CEO Headaches after a Merger or Acquisition

ceo headachesWe have less than a hundred days to the close of the banking sector consolidation programme. Someone may say, “What really is the fuss over this particular exercise?” Let’s get it over with and talk of other things”. I submit that next to the governance of our dear country, this is the other thing we have to do and do right. There are real challenges ahead and CEO’s may have lost sleep. It may not be a good prayer to wish to be a bank CEO at this time.

Obviously the banks seeking to kidnap wealthy acquirers have migraine already; considering that the sword of Damocles is less than hundred days to falling. Making M&A work, so that it delivers on its promise, is the ache of the executive teams of banks that have already signed partnership MOUs. What is the severity of this pain? And what are the best practice ideas that we can glean from successful/unsuccessful M&A integration around the world?

We are so different?

It is amazing that organisations can serve in the same industry and yet be so different from each other. And this difference remains one of the major challenges to successful integration of organisations. Too many studies on mergers and acquisitions have highlighted incompatibility of cultures as a major roadblock to M&A success. In the final analysis, organisations are a composite of upheld values and beliefs. These values/beliefs direct behaviour and these behaviours are seen in interactions with customers and stakeholders. They are even evident in the way employees talk and dress. It shows up in supposedly mundane things such as arrangement of tables, use of first names, etc.

It is the combination of all these that is referred to as organizational culture. This culture problem is largely solved or created at the planning table. It is at that point that we should have conducted a preliminary culture analysis to even determine if the targeted company is worth the acquisition or merger. Where it is observed that the culture is incompatible; the degree of incompatibility is determined; the cost and length of acculturation (culture fusion) is identified and finally a Culture Integration Plan (CIP) is drawn up. “But we didn’t do all of this in our own case”, so says someone.

Is there a remedial path? Even though an MOU has been signed and we are now ‘in formation’, go ahead and conduct a Culture Due Diligence. Be clear on the constituents of the culture of each of the consolidating partners. Identify differences; fundamental and superficial differences. Then as part of the transition and integration plans, develop a CIP. A CIP is only useful to the extent that it contains the mechanism(s) for culture integration; the time frame; external and internal facilitators; success parameters; key indicators of success and attendant cost.

Who are these people?

Determining who will be part of the core integration team represents another present day challenge that CEOs will have to grapple with. It is wrong for staff to consider this team an elitist group and thereby lobby to be part of it. Of course we are firmly on the path to failure when the executive team begins to select persons on partisan grounds. Not everybody is well placed to be an integration manager. An integration team should be comprised of external consultants and carefully chosen staff from the merging entities. Because of the humongous work associated with M&A integration, it is almost compulsory to use consultants. Also because of the skill-set required and the amount of objectivity and soul-searching needed, using a consultant is critical. Another headache for CEOs is this, “What kinds of consultants do we need”?

Over the years there has been agreement that we need business/financial consultants. But the world having gone full circle, through a series of M&A failures, have now realised the critical role of specialist Human Resources consultants. Is this requirement a nice to have or a need to have? Most of the reasons generally adduced for M&A mismarriages are people issues. Eg. Incompatible cultures, loss of key talent, clash of management styles, absence of HR at planning phase, etc. Having a specialist HR consulting firm as part of the integration team is therefore critical.

Will they go or will they stay?

Retaining top talent is a major challenge for most businesses under any circumstance. Retaining key talent while coping with the organizational upheaval wrought by a merger or acquisition increases that challenge exponentially. Why this is a major headache is twofold. Your people are your business. An organisation’s ability to deliver premium results is dependent on them having ‘magic people’. Secondly since business is largely relational, when people leave, customers and other employees go with them. The key to resolving this lies largely in preparing for it at the planning table. People tend to leave more from the company being acquired, so steps must be taken to identify and retain them.

You will do well to conduct a Talent Audit. The gains of this kind of audit is phenomenal if it is planned and executed before or during due diligence stage. In the wake of any merger or acquisition, specific retention strategies must be employed. And for these strategies to succeed, they must be based on extensive organizational research conducted well in advance of the transaction’s close. Planning focused on identifying and retaining the critical human assets being acquired begins in the earliest phases of the acquisition planning.

