The HR Practitioner’s Guide to Cultural Integration in M&A

24:18Have your integration leader do that. Yeah, that's even better. Get an integration leader involved early enough to start putting those considerations in place. Yeah. I want to break down those five areas where culture clash happens. Maybe they'll get into some more interesting insights around this. We had decision-making, team collaboration, operational expectations, communication styles, and organization self-concept. Yes, sir. Let's start with decision-making. This is probably the area where I have heard about the most actual challenges in a deal. And by actual challenges, I mean when we move past the my feelings are hurt.

24:56Part of cultural integration where I think a lot of us do stop is on feelings. This is where I tend to find the biggest challenges are out there. So this is everything from who gets to make decisions. So who is delegated authority to make what decisions at what level? And I'll bet, Kisan, that everybody listening to this, if they've done more than a couple of deals, has probably heard or seen the situation where the company founder, who had all of the power in the world to do whatever she or he wanted to with their company, suddenly sells to a big organization, and now they don't even have checkbook authority.

25:30They can't even allocate money, even though they've been made a vice president or director in this larger organization. It's a bit of whiplash for that person. They can no longer make decisions. They don't necessarily know how the buyer wants decisions made. They don't know how much debate is permitted. They don't know whether they need to be proactive or reactive. They don't know how much data is required to get decisions through the people who are now authorized to make the decisions. they may not even have a sense of the organization's risk tolerance. So there's a lot of pieces that go into how decisions are made.

26:05And if you can imagine, you've closed your deal, you've started doing integration, and the person that you're relying on to go deliver whatever capability you did that acquisition for is stuck because they can't get approval for very basic decisions like, hey, I got to hire another dozen people. How do I do that? Or I need to go spend X number of dollars. how do I do that? That's going to end up causing problems and you're likely to end up with some pretty significant culture clash there while that executive figures out their new normal or doesn't adapt to it. I've seen a lot of very bitter people come in, get frustrated by the lack of decision-making ability, and it can all go downhill very quickly.

26:46Yeah, that's really interesting you brought that up. When I think of our own organization's decision-making, we're still that startup phase reaching just over 40 people now. And a big initiative is decentralizing decision-making so that we can keep up our speed. I immediately notice at that small stage as you grow, things slow down when that decision-making is very centralized. So decentralize it, you can keep your speed at, which is our advantage. When we look at merging with another organization, having that imbalance between a company that makes really decentralized, fast decision-making versus an organization where you've got 11 approval queues all lined up for you to get sign-offs before that happens, which you don't factor in that.

27:28Now your one-month project is going to take four to six months because you don't know when all these decisions are going to get made to get it done. Does that sound about right? Because I would see a pretty big conflict with that. Yeah, absolutely. And often it is places in the organization's life cycle. So early stage companies, fast decisions are hallmark. Big companies are looking for stability. So you've got very different decision-making styles based on where the emphasis is. Are we, what's the expression, move fast and break things versus, hey, we're way too big to start breaking things because then it gets expensive.

27:57Where the organization is in its own life cycle can make a huge difference. Any good lead questions to ask to get an understanding of decision-making when talking to these companies? How do you make decisions? No, and I'm not trying to be a smart aleck. I do think sometimes it really is just asking the questions. And I don't know that comes up a lot. I haven't seen that on a standard diligence checklist anywhere. How do you know it's okay to spend X amount of dollars? Again, this is where I think sometimes the risky son is that you're asking the management team a lot of these questions. And in some cases, the decisions I'm thinking about like a customer success function.

28:29How much power are you giving to your customer success reps to make decisions? Are they allowed to waive fees or are they allowed to do refunds for people who don't want things? So I'm just thinking through some of those types of decisions that would happen at a level lower than the management level. And you can bring an organization to a screeching halt if your customer-facing employees don't know what they're allowed to do and what they're not allowed to do. It frustrates your customers. It frustrates the employees. It can stymie growth. So this is why I really try to emphasize that it's not just the management layer that you need to understand how they do things, but that next layer or two down as well.

29:09And sometimes it's just as simple as asking the question. I don't think we're always there. Yeah. I like that point too about clicking down because that's something I got to be proactive about to make sure in that and those conversations. Team collaboration. Yeah. Team collaboration is another one that gets really interesting. The number of times that I've listened to podcast episodes where like the meals come up, it's all about the free food. Well, it's easy for us to sit here and go, okay, well, free food is a perk. But when you look at the reason a lot of small companies do the free lunches is it's how their team collaborates.

29:40Everybody gets together, they sit down, they break bread, and that's where different parts of the organization come together and collaborate. It's helpful to do one click down from some of these, we call them cultural artifacts if you're a geek like me, some of these cultural artifacts, traditions, and understand why they do them. Other places that this might show up are not just the lunches, but when you look at things like collaboration software, you look at leadership training, leadership expectations for people in the organization. Some of the things where we can see how teams collaborate are looking at things like how clearly defined are job descriptions.

30:15Are people looking at just the work that's in their job jar or do they cross silos pretty frequently to get work done in other places? Is it an organization that values specialization and stability versus flexibility and partnering? Are there structured opportunities for employees to bond. So the lunches are an example. Some companies only get together once a year during the holidays, and that tells you the relative value of that kind of larger team bonding between those organizations. How do they handle conflict? This is a question that I'm not sure we ask enough because integration is rife with conflict.

