Plum jobs for political cronies no longer easy pickings, says ex-regulator

Before 2013, a director of a government-held company could reasonably expect an occasional phone call from a cabinet minister’s office requesting certain favors, according to the recently resigned regulator of the $186 billion industry.

After all, according to economist Ori Yogev, the ministers had appointed those ineffectual officials to their posts deliberately, at the behest of powerful special interests groups that supported their candidacies in the primaries.

But that’s a thing of the past, says Yogev, who stepped down as director of the Government Companies Authority in September, after a four-year term during which he implemented wide-ranging reforms to end political appointments in the 61 government-held corporations.

Long seen as a hotbed of political cronyism, nepotism, and corruption, the government companies include the Israel Aerospace Industries, Rafael defense contractor, the Israel Electric Corporation, the country’s two ports in Ashdod and Haifa, the postal system, Mekorot water giant, Israel Railways, and the National Transport Infrastructure Company (Netivei Israel), which oversees the state’s roads and railways.

Over the fierce objections of government ministers, Yogev’s reform — now in its fourth year — to tackle the country’s endemic “protekzia” set up an open call for applicants for senior positions, laying out specific professional criteria to end the cronyism plaguing the companies and depoliticize the system. A database of vetted candidates, which is public, is now presented to ministers for final approval.

“Ministers still pick from the list, which is a little unnecessary in my view, but they no longer know the list,” said Yogev. “The political powers around them don’t know the [people on the] list. And even if they do pick someone they know,” the candidates are qualified.

Yogev’s resignation came amid government proposals to step up political appointments, and on the heels of several high-profile corruption cases in recent years — from allegations of bribery in the roads company Netivei Yisrael; to fraud indictments against the former chairman of the Ashdod Port workers’ union; to suspicions of graft in the Israel Aerospace Industry that saw minister Haim Katz hauled in for questioning on several occasions and his son, a senior IAI manager involved in the powerful workers union, arrested on suspicion of coercing employees to join his father’s Likud party.

The corruption cases have, in part, underlined the deep political entrenchment in the government-held entities, even as the 1975 legal mandate for the companies orders it to operate strictly according to its business interests.

A longtime government insider, Yogev formerly headed the Finance Ministry’s Budget Division, overseeing implementation of major economic reforms in the early 2000s under then finance minister Benjamin Netanyahu. After Netanyahu was elected prime minister in 2009, he chaired the National Economic Council advisory committee.

While advancing reforms to stymie political appointments, Yogev was himself the subject of accusations of cronyism: In 2016, State Comptroller Yosef Shapira recommended the attorney general order a criminal investigation into Yogev over the promotions of certain auditors within the government companies. Yogev, who denies the allegations, has not been questioned and police have not publicly signaled they are pursuing the allegations.

The government companies will “never be excellent,” mused Yogev, whose  background in the private sector also includes founding Whitewater Technologies, a water management company. And there will always be some corruption, he opined. But as part of the reform injecting newfound professionalism from the top down, the companies have started to rake in profits after years of losses, he said. Some 50 percent of those companies’ directors are now women, far higher than the global average, and minorities — including the ultra-Orthodox, Arabs, Ethiopians, people with disabilities — are now fairly represented among their employees, who number some 56,000 overall.

Other regulations against inappropriate conduct have created a “deterrent force” against political intervention, he said, and “ministers are more careful not to pick up the phone.”

‘The directors didn’t even know they were in the game’

According to Yogev, prior to his reforms, “powerful special interest groups,” including workers unions within the government companies, would promise would-be politicians their support in party primaries. In exchange, they would say, “you will help us appoint a director.” After the primaries, the interest groups would call in the favor, and urge the appointment of minimally qualified and easily controlled figureheads.

“The ministers appoint, and the directors – who don’t even know they’re in the game – are not fit for the job, are impressionable. And then there’s the weak management situation: The director doesn’t do the job, doesn’t ask tough questions, doesn’t move around those who need to be moved,” he said, describing the way things used to work.

“More seriously, occasionally, someone calls from the minister’s office and asks for something small,” like firing a certain person or tapping another senior official in the company, he said.

“Nearly always, politicians are then involved in appointing the CEOs through this,” he added.

Introducing the reforms in 2013, Yogev said the bid was supported by Netanyahu and a handful of other ministers.

But pressure from the other ministers was unrelenting, he said, though often indirect.

“Much of the time it’s not the minister, it’s the aides. Ministers don’t want to be caught so they send their aides; you never really know if it’s the minister or the political adviser who concerns himself with good relationships and having enough people who owe them so that in the next round, they’ll be reelected,” he said.

The pushback against Yogev included personal smears and threats not to advance his other reforms, he said.

Four years on, the controversy lingers in some quarters, but the levels of corruption are nowhere near where they were back then, he emphasized.

“In the end, even politicians who were opposed — like [ministers] Gilad Erdan and Yisrael Katz — at the end of the day appointed [directors] from the directors list,” he added.

‘A Sisyphean fight’

In December 2016, a special ministerial committee convened a meeting dedicated to the directors reform. Ministers walked away with a resolution that has since not made headway but hints at the governing politicians’ prevailing desire to roll back the directors appointments reform.

Yogev’s resignation also came with coalition lawmakers advancing several so-called “bob laws” to step up political appointments. The first, by Likud MK David Bitan, would allow former ministers and mayors of cities with more than 50,000 residents to apply as directors of government-held companies without proving they possess “special talents” for the job. Currently, ex-politicians who are familiar with the appointing ministers must prove they have certain qualifications for the position.

