"I have had no hints or suggestions from anywhere. I feel good at Teva, I have long-term plans, and I see myself continuing as CEO of the company in the years ahead."
And if you were to receive an offer to become CEO of Pfizer, for example?
"I'll answer that with a question. Why shouldn't the CEO of Pfizer replace me when I leave?"
This response by Shlomo Yanai (58), president and CEO of Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA), one the 15 largest pharmaceuticals companies in the world, faithfully reflects the change that has come over him in the past few years. When he came to the company after heading Makhteshim Agan Industries Ltd. (TASE: MAIN), there were some raised eyebrows. What had the former general with 32 years of military service behind him to do with the flagship of the Israeli economy? What was the manager of a chemicals company doing at a pharmaceuticals company? He'll ruin it, and cause the collapse of "the people's stock."
Despite the years that have passed, Yanai remembers every word said and written about him then. The archive of reports is filed in his heart. But now, at the beginning of 2011, he has every reason to feel a winner. He is celebrating four years as CEO of Teva, and the company's board and investors continue to express faith in him.
"Four years have flown past," he says, in a special interview with "Globes". "It feels as if I just arrived yesterday, because the job is very intense. Our market cap today is about $50 billion, and over the period we have doubled ourselves, from sales of $8.4 billion to projected sales of $16.4 billion in 2010. When I joined Teva, its annual profit was $2 billion, and now we earn over $4 billion a year. We employ 41 thousand people, we have made acquisitions in the billions of dollars. The Teva of 2005-6 and the Teva of today are two quite different companies."
Do you plan to retire from Teva, or are you thinking about the next job?
"One of the nice things about a person's life is that the future is unknown, and so he has no way of answering questions such as 'What will you want to be when you grow up?' or 'What's your next job and where will you be in ten years time?' By now I have learned that the best way is not to score in some imaginary jobs basket, but to wait patiently, and life leads you along. For the time being, that has worked fine for me."
In the light of all the political changes taking place, don't you have itchy fingers to do something? Have you not received approaches to attract you into politics?
"I receive approaches from all kinds of directions. Friends of mine have gone into politics, and that's something I saw during my time in the army as well, it's part of Israeli reality. When I left the career army, I decided not to enter that world but to go somewhere else, so it has never tempted me. But that doesn't mean that I don’t care, like any citizen. There are things that outrage me, things that anger me, and things that I very much regret in the economic, social, and general reality in Israel."
So for the time being you have decided to leave these matters to dinner party chat?
"It's not just chat. Who said the only way to act is through political activity? There's a right way of being economically active as well, and that is no less important an aspect of the country."
Should we understand from that that you might enter politics shortly?
"Maybe someday. Not now."
It seems that things are good for Yanai at Teva. In the past, he has declared that from this post he will retire to his house, his family, and his garden. Meanwhile, he says no to all the offers that stream in. No to the post of chief of staff, which has been offered to him at least twice; no to being head of the Mossad (the approach came from Prime Minister Benjamin Netanyahu, with president Shimon Peres's blessing); and no to the wearying round of political meetings on the way to becoming a member of the Knesset.
Yanai's vantage point, which is military and strategic and also business and economic, is a rare commodity.
You say that there are things that anger you. What angers you in particular?
"Do you know an Israeli who has just one thing like that? Instead of reciting the usual list, the regional situation, the welfare gap, declining education, and all the rest, I'll say that what bothers me in particular is the lack of leadership, superficiality and shallowness. These are the root causes of the dismal situation in which we live."
Superficiality and shallowness among politicians?
"Not just them. Mainly in the political class that is supposed to lead and guide us, but also in many characteristics of our culture. What is leadership? It's a proactive approach of people who identify where change is required and are prepared to adopt a line of action to make it happen. For that, you have to construct a strategy, to put forward a vision, goals, and plans of action to reach them. After that you need determination and the ability to lead from the front despite the difficulties along the way.
"Now look at the reality. We are not active, because we only react to what happens around us. Today, there is no initiative or agenda. Our leaders lack the ability to take us in a particular direction and lack the ability to decide to such an extent that I read recently that the Ministry of Finance and the government plan to hire an international consultancy to set goals for Israel for the coming years. Have they privatized that as well? They're bringing in a firm of consultants to do it? What is leadership if not setting directions and goals for the years ahead? What happens in practice is that the politicians generally pass decisions to the Attorney General, Yehuda Weinstein. Why? Because here, no-one decides. They have privatized the decision, and even the ability to decide. Therefore, to my mind, there is a deep crisis of leadership."
Maybe things are like that because, on a range of subjects, there is no public debate? It is claimed that people simply don't care enough to be active.