30:53And understanding how an organization tends to deal with interpersonal or interdepartmental conflict can be really helpful during that integration phase? And then finally, how is the organization allocating limited resources? I'm guessing not everybody gets everything that they want. And so understanding how different teams get resourced can be really helpful in understanding how teams are expected to work together for the common good of the organization. And then that can be really important for integration as well. Again, a click down beyond the management layer. If I understand how this team at the target worked together and how the team at the acquirer works together.

31:31Well, if there are two very different ways of working together, then I've got a little bit more work to do to bridge that gap, especially if it's a critical driver of deal value. Those are actually great questions. It covers a lot of basis. I like the ones when you bring up, how do you resolve conflicts? Because that's real telling. Do we have team collaboration covered? I like the training perspective, thinking of individual roles, whether they're very specialized versus flexible. how the teams get together, how they resolve the conflict, how the resources get allocated. Yeah. When it comes to operational expectations, how does that differ from the collaboration components?

32:11Sure thing. So operational expectations to me, I think about the phrase operational excellence when I think about operational expectations. That means different things to different organizations. In some, that means that we're going to stick to our processes and our practices. Our operational excellence means that we do the same thing the same way every other time. For others, it means that you're thinking outside the box and you're going to break a few eggs to make that omelet, as the old expression goes. So when you think about how that plays out in a workforce, it really is about what are the expectations of employees when they integrate.

32:48So if you think about how we might uncover some of this information, a lot of times it's how do we treat people who aren't doing their jobs well? So if somebody is failing in their job, what are we going to do? Do they get termed? Do they get ignored? Do they get coached? Do you just put up with it? How much emphasis is there on things like process compliance or process improvement if somebody isn't doing their job well? So that's probably the place where this comes up the most is when you see somebody failing, how do they work to fix that? On a more positive side, this might come up with things like how are people given their promotions, their raises, and their bonuses?

33:26So in some companies, that's based solely on tenure, right? You've been around for X amount of time. Therefore, your share of the bonus pool is going to be Y. In other cases, it's based on individual performance. And that tells me quite a bit about how this organization looks at operational excellence. Performance is king. Okay, great. But if I've got that two different ways in two different organizations, I got to figure out how to bridge that. In some places, it's move fast and break things. In other places, it's slow and steady wins the race. If you have a salaried population where you don't have to really monitor the clock, are people expected to be present for their entire work shift?

34:04Or, hey, if they're done in six hours, do they get to go away? And on days when they need to be around for 10 and 12, do they stick around? Is it more important that employees be present or is it more important that they get their work done? And then finally, how often do changes happen in the organization? Are process changes and process improvements just a way of life? Is there really a way that the company is locked into that tradition and history versus a move forward approach? How do we view change and updating the way that the organization operates? Great points. When you mentioned the first part where they're essentially very rigid in the way they do things versus agile, is that a broad overview?

34:46I think of just ways of working as a company, again, using large company versus startup. Is that what you meant on that first part? So yes, and the way that I tend to think about culture is most organizations don't have a monoculture unless they're a very small company like yours with 40 individuals. You're probably getting to a point though, Kisan, even within your company that you're going to start having microcultures that get created. I see between functions. You have different cultures, engineering versus marketing versus sales. Right. When we go through and do the diligence, we just don't have time to dive into a bunch of different microcultures.

35:19We barely have time to get people to pay attention to culture on the front end as is. I don't want to make this so complicated in terms of a practical tool that you're looking department by department or group by group. I think that you have to look organization by organization, at least to the extent that you can. And maybe it's looking at the catching organization. If it's a large company, maybe there's a division doing the bulk of the acquisition, and that's where you have to go. And maybe that there's a part of the target company where the secret sauce really lies. So it's probably one or two functions that the acquisition is really being focused on.

35:57So you can compare those two smaller parts of the culture to one another. That's probably getting into our 301, 401 levels of cultural assessment. So I think if it's a firm that's just starting out, just doing the assessment to start with. Even if you don't like my five areas and you just want to focus on one or two, great. Just do something looking at the whole company to the whole company, and then you'll refine that as you go along. I get that sense that you prioritize it based around the value driver of the deal and how that orients around specific people. And then the other part I like where you essentially look at how do you put people on PIBs?

36:35How do you promote people? Which is a fair point too, because even seeing that in an early stage company, you're starting to shape and define that. If you're going to merge that between two organizations, that's a whole other thing that could potentially be a clash. And then the frequency of changes is another telling thing as well, because we tend to be pretty iterative on the way we operate the business model. Do other companies not do that? And then again, that could be a big difference. Communication styles. Communication styles, I do believe all five of these are important. Communication styles is the one that I think most integration leaders tend to pay the most attention to.

37:11And this is simply a matter of really understanding how the organization talks to itself. So do we have a situation where leaders openly share their decision-making process, or do they only provide outcomes and direction? I recall seeing a situation where we had an acquired company leader who every email started off with five or six paragraphs about how the decision was wrestled with, the logical steps that were taken to reach a conclusion, being pulled into a very top-down command and control type of organization where the messaging was, well, we've thought about it and here's what we want you to do.

