A company which also serves as a general partner in a publicly traded partnership, stipulated in its shareholders agreement and in its articles of association, that one of the members of the board of directors, which also included external directors, shall have exclusive discretion in any decision regarding professional matters which are not financial.
The Court held that the provision in the articles of association contradicts the provisions of the law and therefore the director can not be given the aforementioned sole discretion. Israeli law determines the powers of the board of directors and its duties and states that directors have the duty to exercise independent judgment and discretion in their votes on the board of directors. The law also stipulates that if directors do not exercise independent discretion as stated, it may constitute a breach of the fiduciary duty imposed on them towards the company. This is even more true when it comes to external directors whose job it is to be gatekeepers against the controlling owner's ability to use the board to derive personal benefit at the company's expense. Therefore, a mechanism that grants exclusive decision-making power to one director, especially when said power is granted to him in extensive and significant areas, is contrary to the duty of the directors to exercise independent judgment and in fact cancels their judgment completely in view of the decision-making power of such other director. Here, the shareholders agreement and the company's articles of association granted a certain director exclusive discretion in all the company professional matters, in a way that nullifies the discretion of the other directors and the external directors and constitutes a breach of their duty to exercise independent discretion. Thus, the provisions of the shareholders' agreement and the articles of association are illegal and the company has the duty to change them.