The way Prof. Amir Barnea is leaving the board of Bank Hapoalim (LSE: BKHD; TASE: POLI), and the way Shlomo Nehama was dismissed as chairman, raise the question whether it is desirable that Shari Arison should be in sole control of the country's biggest bank.
Arison seems, on the face of it, to act only as she sees fit, from her own emotions, and for the sake of her own interests and convenience. Let us recall the circumstances of Nehama's dismissal: he was summoned for an urgent talk with Arison, and was required to leave his post immediately, simply because he had fallen out of favor with her. That conversation took place just one day after a routine meting between the two.
An external director, such as Prof. Barnea, has a double function. Like any other director, he has the responsibility of acting in the bank's interests, to ensure its economic success and its stability. However, beyond this, his task is to represent the other shareholders, the minority, and the bank's customers, the account holders. The external director's job is to ensure the independence of the bank vis-à-vis the controlling shareholder so that the interest or actions of the controlling shareholder will not harm the bank, it stability, its customers, and its minority shareholders.
Under the law, the external director represents a buffer between the controlling shareholder and the bank. Facing possible confrontation with the controlling shareholder is part of his job. Such confrontation, and the uncompromising insistence on receiving answers, are part and parcel of the external director's function, and lie at the core of the running of public companies.
As external director, Barnea served as representative of the public and the customers on the bank's most important committees: the Audit Committee; the Executive Compensation Committee, the Credit Committee; the Financial Statements Committee; and the Business Committee. Arison signaled to Barnea that he should go, only because he wasn't pleasant to have around, because he wouldn't agree to be her yes-man. A bright red warning light flashes at what she has done. The fact that she sent her lawyer to do the dirty work is also worrying.
These events show that there is a problem of control at Bank Hapoalim. Governor of the Bank of Israel Stanley Fischer and Supervisor of Banks Rony Hizkiyahu ought to ask for clarifications, and as quickly as possible. Securities Authority chairman Moshe Tery should also ask for full details, and should demand to see the original of the letters Barnea sent to Bank Hapoalim chairman Dan Dankner and to Hizkiyahu. The letters begin, "Following a conversation with Adv. Pini Rubin…"
Published by Globes [online], Israel business news - www.globes.co.il - on September 3, 2007
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