37:48And so that difference in explaining versus not explaining can create quite a bit of culture clash when the organization is looking to come together. We also see things like preferences for formal versus informal messaging. So is everything happening via email or town halls versus Slack messages? Or does information cascade informally? And unless you know the right person, you don't find the real scoop. How frequent are broad-based employee communications? So you'll see some organizations that have a very specific cadence. We're going to meet as a whole company once a month or once a quarter, whatever that cadence is, versus companies that pull people together ad hoc, and then it might only be fragmented groups.

38:30How tolerant is the organization of criticism or bad news? Do you have a culture where everything has to be positive all the time? Do you have a culture where everybody complains all the time? And it shapes how those messages go out. Is it a happy message or is it a, oh man, serious headwinds for the fifth quarter in a row? How are we communicating a positive versus a not so positive message? Does the messaging focus on the employee, on the customer, on the organization, on the leadership? I think analyzing messages, you can tend to see right away who the focus of the messaging is. And then somewhere in there is the challenge of the talented jerk.

39:11And I've heard about this a lot where some organizations will tolerate antisocial behavior if the person brings enough value to the organization. That is also a way that the organization communicates. Do you tolerate bad behavior by leaders or counterproductive behavior by leaders or strong technicians that you wouldn't necessarily accept from other people? A lot of different ways to look at how the organization communicates. And in my experience, this is one of those areas where just really having a conversation and looking at the actual communications that have been sent out and some of that cadence can be really helpful in understanding how do you talk with the folks that you're acquiring in a way that they can hear what you're saying.

39:56Here I thought this was just a Teams versus Slack question, but it's a little more to impact there. A lot of what you described seems hard to ask. How do you get this information to make that assessment? So some of it is questions. Some of it is looking at the artifacts that you have. And then, like I said earlier, if you're to a point where you now have access to the employee base, you can actually ask these in a survey. In the book, there are actually a set of survey questions, and you can directly ask people what those look like. Getting into the survey analysis is probably a whole different kettle of fish, but in general, you're looking for those areas where there's the most distance between what the target does and what the acquirer does.

40:40And I try, Kisan, to do that in as judgment-free a way as possible. I have my work preferences. I recognize that other people have their work preferences, but it's really hard to say what's good and bad or what's right and wrong. So I really want to look more at the degree of difference than at my judgment about how a particular organization chooses to communicate. Fair enough. How about organization self-concept? I don't understand that one. So if you think about it, we all have a self-concept about who we are as we operate through the world. There's a reason why I stick my degrees and my initials at the end of my name.

41:17And it's not just because I'm obnoxious, though anybody who knows me really well says that my level of obnoxiousness probably doesn't hurt there. But we all have a self-concept. Organizations also have a self-concept. How does the organization see itself? One of the places where we're seeing this revealed in really magnificent detail for all of us to watch is Twitter. before Elon Musk took over Twitter, it had a particular view of itself as an organization, a particular mission and value statement that it wanted to live up to. Now, whether or not it did is a very different conversation that I'm not gonna dive into right now, but it saw itself in a particular way.

41:58And then we have the Elon Musk takeover, and now the view that Twitter has of itself is very different under the new ownership. The self-concept, the way the organization sees itself has shifted with the new ownership. And I would say that every acquisition has part of that. It's why we see massive arguments over things like swag and branding and email addresses and business cards. It's not just about how we go to market and how we communicate to the market, but it's also about who is the organization now that it has a new owner, right? What is the soul of that organization? And we can see how these things play out when we poke on a few different things.

42:41First off, we can look at how the employees are inspired by the organization's purpose and how that's going to change. I worked on the periphery of a deal a couple of years ago that the target was really about green energy. And they really saw themselves as these environmental leaders. Well, the company that bought them was not an environmental leader. There were just some very big political differences between the employees at this green energy company and the primary stakeholder of the acquirer that were in diametric opposition to one another. And employees started to freak out because they no longer could see themselves as part of this green initiative, this going concern that was going to make the planet a better place.

43:25And they felt quite betrayed, actually. And so understanding that those employees were very closely associated with the mission versus being there to get a paycheck, it could have helped how some of the messaging was shaped going in and keeping some of the really rare skills that they had coming into the acquisition. Looking at things like how often is the organization going to bring in new ideas? Is it locked into a particular view of itself or is it a view of itself that's growing and evolving? How are leaders developing and mentoring the employees? Who's responsible for the person's career growth?

44:00Do employees feel respected and empowered in the work environment and how that's going to change during integration? We're starting to see corporate social responsibility come to the forefront in how companies view themselves. So going back to that example with green energy, that's a big CSR issue, but so is DE &I, diversity, equity, and inclusion, along with other ways that an organization might see itself. And then finally, other parts of social and environmental awareness that go along with that. So there's a way that the company has branded itself to go to market for talent. And if that's going to change significantly, then you're going to end up with culture clash.

