'Profit Is Not a Dirty Word'

Seventeen years after leaving his post as CEO of Clal Industries and Investments, and nine years after the unpleasant split from his business partner Itschak Shrem, Aharon Dovrat, who died last week at age 77, harbored neither regret nor sorrow. In his final interview with Haaretz, a week before his death, he seemed very content with his current position as a managing partner in the private investment firm he founded together with his son Shlomo in the late 1990s.

"When Shlomo proposed that we set up Dovrat & Co., I consented. I had reached the conclusion that I preferred to work with my biological son, and not with my 'adopted son,'" he said, alluding to the nickname he once gave to Shrem before relations between the two men soured.

The match with his son Shlomo seems to have been made in heaven. The Dovrat family's venture-capital group, Carmel Ventures, currently manages assets valued at approximately $2 billion, which are invested in a variety of high-tech companies. This is an immense sum compared to that managed by Dovrat in the past. Yet, in spite of the prodigious amounts of investment capital, the money is being managed far from the public and media eye. Thus, Dovrat, once considered the all-capable executive at Clal, able to wield his influence over government officials and prime ministers, had become somewhat removed from the decision-making centers of Israel.

"I very much enjoy what I do as a private individual," he said. "I've discovered that feelings of independence and freedom are much nicer than the feeling of power I had when I used to manage public corporations. Now I can sit down with a journalist and say what I want, without having to answer to anyone. In a public corporation you can't do that."

Dovrat knew a thing or two about the influence of the press. As the person who for 26 years managed Clal Industries - the large holding company that owned NetVision, Compugen and a host of other companies, and also imported and sold cars and other goods - and as someone considered to be among the top-ranking and best-remunerated executives in the local economy, the public statements Dovrat made once carried a great deal of weight. In the late 1980s he drew sharp criticism when he described corporate board members as being like "potted plants." That statement revealed the fact that the CEO of Clal, then the largest and most profitable holding company in Israel, regarded the firm as his own private property, without the requisite oversight of his board.

"They nearly hanged me for that statement," he recalled, but then admitted, "Legend has it that when I ran Clal, I did what I wanted. Essentially, that's how it was."

Another statement he made to the media a decade ago had profound personal repercussions. In an interview given to Yedioth Ahronoth, he said that, "CEOs of large corporations are involved too much nowadays in financial engineering, and in monetary and stock market acrobatics, and too little in genuine management." That declaration was taken as criticism of his younger partner, and led to their breakup. The rupture between Dovrat and Shrem never healed and still pained Dovrat, who asserted: "I am not willing to talk about Itschak Shrem and I do not want to hear from him."

Dovrat may not have given many interviews, but his attitude toward the media in general and to the printed media in particular, bordered on veneration. "I am a media freak, who reads six newspapers every morning," he admitted. "The fact that every top executive now surrounds himself with public relations experts and media consultants is proof of the media's success, and of their influence on public opinion."

His love for journalism and the media went beyond reading the papers. As the CEO of Clal in the early 1980s, Dovrat initiated the publication of Koteret Rashit, a weekly edited by Nahum Barnea, in which Clal was the major stockholder, In its time the weekly was considered one of Israel's most influential publications. Nevertheless, it closed after six years.

Dovrat: "My object was to raise the level of journalism in Israel. Financially speaking, the newspaper failed, but not journalistically. Many of today's leading journalists cut their teeth at Koteret Rashit, and I think the level of journalism has improved since then."

His secret

A less successful adventure, in terms of both finance and journalism, occurred in the '90s, with the financial paper Telegraph, which shut down after three years of publication. Dovrat's media involvement also included a stint as the controlling shareholder in Poalim Investments (now known as Polar), which was in turn the leading shareholder in Reshet TV (Channel 2 franchisee) and the Matav Cable Systems television company (now part of Hot).

"Media is my great love and my great weakness," he said. "I think there is no economic sector that has such a great influence on our lives as the communications sector. To my regret, the level of debate that now exists on Israeli television is rather inferior, and I prefer to read the newspaper than to watch television."

In the past 10 years, Dovrat had vanished from the media eye. He claimed he was pleased with this situation, but before he "vanished," he was considered one of the most powerful and influential executives in the local economy. When his remuneration at Clal was made public (about NIS 30,000 a month in 1980's terms, equivalent to about NIS 100,000 today), he was also considered one of the wealthiest wage-earners in Israel. In an interview he gave in 1990, shortly before leaving Clal, he declared that if he had anything to be ashamed of with regard to his salary, it was the fact that it was too low.

