In the Israeli investor community, few things generate more excitement than the term “acquisition,” especially when a buyout involves an Israeli start-up being acquired by an American multinational.
Acquisition — for the company’s owners and stakeholders, at least — means access to new technologies and markets, as well as millions of dollars in stock and cash.
But among the Israeli employees of these buyout candidates, the term sometimes has a chilling connotation. Statistics on how many workers have been let go due to an acquisition or buyout are very hard to come by — companies don’t necessarily publish the data, and news reports are very selective — but the experience of some workers at Comverse, formerly one of Israel’s biggest tech firms, provides a hint.
Comverse — once a giant in the telecommunications business that employed 3,000 people — was forced, due to legal problems involving an options backdating scandal, to downsize staff significantly. Last year, 245 former Converse workers were transferred to the Indian firm Tech Mahindra, which struck a deal with Comverse to use its workers to do R&D work in Israel.
But when it acquired those workers, Tech Mahindra tried to “adjust” their contracts downwards, according to Israel’s biggest labor union, the Histadrut. This led the union to declare a work dispute over “the refusal of the company to discuss the workers’ futures, even as it demands that the workers hand over crucial knowledge and intellectual assets.”
New support staff hired by the company to assist in the Comverse projects were hired not in Israel, but in Tech Mahindra’s home country, “leading us to highly doubt the efficacy of its promises to workers,” the Histadrut said.
Under Israeli labor law, a strike may be called two weeks after a work dispute is called. The Tech Mahindra workers have not gone that far yet, but the dispute has not yet been resolved. In a statement, Tech Mahindra said that it “sees its Israeli workers as an important resource” and that it was anxious to resolve the dispute.
What happened to the former Comverse staff is exactly what many workers in other Israeli technology firms fear will happen to them — a sudden change of fortune in the firm leading to an M&A deal or “partnership” with a multinational, resulting in the institution of new rules, roles, management policies, and pay scales, and the eventual shuttling of jobs to other units and locations that are more convenient or profitable for their new corporate masters — which, as the workers knew all along, was interested only in the technology they produced, and not in their skills.
But what choice did Comverse really have? With major legal problems clouding its future, the company was losing business — and falling behind in technology development. “Outsourcing” itself (Comverse broke itself up into two separate companies), as well as outsourcing its workers, was a survival strategy. And, indeed, many of the Israeli companies that offer themselves up on the altar of M&A really have no choice — it’s either merge or die, according to Harriet Lipkin, a partner at the international law firm DLA Piper.
At a symposium in Tel Aviv on March 2, Lipkin and several top executives of the high-tech industry discussed the implications of M&A on workers and management from a legal, ethical, and financial perspective.
“One important reason that a company goes for an M&A deal is because they don’t have the resources to expand in the market or continue developing their technology,” Lipkin explained. “It’s either join up with another company that does have the resources, or wither away.” In the former case, some workers may be let go, because there are likely to be some in the acquiring company who are already doing the same job as a worker in the acquired company. But in the latter case, “everyone loses — both management and workers,” said Lipkin.
It’s a form of triage, but companies that go for such deals must be honest with their workers — and offer them some help. “Today, the main reason workers turn to unions and seek collective bargaining agreements is because they feel insecure about their future,” said Lipkin. “In truth, many of the former benefits that workers enjoyed because of unions and collective bargaining — such as health insurance and pensions — are now legally guaranteed to all workers.
In Israel there are laws requiring employers to provide pension payments to workers, while in the US 401k plans allow workers to fund their own “portable pension.” And with national health insurance in Israel and the Affordable Care Act, aka Obamacare, in the US, one of the biggest benefits of traditional collective bargaining agreements has been upended.
So when workers in tech firms go for union representation, it’s because they are afraid they are going to get “cut out” at some point — when they get too old, or when the company gets sold. “We have nothing against unions, but when you get into legal issues, such as collective bargaining agreements, things become messy when a company wants to make an acquisition or gets acquired,” claimed Lipkin. “If employers are straightforward about how things will work — who is likely to be retained, and especially what will be done to help those who are let go — workers will feel more secure, and will be less likely to seek outside intervention to ensure their security” in the form of unions.
If unions aren’t needed to protect workers, who will guarantee their basic rights? “That question may have been relevant a long time ago, but today it isn’t,” Lipkin went on. “Without good talent, a company is not going to be able to compete. And today, especially in Israel, it’s a ‘seller’s market,’ especially for top programmers, but even for less-stellar talent. When a tech company says today that ’employees are their greatest asset,’ they mean it, and they know that a worker can pack up and leave for their competitor tomorrow. If an employer treats their workers fairly — if they do not play favorites, if they make clear what the grievance procedures are, if management has its door open to hear the complaints and concerns of workers — then things will work out just fine without the need for unions, which, let’s face it, have interests of their own. The clearer things are, the better for everyone.”
That clarity, if it exists in Israeli tech firms, is not working for employees at numerous firms who have in recent months signed up as Histadrut members. Workers at firms like NCR, Amdocs, Partner (formerly Orange Israel), Ness Technologies, cellphone service provider HOT Mobile, and numerous others have only in the past year organized workers’ committees that have been negotiating collective bargaining agreements with employers.
Yaki Halutzi, the Histadrut’s chief labor organizer in tech firms, sees the process as normal. “Workers look around and see what has happened to colleagues in other companies, and they are afraid. Anybody can get ‘excessed,’ whether they are a top worker in a tech firm or an assembly line worker. Comverse started out with 3,000 workers, and by the time we got involved there were only 750. What happened to the rest?”
In addition to this general job insecurity, workers in tech firms have an additional reason to worry, said Halutzi. “There seems to be a general rule in many tech firms that once you turn 45, you become useless to the company, regardless of their skills or contribution to the company. It’s quite common, and the agreements are there to protect those workers as well.”
For these reasons and more, there is a need for union representation in tech firms. But employers do not need to fear the Histadrut, added Halutzi. “I am aware of the argument that collective bargaining agreements somehow ‘discourage’ M&A deals, but I don’t think that is the case. And in any event, we are not against such deals, especially if it helps Israel’s tech economy, which we are very proud of. Our one and only concern is for the workers — the ones who built the company into the attractive firm that is now getting the attention of a multinational who sees the value of its work. The workers are the ones who made that happen. You just can’t throw them under the bus and walk away.”
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