The textbook definition of a director's job is that he or she is the representative of the shareholders whose task it is to outline company policy and supervise its management.
From last week's reports about the conduct of the boards of directors of two of Israel's largest banks, one can say categorically that any connection between their behavior in the affairs that were exposed and the above definition is mere coincidence.
In the case of Bank Hapoalim (TASE: POLI), transcripts of investigations of senior figures in the Danny Dankner case were revealed. Thousands of words were quoted in the press from the bank's controlling shareholder Shari Arison, former chairmen Dan Dankner and Shlomo Nehama, CEO Zion Kenan, and his predecessor Zvi Ziv.
The general attitudes that emerge from all the testimonies are practically identical: "I didn't see, I didn't hear, I didn't know." Nobody has taken responsibility for the acquisition of Turkish bank Bank Pozitif, no-one knew or enquired about chairman Dan Dankner's business ties with the man who brokered the deal, Rafael Barber of the RP fund, who received generous payments from the bank.
As far as is known, no dubious deals of this kind have taken place at Mizrahi Tefahot Bank (TASE:MZTF), but a recently published draft Bank of Israel report shows that what motivated the directors there was not the good of the bank and supervision of its management, but serving the controlling shareholders from the Ofer and Wertheim families, against the background of the murky relationship between them.
I'm not naïve. I know that this is not the first time that directors have not fulfilled their role properly. Directors often encounter conflicts of interests: on the one hand, they feel that they ought to be faithful to the controlling shareholder who appointed them; on the other hand, they are required to look after the interests of the company. In practice, in many cases, they make do with eating biscuits and dozing at management meetings. There must certainly be many public companies where the board of directors could do with a shake up.
Still, one expects more from the banks. They are subject to the most rigorous regulation, with systems of control, tight procedures, and slow processes their daily lot.
And not for nothing. We all hold our money in the banks, and they depend on trust. No bank holds reserves sufficient to return all its customers' money. The moment the trust is cracked, and the customers demand their money back, the bank collapses.
It seems however that the air is thin at the summit. While at the lower and middle ranks the procedures are clear and rigid, somewhere up there, in the board of directors, the reins are slackened, and the directors act out of different motives.
Bank Hapoalim has undergone quite a few changes since the Dan Dankner affair. There have been many personnel changes, and it would appear that, today, the management and board are more cautious. At Mizrahi Tefahot, by contrast, the situation remains complicated. There, it's a matter of a deep problem of strained relations between shareholders affecting the way the bank is run.
Meanwhile, the Bank of Israel has sent Mizrahi Tefahot a draft report, after which will come the final report. Then what? What sanctions, if any, will be imposed? That's not clear. This is the test for Supervisor of banks David Zaken, whether he will manage within the limits of the means at his disposal to deal with the problem of the board of directors and solve it.
What might assist Zaken is Jacob Perry's recent departure from the chairmanship of Mizrahi Tefahot. It would appear that the Bank of Israel will not allow the bank's CEO, Eli Yones, to be appointed chairman, because of the need for a cooling off period. Zaken must therefore see to it that a strong and authoritative chairman is appointed (not a simple proposition, given that Yones himself is a strong and dominant manager), who can sort out the board and restore it to its original purpose to take care of the bank and its customers, and not to deal in disputes between its shareholders.
Published by Globes [online], Israel business news - www.globes-online.com - on November 6, 2012
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