Amshalem Promotes Increased Political Involvement in Government Companies: What Does It Mean?
Legislative Proposals for Changing Director Appointments
Currently, two legislative proposals are advancing that seek to alter the appointment process for directors in government companies, thereby increasing the government’s influence in the process. These proposals, spearheaded by the Minister of Government Companies, David Amshalem, and his party colleague, MK Avichai Boaron, aim to replace the existing system centered around the “Board of Directors Selection Team.”
Understanding the “Board of Directors Selection Team”
The “Board of Directors Selection Team,” first launched in 2013, serves as a professional repository of candidates for directorships in government companies. Directors are selected through a public process designed to ensure professional, equitable, transparent appointments free from political interference. This registry, managed by the Government Companies Authority, includes candidates who have undergstart a rigorous screening process to evaluate their qualifications, managerial experience, educational background, and absence of conflicts of interest.
The rationale behind this initiative is to create a cadre of qualified professionals who can be appointed to directorships based on the specific needs of each government company. The goal is to foster the independence of directors, enhance corporate governance within the public sector, improve decision-making quality, and reduce reliance on political or personal appointments.
The Importance of Professional Independence
The Organization for Economic Cooperation and Development (OECD) emphasizes the significance of professional independence in managing government companies. An analysis conducted by the organization on appointment mechanisms across more than 40 countries revealed that nations where directors are appointed by independent public committees based on predetermined professional criteria exhibit higher levels of transparency, accountability, and public trust.
Conversely, in countries where the government retains the right to appoint or dismiss directors, a continual erosion of public trust, deteriorating financial conduct, and a diminished ability for companies to operate independently and effectively is often observed. The report underscores the meaning of an “independent director”-an individual devoid of political, business, or personal ties to the government or company and who is not financially dependent on the entity they are supposed to oversee.
To ensure genuine independence, the OECD recommends setting term limits, publicly disclosing conflicts of interest, and implementing a clear punitive system against external interference.
Implications of Political Involvement in Appointments
While the legislative efforts currently under consideration may seem administratively straightforward, they constitute a profound shift in the corporate governance framework of Israel. These proposals seek to bolster political involvement in government companies while diminishing the role of professional experts, contradicting OECD recommendations, which warn that political interference in appointments poses a direct threat to the independence of government companies. This could lead to systemic corruption and a reduction in public trust.
Ultimately, while the developed world is striving to detach politics from corporate governance, Israel appears to be contemplating renewed integration of the two.
For further reading on governmental companies, visit our Glossary Monitor section on this topic.