In a recent Health Leaders Intelligence Report[1] the authors concluded that recognizing and addressing organizational cultures is the cornerstone for effective and efficient mergers and acquisitions and cited the following quotation from a VP/Director Operations/Administration to exemplify their findings.
Consider cultural factors as much as you consider financial, strategic, and clinical factors[1]
Based upon their research, the authors reported that the principal reason M&As falls short of expectations is due to incompatible cultures, and that incompatible cultures are the primary reason for abandoning an M&A altogether. The authors summarize
Let there be no doubt, organizational culture is king[1]
Given this conclusion, it seems self-evident that identifying and addressing organisational cultures be an obligatory component to any due diligence process. However, our research (first published January 2018)[2] has found that while organizational culture should be king, organizational culture it is at best overlooked or neglected altogether rendering the “king” a figurehead.
In our previous article we demonstrated that while experts in M&As do recognize organizational cultures as a critical variable for the long-term financial returns of newly formed corporate entity, the M&A experts do not and will not implement organizational culture to the due diligence process. Their rationale is clear. Organizational culture assessments are (a) outside their focus (b), there is little to no incentive to robustly incorporate assessment of organizational culture (c) they lack any formal training or professional experience in organizational cultural assessments and (d) they prefer to avoid the issues or obstacles that could be brought to the surface by an assessment, as it could jeopardize the timelines and financial payout.
Moreover, it is clear that while M&A stakeholders fully appreciate and acknowledge the substantive negative impact discordant organizational cultures can have, there is no ownership or accountability to address culture by the legal, financial, or accounting team. Financial, accounting, and legal counsel experts are engaged for contractual developments, labour law issues, and infrastructure integration synergies, not to identify and act upon underlying corporate values, power dynamics, communication patterns and so on. As stated by our respondents:
(culture) is always an issue, usually recognized by the advisor and even the 2 parties…. but often is not dealt with, put aside, no realization but normally not dealt with through a professional approach.
There does not seem to be any bandwidth to make it (cultural assessment) a priority.
One respondent in our study further recognized
The whole (due diligence) process is archaic…. Human resources and change experts need to be engaged earlier in the due diligence process, but they are currently barred due to issues of confidentiality.
Given that there is a clear lack of accountability, ownership, or expertise to conduct a robust culture assessment of the respective parties in pre-merger / pre-acquisition due diligence phase, any underlying cultural incompatibilities that do emerge are left to be addressed in a reactive, crisis mode by the post-merger integration teams. If – or more often when – conflicts in work values, communication styles, team behaviours, leadership styles, or implicit power dynamics arise, management and staff on all sides are frustrated, angered, disengaged, and lose trust in the value of the integration. Respondents in our study acknowledged that projected synergy savings post integration are quickly depleted, and that forecasted budgets to operationalize and implement the integration are routinely exceeded by as much as 70% over budget.
Organizational culture may be king, but it is a king that is all too often ignored or neglected until it has become a ruthless despot. In our next article to this series, we explore how to cost-effectively assess corporate cultures, and we will articulate when, and by whom this data be collected independently in order to fully to protect the confidentiality and discretion of the transaction.
[1] Mergers, Acquisitions, and Partnerships: Examining the Financial and Operational Impact (March-April 2018). Merrill Lynch Bank of America.
[2] Laverdière, D., Hayes, S., Samne, C., & Petrus A. (2018). Understanding the Impact of Organizational Culture upon Mergers & Acquisitions: Insights from Canadian M&A Experts -Part 1. (online – Last modified on January 8th). www.linkedin.com/pulse/understanding-impact-organizational-culture-upon-from-hayes-psyd/
AUTHORS:
Sean M. Hayes, PsyD Cohaesio
Dominique Laverdière, CRHA Cohaesio
Caroline Samne, The Pillars
Anne Pertus, The Pillars
