'No magic solutions to economic concentration'

Israel Securities Authority Chairman Hauser says "problem won't be solved overnight."

Haim Shani and Shmuel Hauser 390 (photo credit: Kfir Sivan)
Haim Shani and Shmuel Hauser 390
(photo credit: Kfir Sivan)
The Committee on Strengthening Market Competitiveness’s final report contains important recommendations, but does not provide any “magic solutions” to over-concentration, Israel Securities Authority Chairman Shmuel Hauser said Sunday.
“The problem of over-concentration will not be solved overnight,” Hauser, who served on the 10-person committee, said at a public symposium on the report at Tel Aviv-Jaffa Academic College. “These [recommendations] are long-term measures, and their success depends not only on legislators and regulators, but also on investors and the market itself.”
Hauser said the ISA supported the bulk of the report, but criticized its conclusions on pyramid structures. The final report proposed that existing companies limit pyramid structures to a maximum of three public levels, but that new companies limit pyramid structures to two levels.
The ISA believes new companies should also be allowed a maximum of three levels.
The decision to prohibit four levels of holdings is consistent with the committee’s view that gap companies (in which the controlling shareholder’s voting rights exceeds their financial share) must be contained, Hauser said. But he added that the gap between voting rights and financial share is usually not large enough in the case of three levels to warrant their prohibition.
Committee Chairman Haim Shani summarized the report, emphasizing that his team did not set out to provide a comprehensive solution to the problem of over-concentration, but rather was tasked with delivering conclusions on three issues: pyramid structures; cross-ownership of financial and non-financial holdings; and the sale of government assets to private owners.
In its final report, which was released February 22, the committee recommended enforcing separation of financial and non-financial holdings by prohibiting control of financial institutions by large non-financial corporations. It defined a large financial corporation as one with at least NIS 40 billion in assets under management, and a large non-financial corporation as one with at least NIS 6b. in Israeli sales (or NIS 7.5b. for existing corporations).
Shani said the committee looked at how the United States, United Kingdom and other English-speaking countries had dealt with the question of cross-ownership. But he added that several other criteria were taken into account, as “there are no clear guidelines you can just copy from another country.”
On the topic of pyramid structures, the former Treasury director-general said the committee focused on preventing the future creation of “big, complicated” structures. “We heard enough foreign investors say [our pyramid structures] were too complicated,” he added.
Another ex-Treasury director- general, Migdal Insurance Chairman Aharon Fogel, slammed the government and the report, arguing that its conclusions and other recent measures – such as housing reforms and increased capital requirements for banks – would lead Israel into a “heavy recession” this year.
Fogel added that he is certain Prime Minister Binyamin Netanyahu does not support the committee’s recommendations, but that in the aftermath of last summer’s protests over the cost of living – largely directed against the country’s most powerful businessmen – Netanyahu had no choice but to claim the findings as his own.