In recent years, boards of directors have been expected to play an active role in overseeing their companies’ activities. Compliance incidents, cybersecurity failures, safety malfunctions, operational and regulatory crises, and even failures in organizational culture expose board members to public and legal scrutiny.
However, contrary to popular belief, directors’ duty to oversee does not require them to know every detail about the company or to manage its day-to-day operations. The real question is whether the board of directors has established and maintained reasonable oversight mechanisms that enable it to receive material information in real time and make informed decisions.
Duty to Oversee as Part of Directors’ Duties
The Israeli Companies Law does not explicitly prescribe an overarching “duty to oversee” for boards of directors. Section 92 refers only to the board’s supervision of the CEO’s performance of his or her role. However, directors’ liability for a failure to oversee may derive from their duty of care and, in some cases, also from their fiduciary duty.
This means that directors must take reasonable measures to obtain relevant information and exercise judgment with respect to the key risks facing the company.
A Crisis Is Not Built in a Day
Many major corporate crises are not the result of a single unexpected event. Attention to early warning signs, complaints, internal reports, and other indications often makes it possible to address issues in a timely manner.
As a result, the key question is not whether a failure occurred, but rather how the company’s oversight mechanisms were operating prior before the failure.
The Caremark Ruling and the Accepted Oversight Standard
The landmark ruling in the US Caremark case has influenced corporate law worldwide.
The key message of this ruling is that boards of directors do not need to know everything, but they must ensure that effective reporting, control, compliance, and risk management mechanisms are in place so they can receive material information on an ongoing basis.
However, when red flags or warning signs emerge, directors cannot be satisfied with merely receiving reports. They must ask questions, demand further examination, monitor how the matter is handled, and verify that the problem has in fact been addressed.
Is Israeli Law Moving in the Same Direction?
In recent years, Israeli courts have progressively begun to adopt the principles of the Caremark ruling.
In the 2021 ruling in Aharoni v. Mizrahi Tefahot Bank, the court stated that the Caremark model is not only appropriate but could also become the standard accepted in Israel.
This means that the duty to oversee is likely to become an increasingly important issue in discussions of directors’ liability.
What Is Effective Oversight?
Case law in recent years shows that courts do not expect boards of directors to micromanage their companies.
Court scrutiny focuses on whether orderly and documented oversight mechanisms are being implemented that enable the board to:
- Identify the company’s key risks.
- Obtain periodic reports on material matters.
- Hold regularly scheduled discussions of risk-related issues.
- Receive materials in advance.
- Follow up on board resolutions and the rectification of deficiencies.
- Remain actively involved whenever irregularities or unusual events are detected.
The Real Test – What Happens When a Warning Sign Appears?
One of the key lessons from the ruling is that the relevant question is not whether a malfunction occurred, but rather how the company’s board of directors and management responded.
The existence of orderly procedures, policies, or presentations is insufficient. Directors must ensure that the procedures are actually being implemented, that information is moving upstream, and that deficiencies are being effectively remedied.
In other words, effective oversight is measured less by documents and more by the quality of the questions asked, the monitoring conducted, and the responses to risks.
Practical Conclusions for Directors
The duty to oversee does not require directors to be experts in all of the company’s areas of activity. However, it does require them to ensure that a reasonable oversight system is in place, that they receive material information on an ongoing basis, and that they respond actively when warning signs emerge.
In a business world characterized by increasing regulation, cybersecurity risks, complex supply chains, and heightened public expectations, the quality of a board’s oversight mechanisms may be one of the central factors affecting its ability to address crises and, at times, prevent them altogether.
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Adv. Eyal Nachshon is a partner at Barnea Jaffa Lande, with experience advising directors and management on litigation procedures and various litigation-related exposures. This article is based on a lecture Eyal delivered to directors as part of Fahn Kanne’s 2026 Breakfast Club.