44:38I suppose one of the other things that I should probably talk about in this section is that a lot of this is where I talk about hurt feelings. And I don't mean that to be dismissive. When people get their feelings hurt, they stop working or they stop working as hard. So there is a real financial impact to those hurt feelings. And I think companies that dismiss it, oh, they're just a bunch of crybabies or whatever that language is, are really missing the boat. So what? Maybe the target company is a bunch of crybabies. how are you going to go get value dealing with people who don't necessarily agree with the direction that this is going.

45:13You can either fire them all and start all over, in which case you've lost a significant amount of value from the acquisition, or you can recognize that this culture clash is happening and allocate some resources to manage that. By the time you lose employees through attrition or through layoff or however that is, if you can't get the integration working and you need to bring a fresh back to people in, you can spend a lot of money making that happen, depending on the size of the deal. You have a lot of institutional knowledge walk out the door. A lot of customer relationships go away. It's not as simple as dismissing, oh, they're a bunch of crybabies and their feelings are hurt.

45:50It's, yeah, there's dollar signs attached to each of those individuals. And if they're having a rough time crossing the bridge between their legacy company and their new company, we can't simply dismiss that. We need to get in and help people through that transition. What's the best way to do that? A little bit of listening and a little bit of reacting. It's amazing what just a little bit of listening to people's concerns can do in helping them feel better. I feel like ultimately it's got to be almost a cultural initiative in itself to be very proactive at listening to ideally empathize with the company and the team members that you're working with to make the transition as smooth as possible.

46:29A lot of it is listening because you'll then identify how you can be helpful and get to the problem-solving approaches or maybe figure out how to expedite the decision-making to get to a better place. Absolutely. And there's a whole section in the book, Kisan, just on how to listen to employees. It's part six of the book. It talks about focus groups, different kinds of surveys, state interviews. So there are ways that we can listen to people and then we have to respond. So when we hear people talk about survey fatigue, for example, it's not that people get tired of filling out surveys, it's that they get tired of wasting their time filling out surveys.

47:05So if I fill out a survey and I don't feel like I'm being listened to, I'm not motivated to go fill out another one. But if I fill it out and I feel like I'm actually getting that feedback loop closed, then people will respond to the next ones. So it's not just about the listening, It's also about hearing what was said, that active part of hearing, not just the input into my ears, but I'm now going to process what you're saying and I'm going to respond. And sometimes the response is, hey, we heard that you want whatever, but we can't do that. Or, hey, we heard that you want whatever. This is how we're going to respond.

47:40A very simple, you said X, we're doing Y, can make an enormous difference in people feeling like their input's been valued. And it can make a huge difference in smoothing out integration. I'm going to take that template from your book and make that part of our playbook to get leadership prepared. Because I think that's the key is if leadership across the organization is on the same page about being very proactive in that regard for the change management effort, that probably is a key component that doesn't really get talked about from all these conversations I've had here. It's hard to stick it on a spreadsheet.

48:13I can stick dollars and I can stick financial models and projections in a spreadsheet. A lot harder to do that with the people side. I really think it's fantastic when leaders take even just a little bit of this and incrementally build on it. Don't have to get it perfect. I think that's one of the other key takeaways. Don't have to get it perfect, but just try something and maybe try something a little bit more of the time after that and then maybe a little more after that. That's our mission here. Learn from the HRM &A folks, spread that as a practice towards the leadership and make future acquisitions go better.

48:43Yeah. Great points on this concept of the organizations. A lot of it too, as you were talking through it, made me get, in my head, I'm gathering the pieces and how you would convey the announcement message. Yes. And with that in mind, and I felt like that was a big component of what you described. Absolutely. And all this has to go somewhere. If you're just doing this to gather information, you're not going to do anything with it. Honestly, don't waste the time. Only gather this information and invest the time in collecting it if you're going to be able to do something with it. For me, there's so much to do during an acquisition, Kisan.

49:13There's a whole book with a lot of suggestions, but at the end of the day, if you can only implement one thing, then implement that one thing and do it well. And then maybe you'll free up some time to do the next thing. Great advice. We were talking about things specific to the company, like the deal-specific considerations, synergy capturing. Can we talk through those? How do you define them? Do you look at the value drivers? In my mind, and again, I'm coming from a relatively simplistic point of view as an HR guy. So when I see a list of synergies that comes down to me in a deal, they usually fall into a couple of buckets.

49:46They're either revenue synergies or cost synergies. What I've seen for the most part is revenue synergies almost always means that there's some sort of cross-selling. And I know that there's other ways to get there, but when they fall onto my desk as an HR leader, I'm almost always worried about training people on how to do things. In order to cross-train salespeople, we have to stop pretending that salespeople are coin-operated. We can't just throw quarters at them and ask them to dance the right kind of dance. It doesn't work that way. So we have to understand what's going on culturally with that go-to-market organization if we're going to integrate it successfully to meet the synergies.

50:22The other synergies that I often see are cost synergies, and that usually means that I'm either laying people off or moving them to another facility because we've got locations that are close to each other. And again, other ways to realize cost synergies, maybe some cost-cutting initiatives or economies of scale, which might change procurement processes. But we need to understand where those synergies are going to affect the way that work gets done and start planning around them in a way that's separate and distinct from those five key drivers of culture clash, which affect the entire organization.

