M&A and The Cultural Divide

The cultural divide

Proving the cultural fit of Cap Gemini and E&Y, Unwin describes the international management meeting held in Berlin just a week after the acquisition was approved by a shareholder meeting. "We all cut up our name badges and I really couldn't tell who came from where," he comments, stressing that while CGEY will be one group, it will recognize local cultural differences.
In France, by way of example, legal regulations restrict working hours to 35 a week, and it is illegal to advertise for employees on television; Swedes and Americans start work early in the day, while the French and British start and finish later; and Dutch and American consultants are considered most willing to travel. "We can't impose one style of working across the world — it would be complete stupidity," adds Unwin.
While all seems set for CGEY to be operational as "one firm" by January 1, 2001, there has been some fallout from bringing two cultures together. Unwin admits, "Inevitably there are a few walking wounded who feel they deserve a job they didn't get and there are some who, in the time of uncertainty, said: 'Blow that, I'm off.' We did experience staff turnover just north of 20%, but now that we've talked to every individual and we're recruiting again, that should settle down very quickly to more normal levels of about 15%."
These may be early days for CGEY, but they are as critical as the days in the pre-deal period. When it comes to bridging the cultural divide, most are agreed that not enough attention is paid to people and their cultural quirks. Bill Battino, a partner at PricewaterhouseCoopers (PwC), says, "Culture is incredibly important in the merger of consulting firms because they are labor intensive. Most often, firms underestimate cultural barriers — they talk about skills, finance, and markets, but consultants are the frontline troops. If one group feels 100% acquired, even if there is a clear acquirer, it will feel destroyed in terms of culture. There is a need for a sense of belonging and continuity in work groups that might mean keeping people physically together for some time."

Battino says that most consultants facing acquisition react with trepidation. When leaders invoke a "trust me" communication, employees typically give them six months to prove that they can be trusted. If they can't be, the employees move on. "I would recommend that firms deal with employees with an open hand — for example, letting employees know what everyone earns. This takes away fear and mistrust, but it isn't done enough," he says.
One victim of such mistrust (who shall remain nameless here) describes his swift exit from a consultancy after having been promised a partnership just six weeks before the acquisition of the firm was announced. The partnership never materialized, and the consultant felt he had been lied to and manipulated. "Leaders are obsessed with the deal and what's in it for them, but this is about people's lives, their careers and emotions," he laments.

The Holy Grail of M&A

David Parry, a senior manager with Arthur Andersen and a client advisor on mergers and acquisitions, agrees that people and culture are all too often given scant consideration as talks begin. "It's critical to think about people before the acquisition. As part of the diligence process, you should look for challenges and work out how to lock people in. The Holy Grail of successful acquisition is not to subsume one company in another or just push two companies together, but to take the best of company A and the best of company B, create a new venture, and then kill the old companies," he says.
A healthy balance of leaders from both companies can then consider the merged culture and how to develop a human resources strategy that will pull the major levers of success: strong leadership, performance management, communication, and rewards. "You've got to walk the talk and align cultures and values, even if that means huge change and managing some people out of the company," adds Parry.
William Gordon, a partner at Andersen Consulting, also favors the A + B = C approach.
"Company C has higher value, more dynamics in leadership, and creates a new world for people so that they can leave their baggage behind. There are no clashes and weaknesses, and it's much more exciting than pushing two firms together. But cultural issues must be flushed out and put to bed, not just intellectualized. Both sides need to be involved early on if hearts and minds are to be won and win-win situations created for as many people as possible."

With personal experience of being part of an acquisition, Gordon says, "I was in the emotional cycle. I felt I had not been consulted, just informed. My first reaction was shock, then a period of not wanting to buy into the new consultancy. This is why it's so vital to create a future state that employees can see. In a service business, you have to blast through very quickly — otherwise, you lose people."
While those being acquired may be looking up with terror on their faces, it might be assumed those doing the acquiring are looking down with the wry grin of a predator about to maul its catch. Not so, say consulting firms that have built their very presence through a policy of acquisition. Rather than deny the culture of the acquired firm, they seek to adopt positive cultural facets and adapt negative aspects.

Always merge, never acquire

Atypical of many of its competitors, Mercer Management Consulting has been built through acquisition. Jim Down, who joined the firm through parent Marsh & McLennan's purchase of consultancy Temple Barker & Sloane and is now a vice chairman at Mercer, remembers how it feels to be suddenly sucked into a new culture.
"I was a relatively junior vice president at Temple at the time. I'd done lots of M&A consulting and seen companies promising autonomy and not delivering. I'd seen too many failures and felt I'd seen the movie I was headed into, but Marsh & McLennan has been a good parent and my fears were not founded."

