You’ve probably heard me quote my friend, mentor and former client, Jeff Hemmer, many times in the past, and with good reason. As an executive for a major acquirer and veteran integration leader on multiple large acquisitions, joint ventures and mergers, he knows what he is talking about. In fact, his priceless insight on the importance of getting post-merger organization design and staffing decisions right has been shared with countless executive teams over the years, and it’s still as true (and important) today as ever before.
His simple yet profound advice is this: “Nothing much happens during merger integration until the organization is set.” I believe this principle because I’ve seen it and lived it, both positively when leaders get organization design and staffing decisions right, and negatively when they blow it or just fail to make it a priority early enough in the M&A lifecycle to get the job done.
"Nothing much happens during merger integration until the organization is set."
Our study, the State of M&A Integration Effectiveness, indicates this glaring gap that all serious acquirers must address more effectively in the future. While no one argues with the extreme importance of getting talent selection, role and reporting relationships right during M&A, these practices continue to stand out as some of the least effectively managed in most post-merger situations. Our study found that 74 percent of all respondents consider themselves to be very poor, poor or average at using an objective, well-managed process to decide and implement organization restructuring, staffing, selection and exit decisions. Further, 57 percent of respondents indicated they were very poor, poor or average at effectively onboarding, orienting and training newly acquired staff.
Granted this is tough stuff, both legally and practically. Acquirers may be limited in their ability to access and have full-disclosure discussions with talent in the to-be-acquired company until just before closing or immediately post-closing. Target company candidates may be guarded in their interactions until there is a basis of trust or awareness of what the acquirer really contemplates about staffing.
Finally, our old nemeses, “me issues,” are pervasive and cause even the most highly skilled and effective managers to doubt their ability to fit in the new environment. Making smart, fully informed staffing decisions on key talent and roles early in the integration process is the quintessential example of changing a tire on a moving truck. It’s no surprise that so many acquirers fail to get this right and for so many different reasons.
Historically, we find that most acquirers are just plain unprepared to think about organization design, structure and staffing decisions early enough in the process. This is often due to a lack of rigor in the overall M&A process that is being used and a failure to push these important issues adequately in the due diligence and pre-closing integration planning phases. Beyond that, we often see one of three “fatal flaws” in the acquirer’s method for making structure and staffing decisions.
Fatal Flaw #1 – The Unilateral Approach
In this approach, the acquirer makes all staffing decisions unilaterally and without adequate involvement of the acquired executives, managers and HR professionals. In this situation, many capable people are never considered as they are “unknown commodities” or they are eliminated on the basis of the acquirer’s cronyism or favoritism. Without adequate decision processes, accountabilities and oversight, even the good intentions of the acquirer’s key leaders may be overcome by poor decision mechanics at the department or function level.
Fatal Flaw #2 – The “Wait and See” Approach
In this approach, the acquirer makes a common messaging mistake stating that “no major personnel changes are anticipated,” or otherwise fails to adequately evaluate staff and talent requirements early enough in the integration process to effect the necessary changes. The farther past the date of closing the acquired company staff gets, the more they tend to perceive they have escaped unscathed. If, over time, the acquirer finally determines that major staffing changes must be made, a second wave of disruption may then be triggered.
For example, a few years ago we were engaged to advise on a “merger repair” situation where the acquirer’s “wait and see” approach to executive staffing had very nearly caused the business relationship with the acquired company to be completely dysfunctional. In this case, the founder and long-term CEO of the acquired business was a very dominant, hands-on leader who was intricately involved in every aspect of the business. A full year and a half post-closing, the relationship between acquirer and acquired company executives had finally become so toxic that the acquirer suddenly fired the acquired CEO with no advance warning and with very little communication. The acquired business, its remaining staff and processes froze and were largely unable to conduct its operations. All trust between the acquirer and the acquired organization had been broken.
Hindsight is always 20/20, of course, but in this case, the inevitable outcome should have been blindingly obvious. If the signals had been heeded, a proactive and constructive leadership transition process could have easily been implemented, saving both the acquirer and the acquired company substantial value erosion and disruption.
Fatal Flaw #3 – The “Clean House” Approach
In this approach, the acquirer assumes there is no credible leadership or functional talent that can contribute effectively to the combined business post-closing and eliminates all or most of the acquired company leadership. Except in special circumstances, such as a crisis turn-around situation, for example, this option is usually too costly in terms of the loss of institutional knowledge and business process capability. In our view, the decision to clean house en masse is more often than not driven by a poor due diligence effort combined with a lack of adequate understanding of and appreciation for the target company’s unique business model requirements, mixed with a healthy dose of corporate arrogance.
You can find some key success principles and best practices for post-merger organization design, structure and staffing suggested in "Are You My Boss?" But first, let me suggest you take stock of your organization’s current approach to these mission critical M&A competencies by taking the assessment quiz provided in this downloadable resource, Rapid Assessment: Post-Merger Organization Structure & Staffing.