50:56So it really is understanding what does it mean for me to realize this particular synergy when it comes to the people? How am I going to make this synergy come true? And what am I about to run into when I try to execute on that synergy plan? Familiar with revenue synergies and cost synergies. My takeaway is cost synergies are pretty tactical in what needs to be executed to get done, where the revenue synergies are very people-oriented. And so much of that outcome is determined on how well people are going to end up working together. And that's why revenue synergies are harder to capture. Yeah.

51:31Which is a whole thing of its own. It's an area I've been interested in. We've had a number of conversations about go-to-market integration, and it may lead to a bigger series, which is in the books for this next year. When you mention the secret sauce part, where does that fit in between revenue cost synergies? I don't think it does. To me, secret sauce is really about why are we buying this company? What is the unique capability that this organization brings that we don't have without it? I'm thinking of a situation, and I shared this last time I was on the podcast, where a company I was with purchased an organization that was basically writing manuals.

52:10That was the unique capability they brought was the ability to write training manuals. So small acquisition capability that we didn't have that it was cheaper to go buy and bring in. So their secret sauce and how they were able to turn those instruction manuals around so quickly is that their talent sourcing happened at a local community college. So they would pick up the phone. They'd call the local community college, say, hey, I've got two people that are about to leave to go do what's next for them in their career. Can you please send me two more people over? And that community college would say, yes, they'll be there tomorrow afternoon.

52:46So their time to hire at this company was a half day. The secret sauce, again, was getting people out of the community college to write these manuals. And when we bought them, we changed the way that they hired people. So it went from a half-day time to fill to somewhere in the neighborhood of 87 days time to fill, which, by the way, is a heck of a lot longer than one day for any hiring manager that has sat there and gone, where are my people? We went from literally a day to three months because of the change in how that acquirer does business. And it almost broke the deal. That secret sauce of being able to keep a pipeline of talent shoved into that company completely dissolved during integration.

53:27And even though it was called out on the HR diligence report, nobody really stopped to think about what the business implications were because it didn't affect any of the numbers that went into the deal model. So nobody was really paying attention to it until they tried to hire somebody and they were 50 days into the cycle. And I got a very angry email from an executive and I responded with, well, man, I told you this was going to be a problem. I even offered to intervene by getting a couple of requisitions created for you so you could get in front of this pipeline. And you told me, no, you're not worried about it.

54:00So I assumed you had it handled. Would you like me to drop those requisitions for you now? Now, that's an example of a secret sauce that broke during cultural integration because the way that the target and the way that the acquirer build that critical talent pipeline were just so dramatically different. I get why the secret sauce, because you don't pick up on this stuff. It's not the obvious thing. A lot of the things that pop into my head are the broad value drivers of doing the deal. But then underpinning that, there's some of these key areas that really make the sauce secret. Yeah. Sacred cows.

54:32Don't know where to guess on that one. So sacred cows in a lot of ways are kind of like organizational self-concept. This is where feelings start to get involved. Almost everybody who's done an international deal can tell you a story of in the UK getting the tea service stopped. I've been through that talk at a number of conferences where tea service or free coffee or whatever went away and you almost had an employee rebellion over it. People stopped working. They left. They threatened to quit. All over something that to an outsider is just goofy. This is where you really have to look at, okay, what's the thing that's going to cause the biggest challenge if you take it away?

55:12I did an acquisition right before the pandemic, and the thing that almost caused the biggest challenge was the pet-friendly workplace policy. So the target had to bring your dog to work as part of the culture. And the acquirer that I was with at the time did not. There were no dogs allowed in the facilities. and oh my goodness, just people were literally leaving their jobs to find something where they could either work from home or have their dog in the office with them. So that sacred cow of having a pet-friendly workplace was just so important to a bunch of them that people were willing to leave their jobs.

55:49Had we realized that further up front, we might have tried to perhaps prolong their lease and their current space a little bit longer and run that out. Or I don't know that we We would have done a broad-based comp increase, but we would have at least thought about it to cover the cost of doggy daycare or to help folks through that. But we lost a lot of good talent over being able to bring the dogs to work. I don't know, Clay. I think that's what I'm going to leave to the HR M &A folks. You guys figure out the sacred cows. Well, you'd be surprised. We usually find out about those things through the leadership team.

56:18If you think about, Kisan, during the diligence process, on the HR front, we usually have a very limited number of conversations. So our conversations on the average deal are usually limited to whatever we can get an invitation to. That's a leadership level meeting, but it's usually not the dinners. It's usually not the negotiation conversations. It's usually not those early trips out. We tend to be shut out of the process on the front end like that. So we're really relying on our friends in the corporate development function to do a lot of this intelligence gathering for us. And some of the best corp dev partners that I've ever worked with are those folks that are just naturally curious beyond the numbers and try to understand how the company works.

56:58And there have been times that I've just sat down with a notebook and just listened as I got a data dump from a dealmaker who was just paying a lot of attention to the surroundings. And boy, that is so powerful, a partnership, having that corp dev person really pay attention. And they're the ones that give me early warning that, oh, the dogs are going to be an issue or, oh, my gosh, I've never seen a team as committed to their free lunch as this team is. And it's just so very helpful on our end. I wonder, is that coming from observation or do you actually ask questions like what are your sacred cows in your company?

