Professor Amir Barnea, formerly a director of Bank Hapoalim (LSE: BKHD; TASE: POLI), spoke out yesterday about the way Shlomo Nehama was replaced as chairman of Hapoalim by Dan Dankner. Dankner was subsequently himself replaced, at the behest of the Bank of Israel, and allegations against him of improper conduct while he was chairman of the bank have recently been revealed.
"The Bank Hapoalim board had no weight in the decision to dismiss Shlomo Nehama as chairman and in the choice of Dan Dankner to replace him," Barnea said. "Everything was done entirely by the controlling shareholder." Barnea was referring to Shari Arison, the largest shareholder in Bank Hapoalim.
Barnea was forced to step down from the Hapoalim board after he opposed moves by Arison, chief among them the dismissal of Nehama. Barnea spoke yesterday on a panel on directors' responsibilities at a seminar organized by the Israel Bar Association and the Israel Securities Authority on enforcement in the capital market.
Of the appointment of Dan Dankner as chairman of Bank Hapoalim after Nehama's dismissal, Barnea said, "If there was a director who asked why Dankner was being appointed, or what his qualifications were, he was silenced. Not only did directors of the bank have no say in the process itself, but they also could not propose candidates for chairman. There was one candidate, proposed by the controlling shareholder."
Barnea went on to say that there was a case for regulation on relations between a controlling shareholder and directors. For example, he suggested that there should be clear rules on the power of a controlling shareholder to intervene on compensation of bank executives. "I know the Bank of Israel is working on this, but I regret that up to now there has been no legal guideline on the matter," Barnea said.
Barnea also spoke about the hasty way in which financial statements are approved. "Do you want to know how financial statements are approved at the banks? The director receives the report on the morning of the day that it is released. Something like 300 pages," Barnea said. "A director may be capable of analyzing the statements and forming an independent opinion, but he stands no chance of doing so when he receives the report the same morning."
According to Barnea, the director's perplexity applies to most important matters, such as credit rating and risk management. "What does a director know about credit rating? There's a black box into which you put data about the borrower, and a rating emerges from the other side of it. That decides the credit line. The question is, how does the black box work? Or take risk management, for example. How many directors have the expertise required to delve deeply into new management methods? It's a profession, something you have to study."
Barnea also had harsh words for way the regulator functions on these matters. "The regulator intervenes minimally in the approval of directors, and has no possibility of disqualifying someone. Who gets chosen for the board? By what criteria? Have his or her qualifications been examined?"
Adv. Lipa Meir, who dealt with the debt arrangement at Africa-Israel Investments (TASE: AFIL), objected to much of what Barnea said. "It is legitimate for a controlling shareholder, who has put money into the bank, to take a strong interest in things that are material. Obviously not in the stapler on the desk, but when there are questions of principle. After all, in the end they will come to him and tell him he has to pay."
Adv. Motti Yamin, deputy manager of the Corporate Finance Department at the Israel Securities Authority, said the case of Barnea was a symptom of a much wider phenomenon of controlling shareholder-board relations. "It is not uncommon for people to be appointed to a board of directors whose candidacies were proposed by a controlling shareholder. It happens with external directors as well," he said.
Yamin admitted that a director was liable to curry favor with the person who appointed him in order to keep his place on the board. "The duties of a director are solely towards the company," he said.
A spokesperson for the Arison Group said, "No comment." Adv. Pinhas Rubin, legal counsel for Shari Arison and Bank Hapoalim, said, "It is unworthy and unbecoming that my friend Amir Barnea should speak out about matters from the end of his period as a director of Bank Hapoalim, if and to the extent that he expressed himself in the way attributed to him. Moreover, to the best of my memory, the appointment of Dan Dankner as chairman of the bank was made by the full board of directors, as is usual in the appointment of the chairman of a corporation. Attribution of the appointment to others is therefore incorrect."
Published by Globes [online], Israel business news - www.globes-online.com - on March 17, 2010
© Copyright of Globes Publisher Itonut (1983) Ltd. 2010