Compared with current salary norms, it was low indeed. In 2008, Dovrat expressed criticism for wages earned by executives in public corporations: He believed that some of them were receiving excessively high amounts. "It's not that my opinions have changed, it's the salaries that changed," he explained.

"In the 1980s, there were two holding companies in Israel: Clal and Koor. Koor had a lot of problems and Clal was considered very successful, so everyone thought of me as a management guru. I had never studied management, and I never even completed my law studies in Argentina. When they'd ask me my secret, I'd say that the most important thing in management is common sense. I still think that way. A big part of the financial crisis we are seeing in the world now derives from a lack of common sense."

What are the major factors that in your opinion can explain the financial crisis that is spreading through the world?

"People have lost proportions. It is not possible for an economic high tide to keep on going ad infinitum. It is not possible for financial leveraging to come at no cost - for it to be possible to take more loans and more risk, and for everything to be just fine. Leveraging is not a dirty word. Taking loans at a level of 20-30 percent of the balance sheet is healthy and enables a business to grow, but in this crisis we've seen credit leveraging that has in some cases extended beyond 100 percent of assets, and that is lunacy.

"Before the crisis began, I did not know what subprime meant. After it began, I started to study the subject, and was astounded at the lack of wisdom that people showed. I read somewhere that Lehman Brothers leveraged $62 for every dollar of equity capital. Anyone using common sense knows that such things cannot work."

A fervent Zionist

Dovrat was born in 1931 in Buenos Aires. His parents had immigrated to Argentina from Eastern Europe. His father was a salesman who later founded a small picture-frame workshop; his mother was a housewife.

"As a child I was sent to two kindergartens, in the morning to a Spanish kindergarten, and in the afternoon to a Jewish kindergarten," he related. "So I grew up with two languages, Spanish and Hebrew, as well as the Yiddish my parents spoke at home."

After completing high school, Dovrat began to study law, but when he was 23, following his father's death, he left school and took the reins of the family business. In 1952, he married Dalia Tzur, daughter of the first Israeli ambassador to Argentina. They had two children, Anat, born in 1957 in Argentina, and Shlomo, born in Israel in 1959.

Some years after moving to Israel, the Dovrats divorced, and in 1978 he married again. He and his second wife Miri lived in Tel Aviv's Akirov Towers, and own additional homes in New York and Paris.

Dovrat: "I had always been a fervent Zionist and knew that I would immigrate to Israel. During my first year here I suffered a great deal, and it was only then that I realized how hard my parents' life as immigrants in Argentina had been."

The person who he said had the strongest influence on his career was Pinhas Sapir, who served as finance minister and later as minister of trade and industry during the Labor governments of the state's early decades, and whose picture was on permanent display in Dovrat's office. The two met in Argentina and Sapir proposed that he set up a factory in Israel. "I told him I would not build a factory, but if he had work to offer me, I would agree to leave everything and come," Dovrat recalled. Sapir arranged a job for him in the Ministry of Trade and Industry, in a department that assisted immigrants wishing to invest and do business in Israel. Sapir also initiated the establishment of Clal.

"Once Castro took over in Cuba, the Jews in South America, who previously had felt pretty secure, began to feel a lot less safe and they sent their money outside the country," Dovrat explained. "Sapir took note of this, and wanted these funds to get to Israel, where the money would help develop the economy. Sapir had the idea of establishing an investment company in which the majority shareholders would be South American Jews, with Israeli banks as partners. When [Clal] was formed in 1965, he offered me the chance to run it. At that time I did not have the slightest idea of how to run an investment company. I learned everything on the job. In the end, I ran Clal for 26 years and was the most veteran CEO in the Israeli economy."

What was the most significant step in Clal's evolution?

"The beginning was hard, and the company was operating with almost no equity. Its most significant move was the merger we initiated during the 1970s with a firm called the Central Company ("Hahevra Hamerkazit"), which was owned by 10 large, wealthy families. Central Company was four times bigger than Clal, but its shareholders were squabbling among themselves. I conducted negotiations with each of them separately, and managed to persuade them to merge with Clal. The merger brought into the portfolio several leading industrial firms, including Nesher, Ordan and Coca-Cola, and even a small stake in Teva. Essentially, this was the move that made Clal what it was, and after a few years turned it into the largest private investment holding company in Israel.