57:31I think it's a little bit of column A, a little bit of column B. I don't know that I'd ask Sacred Cows directly, but I do try to make sure that at the end of every diligence process, I have two questions that I ask of the internal team. So one is, what are we going to break when we buy this company? When we integrate this group, what's going to break? And those are usually cultural issues. They're process, they're business processes that are key and critical to the organization working. Again, I use this example in the past of a procurement process where a company was making drones. They had a rapid prototyping capability where their procurement process was to walk down to NAPA Auto Parts, use their individual credit card to get whatever pieces they needed, and then they'd have a prototype out the door the next day or the next week.

58:16All of a sudden, they're bought by a giant defense contractor. And when that happens, you now have to go through a formal procurement process. So no longer are you going to NAPA to get the parts you need. You've got to get a contract put in place, and then it has to go through supplier quality where somebody else is going to look at them to make sure that they're good enough to go in your prototype. And then six weeks later, you've now got your parts to make your drone. We're way past the point of rapid after a six-week delay, and that's where stuff just starts to break. And if that's a key capability, in this case, that's a secret sauce, then you've got to do some work around that.

58:48And that's all a function of observation and understanding what's really going on at the organization. This is why we need to start seeing more integration conversations happening earlier on, Kisan. When we look at the deal failure rates that that 70 to 90 percent Harvard talks about, almost all of them are integration challenges. They don't show up on that deal model. The corp dev team on the front end of that, they're the ones who know. They're the ones who have access to find out these answers, whether it's through just observation, through questions, or getting your integration leader in a little bit earlier.

59:19Why don't we put them through a boot camp? Start off with reading your books. A question that came to mind was, as you're going through this diligence assessment around culture, and you used this example earlier of coming across some findings where you adjusted the PA agreement around specific employment matters. What are other examples of taking findings that impacted the deal terms? There's a couple of different ways to impact the deal based on findings from really any kind of diligence, not just your cultural diligence, but your people diligence, your legal, your financial, whatever diligence.

59:56So obviously the nuclear option is to kill the deal. And I have not seen that come up around culture. I've seen it happen twice on what I'd consider people issues in a deal. One is the founder that we were picking up was just such a jerk. Nobody wanted to work with him. I don't think that's truly a cultural issue. I do think it's a people issue. And the second was a bunch of underfunded pension liabilities that we didn't want to pick up as a buyer. Those are the two deals that I've seen die based on people's situation. So taking kill the deal off the table because that happens so seldom due to people issues, we can adjust the agreement.

1:00:30So that's certainly one option that we've used a few times. I've seen price adjustments because there may be some things happening where the talent's not worth what you thought they were worth or they weren't going to be able to deliver things. And so it's, yeah, we can do it, but now we're going to have to throw a bunch of extra heads at this, and therefore we're going to do a purchase price adjustment to make up for that. I've seen retention commitments change in the deal. I've seen ancillary agreements like holdbacks and earnouts changed as a result of things that we would find in some of the diligence.

1:01:00So that tends to be a less frequent option, but it is one that I see used quite a bit of time is making that change to the agreement. much more often on cultural diligence items. And in fact, in most people diligence, it does come down to how are we going to do the integration plan? And in my mind, that integration plan really starts when the employees find out about the deals. So that employee announcement day, all the way through that initial 100-day plan and beyond. And I think that's really where you change things. But the challenge, Kisan, is that usually when the deal is signed, there's a very rapid turn, especially if you're publicly traded, between that deal getting signed and that deal getting announced.

1:01:39So you don't have the luxury of taking another couple of weeks delaying announcements so you can get it just right because of your cultural diligence work. It really has to be run in parallel with the rest of your diligence so that you can shape that integration plan and really start to extract the value. We've covered a lot with culture, risk against it. How does that pair with the type of integration you're doing? I'm thinking of, I'm buying Palme, an organization that I am going to fully integrate because they have a specific capability. I'm adding it to my portfolio. It's getting fully integrated.

1:02:15Versus they're in an adjacent area. Probably going to leave them alone. Maybe there's some obvious backend integration that we would do, accounting, payroll, stuff like that. But otherwise, they're go-to-market. I'm going to leave them alone. Even their own brand, that's fine. We'll just associate it somehow. I'd look at that really different where they're going to be independent. I'm not going to have as much concerns I would think on the culture side where versus, hey, we are really employing them all in our organization. They're going to be part of us. But can you walk me through how do I space out the difference when thinking about culture in those scenarios?

1:02:50You're absolutely right. If you're going to do a fully standalone acquisition, I don't think your level of cultural diligence needs to be nearly as deep as when you're fully integrating an organization. I do think that you need to look at some of those places where you're looking at extracting some of the deal drivers For example, if you think that you're going to get what I would call a synergy from economies of scale on the procurement side, maybe your company makes some sort of consumer packaged good and you know what their cost to buy packaging is and you're going to give them some of your packaging vendors.

1:03:22That's a real simple way of going, okay, I know that I need to look a little bit about the way that they do some of their procurement. If we're going to make them use our vendors and our T's and C's, are we going to be able to bridge that gap? I don't know that I would do a full cultural diligence on something like that. I do think where it's worthwhile to do some diligence on those standalones, and I spent a bit of time working for a company that only did standalones, didn't do any full integrations. What I found I needed to work on most was really understanding the leadership team and what was going on with them.