 

How do we tell them?

Because most M&As aim to maximize corporate resources, it is sometimes inevitable that some people have to be told to leave. The issue of separation is one of the unpleasant responsibilities of the integration team. How do we manage it? How should it be communicated and implemented such that it doesn’t become a bad publicity? Then what will it cost – financially, emotionally, loss of lead time, etc? Again we need a good plan. Let the integration team do us a PowerPoint presentation of the separation mechanism to be employed including cost implications; specifically highlighting the ‘moments of truth’; communication strategy and strategic efforts aimed at helping the affected employees mitigate the impact of the separation. This is easier said than done.

Who will look after the honeycomb?

To achieve the objectives of the merger/acquisition, a new business model is usually a requirement. Sometimes whole new business units are carved out so as to cash in on the gains expected. The throbbing question, “Who will man the specific strategic business groups”? Who are the magic people that we require at the helms of certain special business units? And don’t worry the relative importance of a business unit is dependent on company strategy and company’s understanding of the industry and the evolving trends. Making this choice can be arduous; tasking the ability of executive/integration teams to distance themselves from partisan tendencies.

It is important to always remember that the effect of poor recruiting or placement is far reaching. It stifles creativity and innovation; it sponsors mediocrity and puts a bar on the potentials of the team. The rule is let the best man do it – even if that person is from the acquired organisation. And remember the best man is the one who not only has the skill-set but also possesses the leadership ability to carry more along; he should thus be the one who has the potential of bringing maximum gain to the merged organisation’s objectives for the merger.

This troublesome process.

Information Technology has some how over the years taken up a central role in the business world. IT has now become the hub of business. Therefore the integration of banks will be the integration of IT. This is a headache of migraine proportions. It even is enough reason not to acquire a company. There again needs to be a well thought out plan for this. Identify differences in technologies. Be clear on the customer-focused adaptabilities required. Be courageous enough to discard obsolete but expensive existing platforms. Considering the investment that has already been made into IT and the focal point that it represents, a proper due diligence is a minimum requirement.

Who will become Executive Director?

Apart from the need to place people in strategic positions there’s a twin challenge that also has the potential to ruin the best integration efforts. I call it ‘Who will become Executive Director’ because that phrase helps capture the nature and dimension of the challenge. M&As naturally result in bigger organisations and this automatically brings a need for executive and senior management restructuring. Coming with the restructuring is the issue of executive compensation. I mean how are we to handle the person who was the MD in a small concern who now becomes the ED in a merged entity? How will his remuneration now be computed? This is not to mention the new management nominees from new power blocs.

What will this thing cost?

There are costs to every merger/acquisition; even the marriage of individuals gulps money. How much will our own integration cost? What are the cost elements? How do we achieve cost savings? What is the nature of these cost – are they one-off? Possible cash elements are severance payouts to exiting staff, share price related payouts, cost of IT integration, consultants fees that wont be borne by CBN, whole re-branding efforts, etc. Other non-cash payouts are emotional loss of staff, stress of the whole process, customer relationship strain, etc

Whither goes the Mother Hen?

Customers, for a myriad of reasons, aren’t comfortable with the turbulence associated with M&As. Customers are asking questions. What will happen to my money? What will happen to my investments? What would be the fate of the personalised facilities that regularly come my way? It is important that we also have a Branding and Communication plan. Communication with customers must be clear, consistent and regular. Added to that is a plan for managing customers accounts and request during the integration. The loop will be closed successfully if we also have a plan for cashing in on the emerging markets and possibilities eg. pension funds, unified telecoms license, power sector reforms, private public participation, etc. All these plans will be geared towards achieving certain business results within the first 100 days.

Certainly this list isn’t exhaustive. I mean no one should assume that there aren’t surgery-level problems as merging entities pry unhindered into their colleagues financial books, finding out what we have always known – that the declared assets/liabilities may not match up to reality. Though the integration of two entities will be arduous, it is to be expected, and the success will depend on the willingness of the power blocs to see it through.

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