January 24, 2017

The melding of cultures during and after a merger


Regardless of industry, all mergers are complex initiatives. Understandably, all parties are laser-focused on financial and operational matters. Teams are deployed to address issues related to clients, systems, service line congruencies, litigation matters, synergistic opportunities, tax issues and the like. These are all critical management issues, yet the opportunities presented by acquisition can be squandered if leaders lose sight of the human part of the equation.

For both sides of the transaction, it is wise to initiate both a human capital and a cultural audit before proceeding too far down the acquisition trail. Typically, the human capital audit is routine as a subset of due diligence; however, a cultural audit is often overlooked.

What is a cultural audit?

A cultural audit is simply a formal inspection and assessment of business philosophies (e.g., entrepreneurial versus corporate or traditional), decision-making styles, employee engagement similarities or differences, and philanthropic/community mindedness. Employee attitudes regarding compensation and benefits, training, and performance recognition should also be surveyed and considered.

Often, a senior executive of the acquirer is tapped to survey these issues and produce a report suggesting cultural pros and cons of the combination of the two entities. Although subjective in many respects, assumptions derived from this cultural assessment will assist in formulating areas of emphasis from a people perspective after the merger is agreed to, recognizing that the assumptions might change once the two organizations are exposed to one another.

Communication is critical on several levels.

Organizations must carefully consider the impact of the deal on the workforce as they announce transactions and integrate companies. Communication is vital to success and should be executed through and after a post-merger announcement. Merging organizations are advised to outline a human capital strategy early in the process, subject to typical contractual limitations. At a minimum, the top HR professionals should get acquainted to develop common ground and open lines of communication. Although it is rare that there is truly a “merger of equals,” let’s assume such an audit is a two-way street whereby both parties conduct senior executive exchanges in a nonthreatening and constructive manner.

Reaching agreement on a communication plan supported by senior leadership of both organizations will be a key aspect of this discussion. The goals: to combat the natural rumor mill and to be as open and honest with employees as possible.

Human capital matters.

As we all know, the merged organizations want to retain the best and brightest from both entities. Articulating what happens to people who might lose their jobs is the most awkward topic, but it is better not to leave this to chance; have a plan in place.

The use of retention bonuses, career transition services and similar tools can ease the burden on employees’ minds. People remember how they were treated on the way out. It is wise not to risk the long-term, detrimental effects of public relations fallout.

There are implications beyond the obvious.

Business culture affects decision-making and leadership style, as well as how people work together. It is a key factor influencing management decisions and business functions. While a transaction is not likely to be stopped for reasons of business culture, those managing the deal should recognize and direct the impact of culture to support their desired goals.

Many progressive acquisitions and mergers employ outside third parties to assist with such deliberations and communication. This may be a wise investment under certain merger scenarios.

The bottom line: Recognize that business culture is a key component of both due diligence and change management in the acquisition merger process. Do everything possible to become aware of and harness culture to promote a successful integration.

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