Analysis / Zelekha's Lack of Transparency

The state comptroller's intervention in the approval by Finance Ministry Accountant General Yaron Zelekha of Israel Discount Bank's senior management benefit package has exposed a number of stinging questions about the decision-making process in the matter.

One of the most important questions is why did Zelekha claim he was unconditionally prohibited from objecting to the benefit package according to the agreement between the state and the Bronfman group, which purchased the bank's controlling interest, when the agreement actually failed to mention that?

In trying to justify his letter, Zelekha claimed that the sale also included an agreement that the state would not vote based on its share in the bank, which would have prevented it from voting on the matter either way.

It's true that there was an agreement to keep the state from voting, but the accord had five exceptions. One of them, paragraph 10.4.4 of the agreement, clearly states the exception in this case: "Payment of management fees, or granting other benefits by the bank to interested parties in the bank, except for setting the employment conditions of the bank's CEO and any other exceptional agreement that an interested party in the bank has a personal interest in."

In this case, the agreement signed between the state and the Bronfman group makes clear that the state has the right to vote -- and certainly has the right to object -- over salary benefits to interested parties. That means the chairman.

And on the agenda, when asked by the Bronfman group for the state's approval for the benefit package, is a proposal to hand out NIS 35 million just in options. This is in addition to bonuses that are impossible to estimate today -- and all promised to the bank's chairman, Shlomo Zohar.

Given the wording of the agreement, how could Zelekha even contend that he was prohibited from voting?

The accountant general's office has a tortuous explanation, that when the exceptions to the agreement over the state not voting were added, the state promised the purchasers that it would exercise its voting rights only in exceptional circumstances.

The state, in other words, intended these exceptions to prevent such extreme situations as the purchasers' emptying the bank's coffers, and never intended to interfere in the running of the bank.

A benefit plan for management, as outrageous as it might be, is part of the regular management of the bank, and therefore, the state was prohibited from exercising its veto rights in the matter, according to the interpretation of the agreement presented by Zelekha.

This is an explanation that may be acceptable, but it's very difficult to understand why Zelekha made such a decision alone, and why he refused to explain his decision to the public.

The explanation that the sale agreement prevented the state from exercising its right to vote on the bonus package was not exactly accurate. The state could object to the agreement, it only chose not to do so.

Only two months after the accountant general published the government's financial reports and attacked the treasury's budget division over a lack of transparency, it would be appropriate for Zelekha himself to do some soul searching on exactly the same issue.