The interview with Baroness Ariane de Rothschild takes place at the renovated offices of the family investment house, which is right at the beginning of Rothschild Blvd., itself named for the famous philanthropist, great-grandfather of her husband. The symbolism is hard to ignore: the building is one earmarked for preservation on one of Tel Aviv's first streets, a location that had been sorely neglected in the 1980s, became a thrumming center in the 1990s, was upgraded into a symbol of wealth in the 2000s, became a focus of a great social protest, and today is a flourishing center of high-tech incubators and startups. After all the changes undergone by this street, which is named after the baroness' family, a family that donates tens of millions of shekels each year to higher education in Israel, de Rothschild relates that her partner Benjamin has forgone coming to Israel for years because of a dispute with the tax authorities. It's a muddle of socio-economic mistakes that blend in with the mid-May heat.
I meet the baroness in the middle of a fairly busy schedule, between a mezuzah-installing ceremony at the renovated offices of the Edmond de Rothschild group in Israel, headed by Miki Kliger, and the ceremonial inauguration of the building following its meticulous renovation. While talking, she declares the global group's interest in investing in technology in Israel, mainly in medical equipment and "fintech" (financial technology), which would become part of the group's present investments around the world, in med-tech and biotech.
"We see Israel as the best kind of center of entrepreneurship and technological excellence, and would be happy to invest in areas that are tangential and synergetic to our areas of activity," she says. "We are open to interesting investment ideas, if any arise."
The context in which these things were said is interesting. Some might see the baroness' visit as a reminder to the Israeli economy of what it loses because of the dispute with the tax authorities, the global Rothschild group invests less in Israel (the baroness does not say so, but some of the people in her entourage do say so explicitly).
"He (Benjamin) explicitly said he won't come until this matter [with the tax authorities] is resolved," the baroness says. "I hope it is, quickly, so he can come and we can spend time here together. It is a shame there is a misunderstanding about what we do and how we do it. It is insulting that the state casts doubt on us. If there is a family that does not have to prove its commitment to Israel, it's ours."
The baroness' sense of insult is backed by decades of contribution to the community in Israel, but the battle with the tax authorities is a little more complicated: remember that the Caesarea Foundation (which is a separate body from the Rothschild Israel group), and which was founded by the family, not only donates money but also runs the town of Caesarea itself (it's the only town in Israel with no municipality), and its industrial park, and also owns about a billion shekels worth of assets, on which the family was not asked to pay taxes, until recently.
Negotiating with the state is the responsibility of Shlomo Yanai, a general in the IDF reserves and an esteemed businessman that the baroness, who chairs the foundation, appointed as her deputy. The fact that he served as Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) CEO, which also famously has tax disputes with the state surely doesn't hurt.
"He is the most suited to manage the foundation," says de Rothschild. "People don't know how much it takes to run a city like Caesarea. It’s the only city in Israel managed this way. Also, don't forget that we don't earn money - we develop, so we need development capability. From that perspective, I chose the best person. The more we succeed, the more we contribute."
That may be true, but you must know that the sentiment towards the rich has changed very much in Israel in recent years. It isn't just a technical tax issue.
"Definitely. I think it stems from some of the rich not feeling obliged to return anything to society, which is regretful. Certainly in Israel, where there are strong social values. I personally see philanthropy as a way of life, and feel that I fulfill my part in contributing to society properly. Therefore, I think the energy we expend on this argument could have been channeled into more effective things. Yet I believe that ultimately we will find a solution."
Social responsibility pays off
Ariane de Rothschild, 50, a finances expert in education and training, worked as a broker in the international dealing room of the Societe Generale bank in Australia and then in New York. Later she joined AIG, where she developed the group's operations in France. She recently took over leadership of the management committee of the Rothschild group, and in practice manages the group's business (which includes banks in Europe, investment banks, wine and cheese production, and a holidays venture).
In Israel, the group acts through a local arm - Edmond de Rothschild Israel - which was established in 1999 and provides asset management services to private enterprises and institutions, including insurance companies, provident funds and pension funds. Most of its activity is concentrated in equity, private equity, hedge funds and private banking.
Aside from being the group's director at banks, de Rothschild is in charge of broad philanthropic activity. The baroness calls it "new capitalism".