“The real corruption is the directors list,” said Bitan when the bill passed its preliminary reading in June, arguing that the ex-mayors and ex-ministers had more-than-sufficient public experience to hold the positions.

Challenged by Yesh Atid MK Yael German that he was seeking merely to swell political appointments, Bitan acknowledged the blow the directors reform posed to politicians that are beholden to party central committee as part of the primaries system.

“The directors list only hurt the Likud and Labor, since we have a central committee [and primaries], but didn’t hurt Yesh Atid, since they have no central committee — and therefore you can appoint Yesh Atid people as directors,” he said.

A second proposal by ministers Ayelet Shaked and Yariv Levin does not pertain to the government companies, but allows ministry directors to install deputies without a tender, so long as the appointees have six to seven years of relevant experience (among other restrictions). The bid was approved by the cabinet last month.

Another proposal in the pipeline seeks to let ministers appoint legal advisers to their respective offices, in a move seen as a bid to rubber-stamp legislation that would otherwise be rejected by the legal authorities.

Yogev said he saw the maneuvering as part of a trend “in which the government is initiating all sorts of processes that are somewhat anti-democratic,” including “personal and protectionist laws, an atmosphere that the public good doesn’t have to be the most important factor.”

The proposed legislation, he maintained, “is an example of a ricochet by the politicians to this [directors appointments] reform.”

There is always a danger of the pendulum swinging back away from his reform in the government companies, he said, allowing for a “certain setback” in the plan and describing it as a “Sisyphean fight.”

But the chances of returning fully to the situation as it existed before 2013 were “slim,” he added, citing the High Court of Justice, which would likely uphold the reforms, NGOs that back the list, and a generally supportive media climate.

“I think that with the fact that it’s already 100 percent of the directors and the results are so significant, the politicians won’t easily change direction,” he said.

There were several laws pertaining to political appointments in the government companies floated in the past, he said, “until now, we’ve managed to torpedo them all.”

Fewer political appointments, greater profits

In reducing political meddling and cutting down the strawman directors, the government companies also saw another change, according to Yogev: They started to make money.

In 2013, the companies were losing NIS 600 million a year; in 2016, they earned NIS 2 billion, with 2017 projections expected to top NIS 3 billion.

“When I was the head of Israel Railways, I understood how much — as a result of the political appointments and the intervention of politicians in general and protection of interest groups tied to these companies — we are paying a price in billions,” said Yogev, who was relieved of his position by Transportation Minister Katz in 2012.

The process to turn the companies lucrative was twofold, starting with the directors reform, and including business reforms and regulations forcing the companies to issue reports, set goals, increase transparency, and offer incentives to managers.

After criticism for failing to adequately represent minorities on the directors’ list, the list now included special populations in its recent round of appointments. Fifty percent of the appointed directors are women, he said. “There is nothing like this in the world.”

Speaking at the Friedberg Economics Institute last month, Yogev emphasized a new tender at the Ashdod port for stevedores that is exclusively open to women, minorities, and Israelis with disabilities. That was a far cry from the notoriously nepotistic port’s situation a decade earlier, when some 40% of hires were close relatives of existing employees, he said.

Despite the changes, the companies — which he stressed have improved — “will never be excellent” across the board, he said, though there may be individual companies that excel.

And while he was dubbed the “king of privatization, the enemy of the workers, and the architect of the destruction of the welfare state” by Meretz party leader Zahava Gal-on last year, Yogev said he favored privatization of some companies, such as the postal service and ports, but opposed privatizing the defense contractors so long as Israel faces security threats.

For other companies, he cautiously recommended a gradual weaning off of government control through a minority public offering — much as the government gradually relinquished the Bezeq telecommunications giant — while signaling there was no urgency and pointing to well-run companies in Europe that remain under government control.

‘There is always a little corruption’

In his first months on the job, Yogev alerted police to suspected corruption at the state’s road and rail company, Netivei Yisrael.

That tip-off erupted in November 2015 into Case 618, which saw dozens of Netivei Yisrael employees, including a former CEO and an ex-Likud lawmaker, arrested. Thirty suspects were named by the Justice Ministry last month as likely to stand trial in the case for alleged widespread graft and bribery spanning over a decade.

To Yogev, what ensued for the company — as police rounded up the suspects, new directors were appointed, and the company’s working culture changed — seemed nothing short of transformative.

“It’s a company that in no time changed from being maybe the most corrupt to one of the cleanest,” he said.

Some companies — like the Ashdod port and postal service — have seen large-scale changes that should protect it going ahead, he said. Others, he said, could be imperiled if the government stepped in and changed the appointments system. “The areas of danger are the places where we are midway through the revolution,” he said, naming the IAI, Israel Railways, and Haifa port as examples.

Nonetheless, he stressed that corruption cases would persist across the board, though he emphasized that cases emerging now predated the companies’ reforms.

“I think that in huge companies, even in non-governmental ones, there is always a little corruption. So every so often there are [criminal] cases,” he said.

In Yogev’s assessment, over 90%-95% of workers in government companies are not corrupt, “but once everyone knew about the 5% and were silent. Today, they’re less likely to be silent.

“We won’t reach a situation of being entirely clean,” he added. “There’s no chance. There’s a lot of money and [special] interests and power.”