How important exactly is company culture in M&A transactions? Well, according to a study by Isaac Dixon, “Culture Management and Mergers and Acquisitions”, cultural incompatibilities are the root cause of 30% of failed M&A integrations. Despite this research, many executives are dismissive of culture, an outlook that places the responsibility of managing potential culture clashes on operating leaders. Company culture differences have the ability to undermine even carefully crafted mergers and acquisitions. Case in point the $35 billion Omnicom and Publicis merger that fell through in 2014. Given the importance of culture, what measures can CIOs take to address culture integration?
Culture Consideration Tip #1 Appoint corporate culture leaders
The complex nature of mergers and acquisitions necessitates input from a wide range of professionals. There is an obvious need to bring on board experienced culture change leaders. People with the ability to unite distinct corporate cultures. Experts who will not allow culture clashes to get in the way of realizing economies of scale or erode the value of the transaction. These leaders will be instrumental in charting a new hierarchy and structuring the new organization model.
Culture Consideration Tip #2 Embed culture integration into meetings
Culture integration must begin at the top. Senior executives must make the first efforts to display a united front so employees can follow suit. Corporate culture leaders must identify culture owners from the merged entities who will take ownership of promoting culture at inhouse meetings. These culture owners will ensure that at every scheduled meeting there is a moment given to the presentation of the new culture. These presentations should be well-structured and specific and not vague assertions of the need for collaboration and teamwork.
Culture Consideration Tip #3 Compromise: find the middle ground
Integration should not mean the annihilation of the culture of the acquired entity, even in a takeover. The cultural strengths of the merged companies should first and foremost be recognized then draw lessons from each company culture. Find the middle ground of how cultural strengths may be integrated and expressed.
Examples of companies that managed to get this right and turn their transactions into successful mergers and acquisitions include Google and Android, H.J. Heinz and Kraft Food, AT&T and BellSouth, Verizon and Vodafone, Disney and Pixar with Marvel, and Travelers Group and Citicorp.
Culture Consideration Tip #4 Select key decision-makers
The ability of a recently merged entity to respond quickly and make decisions is often hampered by associated styles or cultures of decision making. Even prior to the merger, the way decisions are made can be telling signs. Take the aforementioned Omnicom and Publicis deal that never saw the light of day.
Omnicom CEO John Wren said at the time, “There are strong corporate cultures in both companies that delayed us reaching an agreement.” This was an understatement because those delays caused a loss in revenue exceeding $1.5 billion.
By selecting key decision-makers who represent the interests of both companies, decisions can be made faster. One can avoid the bureaucratic mill which almost always slows down decision making.
Culture Consideration Tip #5 Be mindful of succession planning
One of the biggest mistakes often made during M&A transactions is paying little attention to employees. This plays a major role in the high turnovers that are characteristic of such transactions. If you wish to retain top talent, accord them the respect they deserve. Remember, how you treat them during this transition will affect their loyalty going forward.
If you’re keen to better understand why employees leave, assistant teaching professor at PennState Smeal College of Business, Jeffrey A. Krug can help. He makes an effort to explain this mass exodus in his Harvard Business Review article, “Why Do They Keep Leaving?”
He argues that while the majority of original executives do leave voluntarily within a few months, a third of them are forced out and another third opt to leave because their job status has been reduced. The departure is not restricted to executives only with even new hires departing in droves. What could possibly be the cause? Krug cites the underlying problem as the failure to respect and retain incumbent leaders which indirectly leads to demoralization among the already nervous workforce.
Culture Consideration Tip #6 Adopt an open-door policy
During a merger and acquisition, the best thing you can do for your employees is for team leaders to keep an open door policy. When information trickles down as gossip instead of direct conversations between leaders and employees there can be a lot of misunderstanding. In an already tense situation, keeping employees in the dark might not be the best move.
Engage your people during the process. Ask their input on how best to create synergy. When you keep lines of communication open, people feel part of the process. They will still be nervous but it will afford them an opportunity to be heard and to ask the tough questions they might have. Purposeful dialogue may help alleviate anxieties across the board.
Culture Consideration Tip #7 Develop resources for easy reference
When organizations merge, structures will be rearranged and hierarchies affected. The old way of doing business is gone. Some of the culture clashes that present themselves at the onset involve employees continuing in their pre-merger practices. It is not enough to simply ask them to change. Documents must be prepared ahead of time that outline unique roles and responsibilities to avoid conflict.
Schedule a free and confidential consultation with Sun Acquisitions
Are you anxious about the post-merger situation? Would you like to discuss how to handle potential culture clashes? Sun Acquisitions is Chicago’s leading business broker offering a host of advisory services to both sellers and buyers. Contact us to schedule a complimentary and confidential consultation with one of our certified advisors. Let’s discuss your business and review your goals.