Potted plants on the board
Directors do not sit at board meetings like potted plants, for decorative purposes only, declared Gad Soen in an op-ed yesterday.
Soen might change his mind if he reads the detailed reports on board meetings at two of Israel's most important companies: Bezeq and Bank Hapoalim.
Bezeq, the biggest telecommunications provider in Israel and only recently a government company too, wrote: "The value of benefits in the plan for the chairman was not reported at the Audit Committee meeting." It wrote that in an announcement to the Tel Aviv Stock Exchange , regarding the process by which incentive plans for management and workers had been approved.
The cost of the plan, according to the company itself, is NIS 286 million, or which NIS 112 million is for management alone. Even for a giant company like Bezeq, that's a hefty piece of change.
One might expect that with sums like that involved, the board would study the issues down to the last dot on the last i.
If one would expect that, one would be wrong. The little details, as we learn from the company's corporate action, were a bit missing.
For instance, the Bezeq audit committee, which held the professional debate on the merits of the incentive plan, didn't know when approving the bonus for management, what that bonus would be worth when the managers actually got it.
The stock options that the company meant to give chief executive Jacob Gelbard, were worth between NIS 41.9 million to NIS 58.2 million. That's a petty little detail that the directors didn't know when approving the grant to him.
"All the directors were involved in forming the plan, without going into the details of how much each office-holder would receive," Bezeq said it its statement.
Indeed, when the topic at stake is NIS 58 million for a single person, why niggle over details?
Only at the meeting of the board of directors, after the Audit Committee had granted its stamp of approval for the deal, were the actual figures presented. They were presented orally, by economic advisers that Bezeq had hired, because their written report wasn't ready yet.
In other words, the audit committee and the board of directors discussed and approved a plan to give the management and workers NIS 286 million, without seeing an opinion about the plan.
The audit committee had no idea how much the perk for management was worth. Nor did it have an economic opinion. They had no information on similar plans at peer companies.
How exactly did the members of the audit committee conduct their in-depth professional discussion about whether or not to give management and workers NIS 286 million?
They did it based on a letter from Bezeq's legal counsel regarding the procedure of approval at the audit committee, which they had received two days beforehand. They also had a letter from the chief financial officer about the options grant to workers, delivered two days before the meeting. And they had a draft of the terms of the stock options, delivered one day before the meeting.
Despite the paucity of details, who how much when, and the short time the directors had to study the few details they had, we learn that only one director thought maybe that wasn't the way to conduct a professional discussion about a highly complex matter.
The external director David Blumberg asked to give the audit committee members a week to read the economic opinion (which at that point didn't exist) and to make their comments.
But his reservations were crushed after the chief executive, Gelbard, said that time was pressing because they had to pass the plan before Bezeq released its 2006 results.
Interesting comment, that: the debate on a NIS 286 million bonus to workers had to be done inside a day, without the directors even having details about the plan. It is all the more interesting in that the comment emanated from the mouth of the man in line for up to NIS 58 million of that NIS 286 million.
In fact, it's such an interesting comment that one suddenly wonders why Gelbard was even at that audit committee meeting, when the topic on the agenda was his own reward.
"Since the chief executive is not a director at the company, there is no prbezeq external director ohibition on his participation at the meeting," the Bezeq board excuses its complete absence of effort to avoid conflicts of interest.
"In any case," the Bezeq board adds, "the chief executive was not present at the parts of the debate that related to the stock options for himself personally." But we know that he was there at the part where the plan was approved as a single unit, on the spot, with no delay. He was most certainly there. And he most certainly did his bit.
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