Culture in Mergers & Acquisitions

Evolving Culture Due Diligence

The scenario may be scarily familiar– the forty-point checklist in the due diligence process.  A couple of these points are likely to relate to culture.  Part of “ticking” them off the checklist might involve discussion on shared values, behaviours and mindsets (as well as systems and processes). These may include many people across the new entity exploring how to merge the two cultures.

The merger or acquisition proceeds, and the process of integrating the two businesses with “one culture” begins. Yet, every person in the process with a pulse knows that something is not right.  Many of the people who are leaving are the ones the organisation hoped to retain.  The new organisation has become less effective than either of the original organisations.

Too often, we see established, traditional businesses acquiring more agile, innovative and creative companies.  Sadly, not long after the acquisition,  the innovation and creativity of the “acquired” are stifled.

While many of these challenges are related to the process of integration post-acquisition, many could also be avoided or better anticipated through more robust culture due diligence.

It is our experience that the paradigm underpinning the approach to culture due diligence and then integration is a likely predictor of short term and long-term success.

Notions of stability and order continue to be challenged while the world grapples with the chaos that has been created through clinging to these very notions.  We know that organisations need to rewire their ways of working and perceiving to become more agile, adaptive and conscious of their broader systemic impacts.  To enable this, our beliefs about and approaches to culture need to evolve, including a culture due diligence process.

In Part 2 of this series, we critique current approaches and paradigms around Culture Due Diligence and provide some alternatives.  In this article, let’s begin by examining some of our paradigms, beliefs and worldviews and how these may influence the process:

1. Approaching the organisation as a closed or open system

While we cognitively understand that organisations are open, complex and dynamic systems that impact and are impacted by external factors, many approaches to culture due diligence assume a merger or integration between two closed systems.

We can see how viewing organisations as closed systems can impede robust discussions about culture,  leading to an over-focus on structures and process. This may ignore the possibilities that come from embracing diversity and learning about the uniqueness of each organisation.

Viewing the organisation as a closed system may cause people to be more internally (rather than externally) oriented.  This can lead to missing out on true care, consideration and curiosity for the other organisation’s culture. It can also ignore external clues about the culture that will best enable the two organisations to become one.

If we perceive the organisation as an open system, this opens up shared learning, interchange of ideas and approaches, with a focus on connections and interdependencies.

In an evolving world, organisations are no longer able to be successful by focusing on structures and processes alone.  Viewing an entity as an open system can open up more constructive conversation and debate during the culture due diligence process.

1. Beliefs about diversity and the value of shared meaning-making

For culture due diligence conversations to be diligent, they need to include discussions that generate shared meaning-making.  How might the organisations co-create the future together?  What unique gifts can the organisations bring to the world by bringing together their diverse energies?  What might the combination of these forces allow or open up?  Can we enable diversity AND shared purpose AND cohesive movement?

Rather than this, we often see a mindset of assimilation implicitly guiding post-merger or acquisition culture activity.  Assimilation tends to neutralise, contain or control diversity.  Many of our approaches and beliefs around assimilation are represented more broadly.   Take, for example, the “assimilation” of indigenous communities into those of a colonising empire.  This usually ends badly in the short term for the indigenous community and, eventually, for all concerned as an essential diversity and understanding of the history of place and people is lost.

Power imbalance and arrogance have often infused activities relating to acquisition and assimilation, and it takes a lot to overcome these patterns and invest in shared meaning-making.  And yet, processes of shared meaning-making can bring much deeper diligence into the culture due diligence process.

1. Seeing culture as something to change or something to evolve

Historically, many approaches have viewed culture as either good or bad, and therefore either something to maintain or change.  From a living systems perspective, we may perceive that each organisation can be an adaptive catalyst or trigger for the other’s evolution.  Understanding how culture needs to evolve to enable sustainable success for the future for both organisations, and the worlds they serve takes the discussion from one based around assimilation to one of shared evolution. 

For a more diligent and ultimately effective culture due diligence process we need to

1. Develop an understanding of organisations as open living systems rather than closed mechanical systems
2. Assess and evolve our due diligence processes based on this paradigm
3. Discover, through shared meaning-making, how each organisation can bring their unique and diverse gifts together to work cohesively for a larger purpose

Exploring the gap between the above and our current practices might help us to understand the work that needs to happen for more successful business integrations. Approaches that consider open systems, the value of diversity, and how to evolve culture will only become more necessary with increased disruption.

A more robust approach to culture due diligence may seem like a nice to have, or even irrelevant, for commercially oriented deal makers.  Yet, we regularly see the failure of many seemingly promising mergers and acquisitions. This is often a direct result of not considering the adaptive aspects of culture due diligence.  Lack of diligence in the culture due diligence process has an impact on every aspect of the success of integration, including the bottom line.

Stay tuned for Part 2 of this series, where we critique current approaches and paradigms around Culture Due Diligence and provide some alternatives.

Please get in touch if you would like support in enabling more effective culture due diligence or more broadly with evolving your organisation to become more adaptive.

Our next practitioner accreditation is in 2020.