Mizrahi Tefahot Bank said on Wednesday it was ordered to take six steps by the Bank of Israel to improve what the central bank said was a poor record of corporate governance.
The central bank issued the damning report after a lengthy power struggle between the bank's controlling shareholder groups - the Ofer and Wertheim families - that raised concern that directors had put their personal interests ahead of the bank's.
The central bank said relations between the CEO and board deviated from the norm. Mizrahi's chairman at the time - Jacob Perry, now a Yesh Atid MK - had failed to fill his role adequately.
At the top of the recommendations list, Mizrahi said it was told to "consider ways to strengthen the status of chairman of the board." The board was also told to thoroughly examine its compliance with directive 301 on proper bank management. The directive, spanning 41 pages, defines the board's rights, duties and how it should conduct itself.
The bank was also required to firmly establish the area of responsibility for each board committee chairman.
The Bank of Israel is demanding this in response to the bitter conflict between CEO Eli Yones and Gideon Siterman, chairman of the compensation committee, over the committee's authority. While Siterman claimed the committee's role was to formulate a compensation plan for senior management, Yones insisted the committee was to approve one proposed by management.
The Bank of Israel has now made it clear that the compensation committee is authorized to formulate the plan.
The bank was also told to "independently formulate, with outside advice, a new compensation policy for senior management." Mizrahi added that the Bank of Israel said meetings of the committee and/or the board can be held in the presence of the CEO.
In his final remarks as a Mizrahi director, former Finance Minister Avraham Shohat called the compensation of senior management "disproportionate" and called on the board to address the problem. In response, Yones accused Shohat and another director of scheming against the audit committee and called for their resignations. In light of this and other instances, the Bank of Israel said the bank should ensure that procedures carefully define relations between the board and CEO.
The central bank also said the board should consider obtaining assistance from outside counsel on any matter in which the bank's in-house attorney has a personal interest. Mizrahi's in-house attorney had been present at meetings where compensation plans that included his own were discussed.