How psychology helps your managerial decisions in M&A?
The change of the organizational culture of a company after the merger is as hard as changing a well-established brand image. Our paper looks into the cultural differences that pose serious business risks for any company engaged in mergers and acquisitions, and we give our recommendations on how to deal with organizational culture issues during different phases of the merger based on the cross-analysis of two cases we chose.
The two cases we chose are the merger of Daimler-Benz and Chrysler and the acquisition of Lehman Brothers by Nomura Holdings, a Japan-based major financial holding corporation.
Daimler proposed the merger because they wanted to extend into other market segments, without diversifying the Mercedes brand. On the other hand, Chrysler needed huge investments to stay competitive so that it could best Ford and GM. In this sense, the merger was announced as “the merger of equals” and preceded in a timely fashion.
As we know, Germans are famous for rigid planning and “play-by-the-book” working style. On contrary, Americans are known for their entrepreneur spirit and innovation-promoting work environment. Letting people from hugely different culture work together became a major obstacle in front of the management.
For various reasons, Daimler, who became the dominator of the merger, decided to impose the German culture to its American counterpart. Americans had to change their way of working and communicating, feeling that they were marrying up to Daimler.
The merger ended up with the break up into Daimler and Chrysler, leaving both parts in deep trouble. And not being able to handle the culture issue well and timely was considered one of the main reasons of the failure of the merger.
In the Lehman Brothers-Nomura case, Nomura acquired the bankrupted Lehman Brothers to achieve its long-standing ambition to play as a strong player in the investment banking business. Its intention was to implant Lehman Brothers’ “testosterone-fueled bankers” culture to Nomura. [1]
To make bankers from Lehman Brothers stay, Nomura announced to create a bonus pool of more than $1 billion, and offered to pay Lehman investment bankers the equivalent of bonus in 2007, in cash. [2] As a part of payment system reform, Nomura offered the performance-based pay system to Japanese investment banking staff as well. However, complaints were raised from domestic retail department, saying that new payment system was offered only to the investment bankers. [3]
As a result of the merger, in 2009, 19 out of 23 senior managing directors of Nomura are non-Japanese, and in May 2010, it nominated former London Stock Exchange (LSE) chief executive Dame Clara Furse and ex-British Airways chairman Lord Colin Marshall to join its board of directors, as the first non-Japanese board members.[4]
If you are in Daimler or Nomura’s shoes, what would you chose to do to deal with the culture issues?
Following are some questions that may help you to analysis the issue:
Is a clash of interests and depression of morale inevitable when a new culture is introduced after merger?
How to align your long-term interest with the merger of the culture?
How is the merger of culture in merger cases different from that of in acquisition cases?
Is the merger of the equals more helpful in culture change than acquisition?
What are the consequences if the change of culture is forced within an organization in a timely fashion?
Can experience in the change of culture from one industry be borrowed and used by another?
Fast or slow, which is better in term of the culture transition?
How to communicate the culture change with employees, upfront or on-the-go?
We try to answer these questions when we look into the cases, and here is our Conclusion.
Merger and acquisition is a very difficult process with a low success rate. As far as cultural issues are considered, it is hard to provide a silver-bullet that could be. However, there are some key indicators throughout the change process that can prove to be valuable. Such as, in any merger one of them will be a dominant participant based on their market standing. If the more powerful organization in the merger has dominance, then at the same time the onus of their mergers success also lies on its shoulders. It is upon the organization, to carefully utilize the potential strengths and leave aside the weaknesses. In addition, People factor is always meant to deal with utmost care; they determine the fate of the merger. Nomura realized this and succeeded whereas Daimler failed at the very same point. Business goals always come first. But business is driven by people. One used to power to merge the other used to people to merge.
Reference:
[1] Unknown. (2007, January 10). CEO Richard Fuld on Lehman Brothers’ Evolution from Internal Turmoil to Teamwork. Knowledge@Wharton. Retrieved November 10, 2010 from http://knowledge.wharton.upenn.edu/article.cfm?articleid=1631
[2] Saigol, L. (2008, September 23). Nomura rescues Lehman’s European unit. Financial Times. Retrieved from http://www.ft.com/cms/s/0/795de6ba-8974-11dd-8371-0000779fd18c.html#ixzz15Hpm42Gu
[3] Tudor, A. (2009, July 29). Nomura Stumbles in New Global Push. The Wall Street Journal. Retrieved from http://compliancex.typepad.com/thewallstreetjobreport/2009/07/nomura-stumbles-in-new-global-push.html
[4] Nakamoto, M., & Tucker, S. (2010, May 17). Nomura looks beyond Japan for new board. Financial Times. Retrieved from http://www.ft.com/cms/s/0/221a3420-618c-11df-aa80-00144feab49a.html
[5] Frank Gibney Jr,. Joseph R. Szczesny., . (1999, May 24). Daimler-Benz-Chrysler: Worldwide Fender Blender. Times.com. Retrieved from http://www.time.com/time/magazine/article/0,9171,991030-5,00.html
By Swarnika L Mehta, Jitsuko Hasegawa, and Xiaopu Yu
