This article was originally published on Funder in February 2026.

Israeli corporate culture prioritizes flexibility and speed. In contrast, American corporate law values process and accountability. When Israeli companies enter the U.S. market, this misalignment can lead to costly and unpleasant surprises. In the United States, directors owe fiduciary duties, specifically the duties of care, loyalty, and good faith. These duties are aggressively enforced, particularly in influential jurisdictions such as Delaware and New York. U.S. courts do not judge board decisions solely by their outcomes; instead, they scrutinize the process by which those decisions were made. Informality, intuition, and “founder dominance” offer no legal protection.

A prime example is found in Gesoff v. IIC Industries, Inc., where the Delaware Court of Chancery held directors and controlling shareholders liable for breaching their fiduciary duties. The court found they had pushed through a conflict-tainted transaction without adequate procedural safeguards, despite their subjective belief that they were acting reasonably and efficiently. Applying the exacting “Entire Fairness” standard, the court determined that the transaction process failed at the most fundamental level of fairness. It criticized what it described as a “shaky, insider-driven approach” that lacked true independence, rigorous deliberation, and meaningful protection for minority shareholders. The court emphasized that under American corporate law, good intentions, speed, and informal trust among associates do not excuse poor governance. What matters is objective fairness, proven through disciplined process and accountability.

This decision illustrates the “culture shock” foreign companies often encounter in the U.S.: boards are not judged by how practical or familiar their approach felt to them, but by their adherence to stringent fiduciary standards. These standards are enforced by courts prepared to impose significant monetary remedies when they are not met.

Furthermore, minority shareholders in the U.S. enjoy far broader rights than many expect. They can demand access to company books and records, challenge transactions, and initiate derivative lawsuits on behalf of the corporation itself. Internal rifts that might remain private in Israel frequently escalate into public litigation in the U.S.

Derivative lawsuits, in particular, often catch foreign founders off guard. In these cases, shareholders allege that directors have harmed the company and “step into the shoes” of the corporation to sue. These claims often survive early motions to dismiss, opening the door to the discovery process. Board communications, internal emails, and decision-making records all become “fair game” for plaintiffs. Weak corporate governance creates significant leverage for claimants, even when the underlying business dispute is modest.

The gap between these two systems is structural. Israeli corporate law evolved around concentrated ownership and closely-held private companies. American law, however, developed around dispersed ownership, deep capital markets, and a robust judicial role in enforcing fiduciary norms. Consequently, U.S. courts expect boards to meticulously document deliberations, rigorously manage conflicts of interest, and demonstrate genuine independence.

For companies planning to raise capital in the U.S., appoint American directors, or pursue a U.S. exit, corporate governance discipline is not optional. It must be institutionalized early; otherwise, it will be imposed later under far less favorable conditions. The cost of formalizing governance while defending against litigation is exponentially higher than the investment required to build it correctly from the start.

Michael Ehrenstein is a founding partner at the U.S. law firm Ehrenstein | Sager, specializing in commercial law, complex litigation, and high-stakes international arbitration.

Legal Disclaimer: This article does not constitute legal or tax advice. Its purpose is to raise awareness regarding U.S. compliance issues. Israeli businesses should consult with qualified U.S. legal and tax professionals for advice tailored to their specific operations.