Merge Ahead Before you go full-speed into a merger, read this.

The business pages lately have been filled with announcements ofheavily monied mergers--from MCI and British Telecom to aerospacegiant Lockheed Martin-Northrop Grumman. Massive,multibillion-dollar corporations are becoming the norm, leaving anentrepreneur to wonder whether a merger ought to be in his or herplans, too.

But be warned: For every merger that works, there are othersthat fail, and the entrepreneur who rushes into a merger may justbe stepping into despair. Software company Novell Inc., forinstance, never successfully digested WordPerfect (it was spun outlast year to Corel Corp., another software firm); The Quaker OatsCo. couldn't swallow Snapple (which was divested earlier thisyear); and Japanese electronics giant Matsushita Electronics Corp.threw up its hands after several years and disposed of Hollywoodentertainment giant MCA Inc.

Why do mergers go wrong? A large but rarely discussed reason isthat when business marriages are hurried into, sometimes the resultis a loud clash of styles, say corporate culture experts JacalynSherriton and Jim Stern. "[Business owners] focus on thefinancials and usually ignore the potential culturalincompatibilities when considering a merger," says Sherriton."But when troubles arise, often the root is in cultureclashes."

The good news is that when the importance of culture isrecognized--and steps are taken to avoid clashes--"evencompanies with very different cultures can successfullymerge," says Stern. President and vice president,respectively, of two management consulting firms--CorporateManagement Developers in Reston, Virginia, and Health ManagementConsultants in Hollywood, Florida--Sherriton and Stern are also theauthors of Corporate Culture/Team Culture (Amacom Books). Theirconsulting clients include IBM, Bristol-Myers Squibb Ltd. and MobilCorp.

Entrepreneur: Why do companies consider embarking onmergers?

Jacalyn Sherriton: Many companies see merging as a way tocompete. In today's global business environment, companies mayhave to grow to survive, and one of the best ways to grow is bymerging with another company or acquiring other companies.

Jim Stern: But the problem is that as good an idea asmerging may be, most business owners typically don't considerculture as a reason not to merge. In looking at potential mergerpartners, you've got to weigh potential culture clashes alongwith the financial aspects of any proposed deal. When culturesclash, you may not enjoy all--or even most--of the benefitsyou'd hoped for in a merger. Look at failed mergers, andyou'll see the companies never reached a point where they couldwork well together--that is, the cultures clashed and nobody founda way to get them to mesh.

Entrepreneur: What are examples of mergers that failedbecause of culture clashes?

Stern: The Matsushita and MCA merger clearly shows theclash of cultures. On the one hand, [Matsushita] was a staid,nonrisk-taking Japanese company. MCA, by contrast, wasentrepreneurial and Joe Hollywood in its mindset. And the mergerdidn't work. Matsushita divested itself of MCA, which waspicked up by Seagram Co., and, so far, that seems to be a betterfit.

Entrepreneur: Let's back up a step. Exactly what iscorporate culture?

Sherriton: People think it's esoteric, but it'squite concrete.Corporate culture means the values, beliefs andpatterns of behavior that are ingrained in an organization. Itamounts to the norms about how things are done. The corporateculture is the personality, so to speak, of the company, anddifferent companies have very different personalities andcultures.

Entrepreneur: Do business owners realize how deeplyingrained a business's culture is and how hard it is tochange?

Stern: We've administered a survey to top executivesfor the past several years. It shows that they have heard aboutculture but are not doing anything to manage it. In fact, 75percent admit they have no plan to manage cultural changeassociated with mergers and acquisitions. Seventy percent say theirbusiness has not assessed its culture. As much as the majority feltthat mergers and acquisitions were viable strategies, they alsoadmit they don't have a plan for addressing cultural issuesthat might arise in a merger. This is very troubling data.

Entrepreneur: How can a business owner get a feel for apotential merger partner's culture and where troubles mightcrop up?

Sherriton: You can sense the culture when you first walkin the door.Is there tight security, or are things loosey-goosey?Do people smile at you?

Another tactic is to ask employees questions:

• What's encouraged here?

• What's forbidden?

• What's really valued?

• What are employees held accountable for?

• What are people rewarded for?

By asking questions, gradually you determine theorganization's culture.For many [business owners], doing thisis revelatory. They have never dissected their culture--theunderlying beliefs and values--in the ways we'redescribing.

Entrepreneur: Culture can doom a merger, but canpotential clashes be anticipated and addressed before they hurt thenew business?

