Only Half of Mergers End Up on a Happy Note

Corporate culture specialist Larry Bennigson remembers visiting one company that just couldn’t get over the bad feelings of a merger--even though it had happened 35 years before.

“You could walk in and almost the first thing people talked about was who were the white hats and who were the black hats,” said Bennigson, senior vice president of Management Analysis Center Inc.

MAC is a Cambridge, Mass.-based consulting firm that is often called in for “damage control” when mergers or takeovers result in a case of clashing corporate cultures.

Bad Feelings

In the case of the 35-year-old takeover, Bennigson discovered, the bad feeling had come when the acquiring company moved 85% of the other firm’s top people north, so the company’s research people would be near the production facility.

“That caused so much resentment it laid down scar tissue that has at least a 35-year-life,” he said. When Bennigson visited, he discovered employees still described each other as “Mr. Smith, from Company A” and “Mary, from Company B.”

When a merger or takeover occurs, Bennigson said, management may say one thing to employees, but “the real messages are in the moves that are made--who gets what job, who’s forced to move.”

When it comes to melding two companies into one, “there are more people making unnecessary mistakes than doing it right,” Bennigson concluded. “Mergers are a very tough game. No more than half work out to anyone’s real satisfaction.”

Corporate culture is a relatively new term that refers to something that’s existed as long as there has been business. “It’s the way things are done around a corporation, the basic idea people have about how to do business, how you should manage, organize and treat people,” Bennigson said.

When one company acquires another, it may hope to achieve a synergy, merging the best qualities in both companies. An aerospace company, for instance, may buy a consumer-products firm envisioning a merger of the engineers’ technical wizardry with the new company’s marketing skills.

No Relationship

More often than not, the result is a clash rather than a complement. In the case above, for instance, “the ivory tower orientation of the aerospace company clashed with the marketing firm’s emphasis on financial results,” Bennigson said. “A productive relationship never developed.”

A corporate culture is in part the product of a firm’s basic business, and new management alters it at its own peril, Bennigson said.

“The important thing is that the new management realize what parts of the culture are critical to the success of the business. For instance, in a distribution business, one of their cultural values is very tight cost control, a great respect for detail. That’s very important in a low-margin distribution business.”

If a distribution firm is taken over by a growth-oriented company that fails to accept that knee-jerk cost sensitivity, he added, “everything will deteriorate very, very rapidly.”

Corporate culture clashes can ruin a merger, but they seldom become an issue during takeover talks, Bennigson said.

“Thinking about corporate culture doesn’t come naturally to most managers. When a deal’s being put together, the immediacy of money and politics tends to drive out more reasoned considerations of how these organizations would work together.”

Once the deal is done, he added, the winners tend to ride roughshod over the losers. “They think they’re right and they’ve got the power to do it. People will end up destroying the real value of what they’ve got.”