The Cabinet Emphasizes Regulating the Membership of "Public Employees" in the Boards of Private Companies

SadaNews: The Palestinian Cabinet, during its weekly session today, Tuesday, emphasized the commitment to the regulations governing the participation of public employees in the boards of directors of public and private institutions, ensuring expertise and specialization in the field, as well as limiting their membership to no more than two boards at a time.

SadaNews had recently published a report titled "Conflict of Interests.. Senior Public Officials Serving on the Boards of Private Sector Companies".

The report indicated that the economic landscape in Palestine is witnessing increasing discussions regarding the appointment of government officials or those holding positions in public institutions, including senior positions, in the boards of public joint-stock companies. This reality raises legal questions regarding the legality of such appointments, their limits, and their implications for the principles of integrity, transparency, and good governance, as well as on trust in the business environment and the national economy.

After reviewing the lists of board members of some public joint-stock companies, SadaNews found prominent names belonging to officials holding senior positions in some public institutions, with some names appearing repeatedly as board members in multiple companies.

Most companies allocate thousands of dollars per session as a reward for each board member, with the reward for a board member per session ranging from $800 to $1,000 (some exceeding this amount and others falling below it), knowing that the boards of directors of companies meet at least eight times annually.

A commercial law expert, who preferred to remain unnamed, told SadaNews that the Palestinian Companies Law does not include a specific provision that prohibits the appointment of a government official as a board member of a public joint-stock company, provided that they meet the legal membership criteria regarding eligibility and are free from any criminal or legal disqualifications, pointing out that the general rules of public service, particularly the civil service law and regulations issued under it, stipulate a "ban on the combination of public office with the practice of commercial activities" and prevent public employees from taking on paid work outside their job scope unless with prior permission, in addition to adhering to neutrality in public office and not abusing their position.

Accordingly, the legal expert believes that appointing a government official in a public joint-stock company may constitute a disciplinary or administrative violation if the position is paid and has actual managerial or executive roles, which occurs without the approval of the competent authority granting such consent.

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

Demand for Regulatory Guidelines..
   
The legal expert recommended the necessity of issuing legislation or a clear regulation to organize the cases of appointing government officials in companies, calling for a ban on appointing any government official in a company that is under the supervision of their employer, mandating full disclosure of interests and financial commitments, limiting government 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 profit distribution mechanisms for members and rewards for board membership by specifying whether they belong to the government institution or the appointed member and clarifying the percentage of the amounts due to the member.

Conflict of Interests Under the Cloak of "Benefit"

For his part, economic expert Dr. Saeed Sabri points out to SadaNews that the debate is raised regarding the appointment of government officials in senior positions as members of the boards of public joint-stock companies; some view it as supportive of the economy, while others consider it an entry point for conflicts of interest.

He adds, "Theoretically, this overlap might be justified as a means to transfer organizational expertise, improve companies' understanding of public policies, and expedite channels of communication with official bodies, especially in strategic sectors. However, these positives remain hypothetical and of limited effect, and are only achieved in highly disciplined and transparent institutional environments."

Dr. Sabri asserts 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 power within the board of a profit-making company creates structural conflicts of interest, even in the absence of intent to commit corruption or direct personal gain. This conflict is not only measured by legal violations but also by its impact on market fairness and competition integrity.

Distorting Market Mechanisms

From an economic perspective, Sabri sees that this overlap leads to the distortion of market mechanisms, as resources and investments tend to flow towards companies closer to decision-making centers rather than those that are more efficient or capable of innovation. This also undermines investor confidence, especially among new and small investors, who view the market as governed by relationships rather than rules. As confidence erodes, the cost of institutional risks rises, and long-term investment declines, negatively impacting growth and employment.

Additionally, Sabri states that the combination of 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 interests balance, affirming that best international practices agree on the need for a clear separation between public office and business activity or at least to restrict this overlap with strict regulations that include full disclosure, preventing participation in any governmental decisions affecting the company or the sector, and imposing cooling-off periods after leaving public office.

Sabri concludes by stating that a sound economy does not depend on the overlap 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?

Moeed Affaneh, an economic governance expert, clarifies to SadaNews that the new Companies Law of 2021 stipulated concerning the governance of boards of directors in private companies and implementing the principle of preventing conflicts of interest, to adhere to governance standards in companies, which are a set of internationally recognized standards, rules, and procedures under which the management and supervision of the company take place, organizing the relationships between the board of directors, the executive management of the company, shareholders, minority shareholders, and related parties within the regulatory, administrative, legal, and financial frameworks that define rights, obligations, and responsibilities in a manner that achieves institutional discipline in the company.

In accordance with best practices adopted in countries around the world, and within the management philosophy based on good governance, Affaneh emphasizes the need to establish a system stemming from the Companies Law that provides parameters for the conditions that must be met by board members in order to enforce the principle of non-conflict of interests among members, particularly if they hold senior positions in related public, private, or civil institutions.

Principles of Free Market

The economic system in Palestine is based on free market principles according to Article 21 of the Basic Law in Palestine, and it is permissible to establish companies in Palestine pursuant to Law Decree No. (42) of 2021 concerning companies for the year 2021, of all types including public and limited liability companies, public and private joint-stock companies, and others such as civil, foreign, and holding companies. Consequently, according to the law, public joint-stock companies can operate, which include those listed on the Palestine Stock Exchange with publicly tradable shares, and those not listed on the exchange.

The legal reference for establishing a public joint-stock company is Law Decree No. (42) of 2021 regarding companies, in addition to a set of other complementary laws such as the Banks Law for the banking sector, the Insurance Law for the insurance sector, and other laws, with the most important being those related to the company's objectives, policies of its administration from the general assembly and the board of directors, financial and administrative authorities, and working mechanisms in managing the company according to the articles of incorporation and the internal regulations of the company.

The number of public joint-stock companies listed on the Palestine Stock Exchange is (48) companies, operating in a complex investment environment due to a reality imposed by occupation, but observers and specialists affirm that enhancing the investment and governance environment in Palestine requires a clear separation between public authority and business interests, and ensuring that formal legitimacy does not become a cover for practices that undermine the essence of integrity and public interest, and that appointments to the boards of publicly traded companies be made according to clear and explicit legal mechanisms.