The Knesset Finance Committee on Tuesday unanimously approved a provision to limit corporate pyramids to two tiers, a key plank in Israel’s efforts to reduce conglomerates’ outsize power.
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The committee’s bill is even harsher than the draft hashed out by the cabinet, which had included more concessions to big business. The ministerial committee on concentration-related matters had called for exempting privately held companies that issued bonds to the public, but the committee rejected this. The ministerial committee’s move would have meant exempting Nochi Dankner’s IDB Group, the country’s largest pyramid corporation.
The unanimous vote on the measure, part of the economic concentration bill, included opposition MKs as well. The bill is designed to limit conglomerates’ ability to control companies lower down the pyramid with only moderate-sized investments.
This part of the bill will now be brought to the Knesset for its second and third reading at the end of July. If the Knesset approves it, it will become law.
The draft approved Tuesday states that the finance minister and the Bank of Israel governor will report back to the committee once every three months to track the law’s implementation.
The MKs added a clause designed to stop shareholders from milking companies for dividends before selling them off. This clause says that trustees appointed to oversee the companies’ sale can retroactively revoke dividends distributed before their appointment, under court-approved conditions and when the dividends were not distributed with the company’s best interests in mind. The committee members haven’t yet voted on the time frame under which companies will have to consolidate into no more than two layers. The MKs are inclined to give the companies less time than the current draft.
Too much control
Limiting the number of levels in corporate pyramids means that the controlling party at the top needs to invest more money in order to control companies within the pyramid. Currently, a company may have subsidiaries, and the subsidiaries may have subsidiaries of their own, and so on. Limiting control pyramids to two levels means that companies may own one level of subsidiaries, but the subsidiaries may not have their own subsidiaries.
This is important because currently, a controlling shareholder can control a company by buying slightly more than 50% of the company’s shares, and the company can buy a subsidiary by buying slightly more than 50% of that company’s shares. This means that the controlling shareholder has control over the subsidiary while owning only 25% of it de facto. The controlling shareholder’s de facto share becomes even smaller the farther down the pyramid a subsidiary lies.
Before the committee vote, MK Merav Michaeli (Labor) asked that lobbyists leave the committee room, while MK Stav Shaffir (Labor) asked that lobbyists identify themselves. Four lobbyists were in attendance at one point, including Erez Gil-Har of the firm Policy, representing Shari Arison’s Shikun & Binui, and Daniel Baumgarten of Cohen, Rimon, Sheinkman, representing Israel’s provident fund association
During the meeting, some lobbyists were sending MKs text messages or passing them notes. Some stepped out of the room after press photographers started photographing them.
“A ton of pressure is being exerted on Knesset members behind the scenes,” Shaffir stated afterward via her Facebook page, adding that committee chairman MK Nissan Slomianski had declined her request to have the lobbyists identify themselves and also had refused to let her read off their names.
The committee’s next debate is expected to consider stating that conglomerates may own either financial or nonfinancial companies, but not both. Most committee members also want to keep corporate groups from controlling a media corporation alongside any other kind of company.
At the beginning of the committee session, MKs criticized Lapid for canceling his appearance at the panel so he could be in Paris for a meeting of the Organization for Economic Cooperation and Development. Lapid had announced Monday he was canceling the trip, but did not attend the committee session, either. Some Finance Committee MKs had been particularly eager to challenge Lapid over the increase in value-added tax from 17% to 18%, and over other austerity measures in the proposed budget.