Lessons from a mismanaged merger

Mergers and acquisitions are the rage in business. Unfortunately, about 75 percent of mergers and acquisitions do not work. The following case study in merger mismanagement offers valuable lessons.

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A family founded and successfully ran a manufacturing company for about 75 years. The company grew slowly but steadily, and posted profits each year. As mergers and acquisitions became common in the industry, the company was ripe for takeover by another company. Eventually, a larger company bought the family-owned business. Two years after the acquisition, the manufacturing plant was shut down and all of the employees were laid off. Two years of mismanagement quickly destroyed 75 years of success.

What can we learn from this example? The merging companies violated several fundamental business principles. Let’s look at the lessons learned.

Lesson No. 1: Create a common 
identity and align the organization
In our case study, the acquiring company failed to create a common identity. It failed to establish a sense of who they were, what they were about and why they existed as a company. It didn’t align identity with shared values and beliefs. Consequently, the acquired company never became one with the acquiring company. The companies failed to find synergy and carve a common identity. Instead, competing cultures battled over turf, procedures, control and power.

Instead of creating a common sense of identity within the company, the acquiring company placed its emphasis on converting the acquired company’s computer system to match the corporate system. Again, management focused on the wrong area. They addressed issues of what, where and how instead of tackling the tougher issues of who and why. This is a common pattern in today’s business world where companies believe they can overcome identity, values and behavior problems with technology.

The Lesson: Mergers and acquisitions must make sense at the higher logical levels of identity, values and beliefs. The major problems for merging disparate corporate cultures relate to the higher logical levels.

Lesson No. 2: Communicate a clear vision for the company
The acquiring company did not have a long-term vision for the merger or for the company. Senior management did not create a common goal for the merging companies. The company didn’t establish a clear and compelling outcome for the organization at the beginning of the merger process. They didn’t know where they were going. Consequently, they couldn’t articulate a compelling future that employees, customers and suppliers would want to help create.

The chief executive officer of the acquiring company developed a life-threatening illness about the same time the merger was consummated. If he had a vision for the company, it was quickly lost as he relinquished control of the company to the chief financial officer. Bean counters rarely have the vision, courage or innovative thinking necessary to create new and exciting corporate cultures. Instead, they operate and make decisions based solely on the bottom-line financial numbers. They are often unwilling to take the entrepreneurial risks necessary to build great companies.

People have difficulty getting excited and passionate about financial statements. We create compelling futures by sensing, feeling and experiencing the future as desirable. To make a compelling future, people must see, hear and feel the future as something they want to create. This is difficult to do with numbers alone.

The Lesson: For mergers and acquisitions to succeed, the merging companies must create a clear vision of their desired outcomes. They must see the future they want to create and then make the future compelling for employees.

Lesson No. 3: Build on past successes and strengths
The management of the acquiring company stopped doing the things that made the acquired company successful. The family-owned business was successful because it built and maintained long-term relationships with customers, vendors and sales representatives.

The acquiring company quickly destroyed these relationships. It changed the marketing approach. It alienated the sales force by reducing commissions paid to sales representatives. Next, though the acquired company built its business through loyal sales representatives, it eliminated the sales representatives’ jobs.

It angered loyal customers by eliminating the lifetime warranty on its product. It destroyed profits by arbitrarily reducing the margins on products. It alienated employees of the acquired company by treating them like second-class citizens who didn’t know what they were doing.

The acquiring company imposed its way on the acquired company despite the negative impact on business or the obvious foolishness of its procedures. This was mismanagement at its best.

The Lesson: Merging companies often ignore or abort the strategies that helped them become successful. At least initially, stick with what brought you there. Use the strengths of the merging companies.

Lesson No. 4: Management by fear, 
threats, blame and C.Y.A. doesn’t work
Rapport is essential for building relationships with others. We like people who like us. We build rapport on mutual appreciation, trust and safety in a relationship. This applies to management-employee relationships and personal relationships.

In the case study, the primary management style of the acquiring company was management by fear. Senior managers blamed lower levels for problems. They threatened to fire people who would not fall in line.

Instead of using questions and challenges by lower-level employees to improve the company’s operations, senior managers viewed questions and challenges of management decisions as insubordination. The goal of senior management was to look good. Their strategy was C.Y.A. Even during the plant closure, senior management threatened people with the potential loss of severance pay if they didn’t conform.

The irony is that the company did not fire senior managers for mismanaging the company for two years. They survived to mismanage another day and to screw up other parts of the company.

Instead, the company laid off the people who originally helped the business succeed. Morale and productivity declined because of the way the company treated and managed employees. This created a vicious cycle of increasing threats and deteriorating morale.

The Lesson: In a merger or acquisition, fear abounds. Drive out fear by treating employees well and by showing them how they will fit into the new organization.

Lesson No. 5: Guard against paradoxical behavior
Paradoxical behavior is behavior that contradicts the achievement of stated goals. Paradoxical behavior can sabotage mergers because people are quick to point out the inconsistencies between what the company claims to do and what it actually does.

In the case study, these incongruities between stated outcomes and behavior were obvious and almost comical. After assuming control of the company, the CFO sent a letter to each employee stating that employees were the company’s greatest asset. The words sounded good, but he operated the company with a bean-counter mentality that ignored the value of people.

The company operated as a sweatshop, often demanding that employees work 60-hour weeks to meet manufacturing schedules. Sexual harassment, gender discrimination and discrimination against minorities were obvious and blatantly tolerated. Threats of firings and the lack of response by the personnel department created a chilling effect on reporting incidents of discrimination.

The Lesson: In mergers and acquisitions, companies often fail to walk their talk. People believe what a company does, not what it claims to do. People know if a company values them by how they are treated. If you want people to excel, treat them well.

Lesson No. 6: Integrate conflicting parts of the organization
Psychologists use parts therapy to settle conflicts with internally conflicting parts of personalities. We can apply the same principles to organizations.

In our example, the acquiring company did not integrate the conflicting parts of the organization. Employees in the acquiring company treated the acquired company like a subservient part, not as an equal within the company.

The company did not understand and honor the positive intentions of each part of the new company. It didn’t show the individual parts how they could use their positive intentions to contribute to the common good. Conflicting parts of the company were left on their own to resolve their power struggles. This resulted in wasted energy, delays and destructive internal battles.

The Lesson: A top priority of merging companies is to integrate the individual parts of the new company.

Lesson No. 7: An acquired company
must have a corporate champion to survive
The acquired company operated with a severe disadvantage. It had no champion to represent it within the corporation. The senior management of the acquired company left after a short transition period. The senior corporate management that took over had prime loyalties to other parts of the company, not to the acquired company. In effect, the acquired company was an illegitimate child destined for the corporate orphanage. Without a champion to represent them, the acquired company was doomed from the beginning.

The Lesson: An acquired company needs a strong champion in senior management to represent the interests of the acquired company and its employees. Without a champion, the acquired company is like a lamb among hungry wolves.

Although mergers and acquisitions are the rage in today’s business world, most deals do not work out as anticipated. Businesses can improve their probability of success by learning the lessons from mismanaged mergers and by using fundamental business principles. 

Terry Bragg, founder of Peacemakers Training in Salt Lake City, Utah, is the author of “31 Days to High Self-Esteem.” Contact him at or via e-mail at .

This article appeared in the May/June '01 issue of Progressive Distributor. Copyright 2001.

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