NICE CEO: "Every conversation with investors starts with the madness of the Israeli government"
NICE CEO: "Every conversation with investors starts with the madness of the Israeli government"
Barak Eilam discusses the existential threat the judicial coup poses to Israeli tech and why AI could be a huge growth engine for the company
"I have lived in the U.S. for 13 years. Whenever my being Israeli came up in conversation with clients or investors, it was only an advantage. But in recent weeks, every conversation begins with the madness of the Israeli government. A senior official in the global financial community told me a week ago that the government has decided to activate self-destruct mode for Israel's economy," Barak Eilam, CEO of the Israeli multinational company NICE, told Calcalist.
For nearly a decade, Eilam has served as CEO of the giant company with a market cap of $13.3 billion and 8,500 employees worldwide, including 1,000 in Israel. NICE provides both cloud and on-premises enterprise software solutions that help organizations deliver better customer service, ensure compliance, combat fraud and safeguard citizens.
Eilam was among the first to express opposition to the government’s judicial coup, publishing poignant posts on LinkedIn where he has 26,000 followers. In January, when Justice Minister Yariv Levin announced plans for the judicial coup, Eilam warned of its disastrous implications, writing: "Finishing up three days of multiple meetings with investors and customers. There is no way to sugarcoat it: the minister of finance Bezalel Smotrich and the actions taken by the Israeli government are disastrous to the economy and reputation of Israel,” and received a barrage of criticism in response.
What made you rush to express your criticism when you heard about the judicial coup?
"As someone who is at the head of one of the largest public companies in Israel, I have not only the right but also the duty to voice my values at significant moments. For me, these are issues related to human rights, equality, and preserving democracy. I [voiced opposition] not only regarding Israel, but also when the U.S. Supreme Court overturned Roe v. Wade. I'm happy to see business leaders in Israel taking a stand, and would like to see CEOs of large high-tech companies do it. Remaining silent is a position."
Do you not feel that it is problematic and maybe even easy [to criticize] as someone who does not live here, but visits from abroad?
"We are one of the three largest high-tech companies in Israel. As a company that employs a large number of workers in Israel, most of the taxes we pay are in Israel, most of our intellectual property is in Israel. Our contribution to the state budget whether through direct or indirect taxes, including money we spend in Israel, is large enough that I have the right to comment. I live in the U.S. because that's where I'm most productive as CEO of a global company and our biggest investors and customers are here. There will always be those who don't like it, but it won't stop me from expressing an opinion. My position is based on fundamental values, and has nothing to do with my political positions which I keep to myself and which might surprise people."
Are you directly affected by the judicial coup? Because you are not a company that needs to raise capital.
"Let's be honest: in a country where the judiciary is not completely independent, investing is extremely risky and its companies will be worth less. Second, CEOs need to consider where to develop their technology and register it. After all, we don't have factories - our asset is software. You want to put important assets in a place that is secure. You pay taxes according to where you register your intellectual property. Israel will be a less secure vault for intellectual property if such legislation passes. This will harm the ability to sell products that come from Israel. These are the things that will be impacted."
So you wouldn’t register new intellectual property here?
"When companies don’t register their new intellectual property here, they won’t proclaim it loudly. My main concern is first and foremost NICE. Regarding NICE, we will examine the situation closely and register our intellectual property in a secure place where the judicial system is independent. We will have to see what passes and what does not. But if the Israeli judicial system stops being independent, it is dangerous for companies to register property here.”
In any case, the coup is on hold at the moment.
"I am the CEO of a large organization and I am not a politician. When I examine things, I examine them on the level I understand - management. A successful government, beyond being a political body, is firstly an administrative body. Israel, in my opinion, is under the poorest management in its history, in terms of a clear strategy, building a quality and loyal team, and this is partly a result of its leadership. Beyond that, I would like to see at the head of the system a person who is not of retirement age, not due to age but because a leader with more dreams than memories and accounts to settle is important. The time has come for the younger generation to lead the country. At the moment, the feeling is that politicians are trying to destroy what it means to be Israeli."
Young leadership doesn't exactly exist in the U.S.
"This is like when children cry, 'But why are they allowed to do it?' Every country needs something different. I believe this is what is right for Israel. They are allowed because they are the greatest power in the world, and we have to do the best we can."
Are there real reasons to stop investing in Israel or to transfer money from here? Or is this mainly a result of negative noise that you, the business community, have created here?
"The economic engine that has allowed the country to prosper is the high-tech and defense industries. If you remove them from the basis of Israel's economy, Israel’s economy will weaken and lose its competitive advantage. In order for Israel to excel, it needs the most supportive environment for this engine of growth, and everything that is happening here is accomplishing the opposite. I am worried about the harm that is being done to Israel's reputation."
Do the managers of investment funds care who appoints Israeli judges?
"For high-tech investors - whether from institutional funds or VC funds - willingness to invest in companies is based on a dream and a promise, combined with transformative technology and a business model. Noise is not good for raising funds in Israel. Because when intellectual property is registered in Israel, the fear is that if there is a dispute, there will not be legitimate legal protection. So why take that chance, when there are many alternatives."
