Even as the economy flails, mergers and acquisitions continue. Microsoft has been pursuing Yahoo! Delta and Northwest are currently executing a complicated merger. United Technologies is targeting Diebold. Yet many studies show that most mergers don’t create significant shareholder value. A Bain & Co. survey of 250 global executives involved in mergers and acquisitions indicates that only three in 10 mergers created value for shareholders and that poor integration was behind two of the top four reasons for failed corporate unions.
Why does a newly combined company so often fail to deliver on its promise? Stephen A. Miles, of Heidrick & Struggles International Inc., and Nathan Bennett, a management professor at the Georgia Institute of Technology, have been involved in a project that identifies the key struggles of post-M&A executives. In their research they found that post-M&A top management teams fail to quickly establish and then maintain productive working relationships, leaving the team poorly positioned to lead. In fact, they found many preconditions for team success absent. And while mutual trust, shared vision and clearly articulated roles take time to develop, stakeholders expect results right from the get-go.
There are other problems as well. Often executives act as adversaries during negotiations, advocating for their respective stakeholders, and then must turn around and become colleagues. Some executives are bitter about how negotiations unfolded, which causes hard feelings about titles, roles, responsibilities and compensation. Some may feel trapped in an uncomfortable arrangement rather than excited about new opportunities
Here are four guidelines Miles and Bennett have identified to help executives and boards effectively build, or rebuild, and support top management team.
First, reduce role ambiguity. Companies often define mergers as adding technologies, products or market share. Yet mergers are inescapably about people and their capabilities. And people can walk away. Therefore, it is critical to minimize the risk of them leaving by addressing their concerns. People most often leave because they have ambiguous roles: Those who feel uncertain about their futures in new entities often begin to consider other opportunities. Therefore, the combined company must do what it can to prevent people vital to teams and organizations from leaving.
Second, prioritize due diligence -- not just of financials, but of people. Management teams must learn about their future colleagues before the deal takes place, not after. People can hold one another at arm’s length, because they’re unsure how the merger will play out. A deal doesn’t succeed simply because of spreadsheets. Most companies are disciplined about pursuing financial data, but not about investigating talent.
Third, recognize that old habits die hard -- but not all should. Companies have well-established routines, many of which they retain because, of course, they work. Employees, particularly in uncertain times, stick close to their routines, deriving comfort from them. Everyone who has gone through an M&A has experienced a moment of “that’s not how we do it here” or “we did it better at my company.” The problems become rethinking this “we” -- which has become redefined in the merger process -- and deciding which processes will stay in place and which will change. Leaders must discern which habits will best serve the new company and support them.
Fourth, don’t tolerate bad behavior. Top management teams display three common forms of harmful behaviors: They form cliques, they don’t tell one another information equally, and they sabotage others’ decision making. Cliques often arise when people are feeling uncertain -- they close ranks and commingle only with those they trust. But these types of groups slow down team development. If executives from acquired companies believe they are privy to all relevant information, but in fact they aren’t, leadership is only going to get bogged down. Getting beyond this type of behavior requires strong leadership -- executives setting public examples from the top. As well, in selecting individuals to become part of these top management teams, consider carefully. Don’t choose people with reputations for being political or self-serving -- these traits could prove dangerous in a post-M&A context. Furthermore, consider identifying early on a goal that can only be accomplished with the full cooperation of the entire top management team. Doing so will hopefully leverage any self-interested behavior for the good of the whole and, with luck, produce an early win, which will provide the team with momentum to continue to succeed.
This article is adapted from “Six Steps to (Re)Building a Management Team,” by Stephen A. Miles and Nathan Bennett, which appeared in the Fall 2008 issue of MIT Sloan Management Review. The complete article is available at http://sloanreview.mit.edu/smr/.