November 19, 2017 / by Daniel Lorber
Israel’s Successful Incubators and Accelerators Develop the Future
Israel’s Successful Incubators and Accelerators Develop the Future
In its innovative journey, Israel has exhibited technological achievements and economic advancements that have proved it to be one of the strongest leaders in the entrepreneurial world. Through the aid of the Israel Innovation Authority (“IIA”) or accelerator programs, Israeli startups are able to receive funding at very early stages of their venture, or a set of tools and insights that fast-track startups in terms of their management skills, business focus, and marketing capabilities. Incubators and Accelerators in Israel In addition to the financial aid granted by the IIA to eligible startups, incubator and accelerator programs provide startups with significant tools to enhance their products and services. Incubator and accelerator programs offer valuable assistance, including a supportive infrastructure, mentoring by industry experts, and the necessary training required for new startups to further enhance their development. A significant difference between incubators and accelerators is that accelerators are intended to accelerate the development of startups within a short time frame. In contrast, incubators operate within more extended timeframes -approximately 24 months on average. As such, they focus more on the initial phases of startups and aim to guide startups through their preliminary stages of development. Incubators The support of incubators encompasses market penetration, legal consultation, laboratory guidance, and technological development. Such incubators are located throughout Israel, advancing fields like biotechnology, aerospace, life sciences, and cybersecurity. In Israel, incubators operate through the support of the IIA, which contributes 85% of the financing received by startups through the respective incubators. It is important to point out that any grant received by the IIA, including through incubator programs, is subject to the Law for Encouragement of Industrial Research and Development. This law includes provisions that restrict companies’ ability to transfer IP or manufacturing overseas without the IIA’s consent. It is essential for startups to be aware of such restrictions, and to contemplate their applicability in light of the startups' business strategy, prior to accepting such grants. Accelerators In contrast to the governmental support incubators enjoy, in general, accelerators do not receive financial aid from the Israeli government. Accelerators are used as a tool to expedite startup development by giving investors the chance to discover startups in their early stages and to then aid in their rapid growth. The accelerator program is also beneficial for the startups themselves, as such startups are able to take full advantage of investors’ experience and know-how. Currently, there are approximately 90 accelerator programs in Israel. These programs can differ substantially with regard to their framework and engagement terms. It is therefore prudent for startups to research and take the time to fully understand the specific terms and itineraries these programs offer, prior to engaging with them, as this will affect their future development and the likelihood of securing future investments following the completion of the accelerator program. Source: barlaw.co.il
Fintech combines for the first time the worlds of financial services and technology, as banks and insurance companies serve as fintech’s main playing fields. As such, both sectors must become more efficient and acquire the technological solutions that will help them fulfill their roles. Fintech promises to bring innovation to existing players, but also threatens to disrupt conservative industries and replace them with new models and players. The connection between the two components of fintech has proved challenging, in light of the fundamental differences in the characters of these two components. Technological solutions are provided by startup companies that, by nature, are small organizations driven by the need to work quickly and efficiently, due to the short time-to-market and the requirement to sell and recruit capital. On the other hand, the MVPs in the financial services sector are large, hierarchic organizations characterized by sluggish bureaucracy that negates rapid decision-making and agility in implementing innovative solutions. Regulation and Fintech Fintech companies operate in a regulation-intensive environment, and this is the first main challenge, because regulations essentially define their ventures and their feasibility. On the other hand, in most of the technological fields that startup companies engage in, the challenges are innovation, competition, and the business model. Regulation is less of a challenge, if one at all. The dominant role of regulation in the fintech sector is unique. Therefore, gaining in-depth knowledge of the synergies between regulation and fintech is critical during any analysis of a fintech venture’s prospects. And the venture must know how to maintain compliance with the various regulations in order to succeed. By their very nature, financial services are subject to a wide range of meticulous regulations. The types of regulations that affect fintech include banking regulations, insurance regulations, and the prevention of money laundering, as well as privacy, consumer, and securities regulations. The various regulatory categories in the financial services sector follow and are adapted to the structure of the traditional market, with each sector being closely governed and controlled by its own set of regulations and regulatory authority. In many instances, fintech strives to resolve the problems created by existing regulations, but it also must keep in mind that its operations are subject to those same regulatory systems. Already at the stage of defining the product and service a fintech venture wishes to launch on the