Regardless of this arrangement, Eli nonetheless came prepared with a strategic plan. The first stage called for immediately balancing the plant’s budget. The second stage called for making the plant profitable within two years.
“At the time of the acquisition,” Eli explained, “we worked according to the premise of covering the losses within 60 days.”
Eli understood that the first stage would require the dismissal of approximately one quarter of Plantex’s 240 employees, in addition to immediately applying efficiency measures to the rest of the employees. For this purpose, Koor provided him with a loan of 60 million Israeli pounds.
Before Eli implemented these measures, he requested an opportunity to speak frankly with the employees, as he had done with the employees of Teva.
“When you meet with them and honestly explain that the merger is based on the dismissal of a certain percentage of employees,” he said later, explaining the difficult task he faced at the time:
They need to understand that if that does not happen, everyone will be sent home and someone else will buy the plant and not pay them anything. You have to make them understand that they have no choice…. We’ll pay the dismissed employees well. We’ll be pleased if they decide who to fire and we’ll accept whatever decisions they make. Whoever stays needs to know that at some point in time, he will become an employee of Teva. I will protect him and he will protect me. Experience proves that if you state this firmly from the outset, it works. They go check it out…. They thoroughly clarify how you operate and the results you’ve achieved…. They check just how determined you are.
Eli came to Netanya with Koor’s CEO Naftali Blumenthal, who opened the discussion with the employees by explaining how important Teva was to the future success of Plantex. Without Teva, he explained, the plant would be forced to close its doors. Then it was Eli’s turn.
“We cannot promise that all the employees sitting here today will continue working here,” he explained. “But I can tell you that we will try hard. I can also promise that if the plant becomes more efficient, we will all benefit.”
The employees were not convinced and the representative of the employees’ committee countered by focusing on the employees’ hardships and demands.
“Here at Koor, things are different…” she began, only to be cut off by Eli, who reminded her that the situation had changed: “‘Here at Koor no longer exists…. Now, it’s, ‘Here at Teva!’”
The employees’ representative would not relent.
“Here at Plantex, people are only fired after discussions,” she argued.
“At Teva, we also talk to and debate issues with the employees,” Eli insisted, “but it’s the management that ultimately decides.”
“That’s not how it is here,” she responded.
This incited Eli to retort, “That’s not how it was here, but that’s how it will be.” At this point, Eli discontinued the dialogue and embarked on a tour of the facility.
In the course of the tour, the militant members of the committee informed him that they were “welding the gates of the plant shut.”
“No problem,” Eli said. “That is something I’ve already been through. Will you be staying in the plant too?”
“Yes,” the committee members answered, “we’re staying inside too.”
“Good,” their new CEO said. “We’ll stay here together and talk.”
“No!” the committee members insisted. “We don’t want to talk. We want to negotiate.”
“I will not negotiate under pressure,” Eli emphasized.
The committee heads responded: “If there are no negotiations, we’ll keep on sitting here!”
Eli took his leave of the employees and made his way to the plant’s main office. The members of the employees’ committee soon knocked on the door to offer him tea. Eli asked for coffee instead. The dialogue continued in this manner for a few hours, with both parties sticking adamantly to their positions.
Eventually, Eli made negotiations conditional upon the employees’ acceptance of a clear and unequivocal principle: “The management manages and the employees do their jobs. They do not behave like management and they do not obtain things through intimidation or locking gates. When the gates open, negotiations will begin. If they remain closed, we won’t discuss anything.”
With no other option, the employees accepted Eli’s terms. They realized that the new CEO was a stubborn man of principle. However, they also learned from Teva personnel that Eli was someone with whom it was possible to reach an understanding. Ultimately, they reached an agreement regarding working procedures and the number of dismissals planned for the plant. In the following three years, more than one-third of the employees lost their jobs and the Plantex work standards were replaced with those used at Assia’s chemical plants. At many points during this period, the employees threatened to impose sanctions or to strike, leading Eli and the senior management to consider closing the plant due to their frustration with the ongoing struggles with the employees’ committee. However, things began to calm down once the plant was on the road to profitability. Indeed, it became so profitable that in 1984, Teva acquired it in full from Koor and it ultimately became an integral part of the Teva group.