"New capitalism is a more responsible capitalism, and it exists at a lot of corporations today," she says. "It's stronger at family firms, which are smaller and more involved by nature. New capitalism requires you to take into account a lot of factors beyond net profit. You have to consider the workers, the environment. At the level of top management, you have to make decisions that are more global, and today we see more and more corporations that take social responsibility into account. The question is how you bring that into practice in your global decisions. It's harder, of course, for listed companies, because they are measured by results."
And you see change?
"Yes. You see CEOs of companies, like Laurence Fink of Blackrock (the chairman of one of the biggest asset management companies in the world) who called to ignore investors who demand quick results, and look at the long term. I think that's fantastic. Companies understand that if they manage their business responsibly, in the long run, the results will be better."
Do you feel that Israeli and American companies are more prone to short-term vision than European ones?
"Traditionally, it's more European. I think it's characteristic of family businesses, but today we see American companies thinking about preserving the business for the second generation. It's become very strong in China too. There are companies there that are second-generation."
It's a matter of intergenerational transition.
"Yes. There is pressure from the younger generation, which is more connected with values and has a broader view of what society should do. Young people today expect meaning, values, and if you want to attract them, certainly the good forces, you have to offer more than salary. When I interview people aged 30-40, a large part of the interview is about our activity beyond pure banking. In the past, when I would bring philanthropic projects to the bank, there wasn't much interest; today they're eager to do it. They say it gives them added meaning beyond mere banking. The young generation is pushing hard in that direction, so I can't imagine that big companies will stay the way they were, without change in that direction."
Transition between industries
Ariane de Rothschild was born in San Salvador, the capital of El Salvador in Latin America, to a French mother and father of German extraction. Because of her father's work, as a manager at an international drugs company, she and her family moved country frequently, about once every three years. She spent her childhood and teenage years in Africa, Bangladesh and South America. She herself owns homes in Geneva, Paris and Israel, but travels often to London and Madrid too.
Are you a citizen of the world?
"Completely. We, meaning my brother and I, belong everywhere and adapt quickly to atmosphere, rules, cultures. The fact that we grew up that way and had to adjust to different rules made us very optimistic people."
What about the cost of living here? Again, do you feel we're not alone?
"I've heard of this. I know there's what's called a 'real estate bubble' in Israel, that young couples or people without resources have a big problem buying a home. I think there are two reasons for that. One is that people come to Israel from other countries. I understand that, for instance, 26,000 people emigrated to Israel last year, of whom 7,000 were from French-speaking countries. The second reason is the low wages. There's the same problem in New York, and until recently, in Geneva as well: people can't buy homes and there was a lot of pressure. As a result, people had to move out of the cities, though the city did build affordable housing, which lowered prices a little."
What you're actually saying is that this problem isn't a uniquely Israeli one. Do you think the same about the cost of living?
"Yes. We're in a transitional period, from traditional industry to high-tech, and as a result, a lot of jobs are being lost. I feel that to some degree it's akin to the industrial revolution. There are significant changes, very fast."
You have spoken a lot about the distance between numbers and what you call the "real economy: What in your view is the real economy?
"One of the difficulties in finance is that at the end of the day, you remain with numbers. I spent a lot of hours with numbers. It's an abstract. You have to stay in touch with entrepreneurs, with the ones fighting to establish companies, the ones who create. I am careful not to keep too distant. We work with a lot of entrepreneurs and family companies, and our non-bank activity is, among other things, making cheese and wine. I know what it means to manufacture. That is a major criticism of the banks, that at some point you lose touch, you're unconnected. You have to see that ultimately, behind the numbers are people."
Apropos banking and people, you come from Switzerland, where several banks have been involved in serious affairs (HSBC, UBS). Do you think it will affect Swiss banking?
"It's undoubtedly bad for Citi. But the fact that confidentiality has ended is positive. The Swiss banks are good, especially in private banking. They are based on a long tradition of banking and I am happy that following this affair, customers will join a bank for the right reasons. People tend to think that private banking is an easy job, but it's a specialty. It is to manage a family's money, to guard what people give you to manage. Clearly Swiss banking is heading for change, and I think it is a welcome, positive change."