market, it must familiarize itself with the relevant regulations. It then must find solutions that comply with the regulatory conditions, as well as that enable it to obtain approval from the relevant regulatory authority. There are numerous dimensions to gaining familiarity with the regulations. First of all, similarly to every startup company, fintech ventures are also striving to go multinational and operate in a variety of countries. The problem is that regulations in one country are different and sometimes contradict the regulations in another country. The differences are in language, laws, and even approach. This means that the learning and compliance process is multi-dimensional and, in essence, an unending task. If this were not enough, another problem is that regulations are drafted based on the structure of the conservative market—banking regulations for banks, insurance regulations for insurance companies, and so forth. On the other hand, in many instances, fintech ventures disrupt the structure of the traditional market. This disruption, by its very nature, creates new connections and approaches. As a result, fintech companies find themselves in a minefield of differing, overlapping, and contradictory regulations. However, the regulatory challenge is not just difficult, but also a main foundation for creating value. Any fintech venture that has already become well-versed in the subject, and has adjusted its solution to the various regulations, creates a real advantage over existing and new competitors. The entry barrier to this sector is not only the development stage, but rather the strength of the regulatory solution. In essence, regulatory knowledge actually becomes intellectual property. For example, the banking sector is characterized as a regulation-intensive sector. The banking supervisor’s regulations relate to various aspects of banking corporations’ operations, including licensing, corporate governance, various regulations relating to capital adequacy and banks’ capacity to assume various risks, consumer regulations relating to banks’ relations with their customers, the prohibition of money laundering, and more. Any fintech venture seeking to interface with the banking system, to provide it services or replace some of the banks’ roles, must be well-versed in the relevant local regulations and ensure its compliance with them. Clearly, the greater the challenge, the greater the potential. Privacy and Fintech During the coming year, new and enhanced privacy-protection and information-security regulation systems are expected to come into effect throughout the world. These are headed by the European GDPR, which deals with privacy protection and will take effect in May 2018. As a result of these processes, the issues of privacy and database protection against cyber risks will have an impact and a presence on the technological agenda in the coming years. Fintech ventures create solutions that make use of sensitive personal information. As such, the ventures are engaging in fields that are exposed to privacy and database issues. Basically, all financial services involve the collection and saving of sensitive personal information. Electronic mail addresses, phone numbers, personal details, financial information, marital status, special identifying details, workplace, family members, and more are collected as part of the process of getting to know the customer in order to provide him with services, advice, and an identity. All this sensitive information has been collected, saved, stored, processed, and transferred within the companies' technological systems. But these systems are also exposed to attacks and challenges from all sides. The exposures, in instances of intrusions, are not limited to sanctions that may be imposed on a company by the regulatory authorities, but also include a potential mortal blow to the company’s reputation and civil suits being filed by individuals on the grounds of infringement of privacy. In light of this, the fintech sector must adopt high standards of privacy protection and security. Fintech companies are required to create privacy-protection and information-security regulations for the enormous volume of information they collect, at standards on par with the customary international practices. Source: barlaw.co.il
In an opinion issued to the European Court of Justice, the Advocate General of the Court stated that according to current legislation, any data protection authority in the European Union can take action against a breach of the privacy legislation enforced by that authority, even if the entity alleged to have contravened the legislation is located in another Member State. The opinion was given in connection with a dispute about Facebook's alleged breach of German privacy legislation. Facebook argued that since its headquarters in Ireland are responsible for its data processing activities in the European Union, Germany's privacy authorities lack jurisdiction over its actions and only the Irish data protection authorities have the power to review its activities. While the opinions of the General Counsel are not binding on the European Court of Justice, the Court tends to follow them in the majority of cases. This opinion, if indeed followed by the European Court of Justice, is of significant importance, as it could lead to a barrage of enforcement measures against Facebook and similar structured internet multinationals. However, it should be noted, Europe's new General Data Protection Regulation (GDPR) has instituted the concept of the lead supervisory authority in the jurisdiction of the data controller or data processor's main establishment, in an attempt to limit the need to deal with such a multitude of data protection authorities across the European Union; although it should be noted that the GDPR does not block entirely the other authorities. Source: barlaw.co.il
October 26, 2017 / by Marie Tsion
A Female Employee Notifies She Is Pregnant – A Few Important Facts!
