By Debbie Kaufman
Lots of startups hired Americans as top executives in order to facilitate entry into the United States market. The ploy proved less effective than expected, according to a study by Avner Halperin of MIT's Faculty of Business Administration.
The paper, written in 2000-2001, examined private companies that maintain dual headquarters in Israel and in the U.S., and that employed from five to 50 people. All the firms engaged in communications, Internet or data security.
Halperin interviewed workers from 12 startups at their Israeli and U.S. offices. He also interviewed five executives of venture capital funds that maintain offices in Israel and in the U.S., and analyzed data of 90 Nasdaq-listed companies.
In 25% of the covered companies, the CEO was an American. In half the cases the CEO worked out of the U.S., and in the other half he was based in Israel.
The result: Every one of the companies wound up firing their American CEO. One company collapsed outright, Halperin found.
The idea of employing a foreign CEO had been wildly popular with Israeli companies. In practice, it proved a total flop, Halperin wrote.
Fatal culture clash
American executives are emotionally uninvolved with Israel. They aren't interested in visiting the country, which widens the gap between the U.S. headquarters and the R&D center in Israel.
None of the Israeli companies issued on the Nasdaq have an American CEO, Halperin points out.
"Some of the VC funds have got the point and have stopped pushing to bring an American CEO on board. Some American investors, however, still try to get the companies to do so."
The causes of failure are usually cultural. Halperin gives the example of an American CEO who, visiting his company's R&D center, expressed his wish that the production process be done otherwise.
He was appalled three months later to find that his instruction hadn't been followed. The Israeli engineer, for his part, didn't understand why he was in the doghouse. What he didn¿t realize was that when an American CEO says "I think" he means "I decided and you will comply".
"Generally," says Halperin, "Americans are used to working with Americans. The choice of suitable workers should be based on whether the worker is open to different cultures, whether he speaks other languages besides English and whether he ever traveled abroad."
Running geographically split companies as one
The greatest challenge, Halperin believes, is to run the split company as one, rather than two separate companies.
He recommends designing the two offices using similar style, holding events in which both offices participate, giving similar holiday gifts to the workers, and of course, granting employees of the two places the same perks.
Another kind of solution is to correctly position the company leaders. For instance, if a startup was founded by several people active it its management, who communicate well, they should be split up among the different centers. As a side bonus, they can yell at each other from a distance and not risk major conflict.
Organizations which concentrate their leadership in the U.S. leave nobody in Israel to make decisions for the local unit, which can be fatal for the development effort.
"Workers' motivation falters, and the marketing and development divisions fail to communicate. Organizations that had founders stationed at both bases maintained higher stability," Halperin says.
He also recommends that Israeli workers be required to have full command of English, especially the top executives. Americans are highly sensitive to accent, which can facilitate or kill the connection between the two companies.
To achieve lingual harmony, it is better to recruit workers that have spent a long time overseas.
"Israeli companies based in the U.S. employ Israelis as well, and they tend to speak Hebrew to one another. The Americans are disconcerted by this habit, which leads to alienation between the two groups," Halperin chides.
He adds that CEOs who demanded their workers not speak Hebrew in the hallways were more successful.
"Create synergy between the two cultures. It is important to combine the entrepreneurial nature of Israelis, who are better at improvisation and quick responses, and the Americans' knack for long-term planning and market understanding," Halperin advises.
Some more tips - it's best to set up office on the east coast, because of the time differences. Don't ignore cultural differences, which become a laughing matter in the organization. Try to identify culture clashs and mix up the Israeli-American teams. Most important: Have the workers meet face to face as much as possible.