Sponsored Briefing: Towards Better Corporate Governance of Publicly Listed Companies Without Majority Shareholder(s) – The Current Situation in Israel and the Overdue Bill

Legal Affairs

For many years, most (virtually almost all) of the companies listed on the stock exchange in Israel were controlled by a single shareholder (or by a group of shareholders, acting in concert) – much like many other jurisdictions around the world (with the substantial exceptions of the United States, Canada, Australia and the United Kingdom)1.

Therefore, for decades the Israeli legislator has focused on agency costs in general2 and more specifically on horizontal agency costs.3 Among other things, publicly traded companies were required to appoint at least two outside directors (unrelated to the company and/or its controlling shareholder(s), whose tenure is limited, whose compensation is subject to statutory ceilings and whose appointment is to be approved by: (i) a simple majority of all shareholders and by (ii) a simple majority of non-interested shareholders, or with the objection of non-interested shareholders who hold less 2% of the voting rights of the company rights – hereinafter a “Special Majority”4 and ‘External administrators’). Also – the approval of transactions between interested parties concerning or related to directors or managers is subject to the approval of all or part (depending on the nature and extent of the transaction and the seniority of the holder of the position concerned) of the following bodies: the Board of Directors (the “Board”), the Compensation Committee of the Board (if the conditions of employment are approved), or the Audit Committee and the shareholders (and where the person concerned is majority shareholder – special majority approval)5.

Helen D. Jessen