The Battle for Control of the Boardroom in Israel

Good intentions, and some not-so-good ones, drove both the creation of the A-Team of qualified directors of government companies, and the drive to change it.

Finance Minister Moshe Kahlon outside the weekly cabinet meeting in Jerusalem, Nov. 22, 2015.
Emil Salman

Sometimes it seems the government is so delighted with Israel’s low unemployment rate that it has zero interest in tackling the labor market’s core problems. These include the large number of low-wage workers, the pressing need for continual job training in order to keep up with technological advances, the spotty enforcement of labor laws and the gap between workers with a high degree of job security and those who can be fired at any time.

But in fact the government is keenly interested in the labor market, if only in the narrow segment of “jobs for the boys,” specifically seats on the boards of directors of government companies. You may know it as the A Team, the mechanism introduced by Government Companies Authority head Ori Yogev under former Finance Minister Yair Lapid. The idea was terrific: Instead of letting politicians control government companies and place their buddies on their boards, the GCA created a formal program to attract suitable director candidates and vet their credentials.

Lapid’s Yesh Atid party seemed perfect for the task. Being brand-new, it wasn’t beholden to party hacks and hangers-on slavering for sweetheart jobs in government. But there’s another party waving the same clean-government banner, founded by Lapid’s successor in the treasury. Finance Minister Moshe Kahlon registered Kulanu just before the last election, but having “grown up” in Likud he is an old hand in the party of government’s politicking. He based Kulanu on a different model, earning votes in the last election by virtue of his successful stint as communications minister (bringing competition, and lower prices, to Israel’s mobile carriers).

But it seems that even in the era of personality-driven parties, like Lapid’s Yesh Atid and Kahlon’s Kulanu, the pressure for sweetheart jobs is undiminished.

One of Kahlon’s friends is former Hadera Mayor Haim Avitan, who applied to join the board of directors of Ashdod Port and was turned down. Avitan is also a crony of Transportation and Road Safety Minister Yisrael Katz and has clear ties to Likud, Katz’s party. But the head of the Public Sector Appointments Committee, Judge (ret.) Bilha Gilor, ruled that Avitan was not qualified for the position.

Unfilled jobs, whatever

The case of Avitan and other applicants who were rejected spurred Kahlon’s interest in the A Team. He discovered some interesting facts. For example, that there are hundreds of unfilled directorships — 574, to be precise — for myriad reasons including the slow wheels of bureaucracy. And that the average age for directors of government companies is 58, and in some areas of business it’s over 60; since significant prior experience is required, young people have little likelihood of getting picked for the A-Team.

But what upset Kahlon more is the geographical dispersion of the directors. The three leading cities from which directors were chosen were Tel Aviv (111 directors), Herzliya (32) and Ramat Hasharon (29).

Now, neither Herzliya nor Ramat Hasharon are large cities; the latter has a population of just 44,000. Its representation in the A-Team is strikingly disproportionate, especially in comparison to relatively big cities such as Netanya, Ashdod, Petah Tikva and Rishon Letzion.

Kahlon and his aides concluded that the A-Team reflects mainly Yesh Atid’s constituents and not Israeli society as a whole. In the last election, Yesh Atid received twice as many votes as Kulanu did in Tel Aviv, Herzliya and Ramat Hasharon. Coincidence? It would take a proper statistical study to prove it either way. But to Kahlon, the facts spoke for themselves, especially as the A-Team included cronies of Lapid and Yogev. He decided on a number of corrective measures: 1. Lower the average age of directors at government companies by relaxing the experience prerequisite. 2. Instituting a criterion of geographical diversity, to give people from the periphery a better chance of making it to a board. 3. He’s moving to fire Yogev, father of the A-Team.

That third item seems to be Kahlon’s top priority right now; the other two things are excuses that are easy to sell to the public.

It’s easy to suspect the motives of cabinet members. They’re only following the example of Prime Minister Benjamin Netanyahu, who has come out against search committees for senior government posts. “We were elected to govern and part of governing is choosing people,” Netanyahu said last week, and really, why be a cabinet minister if you can’t name your key people to help you implement your policy? Or to guard your back and help you get reelected.

Controversial figure

Yogev is a controversial figure. He’s a mover and a shaker, but his aggressive manner has earned him many enemies. His ouster over “jobs for the ministers’ boys” sends a strong signal that the government intends to intensify the politicization of public service.

On the other hand, creating the A Team handed great power to the Government Companies Authority, turning it into an executive search agency.

Director of the Government Companies Authority, Ori Yogev.
Tomer Appelbaum

There is a real need to prevent unworthy appointments and keep party hacks out of government companies. But enabling ministers to introduce criteria such as age, social or geographic diversification is reasonable, as long as they’re not tailoring jobs for their friends.

Ministers who refuse to cooperate with the A-Team have a lot of responsibility for the low quality of some appointments. What’s disturbing is that Kahlon woke up to the problem because of the rejection of two candidates he favored — Avitan, and Ronit Tirosh (who applied for the board of Ariel Sharon Park but is not on the A-Team). The hope is that Kahlon is sincere about wanting to open the boards of directors to younger people and to people from the geographic periphery.

The A-Team was established with good intentions, but its operation is plagued by the lack of trust that infects much of Israeli public life. No one believes anyone. The A-Team would not have been created had there been faith that ministerial appointments were not tainted. The result of the lack of trust is mechanisms and committees that hamper the work of the government and the government companies, create more bureaucracy and obstruct economic growth. But by pressing to allow party hacks into the government companies, the cabinet ministers are sure to further increase the lack of trust.

P.S.

After reading the criteria for directors of government companies, we can say the GCA did well. Really. The requirements are high, the considerations appropriate, affirmative action for women and minorities is there, relevant education and experience are crucial. But one important prerequisite is missing: courage and integrity. It may sound strange to require a director to have these, and they’d be difficult to gauge. But experience with Israel’s government companies, and the publicly traded ones too, shows that directors may have the education and the experience, but they may not have the courage and integrity to oppose bad decisions that hurt shareholders or consumers. Many seem to see the seat on the board as the end in itself, a sort of hobby that pays nicely. They don’t see it as a real mission to guarantee good governance and decisions that serve all the interested parties in the company, not only the controlling shareholder.