With the benefit of such hindsight and the experience of two early acquisitions at Mercer that were not integrated quickly enough to avoid losing valuable people, Down believes the firm has learned from its mistakes. "After an acquisition people are ready for change, so it's important to get on with it. If you don't, emotional issues such as names, titles, and office locations create problems," he says, pointing to the acquisition by Temple Barker & Sloane of Strategic Planning Associates, after which the Temple consultants called the firm TBSPA, while the Strategic consultants preferred SPATBS.
As well as building in plenty of time before the acquisition to get to know the people and flush out skeletons in the closet — Rolls Royce cars, private planes, apartments paid for by the company, relatives on the payroll — Mercer's philosophy is to call all mergers and acquisitions "mergers." Explains Down: "Very few people want to build a company and watch it be obliterated, even if you put big money in their pockets. We believe people need to feel part of a merger, with excitement and fear on both sides and a sensitivity to culture on the side of the acquirer."

Mercer's most recent acquisition, Analisis y Desarrollo de Proyectos (ADP) in Mexico, went smoothly through the consultancy's acquisition process, but in terms of culture demonstrates the need for a balance of global and local issues. "You need to get the best of both worlds. On a global basis, we have the same training programs, consistent HR policies, shared values, and commitment to intellectual capital. We sort out compensation, pricing, and some HR issues locally, but we must also understand and adapt to local cultures. Our European and Mexican colleagues, for example, have longer holidays than in the U.S., and they have a long and late lunch. We wouldn't try to mandate on those kinds of things."

Aligning value systems at Mercer

Proving that Mercer's success with the ADP acquisition is not a one-off, David Nadler of Delta Consulting Group, a recent Mercer Consulting Group acquisition, says, "We thought we had a unique culture. We weren't finders, grinders, and minders, but small teams of senior people working with a number of clients simultaneously. So to be acquired by a firm that would integrate us into a different culture was not the way to go. Mercer was attractive to us because of its track record of bringing different cultures into the group, but allowing people like us to continue our own operating company and maintain our own culture."
Nadler adds, however, that similar value systems, in terms of client focus, integrity, intellectual capital, and high standards, do make it easier to work with other consultants from across the group, some of whom are joining newly named Mercer Delta Consulting. "Of all the acquisitions I've worked on over past years, as an acquiree this is one of the best I've seen executed. We haven't been asked to do anything unreasonable or anything that doesn't make sense," Nadler concludes.

If traditional consultancies must pay close attention to the cultural divide as they extend their global reach, so too must new entrants as they guzzle companies and people to mark their territory.
Razorfish has made eight acquisitions. The first five — in New York, London, San Francisco, Los Angeles, and Stockholm — were an easy cultural fit, according to Neil Crofts, head of strategy for Europe, because they all started out at around the same time as Razorfish and all shared the same vision of creating digital solutions. "I remember Razorfish coming into CHBI, where I was head of new business, and immediately feeling comfortable with its people. Our motivation was very similar. I felt the same when I went to work in Stockholm when we acquired Spray. The early acquisitions were all about geography and the depth of our capability — we were acquiring more of the same," recalls Crofts.
Further down the track, when Razorfish started acquiring to extend its breadth of solutions, things were not so simple. Boston-based I-Cube provides a case in point. It was big, with about 600 employees, and had a strong tradition in legacy migration and transformation — as well as conventional offices with false ceilings and work cubicles. "Intellectually, we all understood the mutual value, but it was quite a shock to both sides to see how differently the other worked. I-Cube looked at us and thought, 'what a shambles,' and we looked at them and thought they were too constrained by processes," explains Crofts. Now, I-Cube's offices are being redesigned and Razorfish is creating a global framework within which acquisitions that can't be integrated can reside and be called upon to supply consultants to integrated project teams.

While few are as sanguine about the aftermath of acquisition as CGEY's Rolland, consultants can at least rest assured that, these days, most firms do at least recognize the danger of culture clashes invoked by M&A activity. That said, as one much-acquired veteran of the consultancy world puts it, "No one ever comes out feeling quite the same again."

Sidebar: PowerPoints:

• After an M&A deal has been struck, a healthy balance of leaders from both companies should consider the merged culture and how to develop a human resources strategy that will pull the major levers of success: strong leadership, performance management, communication, and rewards.

• To give its consultants a feeling of identity within a newly merged organization, certain consultancies are striving to give each individual two affinities, one to a profession and the other to a business unit.

• The Holy Grail of successful acquisition is not to subsume one company in another or just push two companies together, but to take the best of company A and the best of company B, create a new venture. The old companies are then killed.