After the Merger
Congratulations! As CEO, you've signed the merger agreement and just faced an army of reporters, TV crews and photographers at a press conference announcing that your company is combining with your major competitor. The new company will become the dominant player in the industry, with overwhelming market share.
It's been a grueling few weeks of tough negotiations to close the deal, with price at times seeming the least of the issues. You've dealt with your future role (CEO), your counterpart's new role (getting him to accept the COO slot was a coup), and even wrestled with the choice of a new corporate name. You've spent enough time with investment bankers, lawyers and corporate finance staff to last you a lifetime. The press is calling this deal a blockbuster. You feel great about the future of the new company and what you've accomplished. Life is good.
So why did your stock price drop 10% on the announcement?The fact is, the outside world knows you have just embarked on the most difficult managerial challenge of your career, and they are betting you won't make it. You are thinking of successful mergers such as Sandoz/Ciba Geigy, Morgan Stanley/Dean Witter, Daimler Benz/Chrysler, and Chase/Chemical. All you have to do is integrate two huge organizations into one cohesive team, create new, undefined synergies and achieve gargantuan cost savings. More objective observers are thinking of merger disasters such as General Electric/Kidder, AT&T/NCR, Wells Fargo/First Interstate, and Boeing/McDonnel Douglas.
The actions of the CEO in the first few weeks can determine success or failure. There are a lot of minefields out there. How can you navigate through them and emerge a winner? Merger integration is not a simple process, but there are a few principles that can help you drive the process through to a successful conclusion.
1. Start with simple, clearly articulated goals
Just like a candidate running for office, a CEO needs a clear message. The rationale for the deal and the vision for the new company need to be explained in short, simple, unambiguous terms. Employees want the merger to be successful (their careers depend on it too). They just need to know what 'successful' means. How do you know if the message is getting through? Ask the most junior employee in the company to explain your new goals. Odds are if they can't, then neither can your management team.
2. Get buy in
The captain of the Titanic had some clear goals that he took with him to the bottom of the Atlantic. I doubt that his crew shared those same goals. Every employee needs to own the CEO's objectives for the merger. The best way to develop ownership is participation. Get your management team to develop a vision for the new company and a strategic plan to get there. Yes, this is very time consuming, and you'll come to know the manager of the local conference center as a member of your family, but it is a critical step to pulling the pieces together.
3. Start early
In successful mergers much gets accomplished before the deal is announced. The top management team is decided. Key roles are ironed out. That team starts to develop a vision for the new, combined company. The press conference that announces the deal also kicks off the internal management and communication process. On Day 1 there is no confusion about where this company is going. The new team can start immediately to drive the vision and strategy down through the organization.
4. Re-recruit key people
The most important question for every employee in the company is "What's in it for me?" This is as true for your loyal and dedicated #2 senior executive as it is for the receptionist. What is my new job? Who is my new boss? What are the new rules for being successful? It is perfectly natural for employees at all levels to focus on the resolution of these important questions before they give any serious thought or energy to the issues you want them to focus on.
Moreover, your best and most visible executives are definitely in play. Competitors and their headhunters know that key people are vulnerable and likely to take a call they otherwise would not. So, one of the first tasks is to lock in these people. Make sure they feel they are on the team and know exactly what their role is. Make sure they know you need them and want them around for the long term. Most importantly, remember that you are recruiting someone, so take the time to understand their needs and their concerns and do what you can to address them.
5. Deal with individual people as well as the organization
Integration can be planned at the macro level, but the critical execution is at the micro level. Senior executives think about lines of business, distribution channels, business processes, and organization units. Integration is all about individual people. An integration that is executed only at the business unit or organization level will look right on paper, but will not come together. The leadership challenge is to get the individuals to understand the vision and to come together to support it.
6. Make the key staffing decisions as soon as possible
Staffing decisions can be very painful. Sometimes it's easy to spot the most effective executives, but often the differences are subtle, and sometimes loyal supporters must be sacrificed for the good of the company. It's no small wonder that CEOs often find excuses to delay these decisions. But the cold truth is that managers will not pick up the mantle of driving the merger integration until they are settled into their new positions. Thus, the new company cannot really get out of the starting gate until these decisions are made and behind you.
7. Create an organization that fits the new business
This deal came together because of the potential synergies. Drive hard to achieve those synergies by creating and staffing the organization that is most directly aligned with your business objectives. Do not settle for a patchwork of the old companies that will make do until you get though the merger. Leaving old or temporary organization units in place is an invitation to continued in-fighting and serious distraction. It's hard for people to keep their eye on the customer when they're fighting their new co-workers for survival. Avoid the co-head syndrome and other similar tactics for postponing decisions.
8. Move quickly
In the first 90 days the CEO needs to establish a style and pace of decisive leadership. There are lots of pressures and obstacles preventing you from getting on with it. As CEO you have just completed a month of exhausting negotiations that resulted in the biggest deal of your career. Justifiably you feel like your job is done and you would like to put your feet up and bask in your success, at least for a short while. Truth is the hardest part of your job is just beginning. Convincing your own team that this is right and good for them will be just as hard as negotiating with the other side, with none of the glory.
If you're tired take a three day weekend to get some rest. But under no circumstances can the CEO take a vacation during the first 90 days; no exceptions. Your personal credibility is at stake.
9. Create some success stories
Set several near-term merger goals and make heroes out of those who achieve them. It is important for employees at all levels to have positive role models who set an example of the behavior and effort that will carry the merged company to greatness. By recognizing and rewarding staff who meet specified merger integration goals you'll be communicating the new company's culture, values and success formula. You will be walking the walk.
10. Share the wealth
Odds are this deal will make top management rich in terms of career satisfaction and prestige as well as personal finances. It's OK; you've earned it. But that won't stop your employees from resenting you for it, unless they feel the deal is also good for their careers and their bank accounts. If you ever thought about a broad based stock option plan or a new employee recognition program, now is the time.
So the deal is done. The lawyers and investment bankers have gone home. Now it's up to you to deliver on those promises you made to the analysts and shareholders at the press conference. In the end you'll be dependent on your people to make it happen, You need them to start thinking the way you do - about how to make the new company successful. You need to get them to stop thinking about how they liked their old company and how they lost out in the deal. You need them to quit their old teams and join the new team. It's never going to be easy. Hopefully, these common sense principles and a thoughtful, hands-on effort will help you forge a new future - and get ready for the next deal.
Mark Schneiderman has participated in several of the largest and most successful mergers in the financial services industry and currently operates a Human Resources consulting practice in New York. Schneiderman Associates Inc. helps companies with strategy implementation particularly when the strategy involves merger integration or similar change management efforts. Contact Mark by telephone at 212 984-2287 or by e-mail firstname.lastname@example.org.
Many more articles in Creative Leadership in The CEO Refresher Archives