Decreasing corporate governance in an ethico‐economic general equilibrium model of unity of knowledge

Purpose – The purpose of this paper is to explain how to reduce transaction cost in corporate governance by subjecting it institutionally to ethics and values of interactive and consensual decision making with transparency gained from participation between managers and shareholders/stakeholders and the community at large. This is an epistemological problem in the Islamic approach to corporate governance. The paper brings these out in technical language and methodology. Design/methodology/approach – An analytical epistemological and comparative study between mainstream and Islamic conceptions in corporate governance is used to develop the idea mentioned above. The analytical model used is of an ethico‐economic general equilibrium type with learning variables. Findings – The Islamic theory of corporate governance under the rubric of its epistemology of unity of knowledge treated within a systems approach is found to reduce transaction cost and produce better management decisions. Research limitations/implications – The paper is mostly theoretical in nature but carries quantitative facts on the limitations of existing corporate governance practice at the accountancy level in the global scene. Practical implications – The adoption of institutional modes to generate interactive, integrative and evolutionary frameworks of corporate decision making is derived from the content of the paper. Recent global incidents with WorldCom and Enron are cited to show how corporate governance has failed as an effective means of reducing the immense transaction costs that were engendered by the failure of these mega corporations. Originality/value – The paper conveys an original idea that has not been taken up elsewhere. It reflects the systems approach to the study of behavior in a corporate setting within the epistemology of systemic unity of knowledge. Besides, in the Islamic comparison that the paper undertakes in contradistinction to the mainstream approach, the methodology of systemic unity of knowledge conveys an altogether new way of studying corporate governance in the related new institutional framework.