A Female Employee Notifies She Is Pregnant – A Few Important Facts!
Has one of your employees notified you that she is pregnant? Here are a few points you should know: Permitted absence during pregnancy for the purpose of medical monitoring Any female employee who works up to four hours per day during a five-day workweek is entitled to be absent for up to 20 hours during a single pregnancy. Any female employee who works more than four hours per day during a five-day workweek is entitled to be absent for up to 40 hours during a single pregnancy. Changing the percentage/scope of employment or wage of a pregnant employee If a female employee has been employed by the same employer or at the same workplace for at least six months, her employer is prohibited from adversely changing her percentage/scope of employment or her wage, unless a special permit obtained from the Ministry of Labor. Dismissal of a female employee during pregnancy If a female employee has been employed by the same employer or at the same workplace for at least six months, her employer is prohibited from dismissing her, for any reason whatsoever, unless a special permit obtained from the Ministry of Labor. The dismissal of a pregnant employee without having obtained such a permit not only constitutes grounds for a lawsuit, it also constitutes a violation of the law. A dismissal permit may be obtained from the Ministry of Labor only if the employer succeeds in proving there is no connection between the dismissal and the pregnancy. However, even if the employer does prove there is no connection, there is no guarantee a permit will be issued. It is important to note that even if the female employee has worked for less than six months, and the law does not require her employer to obtain a permit from the Ministry of Labor in order to dismiss her, if her dismissal is related to her pregnancy, she may sue the employer on the grounds of discrimination. Therefore, in any event, her dismissal must be for legitimate reasons. Maternity leave and subsequent leave without pay Duration of maternity leave If a female employee has been employed by the same employer for at least one year on the day of the childbirth, then she is entitled to 26 weeks of maternity leave, 15 of which are paid by the National Insurance Institute (while the remainder of the period is deemed leave without pay). If a female employee has been employed by the same employer for less than one year on the day of the childbirth, then she is entitled to only 15 weeks of maternity leave. In the event of the birth of more than one child, or if the mother or newborn is hospitalized, then she is entitled to a longer maternity leave. Extending maternity leave as leave without pay Every female employee is allowed to extend her maternity leave by the number of months equivalent to about one quarter of her months of seniority, up to a maximum of one year, according to the calculation principles prescribed in the law. Maternity leave for male employees Employers should know that a male employee who becomes a father is also entitled to maternity leave. He may elect to be absent for five days immediately after the birth of his child, on account of accumulated sick days and vacation days. Subsequently, an option also exists for the new father to actually take maternity leave instead of his wife, or together with her, upon fulfilling a number of criteria prescribed in the law. Payment to provident funds during maternity leave If a female employee worked for the employer throughout her entire pregnancy, as well as for the six months that preceded her pregnancy, then her employer is obligated to continue making deposits to the female employee’s provident funds also during the period when she receives maternity leave pay from the National Insurance Institute. The same rule also applies to a female employee during a high-risk pregnancy, during which she receives a high-risk pregnancy benefit from the National Insurance Institute. Employers must comply with special regulations in this regard, and they must also issue