1:03:53And that's where some of those pre-LOI steps of really looking at who are they, what are they saying out to the market, what are they saying to the media, what do they have going on there, what's their history. Those were probably the most helpful because you're right, at the end of the day, I just was not worried about how they'd react to news of the acquisition because nothing in their world's really changing. I will say that if you can show me an acquirer who's able to stay hands off of a standalone, I'd love to talk to them because I have yet to see an acquirer who says we're going to leave this company standalone and then actually means it because there almost always is somebody in function that really wants to get in and figure out how they do things.

1:04:32That is where I tend to find the biggest derailers occur is when tell an organization you're going to leave them alone and then all of a sudden you start carving things out. What ultimately realizes more value? If you take this standalone or maybe a very partial integration versus a full integration. I don't know. I imagine that there's probably somebody with a great dissertation question around that right now. That's up for somebody because you're betting against a lot more synergies to capture with pretty higher known miss rate on that synergy capture versus buying a standalone with more certainty because there's less projected synergies.

1:05:10Typically, you're ideally hopefully buying on the financial performance of that business. I don't know. I don't know. This one will have to figure out who's going to crunch the data and find out. Yeah, if somebody wants to weigh in or do some research around it or write a dissertation, please reach out to either of us. We'll entertain that challenge. M &A Science sponsored opportunity right there. Okay, so that's some interesting points around contrasting between the full integration versus a partial. What about the transformative deals? So those are the ones where I think it gets even more complicated to do cultural assessment.

1:05:41If you're looking at changing the way that the acquirer does business through the acquisition, not only do you have to get your arms really wrapped around the way that the target does things, but you need to understand how the acquirer does things. And Kisan, I have to tell you, a lot of organizational leaders don't really know the culture in their organizations a click or two down. It is just absolutely stunning to me the number of times that I've seen leaders who just don't realize even some of their directs and how they do business. Oftentimes, I see this with hired gun CEOs that come in and their mandate is just to sell the organization, get it off the books, where they're so busy working on revenue, getting the revenue up so that the multiple goes up, that they really don't understand how the organization works because they were brought in with a very different mandate.

1:06:33that understanding. I see that inside organizations as well, where you get a very large acquirer. Well, it's hard to understand what all of the microcultures are going to look like when you go to make that change as well. My bigger point is that you need to get some folks to understand how both organizations work and also what you want that final organization to look like, how that group is going to do its work. So you've increased the complexity of the cultural assessment and cultural integration work a great deal just by deciding to change how everybody does everything at the end of that transformational acquisition.

1:07:09Where have you seen that played out well? I was part of a company for a number of years where there were a lot of different smaller companies brought in to help shore up capabilities. And then as the market shifted, there was a desire to basically consolidate that capability into a new division in the company. I thought that went really well, but it was more of what I've heard called merger repair by some folks, where there were a lot of these sort of partially integrated or standalone organizations floating around out there that had their own unique identities. They were on different payroll systems, different HR systems, different types of financials across them, and pulling them together into a new, not a new legal entity, but a new entity for go-to-market purposes, a new line of business.

1:07:57That was done really well at an old company, but it took time. There was easily a six-month discovery period where we were really looking at all of those holdings and what we wanted to do with them, plus internal capabilities, plus what the market was going to demand a few years out. And it was with an organization that had done a number of large-scale transformation attempts in the past. So it doesn't surprise me that it went particularly well there. Usually, I don't know that the organizations always have the agility, that muscle memory to go do transformation well if they've not done it before.

1:08:31My best recommendation in that kind of situation is give yourself twice as much time as you think it's going to need because you will run into some roadblocks along the way and then be really gentle with yourself because it won't be perfect, but what you come out with should be better than what you started. It sounds like you need leaders that are prolific to be able to do that. That has to be part of the strategy. Otherwise, I don't see how it would work, especially if you don't have that ability or if you've done it before. Absolutely. Yeah. If you don't have a leader who's capable of driving change, it's probably not a great idea to drive change with that leader.

1:09:03That to me is probably your first question. It's where are we now? Where are we going? How are we going to get there? Who's going to get us there? And if you don't have all of those pieces in place, it's probably going to not work out as well as we'd all hope. That sounds like a really key part of it. teach me some secret sauce on how do I overcome this? It sounds like there's a lot of range where this is inevitable. I'm going to come across culture clash in some shape or form. How as a leader do I overcome that and make sure we ultimately capture our intended value on the deal we're after? So Kisan, I would say the biggest secret for leaders, and I've talked with a number of other HR practitioners about this, the biggest secret is acting like you give a damn.

1:09:46So if the leader of the acquisition, and usually this is the buy side leader, can take a few minutes. And I think most do, by the way, give a damn. They care a great deal. But sometimes leaders struggle to convey that to the employees who are coming over. And if there were one thing that I could tell you that would make a difference in almost every acquisition, it would be leaders acting like they care. Not just about the deal, not just about the financial model, not just about the go-to-market strategy, but the fact that each and every person sitting in one of those chairs has to feed themselves, has to figure out how to get a roof over their head, figure out how they're going to take care of their kids or their folks or whoever the important people in their life is, and act like for just a moment that you care about that individual and their individual circumstance.

