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The bank‐shares regulation affair and illegality in Israeli society: A theoretical perspective of unethical managerial behaviour

Deviant managerial behaviour, involving senior members of the administration, society and the economy is a universal phenomenon. In Israeli society it has recurred several times, gradually becoming more common since the establishment of the state some fifty years ago. The Bank-Shares Regulation Affair, which came to light when the stock market collapsed in October 1983, is regarded as one of the gravest cases to date in terms of its consequences and implications for Israel's economy. Its investigation by a national commission of inquiry, headed by Judge Moshe Bejsky, exposed not only the flawed structure of norms and values that became entrenched in major parts of the Israeli governmental system, but also the deep economic implications of government involvement in the capital market. The regulation process, which took place in the late 1970s and early 1980s and reflects a significant phenomenon in Israel's macro-economic, social, political and cultural space, poses two questions: first, what led senior managers of Israel's financial elite to violate conventions of behaviour, norms, procedures and laws? And secondly, what were the mechanisms in the environmental and organizational contexts in which the bankers operated that constructed the legitimacy and motivations for this deviant behaviour? The aim of this paper is to discuss these questions through a historical and theoretical analysis of the bank managers' behaviour in the regulation affair, focusing in particular on the environmental and organizational contexts in which they acted. For this purpose we used social science theoretical models, specifically those relating to factors, processes and mechanisms that influence decision-making and organizational behaviour.