Taking Stock / Where Eitan Raff Lives

Bank Leumi Chairman Eitan Raff won some support here last week, after the finance minister's office leaked plans to fire him over his war against the treasury's structural reforms of the banks.

Raff told us his duty is to the bank and its shareholders, so it is incumbent upon him to combat the reform, even if it is for the greater public good. I should be applauded for my courage in coming out against the finance minister, he told us.

Over the weekend, we leafed through old columns we'd written and found the last time we'd had a chat with Raff. It was in 1996 and the subject (surprise!) was strikingly similar: He was having a fight with Benjamin Netanyahu.

In the days of yore, Benjamin Netanyahu, then the prime minister, had a dear friend named Izzy Tapoohi. Izzy was the Likud treasurer and Bibi cherished him and his interests dearly.

So one day Bibi told Eitan Raff and Galia Maor, the chief executive of Bank Leumi, that they should kindly appoint Tapoohi as chairman of Africa Israel, if it wouldn't be too much trouble.

Over at Bank Leumi, though, they were infuriated at the prime minister's blatant political intervention in the bank's affairs. If Tapoohi had not been a friend of Bibi's, the folks at Leumi told us, there was no way in heaven or hell he'd get the job, which was a very good one indeed.

Naughty, naughty

So the Leumi people, no slouches at handling the media, urged a few commentators - including yours truly - to pen a few lines and spark a public battle against the wrong-minded appointment, and the prime minister's attempt to intervene in the bank's affairs.

The subject seemed worthy, the appointment was improper and we wrote a column ("The Tapoohi doesn't fall far from the Bibi," October 29, 1996 - not translated into English). We poured fire and brimstone on to then-Prime Minister Benjamin Netanyahu, that while prating about privatization he was appointing political cronies to run Bank Leumi.

Eitan Raff was happy. His contract was about to be extended, he didn't want Tapoohi and the press had done the work for him. Raff was presented as a courageous chairman acting solely on behalf of the shareholders - a man who stood strong in the face of political pressures. Bibi, on the other hand, was portrayed as a petty politician prepared to trample every principle in town to arrange jobs for the boys.

Very soon, it became apparent that if there was a dupe, it was one person and one person only: your faithful author. A few days later, Raff and Maor announced Izzy Tapoohi's appointment as a director, en route to his climb to become chairman of Africa Israel.

Dr. Gideon Steit, a director on Africa Israel's board, promptly resigned over the political appointment.

We called Raff to ask what happened and he chose the tactic of frankness. "Izzy had all the qualifications, and I couldn't oppose a request from the Prime Minister's Office," he explained. "What would I tell them? On what basis could I disqualify him? Just because he's politically affiliated? He works on the management committee of Bank Leumi without problems. His appointment was unanimously confirmed."

But Eitan, what about that duty to shareholders? "I have priorities. I can't fight about every single thing. I live among my people," he said.

We checked what the Companies Law said about the duties of directors and searched for the exemption Raff mentioned, titled "chairman lives among his people," which would allow a director to approve an appointment he feels is unworthy, but we couldn't find it.

But we did understand: Raff fulfills his duty to shareholders up to a certain point, and no farther. When the prime minister asks and his seat is in danger, then suddenly he "lives among his people."

So what has happened to Raff since 1996? Has he turned into SuperRaff, champion of the shareholders?

Nothing has happened. What happened was that then, Raff didn't really have a major problem with Tapoohi: so he'd chair a company that Bank Leumi was about to sell anyway. But this time around, come 2005, Raff has a huge problem with the power he and Galia Maor will lose if the bank is forced to sell its provident and mutual fund holdings.

So when it's convenient, they bow to political decrees from the Prime Minister's Office, and when it is not convenient, they fight the reform by any means at hand.

If Raff really did live among his people, instead of inside the cushy banking duopoly of Hapoalim and Leumi, he probably wouldn't be waging war against the reform that way.

That is because the Bachar reform may not be the personification of perfection; it's just one step in the right direction. But it is definitely a window of opportunity to create a healthier foundation for a more advanced capital market, which is crucial to Israel's economy.