Has Bezeq for years been systematically violating a directive banning its board members from being in a conflict of interest? Directors in Bezeq have been serving simultaneously as directors of the company's subsidiaries, a situation that violates the structural separation imposed on Bezeq by law.
The issue was raised following the Bezeq board's decision to function as a joint board of directors for both Bezeq and its subsidiaries, a decision revealed by "Globes" that the Ministry of Communications will now have to rule on, but questions also arise about the way in which the Bezeq board functioned in previous years.
Bezeq has three large subsidiaries: Bezeq International, satellite broadcaster Yes, and mobile carrier Pelephone. Section 9.2(C) of Bezeq's license states, "A company employee shall not be appointed a director in a subsidiary if his job gives him access to commercial information about a competitor, the use of which by the subsidiary is liable to have a negative impact on competition between it and a competitor. For thepurposes of this section, 'employee' does not include the company's chairperson."
The legal meaning of this section is that a director of the company is a company employee, except for the chairperson. Bezeq directors therefore cannot serve as directors of the subsidiaries, because they are exposed to competitive commercial information in the parent company and in the subsidiary.
In practice, a director in Bezeq who is also a director in Bezeq International and in Yes is likely to have an inbuilt conflict of interest, because the two companies are now operating in the television sector (Bezeq International operates Sting TV from Yes's premises). Another example of directors' potential conflict of interest is Bezeq International's Internet activity, while Bezeq markets Internet packages with competing providers. To whom does that director owe loyalty in such a case?
For this reason, the company's license also creates separation between the directors aimed at encouraging competition, even if it is competition between the subsidiaries and themselves or between them and the parent company.
Year of conflicts of interest
Bezeq's directors have been in a conflict of interest for years, a situation that has never been dealt with. In the Bezeq-Yes deal, for example, the same directors in Bezeq also served as directors in Yes. In that deal, the conflict of interest was outrageous and obviously unacceptable; nevertheless, none of the legal advisors involved demanded rectification of the situation. The consequences of this conflict of interest can be found in the Israel Securities Authority's investigations, which became Case 4000 in which Prime Minister Benjamin Netanyahu, who also served as minister of communications at the time, has been questioned. Had the companies' directors been independent, questionable deals like those would never have seen the light of day.
The exception made for Bezeq's chairperson, specified as the sole party entitled to be a director in both the parent company and the subsidiaries, followed a decision by then-Minister of Communications Ehud Olmert against the views of his ministry's professional staff. This situation left an opening for Bezeq's chairperson to be appointed chairperson of the subsidiaries, in contrast to the other directors.
Bezeq attempted yesterday to interpret the license directive creatively by explaining that a director is not a company employee, but the company's license states otherwise. Bezeq also tried to argue that all the approvals for this had been obtained, but a very careful check with the Ministry of Communications found no proof of this.
The oddest and most important aspect of this matter is the Ministry of Communications' response. In answer to questions from "Globes," the Ministry of Communications stated, "To the best of our knowledge, Bezeq did not report to the Ministry of Communications and the Ministry of Communications did not approve this measure." This means that not only did Bezeq violate the provisions of its license through its board of directors' decision to serve as a joint board of directors for its subsidiaries, but it has done so for many years without the Ministry of Communications even being aware of it.
It will be interesting to see the Ministry of Communications' position will force Bezeq to correct the situation.
Bezeq declined to respond to the report.
Published by Globes [online], Israel business news - www.globes-online.com - on July 19, 2018