Failure is not an orphan, he has a director
There were years when directors in public companies mainly discussed the type of refreshments to be served at meetings, but recently they found themselves exposed to claims by shareholders, until insurance companies raised their tariff.
What is required of them today?
It's better to read before trying to get on the board of directors
Roast Greenberg
18/01/2022
Tuesday, 18 January 2022, 08:39 Updated: 08:53
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Less borax - more warranty; The courts began to fine members of the board millions of shekels, and the latter have never been so troubled. And so the chair, which in the past symbolized citrus and honors, has in recent years become a target for the arrows of lawsuits fired from shareholders.
The flow of claims and fines has increased so much in recent years that the price of professional insurance coverage for directors has risen by tens of percent over the past two years, while insurance coverage itself has shrunk.
For example, it was recently reported that Poalim IBI paid about $ 280,000 under a liability insurance policy for directors and officers with a liability limit of $ 10 million, which only cost about $ 159,000 a year earlier - an increase Of 76% in just one year.
The situation, however, is not unique to Israel;
Insurance prices for directors have also risen around the world and characterized the years 2020-2021.
In the second quarter of 2021, there was a 10% increase in the average price of global insurance coverage for directors, according to the global insurance market index 'Broker' - the index of the world's largest insurance and risk management company 'Marsh'.
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Directors (illustration).
The chair, which in the past symbolized luxury, has become the target of shareholder pressure (Photo: ShutterStock, shutterstock)
The team of directors is calling you
But the cost of insurance coverage worries directors less than the fines that can suck millions of shekels out of their pockets, and have turned the days of deliberating on the type of borax at board meetings into a dilemma over the nature of the information presented to their desk. "Perhaps it is better that before running for the coveted 'team of directors' (which the publications on behalf of the Companies Authority call on those who consider themselves suitable to submit their candidacy for by the end of January), it is worth reviewing recent court rulings to understand the director
's
role.
Board members in a public company have always conducted themselves under a complex business reality, "explains
Adv. Ilan Gerazi, senior partner and head of the capital market department at the law firm Pearl Cohen Tzedek Letzer Baretz
, but recently the court decided to refresh their memory .
More lawsuits are coming to court over failures in the company's management decision-making process and the companies' directors are also being sued, as it is their responsibility to make sure that the decision-making process in the company in which they serve is done professionally and objectively.
From a previous recruitment campaign of the board of directors.
The 2022 campaign will end at the end of the month (Photo: Walla! NEWS system, Ministry of Finance)
The directors who have been deleted and deleted
For example, the Supreme Court
recently ordered the officers of Pinros Holdings Ltd. to pay compensation of more than NIS 1 million.
The Supreme Court then argued that in order to weigh optimally while producing as informed an assessment as possible, the board should be exposed to as wide and objective a database as possible, and the director, who felt he did not have the information needed to make a decision, or required biased information "Additional external professional advice, etc.
"
But the presence and involvement of the director, it seems, is not enough to meet the expectations of the Supreme Court from the first job, which also requires adherence to corporate governance rules - also for the benefit of the protection the director will need in the future.
"Proper corporate governance is gaining more weight in the way regulators and courts are now examining companies," continues Gerazi, "and maintaining it is also the responsibility of the board. Last summer, an external director filed a lawsuit against a public company represented by our firm. A merger deal that was on the table at the time.
The lawsuit was closed outside the court, but the same court demanded that the company bear its expenses in the amount of NIS 130,000, among other things on the grounds that it was the only one that cared for the benefit of the company, its investors and the proper corporate governance.
The court approved her total relief in the amount of NIS 47.5 thousand, which was lower than the one requested by the court, but in the same ruling the court noted, among other things, that it could be used to encourage future directors to act in a similar way
. Has published rules of conduct for directors, and these days it is even promoting a memorandum of law to streamline (regulation) securities, some of which also concerns corporate governance and the conduct of the board of directors.
Adv. Ilan Gerazi, Senior Partner and Head of the Capital Market Department at the Law Office of Pearl Cohen Tzedek Letzer Baretz (Photo: Tomer Jacobson)
Truth for now
But it is important to note that even if the directors did their job faithfully - this will not be fully credited to them when a trial is held if they do not make sure that the protocols are full in nature and manner of their involvement. After all, the court's decision on the question of their liability is usually made some time after the decision is made in respect of the company and they are sued.
The main tool available to the court is the examination of the minutes of those meetings at which the decision was discussed, and the examination of the reasons given by the board of directors for its adoption. Therefore, the directors must insist that the minutes of the meeting faithfully reflect the discussion that took place and their part in it, as these will testify to their presence, the activity in which they acted, the database available to them, and the considerations considered before the decision was made.
For example, in a lawsuit against Sunny Communications and Ilan Ben-Dov, it was alleged that the board of directors approved a prohibited distribution of dividends in the amount of NIS 250 million, and that incorrect valuations were published in relation to the company's operations. But the court rejected the allegations and ruled that these were legitimate business decisions at the time, which turned out to be wrong only in retrospect, inter alia, based on the minutes of the board meetings.
If some initial rules of thumb are required for the work of the board of directors, then attendance and activism is a basic requirement and subsequently the director must ask difficult questions, demand satisfactory answers, offer alternative courses of action and withstand pressure from the controlling shareholders.
In addition, they must make sure that the information before them is professional, high-quality and comprehensive, and require, if necessary, external advice and additional opinion.
All this while ensuring comprehensive and exhaustive documentation of the board's discussions, and maintaining proper corporate governance, inter alia, by requiring the files of internal procedures and updating them.
"It is possible to add, as a kind of defensive step, to appoint an independent committee to deal with any transaction of significant interest to the company, and to ensure the independence of its members, while granting powers and freedom of action to the latter."
Of money
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