It is easy to blame the judicial coup for the plunge of the economy, but there is also an international economic context of extreme interest rates and inflation.
"But when there is a spark (in terms of the state of the global economy), we shouldn’t add more incendiary materials. We are experiencing a period of transition between economies. We managed to cheat the basic economic laws with a lot of cheap money in the last 15 years. We have experienced an almost unlimited infusion of capital into technological innovation, but it will stop and become more selective in favor of companies that solve a technological problem and have a stronger business model. The current period is equivalent to the bursting of the bubble in the early 2000s. After the bubble bursts, companies with an idea but no income will no longer exist. I think the high-tech industry is moving to a stage where it is not only generating revenue but also having a visible business model of profitability.
"In my estimation, more than 80% of Israeli high-tech companies are not profitable. In order to exist, they constantly need an injection of money, and have become accustomed in the last decade to growing this way. Now, with global interest rates of about 5%, the whole world is running away from risky assets. To convince investors to move away from safe assets to risky ones you need to show a business model where the return on investment is faster. Being just a growing company is no longer enough. You need to be a growth company with profitability. This means that less money will go to early stage startups, and investors will be more selective because of both the global economic situation as well as what’s happening in Israel. It is a difficult transition and few will survive it. But those who do will build the next NICE."
Somewhat unusually, Eilam, married and a father of two, has spent the entirety of his career at one company - NICE. He studied electrical engineering at Tel Aviv University, and in 1999 joined NICE as an engineer, climbing through the ranks from junior engineer all the way to CEO in 2014.
NICE began its journey as an Israeli company founded by veterans of IDF technology units. It has been a public company since the 1990s and is traded on the Tel Aviv Stock Exchange as well as on Nasdaq. Most of its intellectual property is still registered in Israel. Eilam, who began at NICE when it was a fairly small company, now manages a huge company that has 25,000 customers in 150 countries, with 85 % of the largest companies in the U.S. using its products. It has a multinational management team that is based mainly in New Jersey and distributed around the world. NICE’s Israeli office is in Ra'anana, but the judicial coup may impact this.
Is NICE’s R&D center in Israel in danger because of the judicial coup?
"I will not speak specifically to our decisions, but every manager must serve the interests of his investors. I will do everything so that our value of $13.3 billion is protected. Changes we make will be based on this goal - that's what I'm paid for.
"I’ve fought over the years to keep the NICE office in Israel, which is no small feat because Israel is expensive. The cost of a developer in India is a quarter of what it costs in Israel. There is sometimes a slight advantage in taxation, but not necessarily. Although there is amazing innovation here, in terms of a supportive environment, Israel has become less hospitable, and as CEO you want to make sure your investors get the right return."
Will you develop your products from your development center in Salt Lake City, in Pune in India, or in Ra'anana in Israel?
"Our development centers are in a kind of competition when we consider developing a new product. There are considerations of quantity versus quality, how quickly you can recruit engineers and what you need, and there are the costs - there are many, many considerations."
Do we have an advantage in innovation?
"No. Israel has quality innovation but we must not become complacent and arrogant. The world of high-tech is very competitive. Therefore, we must always remain vigilant. Israel is far from the target markets, and produces only close to 10,000 new engineers per year. Good engineers are now everywhere, so it is enough for Israel to have only good engineers - they must be excellent, and education starts from a young age."
Are there requests for relocation?
"The answer is yes, that doesn't mean we’ll do it. It doesn't work that way. We don't relocate according to requests. If there is a position that is open there will be a possibility to apply for it - it's not that we have now become the Ministry of Emigration from Israel.”
Are you donating money to the protests?
"I will not respond and not because I do or don’t. I contribute by expressing my opinion."
Can the situation be reversed here?
"If you stop everything, I believe it's reversible. Otherwise it's a slippery slope, certainly with anti-American statements by Israeli politicians."
Eilam's decade as CEO has covered several tech revolutions, including transition to the cloud. Today Eilam is most focused on the rise of AI - in which he believes there will be opportunities for interesting acquisitions. "60% of our revenues are due to the cloud. We more than doubled our revenue thanks to the transition, and it also caused us to accelerate growth. There was the wave of hardware, software, the internet, mobile, the cloud, and now we are in the next wave of AI."
What does the use of AI in service centers look like today?
"Out of 2,500 engineers, 500 are AI engineers. We have a lot of data as a result of our platform being integrated with the largest customers in the world, which is a good basis for building AI tools. As consumers, we are demanding in terms of customer service. AI takes tasks that can be transferred from a person to the machine and this is a market that is growing at crazy rates."
What will this look like in the future?
"We want to personalize the customer service experience, without you having to identify yourself and fill in basic details. Customers' conversations with organizations should be like with friends and family. In addition, as consumers we will receive proactive service, so that even before we have a problem, they will contact us and solve it ahead of time. Or alternatively, when we contact them, the system will already understand what the problem is and the issue will be resolved very quickly. This is smart automation, based on an AI engine. This is the most interesting technological breakthrough with the most potential for change and revenue for us. In terms of the customer, it improves their quality of life and frees up their time for other things."
