Taking Stock / A Moment of Horse Sense

1 The board meeting.

Chairman: Good morning, everyone (bobs his head at the directors).

Directors (mumbling through their biscuits): "Yaarrgh hello."

Chairman: "I would like to announce the addition of a new director to the board of our distinguished bank."

The directors sit up and stop whispering and feeding. Their interest has been piqued.

Yankel (Director. Formerly leader of the Girl Scouts brigade to which the controlling shareholder's daughter had belonged): "May we ask who it is?"

Chairman: "Certainly. It's Ralph."

The directors rustle. They start to sweat. None of them have ever heard of Ralph.

Gil (Director. Formerly financial manager of the canteen by the pool of the controlling shareholder): "Ralph. Excuse me, chairman, but does he have a surname?"

Chairman: "No."

Zelda (Director. Owns a consultancy that "heals" companies in trouble. Mainly, companies that are in trouble with the bank's credit department): "Wait a sec. Do you mean Ralph, the controlling shareholder's Tennessee horse?"

Chairman: "I do."

Berl (Director. A lawyer. Represented the controlling shareholder's son when he was caught driving the Ferrari his daddy bought him, drunk as a lord): "A horse. Metaphorically, you mean."

Chairman: "No, a horse. A Tennessee horse. Noble. Purebred. Seven years old. A terrific steed, Ralphie. He won medals."

Shmerl (Director. Accountant. Formerly deck boy on controlling shareholder's daughter's yacht): "Won't the Bank of Israel kick?"

Chairman: "No worries. Ralphie is experienced. He has a spotless record. He's already sitting on the board at six of the bank's controlling shareholder's private companies and four of his nonprofit associations."

Nehama (Director. Expert on corporate accountability, won award for her contribution to society. Formerly nanny to kids of the controlling shareholder's chauffeur): "How much does he owe the bank at this point?"

Chairman: "To the best of my knowledge, Ralphie doesn't owe the bank a thing, nor does he owe any of the other companies with which he's involved, which gives him a clear advantage over most of the directors here. The Bank of Israel also applauded that aspect."

Moshe (Director. Lectures on financing at the Deft Luftgesheft college in the Upper Galilee, has been clinging to the leg of the controlling shareholder for ten years and counting. Pens opinions when asked): "What qualities does Ralphie bring to our board, if I may ask?"

Chairman: "Ralphie is a loyal horse, uh, director. He has the utter confidence of the controlling shareholder. He is amiable, even-keeled, has no enemies and mainly, has no conflicts of interest. Any board, especially of a major financial institution, would be glad to have him."

Zelda: "Given the meltdown of the global financial market, isn't it possible that the Bank of Israel will balk at letting us name a horse to the board?"

Chairman: "No, we have six different opinions from experts on financing, antitrust issues, law, alternative medicine and yoga that support Ralphie's nomination. By the way, another item on the agenda today is to approve $22 million in payment for these opinions, which all state that there's no objection to Ralphie joining the board. Prof. Dolce-Vita, an expert on constitutional law, even ruled that ruling out his candidacy would constitute a violation of the Basic Law on Freedom of Occupation."

Gil: "You didn't mention commissioning these opinions at the board meeting last week. May I ask why?"

Chairman: "They were all written in the last 48 hours."

Berl: "Which reminds me of another issue. Given the added burden of reading all these opinions, wouldn't it be right to increase the directors' pay commensurately? I suggest 20% to 50% plus VAT."

Chairman: "Certainly. We'll discuss that at the next board meeting, right after we finish dealing with the proposal to reduce the exercise price of the managers' stock options, and set a new level for the bank's return on equity as a criterion for calculating the bonus."

Zelda: "What is the new level?"

Chairman: "Given the state of the economy, we ordered an opinion from an expert on financing and accounting, Dov Cash-Hacohen, who suggests that the minimal return on equity entitling management to bonuses should be dropped from 12% to 3%, because interest rates are low, the challenges we face are high and because of the difficulty in attracting talent to the bank's management."

Berl: "Has our colleague Ralph had an opportunity to read the opinion?"

Chairman: "I don't know. He ate it. I think that means it satisfied him."

They know it nests everywhere, just about, and they recognize its symptoms. It's taken for granted, just part of life. Nothing you can do about it.

The cancer of nepotism is ubiquitous, at the government companies and in the public sector, at the monopolies and the publicly traded companies and the ministries. Though it isn't commonly written about, not even the justice system is exempt.

The numbers are frightening. The proportion of workers who are kin to other workers at the same firm, at the 10 biggest government companies, ranges from 8% to 46%. No less than 7,000 people are involved.

Yet that startling number is just the tip of the iceberg. The state comptroller hasn't inspected every single ministry, every single local authority or monopoly. If we extrapolate from the government company figures to the entire public sector, we find that tens of thousands of public servants are members of "families."

The plague of nepotism is a hallmark of the powerful unions. They abuse their power to give jobs to relatives, which makes them all the more powerful.

But don't think that nepotism characterizes only the lower echelons of Israel's government companies and public bodies, say the housekeeping and administration. Not at all: It generally starts at the highest level, even with the CEO. You hire my relative and I'll hire yours.

There's good reason for the silence about the nepotism: It's a cancer that affects every single private and public body in the land. For another thing, from their answers to the state comptroller, we learn that the people propagating the disease don't even understand what the problem is.

The problem is:

¨ That nepotism undermines the principles of equal opportunity, to which all people are entitled. Jobs with the government shouldn't be confined to people who were born in the right family.

¨ That nepotism corrupts. Jobs are tailored for people, rather than choosing the right people with the right talents for the job.

¨ That nepotism impairs productivity, efficiency and advancement. Not only because it places the wrong people for the job on the job; it also prevents them from becoming more efficient. When familial considerations become involved in organizational decisions, the probability of the decision being a purely professional one is lower.

The upshot is inefficient, corrupt public systems and a public that feels embittered and deprived.

You don't need a degree in economics to understand the damage that nepotism does. Yet somehow, Israel's Knesset members, who loudly mourn the plight of the poor from every soapboax in town, have nothing to say about it.

Israel awaits you, parliamentarians.

It may wait forever, though. Our elected representatives are very tender and caring when calling for taxpayer money to be spent. But their bleeding hearts suddenly heal when their words could be construed as a critique against the juntas that rule the land.

Nepotism is the scourge of the working poor. If you don't belong to the right family, which means a family feeding richly at the government trough, you won't find a good job in government no matter how talented you are. You'll lose every race to the contender with the contacts.

Don't believe that privatization will change anything. Experience teaches that the sale of government monopolies merely changes the hand that takes the money. And the owner of the monopoly will always prefer to fight the regulator rather than the waste, the corruption and the nepotism in his own back yard. It's easier to roll the extra costs onto the public, under the sleepy eye of the somnolent regulator, rather than take on the famiglias.