Leadership readiness: how to avoid cultural misalignment after a merger or acquisition

In their 2014 paper, Junni and Sarala define merger and acquisition leadership as steering the efforts of organisational members towards achieving mutual goals during the integration.[1] This definition highlights the importance of leadership in accomplishing shared goals following an integration event.

We know that M&As can offer significant business benefits when managed effectively. A Deloitte report from 2017 calls these transactions “one of the biggest game-changing opportunities available to an organisation and its leadership. M&A can open doors to new markets, fill talent gaps, improve operational performance, grow shareholder value, and even allow the expanded organisation to shape a new culture. Achieving the desired results and deal synergies often hinges on executives’ ability to engage the workforce and lead proactively, positively, and enthusiastically throughout the transaction lifecycle.”[2]

However, there is one area that often lacks scrutiny. Close attention will be paid to the processes and systems of a merger, but less attention is paid to the change that people go through. It’s a classic point of difficulty. In fact, cultural and leadership misalignment is perhaps the dominant barrier to an effective integration.

Typically, we can think that the ‘change’ has occurred when the merger or acquisition happens, but this is when the ‘mental’ or ‘psychological’ side of the change is only just beginning. These changes will spring from implicit shared values, beliefs, and assumptions that individuals have about a company that then influence their behaviour and attitudes.

This diagram below nicely highlights the inherent difficulties in understanding one culture. Now imagine merging two together.

Source: Pinterest

According to a recent Forbes article a business’s M&A plan “may extend years beyond announcement day. Your plan needs to consider a long-term strategy for retaining your people and building shared capabilities, among many other aspects of a merger that take time to succeed. In fact, an M&A might require the most complicated and far-reaching plan your company will ever create.” [3]

McKinsey also notes that “the essence of culture is reflected in a company’s management practices, the day-to-day working norms of how it gets work done—such as whether decisions are made via consensus or by the most senior accountable executive.” They state that “if not properly addressed, challenges in cultural integration can and often do lead to frustration among employees, reducing productivity and increasing the risk that key talent will depart, hampering the success of the integration.” [4]

Therefore, equipping leadership groups with the tools and know-how to manage these transitional periods successfully is important.  Even when mergers run smoothly, getting two cultures integrated requires managing numerous details. How do you merge two teams that share the same client? What’s the game plan for keeping the newly merged company up to date on your progress?

Recognising this allows the aware executive to put in place regular communication vehicles to drive understanding, buy-in and ultimately the hearts and minds of both their executive teams and the wider workforce.

The Forbes article identifies key skills that are needed on both sides of the merger. One of them is collaboration: “It’s important that you be honest when you assess this attribute. Not everyone at a company is particularly effective at collaborating. Find someone who has the patience, communications skills, and enough self-awareness to keep their ego in check.”

Boosting your leader’s capability to manage these transformations is crucial. As McKinsey states: “investing in integration and leadership readiness is imperative. Indeed, organisations with the right integration capabilities are 1.6 and 1.7 times more likely to exceed cost and revenue synergy targets, respectively, than organisations without the right integration capabilities.”

To this end, forward-thinking businesses will start to think about cultural and leadership alignment as a business process. One that is rigorous, structured, and accountable. It is hard work and companies should seek out guidance from professionals just like they seek out guidance for the financial/banking transactions and legal ramifications from attorneys and law firms.

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[1] https://doi.org/10.1108/S1479-361X20140000013007
[2] Merger and acquisition compendium | Deloitte US
[3] Why Mergers & Acquisitions Need An Effective Quarterback (forbes.com)
[4] https://www.mckinsey.com/business-functions/organization/our-insights/equipping-leaders-for-merger-integration-success