"Certainly not. There is public debate, even lively debate, but it is very shallow and superficial. It carries a great deal of spin, debate for the sake of headlines, attention, and rating. Some of it is genuine discourse, touching on deep and difficult matters, but some of it is not, and the two have become mixed up.
"There are weighty issues that are discussed, that get mentioned week in, week out, but there is no deep, consistent process regarding them. Take for example the negotiations with the Palestinians. It's a subject that comes up all the time, but there is no process. On the contrary, there is even a desire to prolong negotiations endlessly, or to drive them into the ground. Then comes the moment of decision, and no-one decides. The same applies to education. Every week another public figure says the right thing for the headlines, but there is no serious plan of action. Only slogans bereft of vision or strategy."
The Israeli paradox
Yanai agree that the very words "vision" and "strategy" are worn out expressions. Everyone talks about strategy; few really act according to one. But as far as Yanai is concerned, those who have served under him and worked with him over the years, especially former Teva chairman Eli Hurvitz, testify that the ability to plan for the long term is one of his strengths.
Yanai describes Israel's paradoxical situation. "On the one hand, this is a country with extraordinary abilities and talents. I know of no other country with so much intelligence and energy per square meter. On the other hand, I have no answer to the question why, out of all the abilities we have and all the potential, we have not managed to evolve a worthy leadership. There are good people in Israel, but they are absent from the leadership, and that is Israel's worst point of failure. It could be that it is the political system that has brought this about, but it could also be argued that a leader in the true sense of the word would have seen to a change in the system."
Despite the paradox, Yanai gives credit to the general public. In his view, we are in the midst of a social process that could lead to change. "Changes are happening, but it's hard for us to see them as yet," he says. "After the Soviet Union fell, everyone was exercised by the question how they failed to see the signs. We don’t know how to spot some of the most important things that happen to us, except in retrospect. I say this because I think that there is a point at which people say, 'Enough.' There is a growing expectation among Israelis that from this impossible triangle - the abilities that are here, the great challenges, and the impotence of the leaders - there should emerge something more to the point. How will it happen? One option is social ferment, but we don't have to come to that. There are enough thinking people in Israel who can have an impact on affairs, who can say, 'Folks, we have to change the way things are.' There's a great deal of activity like this in the air."
In the period 1999-2001, shortly before he left the IDF when then chief of staff Moshe Yaalon appointed Gabi Ashkenazi as his deputy, Yanai was the IDF's representative and head of the security delegation to the talks with the Palestinians and Syria. In fact, he was one of the last people to talk with the Syrians directly.
A decade has gone by since then. What do you think of our situation in this area now?
"Everyone has his or her political stance, which is fine and legitimate, but both those who hold right-wing views and those who hold left-wing views, especially after the prime minister unveiled his approach formally in his famous Bar-Ilan speech, understand that there is consensus about one thing: we have to reach peace with the Palestinians in the territory between the Jordan and the Mediterranean Sea. This declaration has been made by both sides, so it is inconceivable that each one, according to its views, should not put forward an action plan, that is, if they are sincere, which is a question in itself.
"The fact that we are not acting in this way is a mistake of the first order. Israel should have led the process, and should not wait for others to do the job for it. Achieving peace is not a Palestinian interest, it is our interest, for all our sakes and for the sake of the State of Israel, in the broadest sense. The internal social fabric is entirely affected by the reality in which we now live.
The dispute with the Syrians has a different model from that of the dispute with the Palestinians. It is more like the situation we were in vis-à-vis the Egyptians and the Jordanians. It is a dispute about a border between two sovereign countries. When they agree on the line between them, the dispute will end at once.
"The situation viv-a-vis the Palestinians has national and historic significance for the entire Arab world. It’s not them there and us here it's a model of a common home, and you can't put a fence through the stairway. I won't get into advising what should be done, I only argue that we are clearly not taking the right line of action."
At the time of the talks with the Palestinians and the Syrians, did you have the impression that an agreement was imminent? Did you think a decade would pass and everything would remain stuck?
"I was convinced that we would reach an agreement faster than the years that have gone past. I thought then, and I am convinced today, that it is possible to reach a peaceful solution with the Syrians, and that is one of Israel's great missed opportunities, that it is not taking determined action on this issue. It is vital for the State of Israel."
The crisis isn't all over
If not of negotiations with our neighbors, do we at least have reason to be proud of the economy? After all, Israeli companies have come through the crisis better than their overseas counterparts. Yanai is in no hurry to give us a clap on the back. "In my opinion, the global crisis is still not all over, and we have to beware of complacency," he says. "The shekel is strong, but that is also because other currencies have weakened and so there is an influx of dollars that strengthen it. In other words, the current strength of the shekel does not necessarily indicate that the Israeli economy is strong. We should not become intoxicated by this, but we should look squarely at the situation and understand that if the interest rate in the US should rise substantially tomorrow, there will be a huge movement of dollars back to the US, and the shekel will plunge accordingly. Governor of the Bank of Israel Stanley Fischer is one of the best things that has happened to us, because in this tough reality he tries to balance things.
