Mergers often look strategically sound, yet become a real-world disaster for the shareholders of acquiring companies. Studies indicate that anywhere from 30% to possibly 80% of mergers fail to deliver expected value.
Even at the low end, this is hardly a good probability in an age of increasing shareholder activism.
Is there a better way to achieve improved results? Ideas from the worlds of evolution and biology may point the way to the underlying problems of mergers and improved outcomes.
It's often said that management is too preoccupied with tactics or checklists of merger implementation -- rushing to cut staff and consolidate resources rather than deploying quality, sensitive communications to ease the anxieties of merged employees.
The reality, however, is that most management teams these days enter mergers with elaborate plans for organizational harmony. And while it is also usually the case that employee reductions create massive anxiety and barriers to integration, it is also inevitable that some reductions and changes must take place. So what's the proper approach to integrating organizations?
Part of the answer lies in getting to the strata beneath the organization: the individual mind. M&A is not stressful to "organizations" any more than firefights are stressful to combat "units." "Organizations" and "units" are simply theoretical shorthand for what really matters: the impact on individuals and their ties to each other.
Here is where a quick excursion into evolutionary psychology is rewarding. One of the leaders in the field, economist David Friedman, points out that economic decisions are processed unconsciously in our minds, whose chemical and psychological make-up has been designed for a world of small bands and simpler relationships.
Specifically, Friedman notes that the world in which our species evolved did not have institutions to protect promises of future value.
"One meal today was worth a great deal more than one meal next week because today's meal was there to be taken; next week's might not be," said Friedman in his book "Economics and Evolutionary Psychology."
In the case of mergers, the farther you get away from the planning nucleus of the C-suite and those of the immediate management beneficiaries, the logic of expected value breaks down. Top management will communicate rational arguments about collective and personal improvement over time, including better, smarter jobs; improved chances for bigger paychecks; and in companies under market stress, a better chance of long-term viability.
But for most employees, the event sparks a threat to what someone has now (in terms of status, stability, etc.) as opposed to the excited expectation of a bigger payoff later (a fear that the track record of mergers generally supports).
So how do we make deals work within irrational systems?
1. First, do no harm. Experiments and case studies show that it takes time to meld cultures. Individuals and small groups within the acquired party need to feel they are not besieged. This means leaving the acquired organization largely intact while streaming communications about the value of the new company to employees. Since many of these individuals hold critical expertise that may not be visible to top management at the time of the merger, having breathing space for acculturation and assessment is of value in retaining critical talent.
2. Accept costs and embrace redundancy. The corollary of more time is often more cost in the near term. This flies in the face of the urgency when many strategy departments and CEOs have to make quick cuts and eliminate dual functions. So these costs must be budgeted for as part of the merger plan.
3. Learn, evolve, relearn. For CEOs, the opening phase of the post merger integration period should be all about learning, in the activist sense. By that we mean getting in front of employees, learning from them, and letting them know the CEO. The challenge, though, is that addressing large groups as a means of interaction does not get to the small group trust issue wired into our brains. CEOs are likely to better off with a limited amount of time with small groups of under10 employees, about the size of a stone age grouping. While learning the needs of the larger group through internal surveys. Taking small group knowledge back into C-level planning then allows for smarter decisions on talent and reducing organizational redundancies.
4. Communicate fairness. Communications in companies often stress financial targets and personal financial growth. But in a merger situation where there is extreme psychological tension over in group/out group relations, the issue is not about how much more I make or how much better I do. It is more about whether what I get or what I achieve is fair relative to what the players on the acquiring side achieve as a result of the merger. Psychological studies show that players in transactional games resist deals where they don't perceive parity in gains, according to author Michael Shermer in his 2008 book "The Mind of The Market."
We are still at the beginning of the insights that evolutionary psychology offers to business leaders. If there is a main caution that this discipline offers, it is that acquiring leaders who don't have the patience or appetite for a more nuanced and protracted change process should look to other strategies for growth.
Andrew Goldberg serves as executive vice president of public relations firm Makovsky & Co. Inc.s Corporate Advisors division,which counsels CEOs and other C-suite executives in restructuring, change management and M&A situations. Goldberg was previously the president of WPP-owned Pivot Red and chairman of the corporate practice at Burson-Marsteller. He earned a Ph.D. at Columbia University in international affairs, specializing in the psychology of decision-makers under stress.
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