Conflict of Interests: Individuals in High Public Positions Serving on Boards of Private Sector Companies

Exclusive to "SadaNews": The economic landscape in Palestine is witnessing increasing discussions regarding the appointment of government officials or those holding positions in public institutions, including high-ranking officials, to the boards of directors of public shareholding companies. This reality raises legal questions concerning the legitimacy of such appointments, their limits, and their implications on the principles of integrity, transparency, and good governance, as well as on the trust in the business environment and the national economy.
 
Officials as Members of Multiple Boards

After reviewing the lists of board members of some public shareholding companies, "SadaNews" found that they include notable names belonging to officials who hold senior positions in certain public institutions, with some of these individuals appearing as board members in several companies.

Most companies allocate thousands of dollars per session as a reward for each board member, with the value of the reward for a board member per session ranging from $800 to $1,000 (some exceed this amount while others are less), knowing that the boards of directors of companies meet at least eight times a year.

A commercial law specialist, who preferred to remain anonymous, told "SadaNews" that the Palestinian Companies Law does not include an explicit provision preventing a government official from being appointed as a member of the board of directors of a public shareholding company, as long as the legal membership conditions regarding eligibility and the absence of penal or legal prohibitions are met. He pointed out that the general rules for public employment, especially the Civil Service Law and the regulations issued accordingly, stipulate that "the combination of public office and the practice of business is prohibited," and prevent public employees from undertaking paid work outside the framework of their positions without prior permission, in addition to the obligation of professional neutrality and not exploiting the position.

Accordingly, the legal expert sees that appointing a government official to a public shareholding company could constitute a disciplinary or administrative violation if the position is paid and involves an actual administrative or executive role without the approval of the competent authority granting the consent.

The legal expert believes that the practice of appointing government officials to public shareholding companies suffers from fundamental issues, the most prominent of which are: the absence of clear and transparent criteria for appointment, the blending of regulatory and investment roles, the potential weakening of the independence of boards of directors, and exposing economic decisions to suspicions of influence or favoritism. He noted that even in cases where the appointment is legal in form, it may lack legitimacy in terms of purpose.

Call for Regulatory Regulations..
   
The legal specialist recommended the necessity of issuing a clear piece of legislation or regulation governing the cases of appointing government officials in companies, demanding a ban on appointing any government official in a company subject to the oversight of the authority they work for, and mandating full disclosure of interests and financial liabilities, limiting governmental representation in companies to cases of public ownership by official decision, and adopting international governance standards to ensure the independence of boards of directors, in addition to defining a mechanism for profit distribution for the member and the board membership rewards by clarifying whether they belong to the governmental institution or the appointed member and specifying the proportions of the amounts the member is entitled to.

Conflict of Interests Under the Cloak of "Benefit"

In this regard, economist Dr. Said Sabri pointed out to "SadaNews" that the debate arises over appointing government officials to senior positions as members of boards of directors of public shareholding companies; some see it as a support factor for the economy, while others consider it an avenue for conflicts of interest.

He added, "Theoretically, this overlap may be justified as a means of transferring organizational expertise, improving companies' understanding of public policies, and accelerating communication channels with official entities, especially in strategic sectors. However, these positives remain hypothetical and limited in impact, and only materialize in highly disciplined and transparent institutional environments."

Dr. Sabri confirmed that, practically, comparative economic experiences show that the potential cost of this practice often outweighs its benefits. The presence of a government official with regulatory or legislative influence within the board of directors of a profit-making company creates a structural conflict of interest, even in the absence of corrupt intent or direct personal gain. This conflict is measured not only by the violation of the law but by its impact on market fairness and the integrity of competition.

Distorting Market Mechanisms

From an economic standpoint, Sabri believes that this overlap leads to distorting market mechanisms, where resources and investments tend to gravitate towards companies closer to centers of decision-making instead of those more efficient or innovative. This also undermines the trust of investors, especially new and small investors, who perceive the market as governed by relationships rather than rules. As trust declines, the cost of corporate risks increases, and long-term investment decreases, negatively impacting growth and employment.

Additionally, Sabri stated that combining these positions limits the independence of boards of directors, weakens their supervisory role, and in some cases transforms them into indirect extensions of the executive authority, which contradicts the essence of good governance based on the separation of powers and the balancing of interests. He emphasized that best international practices agree on the necessity of clearly separating public office from business activity, or at least restricting this combination with strict controls that include full disclosure, preventing participation in any government decisions affecting the company or sector, and imposing cooling-off periods after leaving public office.

He concludes by saying that a sound economy does not rely on the intertwining of political influence with capital, but on independent institutions, transparent rules, and fair competition.

As these rules weaken, the economy bears a higher cost paid by both investors and citizens alike.

What Does the Companies Law Say?

Mouayyed Afaneh, governance expert, explains to SadaNews that the new Companies Law of 2021 states concerning the governance of boards of directors in private companies and the enforcement of the principle of preventing conflicts of interest, the commitment to governance standards in companies, which is a set of internationally recognized standards, rules, and procedures whereby the company is managed and monitored, organizing relationships between the board of directors, the executive management of the company, shareholders, minority shareholders, and interested parties associated with it, within the regulatory, administrative, legal, and financial frameworks that delineate rights, duties, and responsibilities, achieving institutional discipline within the company.

According to best practices followed in countries around the world and within the management philosophy based on good governance, Afaneh emphasized the necessity of enacting a system based on the Companies Law that provides parameters for the conditions that must be met by board members to enforce the principle of non-conflict of interest, particularly if they hold senior positions in official, private, or civil institutions related to the companies.

Principles of Free Market

The economic system in Palestine is based on the principles of free economy according to Article 21 of the Basic Law in Palestine, and companies in Palestine are allowed to be established under Law No. (42) of 2021 regarding companies in 2021, of all types, including regular public and limited companies, as well as private shareholding and public shareholding companies. There are other types such as civil, foreign, and holding companies. Accordingly, public shareholding companies operate in a complex investment environment due to conditions imposed by occupation, but observers and specialists affirm that strengthening the investment and governance environment in Palestine necessitates a clear separation between public authority and business interests, ensuring that formal legitimacy does not turn into a cover for practices that undermine the essence of integrity and public interest, and that appointments to the board of directors of public shareholding companies are conducted according to clear and explicit legal mechanisms.