The Merger Frenzy:  Can Companies Deliver on Their Promises?
Written by David Lapin (CEO) and Desi Rosenfield (President)

When NationsBank chairman Hugh McColl announced his merger with Bank of America, he noted, "We will have the most diverse workforce of any company in America… The strength of our company is derived from that diversity."  He later acknowledged that previous, smaller acquisitions failed to achieve their objectives because they didn't account for the resistance shown by employees at newly-acquired companies - and that he wouldn't make the same mistake again.

McColl learned through hard experience that the success of a merger depends on how it is perceived by individual employees. Unless properly managed, mergers can break the moral contract between the corporation and its workers, creating productivity losses that more than offset any anticipated synergies.  This is the basic challenge at the heart of any merger -- but it is the one which normally capable managers are least prepared to handle.

Companies continually work to earn the trust of their employees.  This trust enables them to attract and retain the best people to guide them into the future.  When a merger happens, it is those same employees who are the first to feel as if their trust has been violated.

When that trust is lost, motivated, ambitious employees generally look for a new job. However, it's those who stay that pose the greatest threat to a company's objectives.  Because these employees no longer feel any basic loyalty to the company - believing that the same loyalty hasn't been returned in kind - they often begin a pattern of unconscious "passive sabotage" against the company.  Passive sabotage - where workers simply fail to take proactive measures to advance a company's established goals - is exceptionally difficult to identify.  But it can initiate a downward spiral of financial performance that quickly diminishes shareholder value.
 
Passive sabotage can also have more serious consequences.  Recently, a global mining company merged two coal mines into one of the largest coal producers in the world.  Shortly thereafter, the newly merged entity began experiencing a puzzling decline in safety standards that could not be attributed to any known cause.  After a comprehensive audit, we were able to establish that passive sabotage was at the core of this deterioration.  Loyalty that had been built up over years crumbled after the merger, and employees quickly lost interest in protecting the lives and assets of the company.
 
Why do employees lose faith in their leadership during a merger process?  In large part, it's because workers at one company don't view the organizational change as a true merging of corporate strengths, but rather as an aggressive takeover of their culture and objectives.  In the case of the mining company, miners, office workers, and engineers did not feel that the new management recognized them for their innovative skills and deep commitment to the company.  Instead, they viewed their role in the new entity as mere assets, no different than plant and machinery.  This attitude not only led to costly injuries and death, but also to unacceptably low levels of productivity.

To avoid passive sabotage, managers must understand the essential difference between true mergers and de facto corporate takeovers.  In a takeover situation, differences in corporate cultures are regarded as divisive.  Managers often respond by beginning a frantic search for similarities that they can point to as evidence that the two companies "fit" together.  In reality, this often becomes an attempt to impose a uniform corporate culture that aims to obliterate natural differences.

In a successful merger, the search is for unity, not uniformity.  A focus on unity values the differences between two companies and productively channels for the benefit of employees and shareholders alike.

The key is being able to effectively identify and interpret these differences. Once that's done, the appropriateness of existing corporate processes for the new company can be properly evaluated.  This evaluation process was critical in the recent merger of Rand Merchant Bank and First National Bank to form one of the largest companies on the Johannesburg stock exchange.  We determined that the two banks were driven by different philosophies based on entirely different objectives.  Attempts to merge the strategies and to simply graft the employees of one bank into the structure of the other would most certainly result in passive sabotage - ensuring the merger would join the scrap heap of similar failures.

Ultimately, only employees can realize the financial and material synergies that look so good on paper.  Rand Merchant Bank realized that if employees are treated as invaluable resources, they will convert the disparate assets of the new company into productive returns—creating new opportunities for revenue growth.

Executives who create and implement mergers should proceed cautiously. They should not allow the pressure of "closing the deal" to undermine the greatest imperative: delivering shareholder value by synchronizing the diverse skills of all employees into a vision for a new company that's greater than the sum of its parts.