A Lawyer’s Perspective on Bridging Business Cultures

Orrin Persky, November 22, 2006

I am glad to be here in Philadelphia on this Thanksgiving eve. I would like to thank the
American-Israel Chamber of Commerce and Blank Rome for hosting this colloquy.
Israel is a very young country with a very old culture. Its culture has developed from a
patchwork of worldwide Jewish immigration and local Arab and Middle Eastern influences.
Israel’s culture reflects its geography, located somewhere not far from Western civilization,
but, undoubtedly, in Asia, as a part of the Middle East.
Because of the historical closeness to Western civilization, dealing with Israelis may be
deceptive. It may have the look and feel of dealing with European or British Commonwealth
culture, but its Middle Eastern cast will out at one point or another.
Israel has been successful at building a modern economy with a growing technological base
in a relatively short time.
The volume of business done between Israel and the United States has grown and should
continue to grow in the foreseeable future.
While there certainly have been disappointments, successes easily outnumber them.
Any successful trans-national business relationship, whether a transaction, an investment, a
joint venture or an acquisition, requires successful bridging of the cultural gap that exists
between Israelis and non-Israelis—for this morning’s purposes—Americans.
Probably the best way to describe this cultural gap and how it might be bridged is through
anecdotes. After 30 some-odd years of law practice, these are eminently available:
But, before I tell you my first story, I will make two comments:
First, there is a difference between Israel’s legal culture and its business culture. The
Israeli legal system has developed, first in the indigenous Israeli legislation beginning with
the 1960’s and continuing through recently- retired Chief Justice Aharon Barak’s tenure on
the Supreme Court, the doctrine of tom lev, or “good faith.”
Good faith is a requirement in the negotiation of contracts and in their performance.
The court is empowered to provide remedies for lack of good faith and has even on
occasion determined that a contract has been finalized when the signature was absent for
reasons deemed to be bad faith.
This has made a lawyer’s job both more interesting and more difficult.
More interesting because one would be free to argue good faith related points before the
court and would be bound less by the strict letter of the Agreement.
More difficult because the court’s wide ranging flexibility and power in invoking such
doctrines makes it very difficult to give advice to a client in advance as to what his legal
situation will be.
The question is can we find the good faith that Israeli law requires in business dealings, in
Israel society as it actually exists and does business?

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This is a matter of degree and of educating the public through legal precedent, but suffice it
to say that as of today’s date there are still wide discrepancies between the average Israeli’s
business behavior and the Supreme Court’s requirements as to good faith.
My second comment is to give you an idea of Israeli negotiation culture in a nutshell. The
worst thing one can be in the Israeli environment is a “freier”, meaning someone who gives
something for nothing, who buys at something more than the lowest price or sells at
something less than the highest. Nobody wants to be a freier.
What does this mean in the context of negotiations? It means that the Israeli will not make
his deal with you until the negotiation has proceeded far enough for him to be absolutely
certain that he has squeezed the last drop of juice out of your lemon. Until that happens, the
deal will not be made.
If you ask yourself just how is the Israeli going to find this out, the answer will explain
some of the phenomena which have been encountered in the anecdotes that I will share with
you.
My stories will be without names to protect the more or less innocent.
As a young country, Israel is less distanced than America from its generation of robber
barons. This is the type of individual who made his fortune by building, say, hotels,
sometimes on the border, without a building permit, and at night. Creating “facts on the
ground” carries a lot of weight in Israel and I leave it to your imagination how tough these
1950’s and 1960’s robber barons were.
The negotiation I will tell you about concerned a wealthy Israeli landholding family and a
foreign government—foreign from an Israeli standpoint. The deal was complex but with
significant attraction for both parties. The negotiations were long, drawn out, fraught with
crises and emotions, but after much effort they were drawing to a close.
When it seemed that everything had fallen into place, a totally new demand was raised by
the Israeli negotiators. This brought tremendous exasperation to the other side who had
carried out a straightforward and logical negotiation.
As I was representing the foreign government, I tried to explain to the negotiator on hand
that this was a foreseeable Israeli tactic, of raising a new demand when the deal was as good
as made, to find out how far they could push their counterpart. My advice was this: the deal
is attractive, all the major sticking points have been dealt with; if you refuse this last-minute
demand, they will not walk away from the deal. By refusing it you will show them that you
cannot be pushed any further, and this is what they need to know in order to close with you.
In this particular case, the emotional stress was too much and the negotiator—who was
under tremendous pressure—gave in on the point, despite my advice. The deal went through,
but I have no doubt that it would have gone through without that capitulation.
This test was a necessary part of the negotiation. The Israeli had to make that final squeeze
and see if there was another drop to be had.
[The story of the visiting shopper to the Jewish Shtetl….]
I would point out that in most negotiations with Israelis, the foreign entity is often a large
company or institution while the Israeli side is a small, or at least smaller, entity; often a start-
up.

