Successful Mergers Start at the Top

A cohesive top-management team is essential for integrating acquisitions successfully.

October 2015 | by Robert Harris

To integrate companies following a merger, arguably the most important challenges involve the top of the organization—appointing the right top team, structuring it appropriately, defining its agenda, and building the trust that enables its members to work well together. Executives who fail to overcome these challenges are responsible for the ego clashes and politics that are often the root cause of spectacular failed mergers.

Unfortunately, recent thinking about change management no longer emphasizes the pivotal role of the top team. The consensus on how to manage change has shifted to a dispersed approach because too many initiatives designed to cascade down the hierarchy have delivered disappointing results. The usual interpretation is that top-down change fails because at every step messages get diluted, so that each succeeding one seems less compelling and less authentic.

While this may be true in certain circumstances, a merger requires direction from the top because that is the only way to initiate change throughout an organization. The change required to integrate companies cannot be driven from an entrepreneurial business unit, an innovative functional unit, or the front line. Too much coordinated, programmatic change must be achieved in too short a time for such approaches to succeed. The spirit of the project is determined at the top, where the conditions are set for the whole integration effort.

But the top team must do more than just talk about the new company, adopt its language and trappings, and act according to its norms. The team must become the new company in the full sense (see sidebar, “Who’s on the top team?”). Its messages, processes, and targets must deeply incorporate the aspirations of the new company in a way that is visible to managers, employees, and even outside observers. As the top team goes on to integrate the company down the line, it in effect re-creates itself. The company is not just rolling out messages, processes, and a set of targets; it is rolling out itself.

Loosely speaking, the top team includes senior managers at the relevant level—generally the corporation as a whole, but in some cases a group, a division, or a business unit that engages in mergers. The team shares general responsibility for the organization’s future. The number of people in the top team and the organizational levels represented on it are highly context specific. In some cases, the top team may be the dozen (or fewer) people who will interact regularly with the CEO, but we have seen teams with 40 or more members.

A handful of our interviewees provocatively insisted that the boards of the merging companies should be counted as part of the top team. After all, the board’s performance could have a major impact on the creation of value during the integration period and beyond. One CEO observed, “Very few companies actually change their boards as a result of a merger, but in the same way that the management team needs to be tested for whether it has the right skill set, so should the board be. The capabilities of incumbent directors should also be tested and the best chosen. After all, if the board members strike deals among themselves, what signal does this send to the management team? And if the board is polarized, it cannot provide the required leadership and support to the CEO.” The people who should serve on the board are those who can best help the new company create value.

In the best cases, members of the top team signal the kind of company they are creating and their commitment to that new company. In other cases, the team visibly lacks the requisite quality, and its weaknesses inevitably spread throughout the merging companies. The power of the signals emanating from the top team reflects the fact that they are not just signals: they create concrete realities. The important signals fall into three categories: senior appointments, the top team’s alignment, and clarity about roles.

 

Executive Editor

 Ms Anna Sullivan

Ms Anna Sullivan