Due to the corporate scandals in large corporations such as Enron, Parmalat and WorldCom, as well as the widespread backdating of options, brought the topic of Corporate Governance to the public attention in Israel. This led to an increased regulatory scrutiny and a set of legislative measures have been adopted to ensure that publicly traded corporations are managed in the benefit of all their shareholders. The current legislative and regulatory regime in Israel is fairly comparable to that of the US and the UK, yet Israeli companies are dominated by controlling shareholders and "enjoy" fairly large control premium. This structure generates a different set of problems than in the US or UK, where Corporate Governance tools are designed to prevent managers from taking advantage of the dispersed shareholders. In Israel, as in most countries, it is the conflict between the controlling and the minority shareholders. This makes the Corporate Governance tools developed in the US and the UK not applicable to Israel.

Two public committees (chaired by Prof. Zohar Goshen and Prof. Assaf Hamdani) have submitted practical recommendations for the implementation of Corporate Governance in Israel. Both committees identified the problem that institutional investors are not active in monitoring of companies in Israel for three reasons. First, some institutions have a conflict of interests due to business relationships with the companies. Second, institutions perceive to have very little power to affect the behavior of the companies. Both committees make suggestions on how to partially address these problems. The third issue is more basic: monitoring is a public good, thus under decentralized system too little of it will be provided. Institutions devote too little time and resources to developing the tools and being effective in monitoring. Yet it is crucial to engage the institutional investors, as they are the only ones who can effectively monitor the companies if they had the tools. The alternative is a much more sever regulation, which nobody wants, including the regulators. As with any public good, the solution is in a concentrated provision of the good to many users.

Goals and Objectives

The Israeli Institute for Corporate Governance is a not-for-profit corporation, established by Prof. Eugene Kandel and Eyal Neiger (Attorney and CPA) that aims to serve the institutional investors community in the area of Corporate Governance of publicly trade Israeli companies. IICG follows the conceptof the Institutional Shareholder Services Inc., and will rate the CG of every public company. The main difference is that IICG is not a business entity and is also research oriented, and would like to further our understanding of the issues related to CG in Israel. Moreover, to prevent any possible appearance of the conflict of interests, the IICG will not receive funds from the public companies, but only from the institutional investors, and shall have no business relationship with those companies.

The main goal of the IICG is to bring good Corporate Governance practices into the Israeli market. We hope to create a world in which good Corporate Governance will become an asset of a public corporation that will help it raise less expensive capital from investors, thus increasing it profitability. This realization can come only if the investment committees of pension and provident, as well as insurance companies and banks will take CG into account when making investment decisions and when voting in shareholder meetings.

Strategic Alliances

Hebrew University: Center for Financial Markets and Institutions (joint between the Business School, the Law School and the Department of Economics) – Corporate Governance Project – will provide literature review, make methodological proposals and gather and process data for some of the IICG projects. It will focus on the Economic and Legal aspects of Corporate Governance.

Tel Aviv University: Fisher Center for Corporate Governance at the Law School will provide expertise in legal and regulatory issues of Corporate Governance.

Globes, Israel's leading business newspaper will provides the business-communication platform for the dissemination and promotion of the Corporate Governance Rating in the business community in Israel.