Stern: We're engaged now in a real success story. Ourclient is Universal Health Services (UHS) Inc., a hospitalmanagement company.They recently acquired George WashingtonUniversity (GWU) hospital in Washington, DC. GWU had been anot-for-profit hospital in a university setting, while UHS is afor-profit management company. From the start, UHS recognized thepotential for culture clashes and has taken steps to prevent it. AsI speak, there are training classes for all GWU employees toacclimate them to the new corporate culture. All companies involvedin mergers should be taking the same steps--conducting cultureaudits, anticipating where clashes may arise and trainingemployees.

Sherriton: But they're not. We'd be hard pressedto give you the names of more than a handful of companies that aretackling these issues. Many companies seem to think that just bybeing next to each other, the cultures will get together. Theywon't--not without a vision and a plan to pull the two culturestogether.

Entrepreneur: What are the steps for creating successfulcultural change in relation to mergers?

Stern: Our program follows these steps:

1. Conduct a culture audit on both businesses. Askquestions.Discover the companies' personalities.

2. Assess the differences--in terms of systems and processes,management style, and values.

3. Identify where potential clashes will occur.

4. "Assess and agree"--as we call it in ourprogram--where you get the two parties together and ask "Canthis work?" If the answer is yes, the companies move towardintegrating the cultures. That means addressing the changes--whatparts of the old cultures need to be discarded?--that may benecessary to make the new, merged company viable.

Sherriton: You also want to get a feel for thecultures' flexibility. The Japanese management style, forinstance, is so different from a Hollywood studio's. So ask"How much flexibility is there on each side? How much can theychange to avoid major clashes?" If the answer is not much,maybe that's when you decide to walk away from the deal.

Stern: This process forces the powers that be to confronttheir cultures and to recognize the potential blocks to making thenew business work. If companies can recognize and agree on thefront end that there are issues that need addressing in regard tocultural differences, they can be successful.It's when theydon't recognize they have culture issues or they see them butfeel they can force through change anyway that these mergers areunsuccessful.

Entrepreneur: What are the components of a plan forchanging a business's culture so that a merger will work?

Sherriton: There are six areas that need to be addressedhere:

• Clear direction from the senior-most leaders: Why are we doingthis? What do we expect to achieve?

• What is the new culture we're striving for? What do we wantto be?

• What systems, procedures and policies need to be changed?

• How will we change them?

• How will we roll out all of these changes? What's ourplan?

• How do we get everybody in the company involved andaction-planning to achieve these changes?

Stern: At GWU, for example, every employee has puttogether a personal plan about the behaviors and styles they needto change to integrate into the new culture. And they will be heldaccountable for meeting those action plans.

Sherriton: The opposite example, if press reports areaccurate, is Disney-ABC, where the senior-most executives arecoming together to plan how to create synergy between thecompanies. But they haven't, according to the press, gottenlower-level employees actively involved in creating synergy.And themerger may not be producing all the hoped-for results.

Entrepreneur: Isn't resistance to a merger usuallycentered in mid- and lower-level employees who want to knowwhat's in it for them but aren't getting answers?

Sherriton: Employees often have strong emotionalreactions to mergers and proposed mergers. There are anxieties, andmisinformation can spread.A case in point: When the proposed OfficeDepot and Staples merger fell through, Office Depot employees helda celebration. Why? They had heard about distinct differences--realor not--between their culture and Staples'. You want to managethese human impacts and emotions.Remember, too, that your bestemployees are the most marketable, and if they don't feelsecure that their needs will be addressed in the merger, you arelikely to lose them.

Entrepreneur: An issue in the minds of many entrepreneurscontemplating mergers is "How do we build in safeguards forour present employees? Can we?"

Sherriton: Yes and no. The first step is not to getblinded by the financial upside; look at the cultures, and seewhat's realistic and workable. Make an informed decision aboutwhether to go forward. Beyond that, safeguard your employees bypreparing them for the cultural changes that will occur after themerger. It's very important that you tell them there is noguarantee that things will stay the same and help them develop anew frame of mind about what will be expected of them.

Stern: You want to get them to participate in thiscultural alignment. The way to do this is to involve your employeesin meetings with employees of the other company. Help them feelthey have input in the changes that will occur. Another step youneed to consider for some employees is discipline and termination.And, frankly, there typically is a small percentage of employeeswho feel they cannot be compatible with the new culture, and theyneed to find positions in other companies where they will behappier.

Sherriton: You cannot safeguard your employees'future. But you can prepare them mentally for the changes that arecoming.

Contact Sources

Corporate Management Developers/Health Management ConsultantsInc., (954) 961-1663