In our experience as leadership consultants who have helped major companies reinvent themselves, there’s a simple reason that 74 percent of mergers don’t work.
Many companies fail to realize that their leadership team may not be up to the job of leading a larger and more complex organization.
A large company needs more effective leadership than a smaller one and yet, confronted by change or contemplating an acquisition, surprisingly few companies measure whether the leadership capacity of their top teams will suffice.
As the scale and complexity of a firm increases with a merger, so the skills of the senior executives need to change. Their primary task is to engage, inspire and orchestrate the performance of thousands. Team dynamics are also crucial. Leaders need to be successful in a multicultural environment.
The first step towards building an effective executive team that can realize a merger’s potential is to assess the prospective team members’ leadership skills. An increased number of companies are doing that by commissioning a third party to do a detailed, interview-based executive assessment.
A well-structured assessment will do several things:
- Confirm the competence of key executives and benchmark their leadership skills
- Gauge their degree of alignment with the intended strategy
- Identify dysfunctional elements in prospective teams
The third point can be a particular issue in merged boards, which are often led by headstrong individuals, usually CEOs of other companies. Such leaders have strong leadership skills, but often find it difficult to collaborate on an equal footing with peers and absorb new philosophies or cultures.
While the emphases may vary, the common element in both executive assessments and board reviews is the structured interview. A skilled impartial interviewer who is also a good judge of character can quickly build a schematic of an individual’s strengths and weaknesses in remarkable detail. Standard questionnaires rarely elicit honest responses to contentious or sensitive issues.
A structured leadership assessment ahead of a merger (or other major strategic change) will not rescue a conceptually flawed transaction. But it can reduce the risk of organizational and cultural chaos that can derive from subjective biases. Two such mistakes can be particularly damaging, even though they arise from opposite preconceptions.
The first is for the acquiring company to consider that it has a monopoly of wisdom and senior management talent and therefore populate the leadership team of the merged company with its own executives. This can be particularly damaging to morale if accompanied by rhetoric that presents the combination as a merger of equals. The second common mistake is to use a simplistic rule of thumb to apportion senior management positions – for example the relative revenues of the two entities. This may create a superficial impression of fairness, but will result in a team that owes more to corporate political correctness than to individual and collaborative ability.
A proper leadership assessment is undeniably stressful to those involved, requiring a structured interview of two to three hours for each potential member of the leadership team. But the stress is short-lived compared to the succession races that occur when a CEO is contemplating retirement. It is also more transparent. Executives participating in the assessment are able to present their credentials and expertise in detail and there is no chance that a member of the CEO’s family will land a key job without clear evidence of merit.
The evidence is that an objective leadership assessment ahead of a major merger or change can lead to great benefits. But many companies continue to rely on gut instinct or blind luck in selecting their leadership teams. Others, careless of shareholder interests, practice a modern corporate version of the age-old principle of warfare: to the victor goes the spoils. Until such attitudes change, the statistics for performance will not improve and mergers will continue to be fraught with danger.