Irit Izakson discovered the strong arm of the regulator the other day. Izakson found out that when the Israeli regulator sets his sights on something, minor matters such as his legal authority won't hold him back. So Izakson was forced to make a trade-off, between continuing as a director of Bank Hapoalim (TASE: POLI and chairman of credit card company Isracrad, and her seat on the board of IDB Holding Corp. Ltd. (TASE:IDBH). You want to remain chair of Isracard? Bank Hapoalim said, then please leave the board of IDB.
Incidentally, Bank Hapoalim didn't mind denying, until yesterday, that such a demand existed, although "Globes" revealed it last week. Or in Izakson's words, "Yesterday, I received notification from the Supervisor of Banks that he allows me to continue as chair of Isracard, subject to me resigning as a director of IDB. That being so, I am forced resign my directorship at IDB."
In plain language, the regulator is exploiting a situation in which a regulated entity requires his agreement to a certain move, and makes this conditional on a certain quid pro quo from that entity. There are those who would call that extortion.
I should stress that, in principle, Supervisor of Banks David Zaken is right. There is an evident and clear conflict of interests between Izakson's position on the IDB board of directors and her position as a director of Bank Hapoalim, particularly considering that she is a member of the bank's credit committee. There is a blatant conflict of interests when the same person is in a position of authority in an entity that extends credit and in an entity that receives it, particularly when one is the biggest lender in the economy and the other is the biggest borrower. But there's a small problem: it's completely legal, and the Bank of Israel has no power to prevent it.
Circumstances allowed use of force
Izakson is not alone. On the boards of financial entities that extend credit sit more than 40 directors who are also directors of non-financial companies. In fact, on the boards of every large bank, insurance company, and investment house, there are directors who are also on the boards of non-financial companies.
Take Nehama Ronen, for example, who serves as a director of Bank Hapoalim, and at the same time as chair of Maman Cargo Terminals & Handling Ltd., of the Taavura group, owned by the Livnat family, which is part of the controlling interest in IDB, and as a director of Oil Refineries Ltd. (TASE:ORL), controlled by Idan Ofer. This means that while she is a director of Bank Hapoalim, Ronen also sits on the boards of two large borrower groups: IDB, and the Ofer family. In that case, why haven't we seen a demand form the Bank of Israel that Ronen should be removed from her post? For one very good reason, namely that the current law does not forbid serving as a director of both a financial and a non-financial corporation, and so the Bank of Israel has no authority to require Ronen to step down from one or more of her positions.
Izakson has been a director at IDB for six years. Why is it particularly Izakson who is required to resign, and why now? Very simply, the circumstances allowed the Bank of Israel to apply force, just as happened earlier to Roy Vermus and Gabriella Ravid vis-à-vis the Securities Authority. At that time, the regulator was asked to give approval to the transfer of ownership of a mutual funds company, and made approval conditional on a manager being removed. Today, Bank Hapoalim seeks to extend Izakson's term of office at Isracard, and the Bank of Israel has made approval conditional on her leaving the board of IDB.
The Committee on Concentration in the Economy, on which Zaken sits, recommended "restricting simultaneous directorships of financial and non-financial entities." The recommendation has not yet become law, and in any event the committee recommended a four-year transition period. Which makes one wonder: if the problem of serving on the boards of a financial and a non-financial entity is so severe, why wait four years to solve it? And if it isn't so severe and it's possible to wait four years, why is Izakson being forced to resign now? The reason is clear: the regulator found an opportunity.
Published by Globes [online], Israel business news - www.globes-online.com - on January 4, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012