The Impact of Culture on an M&A

By Catherine Z. Horn, CPA, Alcatel-Lucent On May 1, 2014

We understand the products, services and customer base; the financial analyses makes sense; and we have been able to successfully forecast where the market is going. Why is it, then, that approximately 75 percent of all mergers and acquisitions (M&As) fail to achieve the expected financial and strategic results?

Many times the answer given boils down to one word: culture. “There simply wasn’t a cultural fit.” “We failed to successfully merge the cultures.” “The cultures of the two companies were just too different.” But what do these statements really mean, and why is a cultural fit so important? Finally, what can you do to overcome cultural challenge to ensure a successful M&A?

What Is Culture?

At its most basic level, an organization’s culture is best described as “how things are around the company.” It’s not about the personality of each individual employee; it’s the personality of the organization as a whole. What does the organization value? What is most important above all else? Is it speed or precision, quantity or quality, conformity or individuality, flair or tradition? Are individuals rewarded or do teams receive the recognitions? Is the general mood serious or relaxed? Are people typically quiet and rigid or friendly and outgoing? How highly valued are ongoing education and achievement of certifications? Are birthdays and service anniversaries regularly celebrated or are they decidedly ignored? Are planned family vacations respected or regularly cancelled?

Employee Disenfranchisement

Imagine two organizations whose missions may be aligned, but their values and priorities are fairly different. It’s quite possible they were even competitors and are now forced together in what might feel like an unnatural union, despite any public relations spin.

Consider the uneasiness and sometimes fear in the employees who are in the unenviable position of being acquired by the other company. Subtly, and sometimes not so subtly, they begin to feel the shift that they are no longer in a position of power. The individuals perceive – whether correctly or incorrectly – that they have increasingly less control of their own destinies. They sense that they are in the minority and may even be questioned as to why they perform their jobs the way they do. Imagine the range of emotions in the acquired company as each employee begins to question his or her own job security and wonder each day if or when his/her position will be eliminated.

Acquired employees begin to actively seek employment opportunities elsewhere; others just get bogged down in worry about uncertain futures. Regardless of real or perceived circumstances, don’t be surprised to see employees from the target company becoming distracted, resulting in decreased productivity. It’s common to have offered retention bonuses to select key employees, but there’s a significant impact on the bottom line when the general employee population is disengaged. How can the company’s mission be fulfilled unless all hands are on deck at this pivotal time?

The Goal

If culture plays such an important role in ensuring M&A success, why are so many companies and employees unable to overcome this? All M&A planning teams have human resources at the table, and integration plans thoughtfully address the assignment of employees into the new organizational structure. So, why might this not be enough? The answer is simple: We all-too-often assume that the integration of people results in the integration of cultures. What can you do to avoid this tragic mistake, and how do you assure that the key driver of an M&A success – your employees – remains focused on the business of getting business done? In effect, you want to establish a new culture. Don’t focus on where you are coming from, but rather focus on the new organization that you are building. Let’s discuss a couple of actionable elements to help establish that new culture.

Leadership

Displaying strong leadership is always critical, but even more so during an M&A. The leader(s) needs to be extremely visible during times of change. They set the tone for the new organization, and their actions will drive the behavior of others. This is a time above all others to be decisive, fair and consistent. The leader must be hardworking and inspirational. But, most critically, the leader must bring the entire employee base together as one new team, one new organization, united under a single vision to achieve a common mission.

Communication

Communication in all forms and to all levels of the organization must be increased and carefully crafted. Messages must be clear and consistent – this is not a time for mixed messaging or to go radio silent. Strong communication becomes incrementally more critical as the M&A is announced and during the sometimes lengthy integration process. Frequent, positive and consistent communication from the top of the organization and reinforced by middle management gives employees the ongoing reassurance they need and deserve. It reduces rumors and allows employees to focus on the work of integration. During a merger or acquisition, employees specifically wait to hear such things as the status of product lines, office closings, benefits and ultimately positions. Therefore, it’s not just how well and how frequently you communicate, but you need to address the topics employees are most concerned about.

The most fundamental concern every employee will have is about his or her future. How well you set a positive, compelling culture for the new organization will be measured by the ability to retain a strong employee base where employees are the real assets who will assure the success of the M&A.

Catherine Z. Horn, CPA, CGMA, SPHR, is the human resources director for Alcatel-Lucent. She is a member of the New Jersey Society of CPAs Volunteer Relations Committee and the New Jersey CPA magazine Editorial Advisory Board. Contact her at [email protected] or 908-582-1967.