What's left for the next generation
After all the talk about the importance of the second generation, one can understand why she came here with three of her four daughters - Alice, 16, Liv, 14 and Olivia, 12 (the oldest, Naomi, 19, presently lives in Montreal, where she is studying communications and sociology). Shortly before the interview they met with former president Shimon Peres and with the incumbent, Ruby Rivlin.
"It was fantastic for them," she sums up the meetings with the presidents. "Sometimes it's enough to meet somebody to be inspired, and they have the luck to meet a lot of inspiring people."
It seems pretty clear to you that the girls will continue managing the group with you. But what if they just don't want to?
"That is certainly possible, because I don't mean to tell them what to work in. It's their decision. But they are committed to what they receive. I tell them: this is what you inherited. As far as I am concerned you could be artists, but need to have a grasp of banking and finance. They may not manage hands-on, they could appoint somebody to manage for them, but they will be shareholders in any case. As such, they cannot be irresponsible. After that, catastrophes happen."
Meanwhile they are getting the tour, and de Rothschild believes that sooner or later, they will come nearer to business. Until recently the oldest daughter, for instance, drew back from everything her family represents in respect to finances, but at some stage, says the baroness, she began to understand the magnitude of the commitment.
"She said, business? Never. Philanthropy? Never. I said, you must, you are so lucky. Lately I have started to see movement: she is thinking of studying marketing and a few months ago, suddenly began working in a shelter for children at risk. So she did it on her own terms, on her own time, in her own way. The girls have been with me from a young age, traveling with me, seeing what I do, aspects of business and of philanthropy, and I believe that when you grow up with it, it becomes part of your DNA."
And en route it doesn't hurt to visit lively, interesting places like Rothschild Blvd. in Tel Aviv.
"Oh yes," she laughs. "Even the girls said it is a very 'cool' place."
The Caesarea Foundation, tax disputes and everything in between
The Caesarea Foundation, which is jointly held by the state and the Rothschild family, operates through two subsidiaries: the Caesarea Development Fund, which makes profits of tens of millions of shekels a year, and the Caesarea Assets Company, which owns real estate. The foundation, which functions as the operator of the city of Caesarea, also makes philanthropic donations.
In recent years a dispute arose about the extent of the foundation's donations, an issue that even reached the state comptroller, who ruled that the foundation donates less than it is committed to. One of the claims was that among other things, the foundation transfers money for actions by the city of Caesarea, for instance for the golf club in the city. On this, the foundation says the subsidy the state comptroller was talking about does not exist anymore, and today the foundation operates through discrete business entities, in order to avoid similar cases.
Perhaps for the sake of pressure, the state also began to demand that the foundation pay tax on its profits: in 2008 it issued a tax bill for NIS 150 million. The foundation appealed the assessment in court; the parties have been in discussion for a long time.
"The whole affair has hurt relations between the state and the family, and it's a shame that because of the dispute, in recent years the family has eschewed business activity in Israel," say sources near the Caesarea Foundation. Beyond the family's philanthropic contribution, it is a giant group with business around the world, and Israel would only stand to gain."
In practice, say the sources, even the foundation donated less in some years, it was offset by other years. "Under the agreement with the state, two-thirds of the fruit of the foundation go to donations. The foundation invests the money in conservative investments, so if we're talking about investing NIS 900 million (the foundation's assets) at interest of 3% a year, that generated NIS 25 million a year. Of that, according to the formula, we were supposed to donate two-thirds, or NIS 18 million. In practice there are years we donate much more, sometimes about NIS 40 million, which is more than double our commitment."
The state also demands that the fund provide a one-time large donation from its assets.
"There is a misunderstanding about the nature of the foundation. This foundation is an endowment. The concept of the founders - Baron Edmond de Rothschild (grandson of the famous philanthropist and father of Benjamin, husband of the baroness) and the prime minister at the time, Levy Eshkol - was to establish settlement and industry here, and if they were profitable, they would be donated to higher education. Eshkol gave the baron a tax exemption and they signed a 15-year agreement, which was renewed again and again. To this day all the foundation's profits go to donations. The foundation is managed efficiently, leanly and modestly, according to the family tradition, and the truth is that they don't understand what's wanted from them: that they donate and pay tax as well?"
Published by Globes [online], Israel business news - www.globes-online.com - on May 31, 2015
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