a notice in this regard to the employee during her pregnancy. Returning to work A female employee may shorten the duration of her maternity leave: If a female employee wishes to shorten her maternity leave so that it will be shorter than 26 weeks but not less than 15 weeks, her employer cannot postpone her return to work for more than three weeks after the date of her notice that she wishes to return to work. If a female employee has extended her maternity leave to leave without pay, and then later desires to shorten her leave without pay, her employer cannot postpone her return to work for more than four weeks after the date of her notice that she wishes to return to work. As long as a female employee is absent by virtue of the law and is on maternity leave or on a subsequent leave without pay, her employer is obligated to hold her position and workspace for her. Her employer may recruit a temporary replacement for her during her absence, but when she returns to work, she must be reinstated in her position. Employers are prohibited from dismissing a female employee for 60 days after her return to work, unless they obtain a permit from the Ministry of Labor. Such a permit may be issued only if the employer can prove the female employee's dismissal has no bearing on the period of her absence and, additionally, only if the employer ceases to operate. Source: barlaw.co.il
October 16, 2017 / by Yuval Lazi
Developing Marketing Strategy for Potential Investors
Developing Marketing Strategy for Potential Investors
When you build out your business model, you need more than a great product or service. Innovative brilliance and new ideas matter, but they are not enough. By the time you are ready to raise capital, you should be able to outline for your potential investors a clear market strategy. What Problem Are You Addressing? For your product or service to succeed in the market, it should meet an identifiable need in the market. After all, the world business landscape is littered with failed companies that have created solutions in search of problems. Success comes through sales; for people to pay for what you provide, they must feel they need it. Investors will want to see how your product addresses a specific problem your potential customers have. What Is Your Real Market? If you declare your market to include "everyone", savvy investors will steer clear. Different people and companies have different needs, so a key offshoot of identifying the problem you address is finding the market niche you will target. You may well want to grow to a point where you have multiple target markets, but you need to find a direction in which to focus your efforts. This will serve as the foundation for later growth. What Is Your Go-to-Market Strategy? Whatever the size of your potential market, you need first to find your way in. Some companies start with a high-end strategy and then go to the masses; others look for a lower-income market to help establish a mass appeal. With a specific point of entry, you can then describe to investors a sensible strategy to use the investment they provide to develop and grow your business. What Are Your Customer Costs and Long-Term Value? Your marketing strategy should consider both the cost to acquire each customer (CAC) and long-term value (LTV) of each customer. Marketing efficiently to build a customer base gets strong initial value for your investment. But retaining those customers over time creates an LTV that prevents your company from being a mere flash in the pan. Create a strategy that does more than build quickly to develop a sustainable business model attractive to investors. Your marketing strategy helps fundraising efforts by showing investors why you will succeed. Describing your market and entry point, as well as the value your customers contribute, will help you attract the funds to help you move forward. Source: barlaw.co.il
October 2, 2017 / by Marie Tsion
Your Employees Are Beginning to Unionize – What You Need To Know?
Your Employees Are Beginning to Unionize – What You Need To Know?