•••
The takeover of Ikapharm and Plantex transformed Teva into one of the largest Israeli industrial concerns of the early 1980s. After four years as CEO, Eli had achieved his goals and could rest on his laurels. This, however, was not how he saw things. Even then, the goals he set for himself were much more ambitious. The most important one was to enter the U.S. market. To his associates, this seemed like a pipe dream, but Eli believed in it. Eli articulated this in one of his speeches during the period.
“I have a vision, but the vision is not a dream,” he declared. “The vision is the beginning of a path that ends with achieving the goal. The goal therefore must be distant enough that we yearn for it and work toward it, yet close enough that we can achieve it.”
If this vision is broken down into practical terms, achievement of one goal – conquest of the Israeli pharmaceutical market – served as the basis for achievement of the next goal: entering the US market. The time was now ripe to work on this.
Chapter 13
President of Israel’s Manufacturers
In 1981, Teva was the eighth largest concern in Israel; just one decade earlier, it had been ranked fortieth. Eli’s success in transforming Teva into a large industrial group by Israeli standards made him a natural candidate to succeed Avraham (Buma) Shavit as the president of the Manufacturers Association of Israel.39 Eli had become widely known as a successful industrialist who was capable, in the words of one economic analyst, of “maintaining labor relations and positive relationships with the government and the Histadrut.” In the spring of 1981, after serving in this position for almost three consecutive terms (a total of six years), Shavit announced his intention to step down at the end of his current term. It seemed natural to ask Eli to succeed him.
The Manufacturers Association had been established during the first half of the 1920s. Its founders envisioned it as a volunteer body that represented manufacturers and protected them from the state bureaucracy, on the one hand, and contended with the demands of the Histadrut, on the other hand. Over the years, it evolved into an organization that represented hundreds and later thousands of factory owners from various sectors, public and private alike. It did not possess the political power to enforce its decisions and its status was not anchored in law. Despite this, its voice was heard, loud and clear, especially when government institutions made economic decisions concerning budgets, monetary matters, and other related issues. It conducted negotiations with the Israeli government on a wide variety of issues, from the budgeting of foreign currency for the purchase of raw materials to matters related to custom duties and income tax. Government ministers regarded the association as a force whose
demands, desires, and aspirations needed to be taken into consideration.
One reason for the association’s special status was Aryeh Shenkar, the first chairman of its presidium and its undisputed leader for three decades, from 1930 to 1959. Shenkar, owner of the Lodzia textile factory, shaped the association and set its goals. He became a prominent figure among the leaders of the organized Jewish community in the British Mandate of Palestine and the young State of Israel and had a major impact on industrial development in the country. In Shenkar’s day, the Manufacturers Association represented employers’ interests regarding labor relation as well. After he died, six different people served as the association’s president; each of them made a unique contribution and brought his own style to the association.
Unlike his predecessors, Shavit was a colorful character. He watched over the interests of Israel’s manufacturers and forcefully asserted their demands, but also supported improving the status of the worker. He was regarded as a confidante of the Israeli finance ministers who served during his tenure, but also frequently clashed with them. He was also constantly struggling with Yeruham Meshel, who was then the director-general of the Histadrut. In the end, Israeli industrialists’ desire to remove Shavit from the helm of the Manufacturers Association appears to have stemmed primarily from the soaring inflation and the economic crisis that plagued the country. In an attempt to address the crisis, the manufacturers had signed package deals with the government and the Histadrut. These deals aimed to create a new balance in the Israeli economy with each sector playing a role in achieving stabilization. However, these deals turned out to be ineffective. Shavit’s direct, personal style also did not contribute to his popularity.
