The High Impact of Company Culture on Mergers and Acquisitions

By Candace Coleman, CultureWise Content Manager

Many companies emerging from the pandemic were eager to not only resume business as usual but also to take advantage of great timing to expand. As a result, mergers and acquisitions surged in the second half of 2021 and early 2022. While the current economy may slow this trend temporarily, the urge to grow remains tantalizing for several reasons.

Business leaders pursue these expansion opportunities because they offer a chance to:

• Acquire technologies, products, and market access
• Create economies of scale
• Establish a larger brand presence
• Eliminate competition

Despite these attractive prospects, integrated organizations often fail to flourish because their leaders don’t prioritize one critical area.

Beyond strategic calculations, forecasting, and operational planning, the most important predictor of success for combined companies is a focus on workplace culture.

Why Culture Matters When Companies Combine

A company’s culture is reflected in the staff’s everyday behaviors and attitudes. Robust workplace culture drives every aspect of a business and is integral to its ability to thrive. It is, in many respects, the organization’s most valuable asset.

Leaders who understand culture’s impact don’t just consider the tangible components of combining two enterprises. They know the culture of both companies brought them to their current level of achievement.

Consequently, these leaders develop a process to preserve and extend healthy, high-performing culture throughout the combined workforce. And they don’t wait to address culture after the merger or acquisition. Instead, they lay the groundwork for the integrated organization’s enduring success by thinking ahead about this crucial area.

The Price of Not Prioritizing Culture

Surprisingly, success stories about leaders prioritizing culture in mergers and acquisitions are rare. These business deals can falter for many reasons, but according to Deloitte, insufficient attention to company culture causes a whopping 30 percent of failed integrations.

And even though McKinsey reports that 25 percent of leaders cite lack of culture cohesion and alignment as the primary reasons mergers don’t bear fruit, many don’t take sufficient action to prevent this problem. They either take a superficial approach to culture that won’t stick, or they don’t address the area at all.

A host of issues arise when leaders blend companies and don’t make culture a focal point. Many problems spring from the employees’ reactions to the change and leadership not leveraging culture to address their concerns. Team members from both organizations will probably be apprehensive about whether:

• Their jobs will be necessary or become redundant
• They’ll lose trusted colleagues
• They’ll maintain their current compensation and benefits
• They’ll have trouble starting over with new coworkers or managers

Fears like these often prompt workers to look elsewhere for employment. As a result, losing staff is the primary risk for companies during times of transition. In an era when people are already leaving their jobs at a record rate, the stress workers feel when companies integrate and don’t support their needs can be the straw that breaks the camel’s back.

Other situations also surface when culture is put on the back burner after companies combine. As previously noted, behavioral norms define company culture. But “how things are done around here” can mean different things to the organizations that are suddenly one entity. Even if the two groups have similar goals, their approach to achieving them may be vastly different. Examples include:

• Decision-making styles: consensus versus top-down.

Conflicting approaches can lead to slower decisions and failure to make or implement decisions.

• Leadership styles: dictatorial or consultative.

The sudden imposition of a new leadership style can generate resentment, lowering morale and productivity.

• Perception of change: willingness to risk new things versus a focus on staying the course.

An innovative staff may not see the value of retaining established methodology, while a tradition-oriented workforce will likely balk at implementing new strategies and working through integration challenges.

• How people work together: formal structure and role definitions or informal relationships.

If the assumptions of each legacy workforce are inconsistent, internal processes are likely to break down because people don’t understand how work should be done.

• How success is defined: results generated by individual stars or through teamwork.

A workplace rife with different perceptions of how to reach organizational goals will generate conflict and a lack of mutual support.

The friction caused by these discrepancies can be highly disruptive as the assimilated groups try to meet forecasted expectations. But leaders can address issues like these, and the uncertainty felt by employees, by thoughtfully planning out a unified workplace environment.

Halfway Measures Don’t Work

Some leaders who try to prevent culture alignment problems begin with the right idea but fall short. Many will start by defining a set of values or aspirational qualities for the newly expanded company, such as “customer-focus,” “integrity,” and “respect.” Then they encourage their blended workforce to adopt these characteristics by distributing posters, screensavers, and other reminders throughout the workplace.