Many employers worry about the day they might discover their employees are organizing and joining a labor union. This concern is natural, since an employer used to running its business as it deems fit, and according to its business needs, is not interested in sharing the helm with its employees’ representation. However, it is important to know that unionizing is a basic right in Israel and that employers cannot prevent their employees from unionizing. Therefore: You cannot prescribe in your employees’ personal employment contracts that they are not allowed to be represented by any employee organization. You cannot require employees to sign an undertaking to not be represented by a labor union or an employees’work council. You cannot bar a representative of a labor union from entering the employer’s premises. If preliminary labor organizing has already begun, then it is even more important to strictly abide by the following rules of conduct: Do not keep records about which employees have joined the labor union or are activists promoting unionizing. Do not announce the employer’s dissatisfaction about the formation of the organization, and refrain from making any negative remarks about the unionizing, directly or indirectly, demonstratively or subliminally. Do not threaten, discriminate against, adversely change employment terms, or fire an employee because he or she is unionizing. Do not grant benefits or promise benefits to employees in relation to their joining or not joining a labor union. Do not send personal messages (SMSs, emails, letters, etc.), initiate or hold meetings with groups of employees, or engage in personal conversations in relation to any matter pertaining to unionizing or preventing it. Employers may continue to hold meetings or conversations with their employees in relation to any other matter, provided it does not concern unionizing and provided it will not adversely influence the unionizing efforts. Do not participate in an employees’ meeting, since even an employer’s passive attendance is liable to be construed as having an inappropriate influence on the freedom to unionize. These stringent rules regarding the initial stage of unionizing were prescribed in labor court rulings in recent years, as part of the new era of unionizing in Israel, to prevent employers from being able to undermine unionizing by applying pressure and unfair coercive tactics on their employees. Once the initial stage of unionizing has been completed, and the employees are represented by a representative labor organization, the balance of powers between the employer and its employees begins to level off and the employer is no longer perceived as the strong arm in these relations. This is because the courts view labor unions as bodies that protect employees, and thus bridge any existing gaps in the balance of powers in the employment relations. Source: barlaw.co.il
It is nearly impossible to keep track of the developments in the cryptocurrency and ICO arena, with new digital currencies being launched and new ICOs records frequently being broken. Recently, the record was broken once again, when Filecoin’s ICO raised about USD 200 million in one hour (!), after having raised about USD 52 million from investment funds and private investors in the presale ahead of the ICO. So what is an ICO? ICO is the abbreviation of Initial Coin Offering, a term inspired by the capital market term IPO (Initial Public Offering). This is when a company recruits debt or capital by publishing a prospectus offering of its securities to the public for the first time. A prospectus is a profound legal and accounting document that furnishes information about the company, its management, its businesses, and its financial position. Once a company’s securities are held by the public, it becomes a public company. In an ICO, companies that are developing a technology or an innovative venture, which, for the most part, is based on blockchain technology, recruit capital through the issuing of digital coins. The hope is that the coins' value will appreciate when the venture succeeds and will maximize profits for the coin buyers in the ICO. To date, digital coins and ICOs are unregulated in most countries. However, the US Securities Exchange Commission (SEC), the Central Bank of Singapore (MAS), the Canadian Securities Authority (CSA), and the Israel Securities Authority (ISA) have all already announced they are considering applying in some cases the existing securities regulations also to digital coins and ICOs (such regulations include restrictions in public offerings, prospectus and reporting requirements, etc.) Despite the lack of regulation, as well as the lack of uniformity with regard to the quality of the information being disclosed, the practice is that when launching a new token or actual digital coin and an ICO, the company publishes a document on the ICO’s website that furnishes information about the venture or the technology, pertinent financial data, and information about the offering itself. This document is called a ‘Whitepaper’. It is reasonable to assume that once leading countries enact regulations for digital currencies, including a binding standard for whitepapers, this market will become more regulated. Following are some helpful tips for new ventures still in the pre-ICO stage and who want to make their whitepapers accessible to potential investors. Mode of presentation of the information When an investor considers whether it is worthwhile to participate in an ICO, he wants to know why purchasing coins in the ICO will be a golden opportunity for him and what his resulting profit will be. Unfortunately, companies tend to focus on presenting the technology or the venture in their whitepapers, and they do not attribute enough importance to presenting the financial-economic