Corporate culture: A strategic issue during mergers and acquisitions

By Olivier Priou and Lorraine Margherita

2021

2021 promises to be a record year for corporate mergers and acquisitions. In the financial services sector, among the numerous consolidations in recent years, we can cite: the merger between Société Générale and the Crédit du Nord network, the combination of Generali and Klesia, or the creation of AEMA bringing together Aesio, Macif and Aviva France, among others.

Numerous surveys show that less than half of merger and acquisition operations generate the expected level of value creation. Although it is one of the primary causes of their failure or slowdown, corporate culture seems too often forgotten or underestimated during these consolidations. Worse, cultural clashes can contribute to causes of breakdown, as was the case between Daimler and Chrysler or between Alcatel and Lucent. The value generation expected from the combination of two companies can be slowed by the lack of cultural convergence, with employees continuing to refer to themselves as the "ex" members of one of the two companies.

At Stanwell and Co-Dynamics, we are convinced that culture is a major issue in the combination of two companies, and that it benefits from being managed and integrated at each stage of the operation: • before, with the completion of a cultural diagnostic, • during, with the construction of a target culture, • after, by ensuring proper dissemination among employees.

A target culture is co-constructed

The construction of a shared target culture begins on the first day of the combination, on the same level as organizational and operational matters. Building the target consists less of integrating one culture into another than of asking what company the entities want to be tomorrow and which cultural markers best represent them. The definition of a common culture is based on the specificities of the two existing cultures. We believe the main challenge is to co-construct it and do so in a participatory manner. Experience shows that the participatory dimension of such an exercise helps increase employee acceptance of the combination, accelerate it, and make it more sustainable.

It is also necessary – while waiting to deploy it at a more granular level – to generate strong representations of the change in direction at the company level: participatory construction of the future strategic plan, strong policy in favor of quality of work life, investment in feedback practices in particular. The embodiment of this new culture in the early phases of the program will essentially be carried by leaders in the form of field visits, conferences, CSR commitments..., a role requiring specific support and strong coordination with internal communication. This last point is essential to frame and feed the messages that employees receive, without ignoring channels outside the two companies (press, social media...).

For example, in the months following the combination of Fnac and Darty, the new Group highlighted respect for each brand's identity, emphasizing each one's strengths: Fnac's capacity for innovation and Darty's service. In parallel, the two partners very quickly began work on a common culture, particularly by developing the new group's first strategic plan.

Understanding cultures in depth

The construction of the target culture at the time of a combination requires an in-depth evaluation of both companies' cultures and a comparative analysis to identify the strong and differentiating markers of each player. This evaluation begins in the phase of constructing the target entity and in anticipation of the social file; it is conducted objectively and representatively of all strata of the company. Emmanuel Copin, HR Director at the time of the combination between Malakoff Mederic and Humanis, shares this experience: "To complete our cultural diagnostic, we interviewed half of top management, managers from both structures, and we conducted micro-interviews to involve employees and be as representative as possible."

To evaluate a corporate culture, the essentials are:

• to have a shared and common analytical framework for both companies,

• to mobilize a large portion of employees:

  • either by conducting perception surveys,

  • or through workshops with representatives from both companies to enable overcoming historical divisions and preconceived ideas.

To facilitate this evaluation, Stanwell and Co-Dynamics have developed a tool crystallizing an organization's culture into 8 key cultural dispositions such as clear vision of work's usefulness, delegation of responsibility, or common practice of feedback. This tool makes it possible to objectify the organization's maturity level and highlight the perceptions of different company populations (executives, managers, and employees). The survey findings are then elaborated in "focus groups" to materialize outward signs such as practices and rituals in force. Beyond the existing, priorities can be established in the cultural dispositions to develop to serve the purpose of the future entity.

The objective is to inform debates at the time of structuring choices for the plan: employee promise, organizational model, HR rituals and practices...

Culture is concrete

The target culture under construction concerns all employees. It must be translated into visible and tangible actions for each population. Emmanuel Copin shares his experience: "During this phase, one can very quickly get lost in the details; the challenge is to find the right balance between achieving concrete results quickly and having a sufficiently deep level of implementation to bring all employees along."

During the combination between two other social protection groups, the Director of Supplementary Retirement Operations mentions the implementation of concrete actions regarding quality of work life and the establishment of working groups within the intermediate management chain. The challenge: supporting the regrouping of teams in the new entity.

At EssilorLuxottica, functions such as finance or integration are managed by a tandem composed of personalities from each of the two companies. Furthermore, one of the two Chief Integration Officers emphasizes the "principles and values" that constitute the foundation of the merged organization's corporate culture. Finally, this cultural integration manifested concretely through the provision to all employees of a single training platform in 2021.

Finely managing the cultural dimension

Cultural integration is managed as precisely as operational workstreams throughout the combination process. In the successful cases we have encountered, corporate culture is the subject of a specific workstream with a dedicated team and strong sponsorship. The objective is to create a dedicated roadmap encompassing interdependencies with other operational workstreams (HR, Change Management, relations with social partners...) and orchestrated as such within the program governance.

The workstream will set tangible shared objectives validated with those responsible for the combination, backed by monitoring indicators—true thermometers meant to reflect the new cultural anchoring. Acting initially through its own means (cultural diagnostic, definition of target culture, breakdown by population), the workstream will subsequently act as support for existing streams to:

1. Feed content by population into different change management and communication materials (managerial posture training, job role training...),

2. Ensure coherence of different deployed projects (new recruitment process, celebration rituals, new strategy definition process).

   
   

A differentiating factor: the appointment of a representative, who could be called Chief Culture Officer, for cultural matters and guardian of the proper dissemination of this new culture. This role benefits from being assumed by a pair of executives from the different entities or by an executive who arrived recently and would therefore be open to the emergence of a new culture. Companies like Decathlon or Netflix have brilliantly demonstrated how to increase their impact by placing culture at the same level as traditional corporate functions. As with the latter, the challenge is all the more sensitive after a combination.

An organization's culture, particularly at the time of a merger, is a strategic matter: it requires being managed as such.