Corporate America Faces The Heat As Israel-Hamas War Enters The Boardrooms, Even As Geopolitical Tensions Signal A Breakdown For Israel’s High-Tech Sector

Corporate America has, in the past, chosen to take a more cautious approach; perhaps it is sensible to do so when it comes to geopolitical events, but not this time, usually careful of making any statement about the long-drawn Israeli-Palestinian conflict, this time the wind is blowing in a different direction!

“Saying nothing speaks to cowardice,” said Jeffrey Sonnenfeld, a professor at the Yale School of Management who focuses on corporate leadership, among other issues. “They’ll have a hard time celebrating their corporate character and what they stand for if they sit mutely on the sidelines.”

Hence, many American companies have chosen to show their support to Israel, as is evident when Microsoft (MSFT) CEO Satya Nadella said he was “heartbroken by the horrific terrorist attacks on Israel;” likewise, Sundar Pichai, Google, stated that he was “deeply saddened.”

Disney went on to donate $2 million for humanitarian relief in Israel, and several banks have contributed millions, too; around 80 household-name companies in America have condemned the Hamas attacks, as tracked by Sonnenfeld, who maintains a list.

However, the same is not the case with many corporations, especially those outside of the United States, that have instead opted for a more cautious approach.

In the United Kingdom, Tottenham Hotspur Football Club, traditionally associated with its Jewish supporters, came under fire after saying it was “​​shocked and saddened by the escalating crisis in Israel and Gaza.”

The example of the same can be gauged by the response it garnered –
“Don’t ever call yourself a Jewish club again,” replied one fan in an apparent response to the mention of Gaza. “You guys are absolutely pathetic,” railed another.

Yet another example is Paddy Cosgrove, CEO of the Web Summit, which describes itself as the biggest tech conference in the world, was forced to apologize after accusing Israel of war crimes.

In the view of Lior Susan, founding partner of venture capital firm Eclipse, simply staying under the radar or equivocating are not viable responses.

In a statement to a news channel, she stated, “Not taking a stand is taking a stand,” Susan, who served in the Israeli special forces, said, “Companies need to show moral clarity and leadership in the face of the Israel-Hamas war.”

Similarly, Richard Griffiths, managing director at London-based strategic communications consultancy Citigate Dewe Rogerson, pointed out. “We saw with the Russian attacks on Ukraine that there is now a much greater expectation that companies should be seen to do the right thing and speak out.”

However, he cautions that the situation is more complex with the Israel-Hamas war. “This is a conflict between Israel and an internationally recognised terrorist organization; the wisest action for businesses now is to show solidarity with all those caught up in this, with a focus on easing the humanitarian aspect.”

Griffiths adds that any stand a company takes “has to relate to what will resonate with your employees, customers and investors; it is important to understand what stakeholder expectations are before you wade in.”

However, while corporate America is making its point of view clear,
as tensions escalate in the aftermath of an incursion by Hamas into Israel and the subsequent retaliatory measures by the latter, an unusual casualty has loomed on the horizon.

Israel’s high-tech sector, which was battling an economic slowdown (like most startups in the current downturn) and domestic political turmoil due to controversial judicial reforms, is likely bracing for another hit – as a consequence of war.

Israeli high-tech firms recorded a 70% fall in fundraising in the first half of the year, but that slowed down to 14% in Q3, according to IVC Research Center and LeumiTech.

As Farwa Aamer, Director of South Asia Initiatives at the Asia Society Policy Institute (ASPI) in New York, where she oversees the institute’s policy work and projects in South Asia, puts it – the only issue to be figured out now is whether it will be another slowdown or a meltdown for the country’s high-tech industry.

Israle’s high-tech sector accounts for over 10% of its workforce and nearly a fifth of the overall economic output of Israel.

To put it in perspective, Jon Medved, CEO of OurCrowd, Israel’s most active venture investor with over 420 portfolio companies,
“Tech represents about 14% of Israel’s workforce, accounts for 18% of national GDP and contributes more than 50% of Israeli exports. The tech community is fully mobilised in support of Israel’s response to the barbaric attack by Hamas on October 7.”

