principles that can be applied and used by the company to construct a code of ethics for their directors. Keywords—Code of ethics, director, Islam, ethics I. INTRODUCTION HE sudden failure of high profile companies in a business and many corporate scandals have triggered much interest to researchers on the work of the directors, arguably the front liner responsible for the ups and downs of the company. A lot of studies have been conducted on directors such as board committee [1], board responsibility [2], board independence [3] and board composition [4]. However, one particular area that is substantially missing from the literature is the directors’ code of ethics [5] that becomes the interest of this research. Previous studies give too much attention of the impact of this code of ethics to the lower levels of management such as to managers [6], employees [7], corporate performance [8] and accounting professionals such as auditors [9]. Furthermore, the study on ethics from an Islamic teaching also does not receive much consideration from the scholars. This situation has motivated the current research to study and establish the code of ethics for the directors from the Islamic perspective. The development of the code of ethics based on religious teachings is crucially important as the literature on business ethics find that there is a positive impact on the business ethics of the employees with their religious beliefs [10]. Ahmad Saiful Azlin Puteh Salin is a Senior Lecturer in Universiti Teknologi MARA Perak and an Associate Researcher with the Accounting Research Institute, Universiti Teknologi MARA Perak, Seri Iskandar Campus, 32610 Bandar Baru Seri Iskandar, Perak, Malaysia. He is also the Head of the Islamic Finance and Accounting Research Group of the same organization. (phone: +605- 374-2544; fax: +605-374-2635; e-mail: ahmad577@perak.uitm.edu.my/ saifulazlin@yahoo.com). Norlela Kamaludin and Siti Khadijah Ab. Manan are with the Centre of Islamic Taught and Understanding, Universiti Teknologi MARA and the Accounting Research Institute, Univesiti Teknologi MARA Malaysia. Mohd Shatari Abdul Ghafar is in the Faculty of Accountancy, Universiti Teknologi MARA, Perak, Malaysia and a member of the Islamic Finance and Accounting Research Group of the same organization. In addition, the research in other areas of businesses such as Islamic finance, bond issuance and syariah-compliance investment transactions shows that the Islamic model of finance is less impacted with the financial crisis. Thus, it is worth to explore the other related business and finance area such as business ethics to see whether this area also possibly giving similar results of a sustainable model than non-Islamic like Western model of ethics to curb with various financial problems. In short, this paper will try to answer this research question - What are the basic features of the directors’ code of ethics that comply with the Islamic priciples? II. LITERATURE REVIEW Many studies have been conducted regarding ethics in the business arena. Generally, the studies conducted on ethics can be divided into two distinct phases [11]. The first phase from 1997-2001 concentrated on the ethical decision making and the relationship between corporate and social responsibility and corporate performance. The second phase from 2001-2006 concentrated on the stakeholder theory in business ethics and the relationship between consumer behaviour and corporate social responsibility. It is noted that the studies on code of ethics for directors are widely missing in the literature. More studies have been conducted and there is emphasis on the code of business ethics as a whole, but not solely tied to the work of directors. References [12], [13], [14] and [15] are examples of studies conducted to assess and evaluate the content and construction of the code of ethics by applying a set of standards and finding its evolution over the years. These studies, however did not present much value as the public still do not know how these codes work, communicated and transformed inside organizations [16]. After all, arguably, it all starts with the director who is responsible to navigate the company towards a better performance and direction [5]. Only a few studies have been conducted by involving directors and ethics, example a research conducted by [17] and [18]. Researcher [20] found that ethics have little value for business leaders in decision making because these leaders believe that many of their peers pursue a legal course of action in maximising the shareholders’ value although they still recognize the implication of their decisions to ethics and social. Another area absent in the literature is whether an Islamic value can play an important role in developing the code of ethics for directors. It is worth to study and explore the impact of the Islamic values in relation to ethics. In other related areas such as finance and business, several researchers found Ahmad Saiful Azlin Puteh Salin, Norlela Kamaludin, Siti Khadijah Ab Manan, Mohd Shatari Abdul Ghafar Directors’ Islamic Code of Ethics T World Academy of Science, Engineering and Technology Vol:6 2012-04-24 604 International Scholarly and Scientific Research & Innovation 6(4) 2012 International Science Index Vol:6, No:4, 2012 waset.org/Publication/14165