SEC Chairman: Anti-concentration law should spread corporate ownership among public

Aharon Fogel, the new IDB Chairman calls on PM to freeze law to preserve freedom for investors.

Israel Securities Authority chairman Shmuel Hauser on Tuesday discussed the recent Anti-Concentration law and its possible success in the future.
He said the test of the law’s success was “not necessarily the reduction of [corporate] pyramids,” but how extensively shares are spread among the public. “At the end of the day” the state wishes to “spread ownership of shares as widely as possible with the public.”
Hauser made his comments at a conference sponsored by Gross Kleinhendler Hodak and Deloitte Brightman in Tel Aviv, on the impact of the law, following the recent end of Nohi Dankner’s control of IDB and its expected split-up.
Israel’s Anti-Concentration law eliminated the possibility of a four-pyramid-level company – like IDB.
The pyramid corporate structure had allowed someone like Dankner to control vast swaths of the economy while owning only a small fraction of corporate holding companies at each level.
Under the new law, corporations cannot own companies on more than two levels of a pyramid structure. This limits corporations from expanding, using the artificial pyramid structure, without having sufficient revenue. It also forces some of the current pyramids to break apart in the coming years – some corporations have up to six years to change.
The idea of the law was to eliminate corporations that are too big to fail and who, when in financial distress, can by themselves harm the wider economy.
Anticipating some criticism of the law, Hauser said that, “no one else [no other country] has done this, other than Colombia, but we must remember that there is no country where pyramids” are so big and frequently used.
Hauser said while the law was crucial, implementing it would be challenging and that there were many uncertainties to resolve.
For example, Hauser presented a power point presentation showing several complex corporate structures where he said reasonable arguments could be made that the same corporation had two layers or three layers.
Since two layers is the cut-off, that ambiguity could leave many corporations, investors and other impacted parties unsure about whether the law applies to them and their investments.
A lack of certainty can also undermine foreign investment, said several speakers.
Ilan Birnfeld of Deloitte Brightman said that, “we do not expect a big explosion” of pyramid corporations being reduced and companies coming apart, adding that the goal should be “to split up without falling apart,” but others were less optimistic.
New IDB chairman Aharon Fogel blasted the new law, saying “it will cause major harm to individuals” and that it infringed individuals’ “freedom to invest – the most basic economic right.”
He called on Prime Minister Binyamin Netanyahu and Finance Minister Yair Lapid to freeze the law.
Fogel expressed skepticism that the law was really “to protect public pensions,” saying that in his “past experience,” people get less out of their pensions when the government overregulates.
He also warned that the stock market’s value would “go down and definitely not rise.”
Responding to Fogel’s comments, the Movement for the Quality of Government in Israel called on IDB to fire him and appoint someone new who is truly committed to IDB improving and changing its ways.