WINNING WAYS IN MANAGEMENT
By Jack and Suzy Welch
Merging cultures in business deals
Q: Why do so many companies not address cross cultural differences in a merger until it's too late?
-----Karen Fenner, Camden, New Jersey
A: Because you can't number-crunch culture. And financial analysis is almost always where merger
evaluations begin, along with some level of strategic analysis.
If those assessments seem positive, then a cultural comparison of merging companies might take place.
Might… because by the time a merger starts to appear attractive, deal heat has already started to creep in.
and with it, the ability to back away – even for the best, most rational reasons – starts to creep out.
Now, you would think with all the merger-and-acquisition (M&A) activity in recent years that companies
would have figured out how to not succumb to deal heat. Some have; many have not blame human nature.
Blame investment bankers. Blame the fierce competition of the global market place.
Whatever too often deal heat is inexorable, especially if there are other contenders in the ring.
One result is the "sin" you describe: a disregard for the cross-cultural differences between merging companies.
But in the mad dash to the finish line, lots of other M&A mistakes get made. Perhaps the most painful to observe,
not to mention live through, is the Reverse Hostage syndrome (RHS), which happens when an acquirer wants a deal
so badly he makes concessions that are regrettable at best and destructive at worst.
Indeed, in many RHS situations, the buyer gives up so much in order to seal a deal that ultimately the acquired
company can't really be considered acquired at all. It's still calling all its own shots – from its strategy, to its staffing
decisions, to its operational practices, to its core values.
As for relations with the new owner, RHS businesses tend to act like they belong to a separate country.
And a hostile one at that. They rebuff any suggestions for change.
A classic case of the Reverse Hostage Syndrome, in fact, is playing out fight now at the head quarters of
Boston Scientific Corp.
In 2004, the company paid $742 million plus some earn-out opportunities to acquire advanced bionics.
A California company that makes implantable electronic devices to restore hearing and pump pain medications
through the blood system.
Alfred Mann, the owner of Advanced Bionics, insisted on staying on as the leader of his company.
An overheated Boston Scientific said "Yes." Maybe its senior executives thought Mann would retire or jet
Boston Scientific have a say in the business's management, or lead the business to profitability.
None of those things happened. And so last July, Boston Scientific asked Mann to resign.
So, if you can't buy a company on your terms, fight the burning desire to forge ahead, or at least build in
some kind of protection.
Offer a flat retention deal instead – a certain sum for staying a certain period of time – and retain the
option to pay off the owner to exit at your will. Such an arrangement gives you the free hand you need to make
the strategic and personnel changes required to bring your acquisition to the next level.
RHS, which can paralyse companies and undermine the potential of even the most promising M&A deal,
comes with an added insult.
You are being robbed with your own gun.
- New York Times News Service
Rajendra.Deshpande
B.Pharm.(Nagpur).MMM(Bajaj).PGDIT.(Chandigarh)
TRAINER.
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