1:10:39And my guess is most leaders do, but they don't convey that very well. That goes just the longest way in getting some level of grace from employees and bringing them onto your side as they work through what's a big change for them. So we're reciprocal animals. It's just wired into our mirror neurons. We like to do things for people that we like, and I'm going to like you more if I think you care about me. You don't even have to read the book if you can pull that off. So that is probably the biggest thing Kisan is that empathy, that understanding, that getting in there. I think the second thing, once we've established that you care is having a plan.

1:11:19And one of the things I do provide is a hundred day plan. It's a very generic plan. It's not going to work for every acquisition, but it's a good enough starting point for most deals that you can look at some time phasing on when to do things, starting with that employee announcement, letting everybody know that their company has just been acquired. But having some kind of plan about when things are going to change, how they're going to change, and how you're going to communicate that change can make an enormous difference. So if I had to teach you two things, that would probably be the big two.

1:11:53Act like you care and have a plan. I like it. You could do better than you actually care. That would be... Indeed. And like I said, I really do believe most people care. I do think that we're not necessarily trained on how to show that in corporate America. I'm a little longer in the tooth, and that was just not part of what we covered in B-School. Empathy 101 was not a class. It should be. I agree. You know, that's the big thing I talked with my internal leadership team about and my children. It's discipline, continuous learning, and empathy. The three principles of success. But you're right.

1:12:26Those are really great points and things to emphasize. And I think a lot of it goes to how do you get to be proactive in the culture so everyone's on the same page and it drives much better experience for everybody ultimately. Yeah. I got to ask, what's the craziest thing you've seen in M &A? I've been thinking about this question a little bit, Kisan, and I'm going to bring it right back to culture. One of the very first deals that I did while I was working in M &A, I will never forget this. The corporate development team did a really good job of providing a target company overview for all of us.

1:12:58and it was split into a couple of columns. And the middle column was all about culture. And the statement was something to the effect of high cultural compatibility. And I loved that assessment. Now, what made this crazy? What made it crazy is I have no idea how they determined a high level of cultural compatibility. So the buyer that I was working for was a heavy manufacturing company with over 150 ,000 employees in pretty much every country in the world. The target was a 12-employee garage startup doing software in the UK. And so how you cross this bridge from 12 people working out of somebody's garage in an employment construct that was not an American at-will employment construct, but one where employees have a certain degree of entitlements and there are certain things that you have to do to be an employer in that country, to say that they are just like a heavy manufacturer with 150 ,000 plus employees was perhaps one of the most delusional things that I've ever seen about culture in my career.

1:14:08There was absolutely no way in which our two companies were highly culturally compatible. We were going to change the way that they did their software development processes. We were going to change the way that they went to market. We were going to change their compensation and benefits and go through the entire process of getting those aligned under the law in that particular country. It just was a real wake-up call for me that if cultural compatibility is basically an up-down vote on whether or not I like the management team, that it's just not a particularly valuable way of doing a cultural assessment.

1:14:42Yeah, that's a great example and crazy. Yeah, I'll take crazy. Clint, thank you so much for taking the time with me. I learned a lot. Those of you interested to learning more. Read Clint's book. We've got two of them now. They're both great. I actually personally read them and can give an honest testimony. They're both fun reads. They're not a bunch of, I guess like a lot of M &A books I've read in the past. Very like academic written. It's got a great voice to it. I like your examples that you use too. I think it's good for new practitioners. I think it's great for anybody in corp dev as well to really get that sense from an HR perspective to make sure a lot of these issues we talked about today don't happen.

1:15:18So those of you still with us, I want to thank you for listening. and I'm willing to provide a free copy of both of Clint's books that we referenced today. All you got to do is send me an email with one of your own crazy M &A stories, ideally related to Culture Clash. We'll make a little blog post, share some of these stories, Anonymous, if you want to share from you. Send me that email. It's Kisan, K-I-S-O-N, at mascience.com. And I'll send you both the HR Practitioner's Guide to Cultural Integration and Mergers and Acquisitions and A Charmary Practitioner's Guide to Mergers and Acquisitions Due Diligence.

1:15:54Both great reads. Share a fun story. And I'll send you copies of both books. Until next time, here's to the deal.

1:16:11Thank you for taking the time to explore the world of M &A with our podcast. We love hearing feedback. Tag us on a LinkedIn post, add a review on Apple Podcasts. We'd love to hear from you. If you need help standing up an M &A function or optimizing one that you already have, we're here to help. And if we can't help you, we probably know someone that can. You can reach out to me by email, Kisan, K-I-S-O-N, at mascience.com. Or you can text me directly at 312-857-3711. If you just want to keep learning at your own pace, visit mascience.com for a lot more content and resources. That's where you can also subscribe to our newsletter.

1:16:56Again, that's mascience.com. Here's to the deal.

1:17:10Views and opinions expressed on M &A Science reflect only those individuals and do not reflect the views of any company or entity mentioned or affiliated with any individual.