Businessman Alfred Akirov applied this week for a permit to control Clal Insurance. The company is Israel’s third-largest insurance firm, managing some 250 billion shekels ($79 billion) of the public’s money. The application was submitted to the Commissioner of Capital Markets, Insurance and Savings, Moshe Barkat, who is studying it and, to the best of our knowledge, is considering whether or not to approve it.
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Akirov is a successful businessman, in Israel and abroad, in the real estate and hotel industries. He controls the publicly traded company Alrov, which has a market capitalization of 4.6 billion shekels. But over the past decade the trends in business have taught us that letting tycoons take control of companies of this type is inefficient and harms the economy.
When someone simultaneously controls both non-financial companies and a large financial company like Clal Insurance, it opens the door to conflicts of interest, deals involving substantial shareholders and damage to the public’s trust in the financial system.
Through Alrov, Akirov already holds about 15 percent of Clal Insurance’s shares. Even though this holding doesn’t give him control over the company, he has intervened in its decisions before, including in its independent decisions regarding investments in Alrov’s operations. His connection with Clal Insurance thus looks like “financial incest” that existed even before his application for control of the company, and that raises fears for the future.
Insurance companies and banks that manage the public’s money require the highest standard of corporate governance, because these businesses are based on public trust. That is also why they are closely supervised.
In recent years, the Bank of Israel has adopted a new position – that there’s no need for banks to have a single controlling shareholder. This view emerged following the dismal experience of Bank Hapoalim and Israel Discount Bank, both of which had controlling shareholders that caused them harm. Today, none of Israel’s three largest banks has a controlling shareholder; all are owned by the public via the stock exchange. Nevertheless, their performance is excellent, and they don’t seem to have been hurt by the lack of a controlling shareholder.
This model should be implemented in the insurance market as well. Today, Clal Insurance has no controlling shareholder. Granted, the company has suffered from unstable management in recent years, but this stems in part from attempts by businesspeople, including Akirov, to meddle in its management.
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Akirov has no experience or expertise in the insurance market, so his potential to contribute to the company seems doubtful. Moreover, he has a record of terrible corporate governance, as revealed in a special report prepared by retired Supreme Court Justice Yoram Danziger on the goings-on at Clal Insurance. Nothing in Akirov’s history or current conduct makes him a desirable candidate to control Clal Insurance. Therefore, Barkat must prevent this from happening.
The above article is Haaretz's lead editorial, as published in the Hebrew and English newspapers in Israel.