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The teetering status of Bezeq (TASE: BZEQ)  chief executive Jacob Gelbard has drawn most of the attention in the Bezeq scandal. Today the external examiner will be announcing interim conclusions, and we will learn if Gelbard will pay with his job for the flawed procedure that, among other things, granted him NIS 40 million worth of options for Bezeq stock.

Even if the examiner succumbs to compassion and leaves Gelbard's head on his shoulders, the Israel Securities Authority is likely to be rather less understanding, and insist that he go.

Heads will roll in the Bezeq management, to the roar of the crowd of shareholders. But they may not realize that the guillotine blade is falling on a relatively unimportant neck.

Gelbard may have vehemently insisted on his right to receive options, but his supervisors are the ones that bowed before his persistence and let it happen.

Gelbard erred in succumbing to greed for high pay, but the board of directors erred doubly in allowing it to happen, without proper discussion, with haste, and in complete contradiction to the directives of the Israel Securities Authority.

Bezeq chairman Dov Weisglass, who was himself in line for NIS 6 million worth of stock options, should be the target of masses' wrath, at least if the masses want to assure that such things never happen again at the privatized phone company.

As the CEO, Jacob Gelbard is entitled to ask for the keys to the kingdom, if he wants; Weisglass and the board of directors should stand firm and say, thus far and no more.

But they didn't. Weisglass was a partner in the gigantic stock options plan and the directors sat there like potted plants and kept mum.

The Bezeq scandal, like the pay scandals at banks Hapoalim and Discount last year, and the scandal of Shlomo Nehama's ouster from the Bank Hapoalim chairmanship, expose the Israeli board of directors in all its inadequate nakedness. Even the most highly respected directors on the boards of the biggest companies can't seem to fulfill their most fundamental duty, which is to protect the investor, even if it means standing strong against the controlling shareholder/ CEO/ chairman. This is also true of the directors appointed specifically to protect the public's interest - the external directors.

Rocking the house

The feebleness of the Israeli board of directors will bring down the house upon its own head. Right before the holiday, the Asaf Hamdani commission - appointed by the commissioner of insurance - filed its conclusions. Commissioner Yadin Antebi impaneled the committee to "examine the steps needed to increase the involvement of institutional investors in the capital market".

The panel recommends removing as much power as possible from the controlling shareholders and their directors, and giving it to the institutional investors - provident and mutual funds, insurance companies - that represent the public of shareholders.

All decisions that would require the approval of the general assembly of shareholders, such as insider transactions and executive pay, would (according to the recommendations) require the permission of 50% of the shareholders from among the general public.

The controlling shareholders, who generally own majority interests in their companies, would not be able to ram through dubious deals or outrageous pay - they'll need the support of 50% of the unaffiliated shareholders.

Nor would the controlling shareholders be able to simply install external directors any more. The public shareholders would vote and would also have the right to nominate candidates to be external directors. At present the controlling shareholders not only nominate the external directors, they then appoint them. The external directors therefore know whom they have to please.

In short, the Hamdani recommendations would block the controlling shareholders from pushing through decisions that run against the public interest in the company. The recommendations also ensure that external directors really would be external - not controlled by the owners.

The recommendations are a clear vote of no confidence in the board of directors and the ability of the board to properly supervise the management. The Bezeq affair shows that the boards richly deserve this condemnation. Now all that remains is to see whether the institutional investors will be any more deserving of confidence.