We find out why there is a strong case in merger activity for involving the company's 'people people' - and taking them seriously - from the start.

"The outcome of our merger? (long pause) It was eventually brought to a result of sorts. It's performing today. But it cost a hell of a lot of resources, financial, human...and image, too."

— Swiss CEO in 'The CEO in post-merger situations'

The European Professional Women's Network Amsterdam (WIN) recently hosted Dr Jacqueline Fendt, Swiss former CEO, lecturer, author and business guru who spoke on her recently published book The CEO in post-merger situations.

Her presentation, given under the intriguing title of 'Why CEOs Choose to Be Stupid and How Some Don't', summarised her detailed research tracking the learning experiences of top corporate European CEOs over a seven-year period.

Fendt's startling conclusion was that CEOs are just as likely to fail in a second or subsequent merger experience as they are in the first. In essence, the majority of CEOs studied just kept making the same mistakes over and over.

In her analysis she made the clear case for greater HR involvement in the identification, due diligence, and integration processes of mergers and acquisitions – for critical HR understanding, empathy and support to the CEO.

Why don't we learn?

In the course of her research – including forty in-depth interviews with European top CEOs, who granted her unprecedented access to the inner workings of the 'merger machine' and spoke with uncharacteristic frankness about the pain, gain and strain of the merger process –Fendt identified no fewer than 13 Key Learning Inhibitors that prevented these CEOs from taking on board crucial knowledge to facilitate the success of the present, or subsequent, mergers.

Seldom isolated, these factors almost always occurred in combination, presenting a virtually insurmountable barrier to organisational and personal learning.

HR where are you?

One of the earliest learning inhibitors, the post-merger dilemma, actually starts Pre-merger. The anxiety and intense need for secrecy prior to announcement of the deal means that often only the CEO and CFO from both sides are involved in the discussions and negotiations – frequently flanked by interchangeable teams of high-priced consultants.

The HR perspective concerning integration of the people and key processes involved in the merger is neglected or ignored completely until long after the decision to act has been made. Even after they have been asked to join the table HR representatives are seldom accorded the same status as key operations, production, purchasing and back office delegates.

A vicious circle is kept in place - HR is considered too incompetent or irrelevant initially to be involved in the decision-making, and after the fact they are still not taken seriously enough to play a major role in the integration.

Fendt discovered that the CEO's personal agenda, through which enormous power, prestige and control was secured (regardless of the merger's success) was abetted by the relatively low degree of personal risk that was at stake. Not only were they seldom held accountable for the impact of their acquisition activities but the lavish manner in which they were rewarded for these very activities guaranteed they would be perpetuated. This factor accounted for many dubious ventures being given the green light when much more caution should have been exercised.

The CEO's 'perceived' continued success was one of the worst things that could happen, both personally and to the organisations they led. Boosted to an overrated extent by their own successes, the CEO begins to believe the hype, developing a personal 'brand' and called to solve the same problems again and again.

Even as the business environment is changing the CEO, safe in a confidence bubble and usually surrounded by sycophants, does not notice. The same, stock remedies are blithely applied, but this time without the desired effect….and a downward spiral has begun. The success inhibitor is very problematic because it fosters homogeneity in procedures, staff and culture. It's very difficult for HR leaders to do their job in an environment that favours cloning and pushes creative people out.

Consultants played a recurring role – because of the isolation and loneliness of many top management positions, consultants were often the CEO's only 'friends'. In a continuing spiral of too much/too little trust, the CEO often delegated too much responsibility to consultants, ensuring the knowledge remained centred outside the organisation.

HR where are you?

Different CEO types

Fendt identified four completely different types of CEOs in her research.

The first, the 'Cartel Executive', was directive - a leadership style epitomised by former senior executives Jack Welch of GE or Jurgen Schrempp of Daimler Chrysler. For these executives, life is about power and control. The main purpose of learning for them is to obtain something. The deal is paramount, and the merger is accomplished when the contracts are signed. While not immoral, the cartel executive's goal is to stay within the law if possible, and if not – don't get caught.

The main incentive for the 'Cartel Executive' is the degree of power and control involved in the deal. Learning inhibitors for these executives are the threat of routine and boredom, believing their own PR/success stories and too rigid 'either-or' thinking. On the positive side, they are determined, focused on long-term goals, have sound business instincts and are decisive and powerful.
 

The second, represented by former HP CEO Carly Fiorina or Vivendi's flamboyant ex-chief Jean-Marie Messier is termed the 'Aesthetic Executive' and is more analytic in style. For them, life is beauty. Learning has a clear purpose - to be somebody. The merger is accomplished when all is communicated, and their ethical stance is guided by the code of conduct.

Their main motivator is the degree of media attention and support they can engender, and the post-merger focus on project organisation. They can be inhibited as learners by self-centredness (image consciousness), by their (almost sole) reliance on best practices, and a perfectionist 'no mistakes' strategy that allows little room for human error. The 'Aesthetic Executive' is also a gifted communicator, possesses considerable charisma and is a master in analysis and planning.

The 'Videogame Executive' puts emphasis on conceptualising and experimentation. These traits are best illustrated by Microsoft's Bill Gates or Google's reluctant superstar, Sergey Brin, who still describes himself as 'a PhD student in computer science at Stanford'.

For them, life is a game. The purpose of learning is to become somebody, and the merger is accomplished when we're all having fun. Their ethical base is 'It must add value (remember Google's creed 'You can make money without doing evil?'). Their main incentive is the degree of excitement and fun offered by the project or deal, but this is also the main learning inhibitor: they are easily bored and quick to reject the political and economic establishment. They are adventurous, highly technical, diverse, holistic, and use failure and error as a resource.

An integrated approach: Bob Geldof represents the ideal 'Generative' leader

The ideal is a leader Fendt terms the 'Generative (Holistic) Executive' representing an integrated approach. E-bay's Meg Whitman or legendary rocker and activist Sir Bob Geldof are examples of Generatives. For them, life is a compendium of all the other categories: it should be fun (like the 'Videogame Executive'), but it's also about using your power wisely (the 'Cartel' leader), life can be beauty, like the 'Aesthetic', but most of all it is about valuing diversity and showing respect.

In common with 'Videogamers' the purpose of learning for 'Generatives' is to become somebody, and the merger is accomplished when 'we're all having fun'. Their ethics and values system is centred around respect and their main incentive is the degree of value added by the person, deal, project or organisation. Post-merger focus rests on all elements represented above, and making mistakes is an indispensable resource in innovation. For the 'Holistic' leader, uncertainty is a fact of life.

New perspectives on leadership

Jacqueline Fendt's fascinating research provides a unique and tantalising glimpse into the world of billion-euro decision-making, and the mere mortals who inhabit it. And makes the strong case in merger activity for involving the company's 'people people' - and taking them seriously - from the start.

March 2006

Mary van der Boon is founder and principal of global tmc international management training & consulting based in the Netherlands, www.globaltmc.com, specialising in international HR, intercultural management and diversity.

[Copyright Expatica 2006]

Subject: HR's role in mergers and acquisitions, mergers and aquisitions