data. But such data are equally important to potential investors, especially since financial data demonstrate the venture’s potential market value. It may will add value if the whitepaper will include financial data about the company, information about the new coin (or token) to be issued, and information about the technology. Such information should be substantiated by data from reliable sources. It is also advisable and helpful to use infographics—graphs, simulations, and comparative data—that encapsulate the highlights of the ICO clearly and succinctly. Structure of an ICO An ICO whitepaper should explain how and when investors can participate in the ICO, and in which currencies the investor can purchase the company’s new token (if only through digital coins, so which digital coins; and whether it is also possible to use FIAT money. Notwithstanding the regulatory uncertainty surrounding digital currencies, nearly every developed country imposes anti-money-laundering laws and KYC (know your client) provisions. Therefore, the whitepaper should also inform investors about the identification processes they will have to undergo during the ICO and the required mode of payment. Legal aspects As stated, most countries have not yet enacted digital currencies regulations that also regulate the mode of performance of an ICO. Consequently, purchasing digital coins and participating in an ICO are still highly risky and thus are not suitable for everyone. Therefore, it is critical to ensure the whitepaper accurately presents the venture and the structure of the ICO. It is recommended that the whitepaper disclose the risk factors unique to the market in which the company operates (in addition to the risks inherent in the digital currencies arena, the lack of regulations, and the absence of any promise that the venture’s success will lead to a rise in the value of the issued coin). In light of the above, and bearing in mind today’s regulatory uncertainty, ventures considering fundraising through digital currencies should act with all due care so that they do not find themselves in violation of securities laws in countries where the ICO is being launched. The applicable law in the territories relevant to the ICO should be meticulously examined. Source: barlaw.co.il
September 7, 2017 / by Yuval Lazi
Deliver a Strong Value Proposition to Raise Funds Effectively
Deliver a Strong Value Proposition to Raise Funds Effectively
When you are ready to raise money to begin or expand operations for your startup, you cannot just ask and wait for money to pour in. Today's investors are savvier than ever. They need to understand the value you create, for investors and for the market your company will serve. You need to understand your business model thoroughly, but you should also prepare concise answers to the questions any smart investor will ask. 1. What Market Do You Serve? If you do not have a target market, you are not ready to do business. By the time you begin fundraising, you must know who you will serve. This means you should be able to identify your potential customers by their demographics and by their needs. In a few sentences, be ready to tell investors where their pain points lie. 2. How Do You Solve the Problem? It does no good to anyone if you can identify problems but cannot solve them. Your customers have a need, and you must demonstrate how you can fill that need. Competitors likely exist, so you must show where existing market remedies fall short and how you exceed what currently exists. 3. Why Is the Time Right? Needs do not exist in a vacuum. You must be ready to answer why your customers need a solution now, rather than last year or next year. If the pain point has existed for a long time, have your customers found acceptable workarounds? If it is new, why is it urgent? Concise answers show that you provide value critical to the market. 4. What Is Your Pricing Model? You should know that economic forces will change your pricing over time. Still, put thought into what you will charge for your product or service, both to earn business and earn a profit from your labor. 5. How Will You Use the Money? This may seem obvious, but you should have a plan for the money you seek. Know what you will purchase and why, and how the funds will allow you to reach your next milestone. If you can answer this, investors are more likely to see their own growth opportunity. Investors want to understand how you will put their money to work and deliver what your customers need. Showing what and how you deliver, and how investment will help you do so, gives them a reason to help you succeed. Source: barlaw.co.il
One of the great ironies of life on earth is that, on a planet that is approximately 75 percent covered in water, the demand for safe drinking water is higher than the supply. Fresh water makes up only about 2.5% of the total water supply, and for a continuously growing population, this creates some limits. Fortunately, technological innovations are creating solutions for a world that needs more water, and Israel is leading the way. Israeli Drip Irrigation Israel, as a small, desert nation, may seem an unlikely water leader in the world. But the limits in natural water resources it faces, combined with a national focus on fostering technological innovation, have led to a boom in developments that are helping the world. Israel leads the way in applying drip irrigation solutions to use water efficiently. This technique allows farmers to use exactly what is needed to help grow crops. And compared to flood irrigation, drip uses between 25 percent and 75 percent less water, maximizing the efficiency of an increasingly scarce resource. Companies like Netafim, the inventor of this technology, continue to find new ways to improve and expand the use of this work; Israeli companies are