Directors won't improve until some go to jail

Stella Korin-Lieber

Public company directors face no sanctions when they fail to do their jobs.

1. Being a director in a public company is the best job there is - it gives you the most money, status, access and sushi (once upon a time, it was gefilte fish) for the smallest amount of work and responsibility.There is a good reason why the cream of the cream become directors. Professors, top-tier lawyers and accountants, senior government officials, bigshot managers - the ones with good reputations among the controlling shareholders and executives are the ones who get the directorships. They go from the parent company to the subsidiaries and to boards of friends and colleagues. It's a job for life.

2. Take the Samets, for example. Tzipi Samet grew up in the Ministry of Finance, was Capital Market Supervisor, and for the past 15 years has been a big hit on boards of directors. Haim Samet is a lawyer with a reputation and connections. She was on the boards of directors of Africa-Israel, Menorah-Mivtachim's provident funds, and Israel Discount Bank (TASE: DSCT), where she made a good name for herself. At the end of her term, when she couldn't get re-elected to the Discount Bank board, she was appointed to the board of Bank Leumi (TASE: LUMI). The lawyer was a director at Bank Hapoalim (TASE: POLI). The controlling shareholder there and her representatives who pull the strings were very satisfied, and so were the executives. When he could no longer continue on the Bank Hapoalim board because of the limit on the number of terms, he became a director at Bank Leumi.

3. What makes a controlling shareholder and a CEO satisfied with a director? Everyone can figure that one out by himself, and should always take into account the most important board of directors committees of public companies: the remuneration committee and the audit committee. "How much will you allow me to be paid, my son, and the executive who does my bidding, and how will you formulate the audit report discussions and the difficult cases so that the company, its owners, and its managers always come out smelling like roses?"

4. Someone looking for lawsuits against directors will find dozens of class actions, derivative actions, and personal lawsuits. How many of them had any results? Only a few. How many directors were found guilty? Very few. How many went to prison? Probably none. It all ends with plea bargains and the insurance pays. In serious cases, when there a hue and cry arises, the directors responsible for the crash also have to pay a few shekels out of their pockets. It started with the collapse of Trade Bank in 2002. Eti Alon went to the police and confessed, the court sentenced her to 17 years (she served 14.5), and the Bank of Israel paid for the collapse with the public's money. What happened to the directors? They were sued, the official receiver for the bank detailed their responsibility for the bank's collapse with great accuracy and severity, but after over a decade, the lawsuit ended in a compromise settlement. The insurance company will pay $2.5 million, and each director will pay NIS 250,000. Since then, this negligible measure of responsibility has become the standard by which the legal system metes out justice. We saw the direct result in January this year, in the contemptible settlement in the affair of the dividends at the IDB group, which crashed over owner Nochi Dankner's head. The court ratified the usual formula of irresponsibility: the insurance pays for most of the lawsuit, and the directors pay a few pennies.

5. One thing is certain: until directors are put on trial and sent to jail, the whitewashing and evasion of responsibility will continue.

Published by Globes [online], Israel business news - www.globes-online.com - on April 26, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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