Sept. 15--Governor of Delaware Jack Markell feels that he has a good understanding of the Israeli business world. This is not just because of the collaborations between Israeli companies and the Delaware state government and its agencies, but primarily because of his personal history: he is a Jew and held executive positions at Nextel Communications and Comcast Corporation (Nasdaq: CMCSA), where he was exposed to many Israeli companies. In addition, over the years, Delaware has become a warm home for many Israeli companies seeking to do business in the US.
Markell, who was reelected for a second term in November 2012, has made his first visit to Israel as governor to seek "opportunities for cooperation between Israeli companies and businesses and activities in Delaware."
Markell was accompanied by a large entourage. They met President Shimon Peres, officials from Tel Aviv University, the Weizmann Institute of Science and other universities, investors, and high-tech executives.
"Everyone in the US has read "Start-Up Nation", Markell told "Globes", "and we all believe that we can learn and gain a lot from Israel."
Delaware has become a sought-after location for doing business. The state is sometimes perceived, mistakenly according to state officials, as a kind of tax haven. The state's corporate tax rate is very high, at 40 percent, one of the highest in the US. Delaware's tax advantage lies in the tax breaks companies enjoy on revenue from outside the state, and other tax breaks to help entrepreneurs set up companies.
The main thing that makes Delaware attractive is the creation of a supportive business environment. The Delaware General Corporation Law is seen as clear and straightforward in managing relations between shareholders and regulators, and it is backed by an admired judiciary.
Thousands of Israeli companies, 90 percent of the Israeli companies operating in the US, are registered in Delaware. Markell emphasizes the relevance of registration in Delaware for high-tech companies, saying, "We are a 90-minute train ride from New York and Washington, and we have skilled labor. We see the challenges facing start-ups and we help them with meetings and access to potential investors and customers."
Markell, a Democrat, offers a kind of dissonance for a pro-business and corporate state. His opinions about issues that concern both US and Israeli business sectors to do with the balance between duties towards the state and towards shareholders are unequivocal: "Corporate taxes have to be paid, whether you like it or not," he says.
On aggressive statements by executives of leading US high-tech companies about trapped profits that they refuse to remit back to the US so long as the tax rate is unchanged, Markell comments, "This is a frustrating point for which a solution needs to be found". He takes a very practical macroeconomic approach to the issue of repatriation of profits and leveraging them to boost business turnover, saying, "In the past, when American companies succeeded there was a direct connection between this and hiring, which we really want. But today, we aren't seeing the growth in the labor force that we'd like to see."
Markell believes that the drop in companies' demand for employees is due to the cash which is held outside the US, or which is not invested because of economic uncertainty, the options for global expansion that businesses now have, and greater productivity, which makes it possible to forego part of the workforce. "As for money overseas, we need to ensure that we can offer shareholders incentives to recognize that remitting it to the US is for their own good," he says.
"There is no question that companies should feel that there is an advantage in remitting the money, or at least that there are fewer disadvantages. But in the end, we need to understand that what underpins these decisions is the quality of the workforce."
"Globes": 64 percent of US Fortune 500 companies and half of public companies are registered in Delaware. Do you think that these companies want less regulation, lower taxes, or something completely different?
Markell: "When I ask businesses in Delaware what are the most important factors in deciding where to set up shop, the unequivocal answer is to improve the quality of the workforce and the schools. We live in a world of three billion jobseekers, but only two billion jobs, which means that we're in a global battle for jobs, but also for skills, because it's obvious that work will go to the places where there is high-quality manpower. I believe that skilled labor, good schools, and responsible leadership are the important things."
When you talk with companies' representatives, do you get the impression that they are willing to pay higher taxes because the government is doing the right things with the taxes?
"One of the jobs of government is for taxpayers to know that can get the best return on their investment. When you can persuade them that you are doing what can be done to lower taxes and that you are spending as much as possible for the future, such as on education, and you are promoting this, they are more willing to say, 'We understand this.' No one wants to pay taxes, but there are things that must be paid for, and it's necessary to ensure that you're doing what you can to save money and be efficient."
Do you find it odd that the government in Israel, which everyone sees as possessing a very skilled workforce, seeks to deal with the competition over attracting high-tech companies through direct tax breaks?
"You are unquestionably doing something right, because you see all the decisions taken and all the companies that have opened operations here. There is a reason that Israel has become the start-up nation."