For many years, most (practically almost all) of the publicly traded companies in Israel have been controlled by a single shareholder (or by a group of shareholders, acting in concert) – not unlike many other jurisdictions in the world (with the substantial exceptions of the US, Canada, Australia, and the UK)1.
Therefore, for decades the Israeli legislator has been 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 external directors (who have no linkage to the company and/or to its controlling shareholder/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 non-interested 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.
