Goshen Named Chairman of Israel Securities Authority
It is not everyone whose name becomes a verb. Pediatrician Richard Ferber’s “tough-love” method of getting a child to sleep through the night is known as “ferberizing”. To “bowdlerize” means to heavily censor a text, as Victorian-era morals crusader Thomas Bowdler did when he published an expurgated edition of William Shakespeare’s works free of profanity and sexual references.
A more recent example comes from Columbia Law School business law professor Zohar Goshen. To “goshen” is synonymous with implementing good corporate governance in Israel. The term originates from Goshen’s work as head of the Israeli Security Authority’s Corporate Governance Committee, formed in the summer of 2004. In December 2006, the committee submitted its recommendations for reform to the Israel Security Authority (ISA).
And the verb promises to become more prevalent now that Goshen has been tapped by Israeli Finance Minister Ronnie Bar-On to become the new chairman of the ISA.
The “goshenizing” of business in Israel comes at a very opportune time. The country has become an appealing market for both national and international investors, who are attracted by the country’s burgeoning high-tech and pharmaceutical sectors. Foreign direct investment in Israel, for example, increased from $5.2 billion in 2005 to $13.2 billion in 2006, which included investment guru Warren Buffett’s $4 billion purchase of 80 percent of Iscar Ltd., a maker of precision cutting tools.
Goshen traces his interest in corporate law to his second year of law school at Hebrew University. After graduation and a clerkship on the Israeli Supreme Court, he earned an LL.M. and J.S.D. at Yale, where he focused his research on corporate law and where he discovered an enthusiasm both for teaching and legal scholarship.
“I love teaching,” said Goshen. “Nothing compares to the joy I feel at those magic moments when I see the spark in the eyes of my students when they grasp a complicated idea.”
Students at Columbia Law School, where Goshen is on the faculty, appear to concur with his enthusiasm. In 2006, Goshen won the Willis L.M. Reese Teaching Prize (based on a student vote), only a year after joining the faculty. His academic credentials made him a suitable candidate to chart new legal territory in Israeli corporate law.
“Israel is a young country, and there is not always the case law developed for judges to cite as precedent,” Hagai Doron, an antitrust lawyer and partner of leading Israel law firm S. Horowitz & Co., remarked. “Therefore academics play an important role in shaping judicial philosophy here.”
A few years into Goshen’s term as the Phillip P. Mizock and Estelle Mizock Professor of Law at Jerusalem’s Hebrew University in the mid 1990s, he came to the attention of Arie Mintkevich, then head of ISA. Mintkevich had read an article by Goshen on corporate governance in the Israeli business newspaper Globes.
“The article was so brilliant that I knew I had to meet Zohar right away,” recalled Mintkevich. “After our meeting, I immediately put him on the board of the Israel Securities Authority.”
It was not a bad start for Goshen, who was 30-years-old at the time.
Goshen was raised with his siblings in a small village in northwestern Israel called Elyachin. His parents, as a penniless young couple, had immigrated in 1949 under a program called “Operation Magic Carpet,” under which nearly 50,000 Jews were airlifted from Yemen to Israel. The operation had been triggered by the destruction of Jewish businesses in response to the establishment of the Jewish state a year earlier. Goshen attributes his success to the influence of his mother, who encouraged him and his siblings to dream and realize those dreams.
Goshen was an ISA director from 1995 to 1997. Between 1997 and 2002, he served as a state-appointed director (for public interests) at the Israel Discount Bank. He has also been chairman of the Disciplinary Court of Securities Advisers and Portfolio Managers.
In August 2004 Goshen was named to lead the ISA’s Committee on Corporate Governance Code. It was set up in response to “recent reforms in the capital market that shifted the control of the majority of national savings from the hands of the government and the labor union into the hands of the private sector,” according to committee member Isaac Devash, who is chairman of BiondVax Pharamcetuticals. The committee, made up of businesspeople, accountants, lawyers, academics, and regulators, met regularly. It studied corporate governance codes of Holland, Turkey, Germany and the United States and submitted its recommendations for Israel to ISA a little more than a year ago.
There were some skeptics of the committee. The Israeli financial newspaper The Marker complained that it was overpopulated with members who represented the interests of public corporations. The nation’s Justice Minister feared that the recommendations and non-binding directives would not be heeded by business and that a better way to reform would be to amend the Companies Law, Israel’s version of the Delaware Corporations Code. The Association of Publicly Traded Companies, a non-profit organization representing hundreds of public companies whose shares are traded on the Tel Aviv Stock Exchange, agreed. But after the wide acceptance of the report by the business community, a compromise was achieved between the justice ministry and the ISA as to the implementation of the Goshen report through legislation.
Among the key recommendations of the Goshen Committee are that companies increase the percentage of independent board members to one third of the entire board. Previously, Israeli corporations could suffice with two independent members regardless of the size of the board. In addition, audit committees should contain a majority of independent directors, instead of just two independent directors as mandated by the Companies Law. Related party transactions must be vetted by the audit committee first before being presented to the board of directors and must receive a majority support of the public shareholders.
The committee also recommended that a publicly traded company should disclose its total outlay on remunerating executives, broken down into components, in its annual financial statement. The suggestion to establish a Chancery Court, similar to that of Delaware, is delayed for now.
Judging by the actions of the country’s business community, it is likely that the Goshen committee’s recommendations eventually will become law. Securities and mergers and acquisitions lawyer Avraham Well of Tel Aviv’s Fischer, Behar & Chen remarked, “Corporations are paying attention to the Goshen Committee recommendations.”
In addition, the proposed new corporate governance code is already included in textbooks that will train the future lawyers of Israel, and international accounting firms like Ernst Young, KPMG and Deloitte Touche are conducting seminars to address their clients’ questions about the “goshenizing” of business. When Goshen is the featured speaker, the seminars are standing room only.
Goshen is realistic when responding to critics. He said that he did not draft his ideal code, but one that he believed had a good chance of being implemented.
“Israel could not just adopt the United States’ or Britain’s code because their corporate ownership structures are different,” he said. “In the United States and England, the ownership of corporations is widely dispersed. In such a structure, the main problem is the conflict of interest between the public shareholders and management. This is not the case in Israel.
“Here and in most of the rest of the world, the corporate ownership structure is more concentrated,” Goshen continued. “This sets up a battle between the controlling shareholder, and the minority shareholder. We needed to protect the rights of the minority shareholder while accommodating the needs of the controlling shareholder.”
One might expect Goshen — with his teaching, academic publishing and family life with a wife and two children — to take a well deserved rest. However, there is still work to be done in Israel, Ehud Olmert, when serving as minister of industry and trade in 2005, asked Goshen to head his ministry’s Committee for Revaluating the Antitrust Act, and Goshen accepted. Now, with his new position of chairman of the ISA, it may be that Israel is about to be goshened again.