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Organizational factors dictate that the negotiator on hand for the foreign party will usually
be mid-level and not too experienced. The Israeli negotiator on the other hand will often be
the founder of the business. He will be older, more experienced and, of course, the product
of a different culture.
These differences in negotiating persona and styles can be seen from my next anecdote:
In a negotiation over a monetary amount, the American party had offered to pay for the
Israeli’s goods or services a price of, say, 100,000. The Israeli responded with a vociferous
and aggressive refusal, demanding a price of 200,000 and offering superlatives for his own
product, and absolutely refusing to accept the outrageous American offer. A bit cowed, the
American negotiator said, all right, then I suggest to split the difference and pay 150,000;
upon which the Israeli said, “I’ll take 195,000!”
The American negotiator was left shocked, expecting that a fair and reasonable offer of
splitting the difference would either be accepted or would induce an offer very close to it.
Not with an Israeli.
By upping his offer by such an increment all at once, the American showed himself to the
Israeli to be a freier and thus was greeted with an extremely hard-nosed response so that the
Israeli might take full advantage of the situation.
Let me give you an example from the technology world: A potential pharmaceutical had
been licensed to an Israeli company for development and the agreement subsequently
cancelled. The owner of the Intellectual Property had now to locate a new pharmaceutical
entity to continue the development of the product. Once such an entity was found, a three-
way triangular situation developed, where on the one hand arrangements had to be completed
with the canceling Israeli company and a new license entered into with the new—
American—company. There were many pitfalls inherent in this situation. For various
reasons, there could be no direct negotiations between the two development companies and it
had to be handled with the IP owners in a pivot situation, at times being pressured from both
sides of the triangle.
There were also hidden pitfalls that came out of the woodwork, such as government
funding that had been received with strings attached. While this negotiation was eventually
successfully completed, the side of the deal that had two Israeli companies up against each
other was much harder to conclude than the forward looking arrangements with the American
company. This was not only for cultural reasons, but cultural reasons did play a part in the
way the deal panned out.
Another example from the area of technology found a savvy American entrepreneur up
against a super-aggressive Israeli mogul.
While neither party was at a disadvantage, the extremely aggressive stance of the Israeli
party seems to me to have been the root cause of the multiple difficulties that ensued. The
investment made by the American company soured, litigation in the U.S. was initiated, and
the Israeli mogul descended into bankruptcy.
As the litigation in the United States was handled by American lawyers, they sought a
settlement and agreed upon a framework. The differences in business and legal culture,
however, did not allow the settlement to be completed as contemplated. The Israeli aspects
of the business arrangements were too important and a second stage had to be initiated in

