“Anirvan, we’ve got a bad one! Our team in the Czech Republic is absolutely livid about something that the CEO of the acquired company said in their town hall meeting. The situation is escalating as we speak; looks like a mass resignation scenario is developing. The regional boss is struggling to get a handle on this. Please, please step in.”
This near-disaster happened a few years ago when I was involved as an external M&A integration advisor. I ended up flying to Prague the same evening.
A major US technology company had acquired a Central European firm to bolster its market share. The acquired entity was a regional competitor. As part of the deal, it was decided that the CEO of the acquired company would stay on, to provide stability, continuity as well as insights into the acquired business. And he was incentivized well too; subsequently, he was to lead the consolidated Central European region market.
A series of town halls was organized just before day one to update and share details of the integration with front-line teams and middle operational management. One of the updates was the introduction of the CEO as the new regional leader of the combined entities.
The newly appointed regional leader ended his introduction speech welcoming the acquiring company team to what he called “his” team. That was it. This single comment lit a fire that in no time scorched the town hall event and got the entire acquiring operational team simmering. Roasted.
So what happened here?
Simply put, an unpalatable mix of culture, arrogance, and ignorance, delivering a predictably disastrous outcome.
And it’s not a one-off either.
Here’s the thing. Despite all progress made in the corporate world regarding equality and respect in the world of M&A, during an acquisition, the acquiring company usually takes up a dominant role. And this dominant role play ends up making its employees apparently feel superior and ‘higher ranked’. Obviously, this premise is entirely misplaced and potentially self-defeating. Yet, it happens all the time.
The repetition of this dominant thinking behavior invariably feeds arrogance and ego trips. Under this delusion, the acquiring company often feels that they are superior to the acquired company in every aspect. At least that is what they end up believing, and very often, practicing.
This integration was no different. For the acquiring company’s operational team in the Czech Republic, the animosity of competition was replaced by disdain for the acquisition.
So, when the CEO got declared as the regional business leader, it was unacceptable to the acquiring company’s ops team. After all, how could someone from an ‘inferior’ company lead them?
When I reached the Prague office, I could sense the tautness of the situation. I ended up spending most of that day listening to concerns and gripes from multiple individuals, and the next two days with the management team from both companies. We ended up implementing several measures to control the situation and put in place interventions to address the core issue.
The entire crisis cost several days of lost employee productivity, cost of additional interventions, management time and attention, and most importantly, scarred many people, including the CEO. Some of the damage was too deep to be reversed. The consolidated organization could never develop a collaborative environment for the two teams, and could never extract the true value of the acquisition. In fact, the CEO eventually exited the organization before the year was out, and went on to lead another company to high growth and market expansion.
Where did it all go wrong?
The two companies had done a pretty decent job in structuring the acquisition, the pricing, the legal framework, entity consolidation, and financial valuation. But they swept the tricky bits under the carpet. They simply discounted the one major – perhaps the most influential – element. Cultural Integration.
An M&A transaction is a super-sensitive business endeavor. Any posturing, anything that gets said can be easily misconstrued. Under these circumstances, it is extremely important that leaders exteriorize the right vibes, speak with authority, be compassionate, and demonstrate empathetic listening skills.
It is also extremely important to create and stay within a communication script. The fact is that leaders also need training and guidance. Otherwise, heads of state would not have armies of aides and speechwriters. Business leaders may be great at running their operations but may not necessarily have the skills to manage communication or ‘political correctness’ well. Coaching on what can be and should be said, and what should be avoided at all costs, is absolutely critical.
Integration teams need to set up a dedicated and skilled unit to handle employee issues. And this unit should be empowered to spot early warning signals. It should be able to mobilize specialists very quickly and be able to execute the right interventions at the right time, with the right force.
Every organization has one or more ‘villains’ in the mix. Any integration provides a perfect storm for these people to fuel discontent in the ranks. Many of the cultural integration issues are a direct result of the work of such individuals. Cultural integration teams should be enabled to develop a take-no-prisoners approach for these bad actors.
An M&A execution is kriegspiel. A power game of balance sheets, numbers, some bargaining, and a lot of legalese. Culture – perhaps because one has not yet found a metric to measure or quantify it – is the ‘sissy stuff’ of such unions, an embarrassment to boardroom battlefields.
But as you can see from this one anecdote, the lack of cultural integration programs can seriously impact businesses and may lead to unhappy employees, lost productivity, unwanted attrition, and add considerable delay and costs to integrations.
On the other hand, cultural integration with a robust framework and the right experienced people, not only keeps employee issues under control, it powers an environment of trust and transparency and drives employee collaboration. Above all, it unpacks a huge number of opportunities to expand and extract unprecedented value from integration.