For these and other reasons, efforts were made to find a new Manufacturers Association president with a quieter, more moderate style – someone who would resolve issues with government ministers far from the eye of the media, facilitate change in the status of manufacturers and their contribution to the economy, and help resolve the country’s economic crisis. Eli appeared to be a suitable candidate. At least, this was the opinion articulated in the financial sections of the newspapers at the time.
“From now on, the affable man who turned Teva into a giant concern will help bring relief to the Israeli economy,” one headline announced. “He will improve the relations between the association and the government ministers that were so badly damaged during Shavit’s term.”
Other people proposed as possible replacements for Shavit included Dov Lautman, president of Delta Textiles and one of Eli’s close friends, and Israel Polack, the CEO of Polgat textiles. Eli was uncertain that he would be able to take on such a demanding position. Five years earlier, after being appointed the CEO of Teva, he had left the presidency of the Export Institute despite the fact that he had enjoyed his work there and saw it as a position through which he could make a contribution. However, he believed he had to dedicate all his time to Teva then. The unwillingness of government ministries and the Manufacturers Association to dedicate resources to the Export Institute also may have influenced his decision to resign, though Eli denied that.
Now that he was certain that Teva was on the right track, particularly after its successful takeover of Ikapharm and Plantex, Eli believed he could devote time to being active in public life. His colleagues on Teva’s board of directors supported his candidacy. They were aware that leading the Manufacturers Association would take up some his time, but they also believed that their CEO’s public activity would benefit the group.
The Likud’s second electoral victory in 1981, under the leadership of Menachem Begin, was another factor that made Eli hesitant about taking the position. The election results came as a surprise, at least as far as the media was concerned. Like many manufacturers and economic experts at the time, Eli disagreed profoundly with the measures then being taken by Finance Minister Yoram Aridor. The minister had adopted an expansionist economic plan that involved transferring funds to all sectors of the economy in order to get the ball rolling. His approach quickly came to be referred to as “election economics,” despite the fact that the economy continued to deteriorate and inflation continued to soar. Eli knew that if he were elected president of the Manufacturers Association, he would have to negotiate with Aridor, especially since his responsibilities also would include heading the Coordinating Bureau of Economic Organizations, which coordinated economic activities between the government, employers, and the Histadrut. In light of his differences with the finance minister, he was uncertain whether he could effectively fill the position.
Despite his many doubts, Eli ultimately concluded that it was precisely his criticism of Aridor’s policies that obligated him to accept the position and make an effort to change government policy. After all, his responsibilities in this capacity would include trying to protect the economy, manufacturers, and employers, who in his opinion were then facing extremely serious problems. After agreeing informally to shoulder the burden, Eli was unanimously elected president at the September 1981 general meeting of the Manufacturers Association. By the time he took office in early November, he had compiled a list of 15 manufacturers, whose support he would undoubtedly need, to ask to serve beside him on the organization’s presidium. Dov Lautman, who was elected to chair the association’s executive committee, and other prominent business leaders (such as Mark Moshevich of Elite; Moshe Sanbar, a former CEO of the Industrial Development Bank and governor of the Bank of Israel, who was then serving as CEO of Frutarom; and Michael Strauss, CEO of Strauss) would be able to help him bear the heavy load he assumed during a time of economic crisis.
•••
Eli’s tenure started off on a positive note. As president of the Manufacturers Association, and as head of the Coordinating Bureau of Economic Organizations, Eli tried to facilitate dialogue with Yoram Aridor. Eli continued working full time as the CEO of Teva, but regarded his activities as president of the Manufacturers Association as a “national mission,” according to his own patriotic designation. During the three days each week that he worked in the offices of the Manufacturers Association, Eli sought to implement a moderate policy based on compromise and negotiation to address the major economic problems then plaguing the Israeli economy. His moderate approach was reflected in his responses to questions from the media on the price index and inflation. His predecessor, Shavit had leveled sharp criticism at the government on the fifteenth of every month, each time it announced the monthly consumer price index. As Shavit saw it, the raging inflation reflected by this index constituted just cause for attacking the government. Eli offered more picturesque language and concise responses, such as his assertion that “the index reflects only what was done to it.”
