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GEORGE GATES
is president
of Core-R.O.I. Inc.
based in Greensboro, N.C.
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Two readers responded to an earlier column with clippings from their respective hometown newspapers describing yet another merger affecting their local paper mills. One noted, "See, here we go again. We have no control over any of this!" The other said, "They need to get used to it. This is a fact of life!" I'm not sure who the "we" or the "they" are, but both readers raised a question worth exploring: With the storms of consolidation blowing through the industry, what can management and labor leaders do when the dust settles?
Experts in the field describe a dismal scene: acquirers have less than a 50-50 chance of success; one-third of acquisitions end up in divestiture; one study of 537 acquiring companies showed 40% reporting "somewhat successful" or "unsuccessful" results. What gives?
COMBATING UNCERTAINTY. Combining any two companies is a daunting challenge; combining two sizable paper companies–and making that work–is a Herculean job. Unanticipated economic forces can derail the effort. Strategic mismatches can ruin the marriage, while inadequate due diligence on the front end can blow up later. The real culprit, we're learning, is failure to manage the integration. As one CEO put it, "If half as much energy had gone into managing the marriage as went into orchestrating the wedding, we might have made it work." Waiting for the dust to settle is waiting too late.
One company taking over another is a drastic change for the employees of both. Most of those affected have no control or influence over what's happening. Their common response is fear, and their usual reaction is resistance, either deliberate or unconscious. Very few understand what's going on. When they're waiting for the other shoe to drop, people usually sit still, cover their heads, and protect themselves.
When companies combine, the climate is predictable. Uncertainty and ambiguity are the norm, as much for those in charge as those listening for the shoe. The result is confusion, anxiety, and often paralysis. This uncertainty often breeds increasing mistrust, and people begin responding with hostility, defensiveness, and cynicism. Protection and self-preservation become the order of the day. Employees also become detached, turf wars erupt, and performance at all levels declines. A kind of organizational "drift" sets in as more and more people, wondering what will happen next, wait for the dust to settle.
MANAGING MERGER DYNAMICS. Inability or unwillingness to manage the dynamics of a merger integration is a major contributor to failure after "The Deal" is done. We have seen leaders–management and union–who have learned what it takes to make a merger integration work. Not content to wait, they have found ways to help the dust settle.
Their success comes from three things that happen long before "The Deal" is even announced. First, in addition to financial due diligence, they conduct a thorough audit to identify employee talent, culture issues, the state of labor-management relationships, and other so-called "soft" issues that require attention. Second, they establish clear integration processes that directly involve people in dealing with everything from product strategy to seniority lists and nametags. Third, they plan to manage the integration dynamics clearly, directly and honestly in ways consistent with solid guiding principles:
• Involve, communicate, involve!
• Admit mistakes early and often.
• Provide merger orientation (so people know what to expect and what's "normal").
• Deal with "personal" issues early.
• Keep people focused on performance.
• Make only the promises you can keep.
• vSharply target priorities during the integration.
• Don't dawdle and draw things out: get on with it.
Making mergers work at the local level can't be done from the top. As Pritchett and Pound describe it:
"The merger is a monkey that belongs on everybody's backs, not just top management's… Top management is not good enough to make it work by themselves…On the other hand, employees are remarkably good about rising to the occasion when you humbly ask for their help and make it clear that it's desperately needed. They also respond when you show earnest respect and empathy and genuine appreciation for their efforts..." (Smart Moves: A Crash Course on Merger Integration Management)
Industry consolidation is not likely to end soon. So, "making the merger work" is a challenge we will continue to face. Management, and union leaders, and employees at all levels have a huge stake in the game. Simply waiting for the dust to settle is an indication of powerless behavior rooted in fear. Helping the dust settle is the best path to a viable future.
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