Jerry Brown of Maxxim Consulting explains why it’s essential to involve HR departments during the early stages of mergers and acquisitions to avoid cross-cultural clashes.

Businesses are living organisms that, like people, require nurturing and care through their infancy, constant nagging in their rebellious teenage years and a reality check during their midlife crises. In short, the needs of a business will adapt and change through the course of its lifecycle.

At start-up, a company develops its personality by identifying the products and services it wants to offer which will, hopefully, result in sales. Once the company’s identity is in place, it can begin to assert itself by focusing on creating a large customer base, selling to that customer base and making lots of money in the meantime. However, problems often occur when a business decides to merge with or acquire another business which is not a good cultural fit.

Growing pains
A business often experiences a period that can be likened to difficult teenage years, where a company is forced to adapt or when it has become a victim of its own success, struggling with an increase in customers and, as a result, letting standards slip or allowing the management team to become swamped. In order to maintain high standards and maximise profits at this critical stage in its lifecycle, a company may need to revamp its business processes, systems and organisational structure (and consequent decision-making processes) in order to continue to succeed.

At this stage, companies need to ask some serious questions about their core competencies; those that have led to success to date may not be the same as those required in the future. During this difficult teenage period business often enter into merger and acquisitions activity which must be handled carefully by the responsible adult in charge.

To minimise the risk of a merger or acquisition being unsuccessful, the senior management team needs to evaluate the compatibility of the two businesses as early on as possible. The most important thing to remember when preparing for a merger or acquisition is to involve HR from the outset. The HR team will always play a vital role in the technical exercise of reviewing the wage bill, benefits bill and share options. However, HR should be part of the organisational due diligence process before the deal is done and the contract is signed.

Furthermore, before a business decision is made, the organisations need to conduct an assessment of the corporate cultures to see if the two cultures are a good fit. HR or the organisational development team need to consider what corporate values are held by each company, what the different leadership structures are and what employee engagement is like, and after this, make recommendations for managing the change process.

Due diligence
The due diligence process findings and the recommendations of the finance/accounts departments need to be combined with the recommendations from the HR/organisational development team’s cultural assessment. At this point it should be decided whether the risk of M&A activity is manageable. Success often hinges on how you deal with the people issues rather than the figures. Unfortunately, in this situation, the top line financials often carry more weight along with the potential for cost saving, and challenges of integrating the corporate cultures of the companies is ignored.

When the deals are driven by the financials it can often result in a cultural clash. If the merger or acquisition is going ahead, there are various ways that the conflicting corporate cultures can be reconciled to ensure that the business is functioning efficiently and that the staff are motivated. Often the decision is taken to run the two businesses separately for a set time period keeping both the corporate cultures alive.

HR processes
It’s crucial to remember that mergers or acquisitions take time for staff to adjust to. When integrating two companies, the smaller corporate culture may fade into the background before disappearing into the larger organisation’s corporate culture. It is often the case that a new culture is formed organically when the teams are mixed up. When cross-company teams are formed based on skill sets and competencies, rather than politics, a new culture is established. However, this often results in the corporate culture looking and sounding rather like that of the larger company as the number of staff from the larger organisation is greater.

The biggest problems are caused when the HR department or the organisational development team is not consulted and involved at the pre-merger or pre-acquisition decision making stage. HR cannot deliver a smooth programme if it is only brought into the equation after the strategy has been decided. There is still far too much car crash M&A activity where a cultural assessment is not carried out, or when HR’s recommendations are ignored, resulting in combinations which are the equivalent of London Wasps RFC vs. Fulham Ladies FC!

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