This peaceful state of affairs did not last long. From mid-1982 onward, Eli embarked upon a series of battles on two fronts: against the Finance Ministry, which sought to raise taxes and manipulate the exchange rate; and against the Histadrut, which continued to demand regular wage increases. From Eli’s perspective, both were, “a disaster for manufacturers and the State of Israel.” Nonetheless, he still clearly understood that compromise was the best means of extricating the Israeli economy from the labyrinth in which it found itself.
•••
On June 6, 1982, Israeli forces entered Lebanon,40 further complicating the country’s dire economic situation. Operation Peace in the Galilee, was a military imbroglio that ostensibly began with the limited goal of “removing all the settlements in the Galilee from the range of the Katyusha rockets positioned in southern [Lebanon]” and “cleansing” the 40-kilometer-deep strip of Lebanese territory north of the Israeli-Lebanese border. This was to be accomplished within 48 hours. The operation ultimately concluded with Israel’s conquest of the eastern and western outskirts of Beirut, which was far beyond the aims initially presented. From the very onset, defense minister Ariel Sharon and IDF chief of General Staff Raphael Eitan sought to have the IDF advance beyond the 40 kilomete
rs stipulated in the original plan in the hope that this would enable them to drive the irregular Palestinian forces out of Lebanon once and for all. After receiving government authorization, they plunged Israel into a complicated war that lasted three years.
Eli initially supported the operation. He too viewed the state of affairs, in which hostile forces could fire into Israel from Lebanese territory, as unacceptable. That said, for a significant period of time prior to the hostilities, no rockets were fired across the border. The trigger and pretext for the operation was the attempted assassination of Shlomo Argov, Israel’s ambassador to the United Kingdom, by Arab terrorists. Upon the outbreak of hostilities, Eli joined his artillery unit in which he had been serving in recent years, as he had done during past wars. Although Eli had recently celebrated his fiftieth birthday and most of his age group had been released from reserve duty long ago, he had requested to continue serving. As far as he was concerned, it went without saying that when the fighting erupted, he too would set out for the battlefield.
During reserve duty, he was unable to fulfill his responsibilities at Teva and the Manufacturers Association. Dov Lautman temporarily replaced him at the Manufacturers Association. A few days after the fighting began, Lautman signed a package deal with the Histadrut that Eli had approved in principle. This was only two months after the previous agreements had expired in April 1982, which was extremely quick by Israeli standards at the time. Eli believed that the major hardships then facing the Israeli economy required that everything possible be done to ensure that all economic maneuvering take place in calm waters. It was not a time to fight with the Histadrut, he determined, but rather a time for industrial quiet. This is why he led the way to a quick agreement, but had not had the chance to sign it due to the war.
Aridor, however, took personal offense to the fact that he, as finance minister, was not consulted. He regarded this move by the employers and the Histadrut as tantamount to betrayal of the Israeli economy. The Histadrut and the Manufacturers Association had signed wage agreements “during the early morning hours,” Aridor charged, “like thieves in the night, while the soldiers of the IDF were fighting on the front…. The agreement reached is irresponsible. The economy cannot bear the wage expenditures that were decided upon.” Aridor’s criticism caused Eli to “explode,” to use his words. After all, while Eli was on the front lines of the war, Aridor had leveled extremely serious charges against him and his colleagues. Nonetheless, he asked the leaders of the Manufacturers Association to restrain themselves and wait for a ceasefire to issue a response.
Eli Hurvitz and the creation of Teva Pharmaceuticals: An Israeli Biography Page 22