The $2 billion agreement announced last week, through which billionaire investor Warren Buffett’s Berkshire Hathaway firm is to purchase the 20% of the Israeli firm Iscar that it did not already own, raises the question of how it will affect the company’s employees.
Because the company is essentially a blue-collar industrial firm rather than a high-tech firm of the kind in which individual employees are more likely to share in the benefits of a company takeover, the workers are not expected to see much, if any, financial benefit from the deal, nor do they expect it.
The transaction calls for Berkshire Hathaway to pay the Wertheimer family about $2 billion for their remaining stake in the toolmaking firm, based in Tefen (in the north of Israel). The company, now formally known as International Metalworking Companies (IMC), was founded in 1952 by Stef Wertheimer, who handed over the reins to his son Eitan in 1995.
Iscar is an advanced industrial concern, the second largest of its kind in the world, employing 2,500 people in Israel alone. It’s also a traditional business, though, built around products that you can see and touch. It’s a real industrial enterprise where workers don’t talk about their stock options, don’t all get annual bonuses, where management doesn’t go around in suits and ties, and the CEO doesn’t have a plush office.
Everyone eats together in the staff dining room and it’s not easy to pick out management from assembly-line staff. This style of management is no small thing when you consider you’re talking about a business worth no less than $10 billion. But Iscar employees don’t expect a share in the profits from the sale of the founding family’s remaining share of the company to Buffett. Unlike the high-tech sector, compensation at industrial firms like Iscar is dependent on the goodwill of its owners.
When Buffett bought his 80% stake in the company in 2006, the workers got bonuses for the equivalent of one month’s salary for every billion dollars Buffett paid (meaning five months’ salary). Based on that logic, the Wertheimer family should pay them two additional monthly salaries now, but no one is promising that this will happen. A public relations representative for the company explained that “the ink had not yet dried” on the agreement. She considered it embarrassing to ask Eitan Wertheimer for a response and Wertheimer himself, when asked by TheMarker directly, didn’t address the issue head on.
“We treated people well [in 2006], and we haven’t changed since,” he told TheMarker. “There are wonderful people at the company and I can only express a big thanks to them. Some of them are also my best friends, and there are families that grew up with the company. We’re like siblings.”
Wertheimer said as a formality he is leaving the company, but he promised: “I will be there whenever Warren Buffett or [Iscar CEO] Jacob Harpaz want me.” And he added: “One of the most important things in the deal is that Buffett, who is considered perhaps the most interesting investor in the world, says that Israel is a good place to do business.”
Buffett, he said, has also clearly promised that the company is staying in Israel.
From its early days, Iscar always looked after the well-being of its employees, based on the vision of founder Stef Wertheimer. And job security is the first principle of the company’s vision. That principle was put to the test in 2009, in the face of the global economic crisis, when Iscar’s sales plummeted by 40%. Many companies instituted major layoffs at the time, but Iscar decided not to lay off a single employee, and Harpaz flew to Berkshire Hathaway’s headquarters in Omaha to explain the decision.
“When thousands of employees [elsewhere] were being laid off, we had our salaries cut, but no one was let go,” one longtime employee said. “The employees are loyal to the company because the company is loyal to them.” As one employee said: “Anyone who comes to work here knows he won’t get rich, but job security at a successful workplace, especially one like this that cares about you, is no less important, if not more so.”