"The fact that Israel came through the crisis successfully is not because of dramatic economic strength, but because the Supervisor of Banks and the Bank of Israel were conservative, and did not allow financial institutions to run wild. Politicians can of course attribute to themselves the fact that there was no crisis in Israel of high leverage, but I am convinced that it was thanks to that conservative behavior.
"We are a small country, very dependent on the global economy, that mainly exports knowledge. Knowledge is something we have for at least another 20-30 years, until the gas arrives, of course. Yes, that gas from which there has not yet been a cent in sales, and they are already dividing up the spoils. They even solved the problem of the firefighting service with the royalties from gas that has not yet been produced, and they want to solve the welfare problems with the money that the state will receive. Until it happens, we have to work, to export, and to build companies with value. That is what we are doing at Teva."
"We can see the industry revival"
Asked how 2011 looks, he answers, "The year has hardly got going. Most businesses overseas are on vacation from Christmas until the beginning of January. This is the quietest period of the year. But if our plans are carried out, 2011 will be a good year, as the pharmaceutical industry revives. It is expected to grow by 2-3% this year."
What will stimulate growth?
"Cyclicity. All in all, the difference is not dramatic. It is not as though the industry will suddenly grow 20%. Teva has an interesting position in the industry food chain, because we also supply raw material and sell to the market, not just to ourselves. So we can see the revival well. Another thing that will help this year is the continuing switch from expensive alternatives to less expensive alternatives through generics and non-prescription drugs, to ease the burden of health spending."
Last year, you made two large acquisitions. According to the known rules of thumb, at least 80% of mergers fail. How do you explain the fact at Teva it's different.?
"I have no scientific answer to that. We see every acquisition we make as a deep event of organizational change. We understand that acquisitions are different if they are made in Europe or in the US, different from country to country. One secret of our success is that we don’t destroy the asset being acquired but preserve it. We try to learn what it knows how to do better than we do, and in every company there are things like that. We plan the day after even before the start of negotiations, and ask ourselves what the synergies will be.
"In addition to that, we carry out mergers on equal terms. The integration is not from a point of view of 'the Huns are here', that is to say, our way or no way. We don't coerce, we try to find the best of both worlds. It sounds easy, but it isn't simple to do. Another point is that we have no corporate culture such as you find in global companies. There are companies where an implementation team comes from the US and explains to the local workers how to behave, even on what side of the stairs in the offices to go up. All our activities around the world are run by the locals, who know all the local nuances and intricacies."
No rush to the East
You have set a goal of $31 billion annual revenue in 2015. Does that act as an incentive for the employees?
"The strategic plan is very important to us. In running a ship of 40,000 employees in 60 countries, we must see to it that everyone knows where we are going and what the target is. The goals we have set take into account the fact that in this period of time the drug we developed for multiple sclerosis, Copaxone, will see a decline in sales, and other technological innovations will be introduced that make it possible to give treatments orally."
In the race to cut costs, will you consider transferring production activity from Israel to the Far East, for example?
"If it’s a matter of something small and specific that's in another country or some tactical opportunity, then we have no problem in doing it, but if it's a matter of strategy, that is, a decision to build up the company with the idea that its production centers will be in cheaper countries like India or China, you have to know two things. One is that, in the long run, the phenomenon corrects itself. That is what happened in Japan, which today is one of the most expensive places on earth in which to manufacture, and a similar process is occurring in China. Things don't last for ever.
"The second thing relates to transferring know-how. It's not just a question of losing intellectual property the moment they copy it and the know-how leaks out, but also the fact that in every transfer of know-how, there's a learning curve. It takes time until a plant produces the way we want, and that's also true of setting up a new plant. It took our factory in Jerusalem, for example, two-three years until it got to where we wanted it to be.
"In our industry, that learning curve has a price. If one of our tablets isn't exactly as we want it, that will have very tough consequences. Therefore, we prefer to make our systems more efficient and to introduce new technologies, or to try to set off labor costs. There's no need to rush off to the East, and because of that we have determined that Israel will continue to be a large production and R&D center. Teva's exports from Israel amount to $5 billion, accounting for 15% of total exports. Our R&D here is worth $500 million. That means that, although we are a generics company, we are among the five biggest investors in R&D in Israel. We are investing a further NIS 1 billion a year in expanding the plants. These are huge sums, that demonstrate that Israel continues to be our center in the world."
Published by Globes [online], Israel business news - www.globes-online.com - on January 24, 2011
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