Misleading outside directors in public companies – The Israeli case

Abstract

The external directors, who serve by law on the board of directors, are responsible for ensuring that, in addition to protecting the interests of stakeholders, the company will take the public interest into consideration. In this research we critically assess this system of corporate governance, and examine whether the external directors can actually succeed in looking out for the public’s interest. The research is based on in-depth interviews with external directors of leading public companies in Israel, representing different sectors. The issue at stake is both conceptual and practical: Conceptually there is an issue of how the notion of "the public interest" is understood and whether the legal construct of "outside directors" is capable of manifesting the public interest. Practically the issue at stake has to do with organisational sociology and how the relations within the Board are set and who are the outside directors.