working with countries as diverse as Kazakhstan and the United States to efficiently irrigate in arid regions around the world. Desalination to Increase Usable Supplies With most of the world's water supply coming from salt water, conservation is not enough; desalination techniques are critical for helping increase the amount of water you can use every day. Here again, Israel's tech-savvy environment has helped turn challenges into opportunities. The world's largest desalination plant belongs to Sorek in Israel, which applies reverse osmosis to create a daily production capacity of 627,000 cubic meters of water. Israel now obtains 55 percent of its domestic water through desalination. Processes to remove salt and purify the water supply continue to evolve. For example, Israeli inventors have developed a chemical-free desalination process aimed at improving the safety of drinking water over what previous technologies have allowed. For investors, this creates a market opportunity to help improve the world and generate a fourfold or greater return while doing so. The world will continue to grow in population, and the innovative power of intelligent people working together will continue to yield solutions to better the living conditions we experience. Israel's experience and expertise in water innovation is leading the way. Source: barlaw.co.il
“How did the board approve this?” Headlines like this pop up each time it is announced the Israel Securities Authority is investigating a public company’s transactions with its controlling shareholder, such as the latest allegations of deals between Bezeq and its controlling shareholder. But the real question that should be asked is, "Was the board given the right tools to perform its work?" A Board's Authorities The Companies Law elaborates extensively on the authorities of a board of directors. These authorities may be divided into supervisory authorities and business development authorities. Supervisory authorities empower the board to oversee the general manager and his actions. Some examples are the examination of the company’s financial position and the preparation of financial statements, the approval of the distribution of dividends, and the approval of transactions with related parties. Business development authorities are delegated to the board of directors in order for it to forge a strategy for the company and to guide its policies. Such authorities include defining action plans for the company, appointing and dismissing the general manager, formulating a remuneration policy, and issuing bonds and allotting securities. A Board’s Work In addition to a board of director's authorities, the Companies Law prescribes procedural rules governing the work of a board of directors, which include, inter alia, provisions regarding the chairman of the board, the convening and conducting of board meetings, voting by the board, and the procedure for approving material transactions. As stated, the Companies Law provides the board with technical operating rules, but it does not provide the board with high-quality, fundamental rules to guide it in the exercise of its power. This omission becomes even more glaring when at issue are complex matters, such as controlling shareholder transactions and the distribution of dividends. Over the years, this void has been filled by court rulings and guidelines, as well as via position statements issued by the Israel Securities Authority. Both constitute normative sources of guidance to boards of directors on fundamental issues pertaining to how the board’s work should be performed. While the instructions from the courts and the ISA are many and diverse, one material rule, which recently received official recognition by the Supreme Court, and which encompasses a number of material rules for exercising authority, overshadows the rest—the Business Judgment Rule. The Business Judgment Rule The Business Judgment Rule prescribes when the court is not to intervene in business decisions made by a board of directors. Namely, the court is not to intervene in board resolutions passed with bona fides, without any conflicts of interest, and in an informed way. According to the principles of this rule, when the board exercises its powers, it must examine and consider, inter alia, these issues: Conflicts of interest – Does the approval of a particular transaction affect, or is highly likely to affect, the board or any of its members? The board must ascertain whether the transaction promotes solely the company’s best interests or if it benefits other interested parties in the company. In-depth deliberation – The board must hold a fundamental and practical deliberation of the proposed resolution on the agenda. It must perform a thorough examination of the transaction, ask questions, act as devil’s advocate, propose revisions to the terms of the transaction or a competitive proceeding, and examine other alternatives. Sufficient background material – In order to hold an in-depth deliberation, the board must make sure it has been provided with the full factual foundation as well as with all the relevant background documents and data it needs, such as valuations and economic forecasts. Documentation – Minutes of board meetings must be recorded. The objective of the minutes is not to constitute a full transcript of what was said during the board meeting, but rather to document the key statements made and to show readers that an in-depth deliberation indeed took place. In summary, the work of a board of directors entails risks. The Companies Law prescribes procedural rules for the work of a board of directors, but only by integrating the material rules prescribed outside the Companies Law does the board possess the complete set of rules it needs to cope with the risks posed by its work. Source: barlaw.co.il