How to avoid workplace culture clashes in mergers and acquisitions

Workplace culture is often an afterthought in M&A, but it can make or break a deal. 

When Aetna CEO Mark Bertolini testified before congress last fall arguing the case for merging with rival U.S.-based health insurer Humana, he singled out cultural fit as a key component of the merger. “Mergers and acquisitions are not just about efficiencies and business goals. Both Aetna and Human share a common culture,” he said. While the proposed $35 billion cash-and-stock deal has only just received approval from the State of California regulators with a Department of Justice approval pending, Aetna has already hired a workplace culture integration specialist to help it through any foreseeable kinks.

“There will be storming and there will be noise — that’s just the nature of things, but if we make this investment now, we think that’s a good thing,” Bertolini recently said. He’s right to fixate on the importance of culture in mergers and acquisitions. After all, an oft-quoted study by Aon Hewitt found that 33% of those surveyed say merger and acquisition failures were on account of failed workplace culture integration.

“Culture integration is also linked as an underlying, indirect driver to a number of other immediate causes of deal failure, including delayed integration or implementation – the most common factor cited for deal failure,” says the study.

But stats aren’t the only place to look in order to grasp the true value of cultural integration. Just look at the $350 billion deal between AOL and Time Warner in 2000, which became a textbook failure (quite literally, business schools use it as a case study) partly due to poor cultural integration.

“I remember saying at a vital board meeting where we approved this, that life was going to be different going forward because they’re very different cultures, but I have to tell you, I underestimated how different,” said Time Warner president Richard Parsons to the New York Times in 2010. Or what about Sprint’s disastrous acquisition of Nextel in 2005, which resulted in Nextel’s value being written down by 80 per cent within three years.

“It would be hard to think of a problem that was given more attention” than the cultural issues, a Sprint executive told The Washington Post anonymously. “We leaned over backwards to understand the two cultures — so much so that it basically made both parties compete. . . . No one could have predicted how difficult the true integration would be.”

Failing to account for cultural integration and place emphasis on that part of the process can bring even the most well-planned deals down. Here’s a run-down of how to navigate the pitfalls of culture clash.

Understand the workplace culture

Culture doesn’t appear overnight. For sturdy, well-developed corporations, that culture is a byproduct of countless management styles and employee attitudes merging together as one, often over a number of years. It’s implicit in a company’s DNA, affecting core components of a business from decision-making and leadership style to more complex elements like how teams work together and how employees gage personal success.

Retaining key leaders in a merger is a given but Identifying corporate culture ambassadors – typically senior human resources of organizational development leaders – and having them report to the mergers steering committee or senior management can help make the marriage between two cultures more streamlined. Each ambassador can develop a sweeping report on the core cultural values and help the key architects of the merger develop strategies to navigate cultural integration.

This is particularly important in cases where massive corporations are acquiring nimble startups with entrepreneurial mindsets (which seems to be the way a lot of these startups are exiting). While it may make sense on paper to dissolve the liberal attitudes of a startup in favor of a more efficient and structured approach, it’s important to understand how this culture fits into the historical success of that startup and how it might be adapted to meet both companies’ cultural mindsets.

Develop a 100-day plan

Culture should be a part of the discussion on any merger-related agenda from day one. But once the merger or acquisition starts to grind forward, each company’s cultural ambassadors should be called on to help come up with concrete, measurable strategies to ensure the critical first 100 days of the merger go as planned.

Gathering employees from both former entities and identifying the newly-created companies vision for the future can help rally the teams and give them a unified banner to charge forward under. It also provides an opportunity to highlight the benefits of the merger and give employees a lo-down of why it’s happening. Not everyone will like it but if there’s a strong business case and both sides of the new entity seem to be legitimately pondering the role of culture, it can help weaken the blow to those who find the change unwelcoming. It’s also important to address the new organizational structure during this phase, to avoid hang-ups surrounding reporting procedures.

Praise the partnership

Looking back, one of the biggest rifts in the Time Warner/AOL merger was the “Us versus Them” mentality. It’s easily exhibited in Ted Leonsis, a division manager at AOL’s comments to the New York Times.

“The news release that they showed us and the positioning was that AOL would be the crown jewel, and I’d say, ‘Well if we’re the crown jewel, why are all our best and most important people leaving here and going to New York?’” he said. “In fact, if we were the crown jewel, you would go and take all of the best, most talented people at Time Warner and bring them here.”

The Time Warner-AOL example highlights the need for leaders of an acquiring company to devote time to acknowledging the positive aspects of the company it’s buying or merging with. Pointing out the cultural benefits identified by the corporate culture ambassadors is a good way to align the two sides and empower employees that may otherwise feel swept to the side by the changes.

The merger of two companies, like any marriage, requires acceptance and understanding. As the droves of examples have shown, the financial benefits aren’t always enough to sustain the new entity, a convergence of culture is also necessary. If retaining top employees and key culture drivers at both businesses is important (and it should be), efforts need to be made to secure their loyalty, to make them feel proud of the brand, and to make the new culture one they can rally behind rather than reel against.

Andrew Seale

Andrew Seale is a Toronto-based business writer who contributes frequently to Yahoo Canada Finance, The Globe and Mail's Report on Business and The Toronto Star.