How to Preserve Company Culture Amid M&A, IPO

Cultural change in inevitable as organizations transform and grow. Here’s how executives can ensure then most valued aspects of their cultures are maintained during a merger, acquisition or initial public offering.
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Culture is integral to business strategy. A company’s culture attracts, retains and motivates workers. It also helps bolster organizational productivity and performance. But during a merger, acquisition or initial public offering, the culture of an organization can change dramatically.

These changes don’t have a great track record. According to a 2011 article in Harvard Business Review, the failure rate of corporate mergers is somewhere between 70 and 90 percent. “The easy part of a merger is the financial and the legal part of the merger,” said Steven Appelbaum, professor of management at Concordia University in Montreal. “The hardest part is the ‘culturation’ and socializing people to this new organization. That’s where mergers generally fail.”

Mergers and Acquisitions

Here are some of the best ways to maintain culture during a merger or acquisition:

1. First, identify the aspects of a company culture that work well and which should go. “You have to bring with you those things that worked, what worked well that kept the company going so long that made it so attractive,” Appelbaum said.

2. Leaders set the tone of a merger or acquisition and lead the change, but it’s the front-line supervisors who have more of an influence on employees, according to Appelbaum’s research, “The Role of Leadership During Large Scale Organizational Transitions: Lessons from Six Empirical Studies,” published in The Journal of American Academy of Business, Cambridge.

3. The leaders in the companies involved need to keep a united front for the media and employees, said Louis Carter, CEO of Best Practice Institute, a leadership development and research firm based in Palm Beach, Florida.

4. Communicate with employees to discover the truth of the organization from the employee perspective. Carter said this consultation leads to co-creation, where people feel they’re given a voice in the company’s future. “At the end of the day, when we’re given a voice and it’s equal, we feel like we’re part of a larger whole,” he said.

5. “Education sessions are essential,” Carter said. This is another avenue for co-creation and collaboration between organizations, helping to create the newly merged business.

6. Make a deliberate plan, including measuring the culture to fully understand it, said Marc Kaplan, principal at management consulting firm Deloitte and leader of Deloitte Consulting LLP’s Organization Transformation and Talent practice. It’s hard to understand how to adapt during a merger or acquisition without having a solid definition of the current culture, both for the company as a whole and across different departments.

7. Be careful not to discourage innovation, Kaplan said. Micromanaging an acquired company quickly kills the innovation they likely were acquired for. Business leaders should also try to help teams work in a common way. This helps them move quickly and achieve goals without damaging new relationships. “Be mindful to accept the thinking and the perspective of the different folks. That’s actually what drives and harnesses innovation,” Kaplan said.

8. At the end of a merger, it’s critical that the remaining employees know their updated job description and the skills needed to occupy their role, Concordia University’s Appelbaum said. This will help people be clear on their roles and standing in the new organization.

Initial Public Offerings

Leading up to an IPO, the company grows tremendously. It goes from a relaxed, startup to a formal, bureaucratic organization. This transformation unsurprisingly has a big effect on the organization’s culture.

Preserving culture during an IPO is similar to preserving it through a merger or acquisition in the sense that culture must be driven by leadership to keep the company profitable. “If you don’t preserve your culture, by definition, you’re going to have challenges executing your strategy,” Deloitte’s Kaplan said.

Here are four tips for maintaining culture during an IPO:

1. Embed culture in core processes, including hiring and recruiting, Kaplan said. If those change because of the IPO, keep culture in mind to include core behaviors in new processes.

2. Understand the company’s cultural values from the beginning; use that to motivate and reward workers when they exude the company’s values, said Andee Harris, chief engagement officer at HighGround, an employee engagement software company based in Chicago.

3. Have frequent check-in conversations. This should be more than once a year, Harris said. Do this to understand where employees are struggling with the transition and communicate with them to understand and address concerns.

4. Be transparent. Trust and transparency are especially important in regards to stock options, Harris said. Oftentimes, companies go public and the people at the top of the organization make millions. Other employees then question what’s in it for them. Transparency here helps with retention.

Lauren Dixon is an Associate Editor at Talent Economy.

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