"Industry is my great love," he went on. "There is something magical about turning a product into money. In industry, you have to mix creativity, entrepreneurship, technology, design and finance. When people say 'industry,' they always think of machines. I think of people. In the past few years I have found that high-tech industry is more interesting than traditional industry. When I was a government official, I was always enchanted by seeing machines working. Now I am captivated by seeing people arguing over technological innovation. That is the magic of making something from nothing."

You used to have invincible standing at Clal. Why did you leave?

"At age 60 I decided that I wanted to be independent. At Clal I never had a contract. I was the only executive in Israel working without a contract."

Dovrat remained at Clal until early 1991, and when he left he took Itschak Shrem, then director of finance at the company, and also his right-hand man and close confidante.

Splitting with Shrem

Although Dovrat was one of the wealthiest wage-earners in Israel, his sources of capital were fairly limited. "At the start, we said that we would form an investment company with initial capital of $10 million, with the condition that no single investor could invest more than $1 million. In the end, we raised $17 million from friends and private individuals. Shrem and I each put in about $1 million. Our dream was to set up an investment company along the lines of Clal. We could flaunt management experience and we were the first ones to use our own names for an investment company," he said.

Dovrat and Shrem got into the private market at the right time. The bull market in the Tel Aviv exchange in the early '90s helped them to raise capital and make new investments. "We set a lot of firsts," recalled Dovrat. "The Polaris VC fund that we set up was the first private fund, operating alongside the government entrepreneurial funds. Dovrat-Shrem had two elements - there was the trading part and the holding part. I was more responsible for the holding part and for the industrial businesses that were concentrated in Ordan."

Five years after it was founded, Dovrat-Shrem had an opportunity to take the company to the next level. As stipulated in the recommendations of the Brodet Commission, Bank Hapoalim was compelled to sell its nonfinancial businesses and its investment company, Poalim Investments. Dovrat-Shrem swooped in on the opportunity. They dueled over the company with the Dankner family, which tried to stack the odds in its favor by buying up shares of Poalim Investments in the market. Yet Dovrat-Shrem eventually won, buying control of Poalim Investments, with a value of some $300 million, which at the time was approximately four times that of Dovrat-Shrem's value.

Dovrat-Shrem was not such a big company. Wasn't the Poalim deal a little bit too big for you?

"There is evolution in the life of an investment company, but sometimes you need a revolution, too. It reminded me of the merger of Clal with the Central Company, which changed Clal completely. The price we paid was not so very high. The Dankners, who were right behind us in line, offered $270 million for it.

"Poalim Investments had several outstanding assets. It had a controlling interest in the cable television company, and held shares in Reshet and some interesting industrial businesses. One of the jewels in its crown was Hazera, the agricultural-engineering company, which also possessed high-value land holdings. Before we bought it I went to them for a study day on tomatoes. I was extremely excited about the company, and felt that with proper management it could be the next Teva. Maybe the transaction seemed a bit large, but it was a calculated risk."

The purchase of Poalim Investments was a daring deal, and it apparently spelled the beginning of the end of relations between Dovrat and Shrem. Their considerable dependence on outside financing shook up the balance of forces in the company's executive suite, and Shrem began to feel that he could lead the company without his dominant patron. The destabilization of their relationship developed into suspicion and distrust in the wake of Dovrat's comment, quoted in Yedioth, regarding the tendency of some executives to focus on "monetary and stock market acrobatics" instead of management and leadership.

Was Shrem insulted when you stated that you were revolted by "monetary acrobatics"?

"When I said 'monetary acrobatics,' I was thinking of someone else entirely, but the press and media interpreted it to mean that I had him in mind. I did not have him in mind, but evidently the description fit. The crisis of confidence that then developed, along with Shrem's ambition of becoming number one eventually triggered the split between us."

In early 1999, Dovrat sold his holdings (approximately 20 percent) to Shrem for about $9 million. The deal was mediated by Dovrat's son Shlomo, who at around the same time was selling Oshap, the high-tech investment firm he had founded.

Dovrat-Shrem was an investment company that made a lot of headlines, but when you sold your part in it, you didn't get very much.

