By Paul Plotczyk, President, WSA
- Nothing will change.
- Your job is secure.
- You are a valuable asset.
- We will let you know everything that is going on.
- Trust us.
If you have recently been through a merger or acquisition, you may have been the recipient or sender of any one of the above messages.
Is this the Big Lie? A bold-faced deception? A conscious attempt to distort the truth? Or, was it that the sender just didn't have any real information and was only expressing what they hoped to be true.
Mergers and acquisitions (M&A) are attempts for companies to change their current path by combining strengths in the hopes of achieving what are often referred to as “synergistic benefits.”
There are varied reasons behind a merger or acquisition. They are often driven by the need to:
- increase market share
- enter new markets
- develop new products through R&D
- achieve administrative benefits
- boost revenue
We make mergers sound so simple: just combine computer systems, merge departments or offices throughout the world, use sheer size to force down prices from vendors and surely find other ways benefit to from economies of scale.
Yet we all know that historical trends show roughly two-thirds of big mergers will disappoint on their own terms. An often cited KPMG study puts it even higher stating that, "83% of all mergers and acquisitions failed to produce any benefit for the shareholders and over half actually destroyed value". The allure (in theory) of 1+1 = 3 sounds great. And we are all smart people so we know we can make this work. However, in practice things can and do go awry.
Solid Financial Deal to Business Soap Opera
Up to the point in the transaction process where the papers are signed, the merger and acquisition business is predominantly financial: valuing the assets, due diligence and determining the price.
However, before the ink is dry on the final documents, this financially-driven deal becomes a human transaction filled with emotion, trauma, drama, and survival behavior - the non-linear, often irrational world of human beings in the midst of change.
Let the Lying Begin
All too frequently, one of the most irrational activities begins to happen at this juncture: otherwise honest and professional people begin to lie.
Statements like – “there are no plans to cut staff”, “we are not consolidating product lines”, “we are not relocating offices” come out of the mouths of some very rational, smart people. And we all know that the majority of times, the statements are false. Jobs are lost, facilities are closed, positions are terminated, and reporting relationships are shifted, sometimes quite dramatically.
Because most executives and managers involved in the M&A are focused on the short term – doing the deal! - the question of fallout from the mistruths is often looked at in the same light - as a short term issue.
However, the breach of trust can live on for years, sometimes decades. The difficulties encountered are often amplified in cross-cultural situations, when the companies involved are from two or more different countries.
What Drives Executives to Tell the Big Lie?
The number one driver of the Big Lie is leaders are not expected to say, “I don't know.”
In companies throughout the world, especially those that are primarily US-centric, management is supposed to have “The Answer.” They are supposed to know all, offering advice, guidance and predictions of the future.
When leaders don't have all the answers they shy away from providing the information that customers, shareholders and employees need to calm their nerves and re-direct their action to behaviors that will add value to the deal. Rumor loves the vacuum of mystery and secrecy! The communication then takes on the tone of the “lies” above, lacking any real information and substance that might explain and support employees' and other stakeholders' interests.
Trust is then broken and the restoration of it may be years away. Also, we all know that the very acts that fractured the trust – speaking and communicating – are the same acts required to restore it. So we have a dilemma: with the source of the communication being doubted, how then do we restore trust?
Restoring Trust
At a time when leadership and active management is most called for, the stress, uncertainties and fear can cause an inward focus and a retreat to safe comments, and the avoidance of questions or challenges. This comes, sadly, when more leadership is needed not less.
One of the primary roles of a leader is to articulate a vision and inspire others to join in that vision. Proclaiming a new vision and handing out slick brochures, buttons and hats or laminated wallet-sized cards, does not create a new vision for the new enterprise.
Leaders communicate. They make themselves visible. They get involved and share the new vision which captures the critical success factors, economic and business drivers that brought the deal together. They talk, listen and act.
Despite this dire need for true leadership, all too often the opposite happens. Instead of communicating the vision or the driving motivation of the deal we see people in leadership positions increasingly focus on mundane and irrelevant information.
This strange behavior is often due to the leaders having started their adaptation to the new reality far sooner than those who learned of the merger on announcement day. The leaders often jumped on the wave earlier, rode it into the shore, and are way in front of this tidal wave of change now crashing down on the others. They wonder why people don't seem to “get it” and often mistake shock and confusion for resistance to change.
In the case of international M&A's, the need for leadership is even more crucial due to the different cultural context. Being a good leader requires different skills and attributes in different countries. For example, charisma and a positive personal image are important attributes of leadership in the U.S., but not necessarily in other countries.
Conclusion
There is an old adage we have cited on previous occassions: “If wishes were horses, then beggars would ride.” Despite the thoroughness of the due diligence, or the support of the Street, or the completeness of the documentation, any new entity cannot be “wished” into being. Irrelevant information, expressions of a hope for the future, won't make it happen.
The hard work of defining and negotiating how a newly merged organization will work simply cannot be avoided. The human and cultural issues that separate the 17% from the 83% are not about some abstract values or the “soft stuff” of fuzzy communications, but the concrete realities of jobs, productivity, economic value and sustained growth.
Please call us if you would like to discuss challenges you might be having with a recent or planned merger or acquisition. We have helped client corporations create great success in this area and would be glad to share our knowledge.
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