This method persists because leaders can accomplish it relatively quickly and they’re under pressure to meet other strategic goals as soon as a merger or acquisition goes into effect. But unfortunately, the strategy is seldom effective because employees struggle to connect broad principles with specific work tactics.

As a result, workers largely continue to operate as they always have, with the added hardship of being out of sync with the newly forged team. Progress is unlikely despite everyone’s best intentions. By not being thorough in their approach, leaders who try to address culture this way reduce the chance for success in every aspect of the integrated company.

Establishing & Maintaining Strong Culture in a Blended Workforce

The leadership balance in a blended company depends on whether one business is absorbing the other versus a union where both carry equal weight. In an acquisition, the head of the purchasing company will probably outline the culture they want to see, whereas both leadership teams in a merger will weigh in. 

Either way, to make the new enterprise viable, it’s in everyone’s best interest to create a culture plan that all parties will respect.

Getting Off to a Good Start

The first thing leaders should consider when evaluating how to establish culture in the new organization is employees’ perceptions of their roles. Regardless of whether one company is absorbing the other or if two companies are joining forces, leaders should make the staff from both organizations aware of their value to the new enterprise.

Leaders can begin by articulating the reasons behind the union, the new organization’s mission, and why each employee is vital to its success. Proactively sharing this information puts everyone on common ground and provides them with context.

Demonstrating this kind of transparency is a critical part of the process because, as Professor Benjamin Laker points out in his Forbes article, “Key Advise for Leaders Completing M&As in 2022,”

“Mergers and acquisitions are a type of radical organizational change with a significant impact on jobs and identities. When people can make sense of such radical changes in a way that communicates value to them, they are more likely to embrace the changes.”

The Nuts and Bolts of Building Culture

The executive team’s next step should be developing the initiative that will have the most impact—defining and coaching the behaviors that will form the culture they envision. This critical part of the process prevents random and possibly competing behaviors from dominating the integrated workplace.

CultureWise CEO David J. Friedman recommends that leaders consider four areas of conduct as they choose the behaviors they want their company’s culture to reflect.

1. How team members work with customers
2. How team members work together
3. How team members personally approach their work
4. The attitude team members display

In his book, Culture by Design, Friedman advises leaders to define their company’s behaviors with great clarity, so there’s no room for misinterpretation. And he reminds them to make sure they’re describing actions instead of principles or values when they choose the wording for their preferred behaviors.

“A behavior is something we can literally see someone doing.”

Friedman also recommends creating a distinct definition of what each behavior looks like when it’s performed.

After leaders introduce the list of behaviors that will enable the newly integrated workforce to flourish, they need to reinforce them systematically on an ongoing basis.  They also should be prepared for some growing pains and be ready to identify and address them. The process shouldn’t be rushed because getting everyone on board will take time.

As Saba’s Chief People Officer Debbie Shotwell points out in a Forbes article: “Most leaders want to complete the integration process as quickly as possible in order to reap the financial benefits of the transaction.”

But the mergers and acquisition veteran cautions, “This can come back to bite them. I believe in taking a step back, planning, and taking your time with your integration strategy.” This slower tempo allows organizations to manage the human side of the transition process more effectively.

Give Your Business the Best Chance for Success

A planned approach to developing and sustaining culture is essential when integrating companies. Without careful guidance, a disjointed culture will likely undermine the value-creation in a merger or acquisition.

But when leaders intentionally craft, communicate, and help their people absorb behaviors that benefit all involved, they give their people the best chance to galvanize as a team. And a merger or acquisition provides leaders with a unique opportunity to transform a newly combined organization, design its culture in line with strategic priorities, and ensure its health and performance for years to come.

To learn more about how to systematically develop company culture for existing companies or potential acquisitions or mergers, visit the CultureWise website. David Friedman’s system for building and sustaining company culture has helped executives across North America succeed as they grow their companies.

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