50 costs3. Among other things, publicly traded companies were required to appoint at least two external directors (who have no linkagetothecompanyand/ortoitscontrollingshareholder/s,whose tenure is limited, whose compensation is subject to statutory caps and whose appointment is to be approved by: (i) a simple majority of all of the shareholders and by (ii) a simple majority of the noninterested shareholders, or with the objection of non-interested shareholders who hold less than 2% of the company's voting rights – hereinafter a "Special Majority"4 and "External Directors"). Also - the approval of interested-party transactions involving or related to directors or officers is conditioned upon the approval of any or all (depending on the type and scope of the transaction and the seniority of the office holder in question) of the following organs: the board of directors (the "Board"), the Compensation Committee of the Board (in case of approval of terms of employment), or the Audit Committee and the shareholders (and where the interested party is a controlling shareholder – the approval of the Special Majority)5. Changes in the Israeli Business Ecosystem However, since 1996, and even more so since 2013, with the enactment of the Law for Promoting Competition and Minimization of Centralization, 5774-2013 and with the ongoing privatization of governmental companies6, the number and market cap of publicly traded companies without a controlling shareholder/s has considerably increased, and even more so – their respective market capitalization7. 3 See especially Chapter 5 of the Israeli Companies Law, 1999 (“The Companies Law”) (Transactions with Interested Parties) and Section 275 of the Companies Law – Transaction with a Controlling Shareholder. For further comparative reading see: Cronqvist, H, Nilsson, M. (2003) Agency Costs of Controlling Minority Shareholders, The Journal of Financial and Quantitative Analysis 38 (4) 675-719 https://www.jstor.org/stable/4126740; Pargendler M., Controlling Shareholders in the Twenty-First Century: Complicating Corporate Governance Beyond Agency Costs (2019), Journal of Corporation Law 45 (4) 953. 4 Section 239 of the Companies Law. The controlling shareholders are considered as interested parties for this majority. 5 See Sections 270-275 of the Companies Law. 6 See Paz Fuchs A., Mandelkern R., Galnoor I. (2018) The Privatization of Israel – The Withdrawal of State Responsibility; Gurkov I, (2007( Privatization in Israel, The Creation of a Mature Market Economy, Annal of Public and Cooperative Economics https://ypfsresourcelibrary.blob.core.windows.net/fcic/ YPFS/Gurkov%20-%202007%20-%20PRIVATIZATION%20IN%20ISRAEL%20The%20Creation%20 of%20a%20Mature%20M.pdf 7 The data was generated by the Israeli Security Authority (Department of Research, Development and Strategic Economic Consulting); Debentures companies and dual-listed companies were not included. 2.
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