Israel has roughly the land size of India’s north-eastern state of Meghalaya and a population a tad above the Bruhat Bengaluru Mahanagara Palike, which houses India’s Silicon Valley.

Calling In Resources
After the surprise Hamas infiltration, Israel went on a war footing and called more than 3,00,000 of its citizens for emergency duty to safeguard the country’s security.

Unsurprisingly, Itamar Friedman, CEO of CodiumAI, is among those who have reported for reservist duty, and Friedman is not alone among Israeli high-tech companies – at least 10% of Israel-based employees at cybersecurity firms Pentera and Armis have already been drafted and deployed by the military.

The Israeli establishment has called the reservists on duty to fight at the northern and southern borders. And several of them are from these tech companies.

“We have learned to live with the military reserves as part of our lives. Most reservists perform several weeks of duty every year, so Israeli companies know how to deal with it. We do a lot of multitasking…we have built-in redundancy in terms of workload.” says Medved.

About 10% of OurCrowd staffers now serve as military reserves; Medved estimates that between 10%-25% of the workforce in most Israeli companies have been called up for reservist duties.

“The companies are handling this well because this is, unfortunately, not our first confrontation,” says he.

Experts say the present mobilisation of reservists is the most extensive “compulsory” mobilisation since the 1973 Yom Kippur War, also known as the surprise Ramadan war in October of 1973, wherein Syria and Egypt launched concurrent attacks on Israel. At that time, nearly 4,00,000 reservists were mobilised to fight for Israel.

Experts believe that the judicial reforms proposed by Israeli PM Benjamin Netanyahu could harm the corporate law structure of the country, which has been the epicentre of foreign investments over the past few years.

Economic Troubles
When the political temperatures rose because of the current situation, no one thought Q4 could be deadlier for the Israeli tech ecosystem due to the unexpected affront to its sovereignty.

Israel’s economy depends a lot on the country’s high-tech industry, or in other words, companies providing cutting-edge technology, including cyber arms company NSO Group, which developed the controversial Pegasus spyware and CheckPoint.

There are also firms like Israel-based Teva Pharmaceuticals – the world’s largest maker of generic drugs – and Amdocs, a leading provider of software and services to communications and media companies. Comverse and NICE Systems, listed on both the Tel Aviv Stock Exchange and the NASDAQ, are among the other major Israel-based firms.

These firms have put up a brave front in the aftermath of escalating tensions and vouched for the safety and security of their employees.

Observers say the high-tech sector in Israel was among the fastest-growing sectors in the country over the past decade.

“Currently, we have no idea how prolonged the conflict might be but the economies realise the need to keep the momentum going and Israeli companies are likely to continue the same given the customer base for most of its startups is global in nature. So, unless things transpire in a way that the international customer base may shrink, we can expect a slowdown,” says Farwa Aamer.

Some companies who have not diversified their operations from Israel already fear their businesses can be directly affected due to war with Hamas if the fighting continues for a longer period.

Slowdown In Investments
Investments in Israeli companies have been consistently declining after a peak of USD 9.3 billion in Q4 of 2021; however, since the second half of 2022, Israeli startups have been facing both the brunt of the global economic slowdown and the internal political turmoil till Q3 2023.

Q4 and further can be deadlier for them as they are now being hit by a multi-pronged war situation that is likely to be protracted.

As per the data, the number of funding rounds in Israeli high-tech has also been declining steadily – from a peak of 342 in 2022 Q1 to 77 in 2023 Q3.

Experts point out that some investors have already stopped investing in Israel due to the “political instability” for over a year.

As per reports, out of 11 Israeli companies that raised a mega-round in 2023, only three have their headquarters in Israel; seven are headquartered in the US and one in the UK.

In 2020, out of the 352 new unicorns globally, 17 were from Israel; however, more than half – or eight of these unicorns – chose the US as headquarters.

The share of new Israeli unicorns in 2023 is merely a third of that in 2022, as per a Startup Nation Policy Institute report and Israel Innovation Authority report by Danny Biran, Almog Grisariu, Ido Meibom, dated October 2023.

Hence, if geopolitical tensions soar, Israel’s high-tech economy may face an existential crisis.