Culture clash in cross border M&A

How do you avoid Culture Clash in cross border M&A?

Massimo Penzo
October 2019

Senior management teams and corporate decision-makers often focus on the financial and legal side to mergers and acquisitions and tend to neglect the ‘human’ and cultural aspects that can cause complications, especially with cross border mergers and acquisitions.

Culture may not be first on the list of priorities when embarking on a merger or acquisition, but ignoring the human side of a deal, especially an international deal, can result in significant obstacles further down the line. According to an INTRALINKS gobal survey:

  • An average of 50% of managers are reported to leave a year after international M&A
  • Approximately 70% of cross-border deals are thought to have no impact on increasing shareholder value.

Time and again, history has shown us that without a productive integration of the merging entities, cultural alignment and excellent communication with stakeholders and top management, especially when dealing with a cross border transaction, the quantitative success will not be reached easily (see Daimler-Benz and Chrysler or Volvo and Renault as examples).

Some of the intercultural challenges that can damage the cross-border integration process are:

  • Language and communication styles
  • Integration of national and organisational cultures
  • Engaging with new customers
  • Preparing for the unexpected

But how do you approach your management teams and, most importantly, your employees in order to reduce the risk of culture clash in a cross border merger or acquisition?

Start early: analyse and identify cultural differences early on in the process

Even before the letter of intent is signed, a compatibility assessment should be carried out to try to identify “soft” cultural differences and similarities between the parties. This might include:

  • how the company conducts meetings and make decisions
  • the physical environment
  • hierarchical structure
  • work hours & dress code
  • age of employees
  • communication style
  • and, most importantly, employee and customer feelings and feedback.

This information can be collected by carrying out interviews or sending well designed surveys to the different groups in the organisation. Management interviews should focus on uncovering managerial styles and priorities, while employee surveys can help you understand accepted behaviors, attitudes, and priorities. Customers should be approached with caution due to confidentiality issues but their input can be extremely valuable.

Align missions, values and behaviour

After the closure of a deal, all parties, especially the senior management teams of each organization should work together to clarify the new mission, the shared values and the guiding behaviours going forward. Once established, an internal communications plan should be set up and executed before rumours spread and cause unnecessary concern among the troops.

In the case of an acquisition, the acquiring company needs to have a clear vision, set of values and guiding behaviors as well as a process to orient employees. If the company is not clear about these things themselves, it can be very confusing and disruptive. Working together with a third-party expert or consultant will certainly help develop the culture, identify warning signs and keep employees and stakeholders onboard.

Be clear on the value you are trying to achieve

Once the deal has been announced, some efforts should be dedicated to highlighting the positive reasons for the merger or acquisition and why it came about. A team of cultural ambassadors might be appointed to align the two sides and empower employees who might be feeling overwhelmed by the changes. A strong business case can turn over internal doubts and help weaken any cultural stubbornness.

This would also be a good time to talk about organisational goals, job descriptions, teams and objectives. Start to implement programs to drive positive behavior with discussions around compensation, incentives, benefits, and rewards. These steps will go a long way in nurturing engaged employees.

No two cultures are alike, and culture is notoriously difficult to change. But culture clash doesn’t have to derail your M&A efforts. Focus on aligning your mission, communicating well, and intervening where needed to achieve post-merger synergies and success.