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which Israeli counsel for both parties were flown to the U.S. for high-pressure negotiations
under the active supervision of the U.S. federal court.
In this instance, the court had given a deadline for the day on which the settlement, duly
completed and signed, was to be presented before the court. As the Israeli participants in the
negotiation had just arrived, there was no settlement available. The American lawyers were
wary of addressing the judge and failing to deliver what they had undertaken by the deadline.
The Israeli lawyers were asked to take the podium and explain to the judge the various
complications that needed to be ironed out before the settlement could be concluded. This
story had a happy ending—the judge granted a 24-hour extension, within which the
settlement was finally drafted, almost in its entirety by the Israeli visitors, and then signed
and approved by the court.
While the American participants might have learned something from the negotiation
culture of the Israelis, the Israelis should have had a lot to learn from the way the American
court conducted itself and the way the American parties responded to the court’s firmness.
Unfortunately, courts in Israel will be a good deal less stringent and deadlines are less
likely to be honored.
Clearly business and legal cultures can be developed and improved through interaction.
Let me bring a few examples from the real estate world:
We again return to Israel’s being a young country. Land holdings were governed for
hundreds of years by Ottoman Turkish law. There was no real registration system, and often
vital information might be missing. In one such instance, I was accosted by my American
client, “I want to know if they have title! It’s very simple!”
The only way I could communicate the difficulty was by telling the client this: “All right,
we’re in the United States but imagine its 1815! The war of 1812 just recently ended, the
land which had been held by the Indians and then worked by the French, then conquered by
the British and then by the United States, with no system in place for registration—where’s
the title?”
The client of course had to accept that complications stemming from history and culture
made it difficult to provide a simple one-word answer.
Israeli real estate law owes much to the British mandate, who instituted a survey and a
registration system, producing some order out of the chaos.
One example of the type of complications that arose concerns a parcel of land designated
for a foreign entity’s construction. Claims were brought forward that the land was owned by
the Moslem Wakf, the general term for Moslem religious charity. A search had to be
initiated which went back to the 1920’s and 1930’s. It turned out that the British military
forces had expropriated the land in order to build a military base, that the Moslem charity had
sought relief in the Supreme Court during the time of the British Mandate. The court made
up of British, Arab and Jewish judges applying Turkish land law, determined that there had
never been a valid grant to the Wakf and that the land had been owned by individual Arabs
who received monetary compensation from the British forces.
Subsequently, the Israeli Government received title of the lands held by the previous
British Government and the transaction could go forward. Nonetheless, complaints

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continued by the former Arab owners, who to this day claim that the land is rightfully owned
by the Wakf.
It is not easy for foreign companies or Organizations to live with this type of complication,
which is inherent in Israeli culture, society and history. Only those with the flexibility to
accept different situations and make the best of them are successful in carrying out deals and
transactions in Israel.
Let me give an example from the land use and planning field:
A client interested in acquiring land for the erection of a particular building was faced with
the zoning process which is multi-tiered and laden with discretion granted to the various
zoning committees. Unhappy with the lack of a clear-cut answer, the client asked me, “Can
you guarantee that I will be able to build this building on this lot?” As we were sitting in a
tall building looking out at a view of the entire City of Jerusalem, I pointed to the window
and told that client, “One thing I can guarantee you is that not one of the individuals who
built the buildings you see outside in the city possessed a guarantee of the type you are asking
for.”
I won’t burden you with my complaints as to the Israeli planning bureaucracy. Suffice it to
say that it is slow-moving, indefinite, and less than sufficiently sensitive to business and
commercial needs.
Americans should not be discouraged in entering into the Israeli real estate market. They
need to know, however, that rezoning and planning processes are lengthy and cumbersome
and that patience and staying power are required.
One last anecdote, leading to a few concluding remarks:
Despite all that I have been telling you about Israeli culture and what to expect, it is
probably most important to avoid oversimplification and generalization. Don’t put all Israelis
in one basket. People are different and although the exterior shell and even certain behavior
traits may seem familiar, they may be hiding a different core and essence.
One business that I represented had grave difficulties with its Israeli Licensee.
Negotiations broke down and litigation was begun. Only with great difficulty were
undisputed debts collected. Eventually the Israeli company was purchased by a new owner
and we began a new negotiation. My American client was sure that he now knew what to
expect from “an Israeli,” and the one sitting before him didn’t look too different from the
previous one encountered. The key, however, to making the new deal successful was the
understanding that despite the external similarities, the same accent and some of the same
mannerisms, he was now talking to an honest man. The difference was in the core and good
judgment as to the essence of the person you are dealing with is always most important in
successfully concluding any business negotiation.
We should remember the original definition of the “sabra”, the native-born Israeli, called
after the prickly pear, the fruit of the cactus. The Israeli, it is said—as the prickly pear—has
a prickly exterior but underneath that a sweet fruit is hidden. Is this true for all Israelis?
Again, let us not generalize. People in any country are different and need to be judged for
who they are.
But the metaphor may give a useful hint in trying to assess your negotiating party from
abroad.

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In conclusion, therefore, business can be done with Israelis and hopefully much more will
be done in the future between Israelis and Americans—but wise judgment as to the
personalities and standards of the person across the table will always be crucial. Also crucial
will be the ability to bridge the chasm created by the cultural differences that I have been
describing.
This is where we lawyers come in, particularly those of us who have a deep understanding
of both cultures. We can help in serving as a bridge between these different cultures,
enabling freer flow of ideas, minimizing misunderstandings and hopefully serving as a
catalyst so that successful business relationships can be created and sustained.

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