"I wasn't fond of all the noise around us, and that is one of the reasons why I am now in private business. The amount at which I sold seemed low at the time, partly because the transaction was prompted by emotional reasons. It was in both of our interests to close the deal quickly. The possibility of my buying him out was also discussed. I sold my part, but did not concede on the name and the good will. One condition stipulated in the transaction was removal of Dovrat from the company name. In the end, I am not sorry about that. That sale was one of the best things that happened to me, because it enabled me to make a change and to work with Shlomo."

You used to complain that your salary at Clal wasn't high enough. When did you start to feel that you were a wealthy man?

"I think I started feeling that I had money only in the past 10 years, after selling my stake in Dovrat-Shrem."

You claim you don't understand technology. What is the relative advantage that you bring to Carmel Ventures?

"Intuition is my greatest strength. It is a trait born years ago that has been enhanced by experience. I think my intuition about people is not bad. That doesn't mean I am not wrong sometimes. A person who thinks he is impervious to making mistakes should retire and go home."

During your career you've come across a lot of executives and business people. What drives them? What is their primary motivation?

"The first motivation is always personal profit. After that comes power, ego and influence. Another motivation is entrepreneurship and a creative drive."

Is profit always No. 1?

"Profit should always win out. Profit is not a dirty word, it is the ultimate motive in business activity. If the desire for power and influence win out, this will end up distorting the picture."

When you were a high-ranking executive, did you love the feeling of power that you had?

"Very much so. I had immense power and I very much enjoyed it. I had direct access to anyone in the country: directors of local councils, bank directors, and the like."

Did you exploit this power?

"Only for the good of the business, never for my personal benefit. I always lived modestly. One of the advantages of big, strong holding companies is their ability to move things, to receive financing, to do things. If I wanted to set up a factory in Karmiel, I could pick up the phone, speak to the mayor, and ask him to help me get it off the ground.

"A large holding company also has a magnetic power to attract talented people and first-rank managers, and the power to sustain and protect companies going through tough times, if it sees that they have the ability to succeed in the long term. Smaller organizations have a harder time doing that. There was a time when large holding companies also had easier access to equity. That is no longer the case."

Whom do you admire among business people in Israel today?

"I think Nochi Dankner is a talented person who is doing an outstanding job at IDB. I am also astounded by the daring and initiative of people like Yitzhak Tshuva and Eliezer Fishman. I do not know Lev Leviev as well and cannot render an opinion about him."

Don't you think they sprang up too fast? That they used overly aggressive financial instruments?

"I don't know how to assess that. I remember that when Tshuva bought the Plaza Hotel [in Manhattan], I was shocked by at the man's audacity. I cannot say if he bought low or high. Not too long ago I met in New York with a very senior banker who told me he was interested in buying an apartment in Manhattan and that he was wavering between the Plaza and the Ofer family's tower on Central Park West. 'You see,' he told me, 'at the end of the day, I have to decide between two Israeli developers.' And these are entrepreneurs who emerged from a country where, only 30 years ago, you had to beg to get people to come and invest money."

Why don't businesspeople in Israel join the political establishment?

"I think one reason is their fear of the resentment with which such a step would be received in the media. The link between the media in Israel and the law-enforcement establishment is problematic. The fact that material from police interrogation rooms is leaked to the media does serious harm to individual rights. It's lethal. When it comes to things like that, I am a bit envious of Americans.

"In the United States, private business people, like Henry Paulson, who was the chairman of Goldman Sachs, can join in and become cabinet secretaries. Obama can approach the best professionals and add them to his team. The culture in Israel is different: If a businessman says he wants to influence the public agenda, he is told, 'First prove that you are not a thief.' The antipathy in Israel has reached a point where you are deathly afraid of being in the public limelight."

What party do you expect to vote for in the upcoming election?

"I still haven't decided. I've generally voted for Meretz in the past, and probably this time I'll vote for the new left party. I also voted for Rabin and Barak in their time, but I'm probably closer to Yossi Beilin in my opinions. I never was one to hide my left-wing views. As early as 1967 I said that we should give back the territories, unilaterally. I'm a radical peacenik, and it's something I had more than a few arguments about with Sapir. I think the terrorities have been a disaster for Israel, a disaster that has gone on for 41 years."