Make cultural diligence a priority to ensure that culture enables, rather than detracts from, merger success. These fundamentals, reinforced in content from earlier posts, are crucial in the strategy and early deal stages.
Start with culture capability
How do your executive and deal teams stack up on culture capability basics? If you can’t answer and emphatic “yes” to the following four questions work remains to be done.
• Can every team member articulate clearly your organisation’s business strategy?
• Can every member articulate clearly your deal rationale, strategy and approach, in the context of the business strategy?
• Is there at least one deal team member that can communicate effectively with the others about your own organisation’s culture – current situation and future desired culture?
• Does everyone on the team understand the effect organisation culture will have on business and deal outcomes?
It is important that deal team members know what to look out for culturally - ideally before any interactions between deal team members and a potential partner take place, but certainly before formal diligence begins. Make sure that everyone can complete the following sentences before turning them loose!
• Cultural impact “We are looking for evidence that a partner will not impede and, ideally, will speed up progress towards our future desired culture. Specifically...”
• Cultural fit “We are looking for evidence of enough common ground in values and core beliefs to suggest we will be able to work together effectively. Specifically...”
• Culture capability “We are looking for evidence that leaders take accountability for their actions, are principled, open, and show an appreciation for the importance of how work gets done, as much as that it does...”
Cultural diligence is frequently neglected
Organisations don’t start cultural diligence in the strategy or diligence stages of a deal for various reasons. By and large, these reasons fall into two categories: 1) what the deal team says aloud, and 2) real underlying reasons that no one wants to confess!
Neglect of cultural diligence in mergers is typical – not all organisations are great at managing culture, even in the normal course of business. If these scenarios are all too familiar, there are clear investments your organisation can make to improve culture capability, no matter what deal stage you are in.
Culture diligence by deal stage
Given the nature of deals, it is typical that access to information and people are the biggest limiting factors to undertaking a detailed cultural review of potential partners. Generally we recommend taking a progressive and methodical approach that facilitates information capture as soon as it comes to hand and brings it forward in a systematic way. So, start by gathering public information and making informed observations early in the piece, even when access is limited.
*Get in touch here if you would like me to send you a Cultural Artifacts Checklist for starting culture diligence based on public information.*
Then consider how you will deepen your understanding of a potential partner's culture depending on access to people and information through the deal cycle.
Strategy Stage - Assessment The earliest culture reviews are often done unconsciously and instinctively based on the impressions given or made in preliminary and exploratory discussions between senior executives of potential merger partners. Experienced players take deliberate steps beyond good instinct, once they decide to go forward. This usually involves structured analysis of public information as well as setting a disciplined approach of observing, capturing and interpreting early impressions from management presentations and related interactions. Before diligence begins, be sure to request that reports from any cultural assessments done by potential partners are included in the data room.
Deal Stage – Diligence Even if formal cultural assessment information is not available in the data room there is plenty of insight to be gained during diligence. Usually, cultural assessment of potential partners at this stage takes the following forms:
• Review and interpretation of data room content
• Extension and confirmation of public information review output
• Continued observation of management presentations and all deal-related interactions
When considered in light of earlier work, a disciplined approach sometimes reveals material impact so profound it could jeopardise the deal. More likely, though, identified gaps will highlight risks, inform the deal approach, influence timelines, and become an important lens for implementation planning decisions.
Deal Stage – Planning Realistically open access to people from a potential partner is not available until after a deal closes, so during the planning stage teams continue down the path of more detailed diligence. As information becomes clearer, early assumptions are fine-tuned and replaced to improve planning decisions and underpin the communication program. The aim is to carry forward what has been learned about culture to date and build on it – the challenge here is to keep momentum in the handover from deal team to planning/implementation team.
It is possible at this stage to establish a “clean team” (i.e. make formal legal arrangements to form a neutral team that has access to information from both organisations) in order to enable more efficient implementation. Culture diligence work done by a clean team can include reviews of more sensitive information, executive interviews and sometimes (but rarely) focus groups or surveys prior to close, so the new top team will have more granular information about culture right from Day 1.
Implementation Stage – First 100 Days Through First Year With full access to people and information from Day 1 forward, at last it is possible to test preliminary culture assumptions and make implementation plan and communication program adjustments as new information comes to light. Culture work, including more detailed and formal assessment, can beautifully underpin the establishment of a new top team and be used as the basis for setting and communicating expectations for leaders.
• Know your own organisation culturally, well ahead of undertaking cultural diligence on another
• Ensure your core deal team has a “cultural lens” to inform their early work
• Weave cultural diligence into the fabric of the deal rather than treating it as an additional extra to be done later
• Draw on sound cultural diligence work done during the early stages of a merger to better equip the top team of your newly combined organisation for success.
Want to know more?
Isely Associates International has partnered with Walking the Talk to develop a global M&A Executive Masterclass for leaders in growth organisations.
If you want to know more or register for our Culture Masterclass click here.