You haven't bought an Israeli company in 10 years. Are you looking at acquisitions today?
"This is because there were no interesting Israeli companies in our fields. Acquisitions help us speed up the execution of a strategy. In the last 10 years, we have been a profitable company that generates half a billion dollars in cash per year, like one VC fund per year in terms of size. Part of this were returns to our investors and part goes to support acquisitions. So we have a little more than $1.6 billion in our cash register, we have no debt, and we can buy almost any type of company. If there is an acquisition, I think that it will be in the field of AI."
What acquisition opportunities does the economic crisis create?
"Companies who have run out of capital in order to grow will have to merge with larger companies. Startups that do not find the necessary capital will have the potential to be acquired, of course at a lower value than they thought. There are also companies that went through an IPO and took a significant hit in the public market - they too will become a target for acquisition.”
NICE operates in the cloud architecture sector, which continues to grow, and accounts for more than half of the company's sales. The company's sales in 2022 amounted to $2.18 billion. The company's market value is $13.3 billion, following a sharp increase until peaking in December 2021. Since then, the stock has lost about 25% of its value, similar to the decline in technology stocks during that period. NICE’s stock is ranked third in value among Israeli stocks, after Mobileye and Check Point.
With revenues of $2.2 billion a year, how do you maintain a path of growth?
"When I took office, the revenues were less than a billion dollars. I constantly look five years ahead, and I like to say that what we have done up until now was only a warm-up. I think that the potential for growth thanks to the transition to the cloud and the AI revolution is very significant. The markets in which NICE operates are large enough, and we are leaders in all the markets we operate in. This is a good starting point."
Eilam received about $9.5 million in 2022, including $3 million in cash and around $6.5 million-worth in shares and options. "I believe in a compensation model based on shares or options. It creates an alignment of interests between management at NICE and the company's shareholders. When I was appointed to the position, the value of the stock was $35 and today it stands at $225, this is a return of close to 800% for our investors over the period. "If the performance is good, we enjoy good sums, and, if not, we suffer, like the shareholders," he says.
Can someone who started as a junior engineer in a company manage a $13.3 billion company?
"It was not given to me as a gift. When I joined, NICE was a very small company. As NICE grew over the years, I also experienced different roles that prepared me for the position of CEO, even though that was not where I was headed. But in retrospect, these are things that made me more rounded as a manager. You don't become a CEO overnight. There are skills that need to be developed first. Managing a global public company of 8,500 employees and billions in sales is a 24/7 job. There is no free time, but there is a great deal of satisfaction."
You have a program for girls in middle school at NICE. What is the goal behind this?
"It is important for us as a company to do things that go beyond the business side, and the statistics in high-tech are problematic: the ratio between men and women is approximately two thirds male and just one third femals. I asked myself if we are consciously discriminating, and we found that the tipping point is somewhere between the ages of 13-14, when they choose a high school learning track. Four years ago, we started a program called Code-Coda, led by women, in which every week 8th grade girls come to our office in Ra'anana to see opportunities available to them through coding and technology. Out of 150 girls in the first cycle - 66% of the girls chose technological tracks in high school. We will add Salt Lake City and Pune to the program, and try to make a difference in the world."
What bothers you about the Israeli reality in the context of education?
"All over the world, countries are making plans to improve the quality of education, and Israel is the only country which is determined to prevent children from studying, where it is actually stipulated by law to prevent the ultra-Orthodox from core studies. There is almost no equivalent for this in the world."
What is the percentage of women among the management and engineers at NICE?
"In management roles, 2 out of 7 are women. Our statistics do not fall short of what happens in the high-tech industry as a whole. This is not because of discrimination, but due to the fact that the pool of candidates who complete computer science and engineering degrees is not 50-50. I am frustrated by this, but frustration is not a working plan.”
Is your image as an activist somewhat misleading?
“I’m not known as that in business. I don't believe in work-life balance. You can't be a senior manager in a global high-tech company, a company like NICE, and say that you want a work-life balance. If you choose the position, you have to understand the result of the decision. When people want to move forward, I explain to them what the price will be."
What does it mean to live like you?
"Instead of work-life balance, I use the nomenclature ‘work-life choices.’ There are no free meals, you can't both advance to the position of senior CEO and at the same time say I want to spend a lot of hours with my family and go on a lot of vacations. It's a choice - it's not something that falls on you. I made my choice at a relatively young age and I am aware of the price. I'm not sure that good CEOs have hobbies. If you want to do something well you have to invest in it for a long time. If I have some time I read books, ride a bike, and spend the rest of the time with my children. Managing NICE is the center of my life right now and I'm at peace with that decision and its price."
What does your week look like with different time zones and numerous commitments?
"I work six days a week, and my downtime is from Saturday morning until Saturday afternoon/evening. And even when I'm not working, my head continues to be at work. If you've built the organization correctly, as a manager you will only deal with the most complex decisions. When a client contacts me, no matter when, whether they’re small or large, I drop everything and talk to them. An, I make sure to celebrate victories and to thank employees."