Monitoring Directors in Public Companies Under Israeli Law: Comparative Perspectives

European Business Organization Law Review 2, Special Issue: Liber Amicorum Ernst-Joachim Mestmaecker, pp. 521-551, 2001

27 Pages Posted: 13 Sep 2011

See all articles by Talia Einhorn

Talia Einhorn

Tel Aviv University - Faculty of Management; Ariel University

Date Written: September 11, 2001

Abstract

“The directors of such [i.e., public] companies . . . being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private co-partnery frequently watch over their own . . . Without an exclusive privilege they have commonly mismanaged the trade. With an exclusive privilege they have both mismanaged and confined it”. Directors may be tempted to act out of an egoistic compulsion.Whereas ordinary people may only be inclined to misbehave, company directors are constantly in the position to make profits at the expense of others since they always deal with “other people’s money”. Designing the proper legal rules that will restrain directors from exploiting others unfairly, on the one hand, yet encourage them to harness their entrepreneurial spirit and seize the opportunities that come their way for the benefit of their company, on the other, is a challenge for any legal system.

The Israeli new Companies Law prescribes an assortment of remedies to combat selfdealing by directors. Some are prophylactic, i.e. meant to prevent a breach of the loyalty duty in the first place. Others operate ex post. Not one of those promises to bring the ultimate cure. Indeed, each is substantially deficient and flawed. Yet, the combination of them all should make it possible to place the directors of Israeli public companies on the right side of the angels. The paper recommends that a court be established, with expertise in the highly specialized fields of company and securities law, to decide cases qualitatively and timely and provide the certainty so necessary to attract enterprises and investors alike.

Academic lawyers should play a very important role in the development of Israeli law. Israel is too small for the legal system to develop on the basis of judge-made law alone. In addition, it is almost impossible for a court of law to engage in serious comparative study when solving a case at hand. The academic lawyers can provide the new legislative basis with the support of legal literature that would carefully, conscientiously, and modestly, being aware of its own fallibility, analyze theories and solutions advanced in Israel and in other jurisdictions. Extensive theoretical and empirical studies, devoted to all aspects of business organization, are published as a matter of course in every developed country. There is need to tailor to the Israeli measure the best legal rules that would check abuse yet enhance business and bring to bear the entrepreneurial spirit which provides the drive for success. Since this field is very dynamic every rule designed will then serve as a new starting point for further debate and refinement.

Suggested Citation

Einhorn, Talia, Monitoring Directors in Public Companies Under Israeli Law: Comparative Perspectives (September 11, 2001). European Business Organization Law Review 2, Special Issue: Liber Amicorum Ernst-Joachim Mestmaecker, pp. 521-551, 2001, Available at SSRN: https://ssrn.com/abstract=1925862

Talia Einhorn (Contact Author)

Tel Aviv University - Faculty of Management ( email )

P.O. Box 39010
Ramat Aviv, Tel Aviv, 6139001
Israel
+972548181540 (Phone)

HOME PAGE: http://taliaeinhorn.com

Ariel University ( email )

Ariel
Israel
+972-54-8181540 (Phone)

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