How to Survive a Corporate Merger
Mergers and acquisitions whirl into shape as fast as storms in the South Atlantic. Amid all the uncertainty about whether these combinations will ultimately prove wise or foolhardy, one outcome is sure: A lot of people will lose their jobs. Mergers, including high-profile ones like that of Sears and Kmart in March, have cost 90,000 Americans their jobs through the first half of 2005, according to outplacement firm Challenger, Gray & Christmas. That's a rate 37 percent higher than last year's, and still to come are the mergers of Verizon and MCI, Procter & Gamble and Gillette, and Bank of America and MBNA, as well as hundreds of lesser-known pairings.
How do you survive if you are caught in one of those grinding and crushing combinations? What strategies will help you keep your job, your status, your sanity--and perhaps even vault you to a much higher position in the new company? Let's be frank. Your ability to do all of that will be only partly under your control, especially if you are a manager of the subordinate company. Despite the reassuring talk from top management about "a pairing of equals" or whatever, in most cases one company becomes dominant, the other subordinate. If you have the misfortune to be general counsel or head of information technology for the less powerful company, you will probably have to accept a demotion or leave.
But other than bad luck, what can get you thrown out the door? It will not be your lack of brains or talent. It will be a failure to adapt to a radically different culture. "Most people don't fail at their jobs because they don't have the technical skills," says Scott Kingdom, a managing director at executive recruiter KornFerry International. "More than half the battle is fit, culture, and style." Suddenly, the workplace seems tilted on its side. There used to be daily management meetings with clear agendas. Now everybody communicates mostly by free-form E-mail exchanges. The old CEO used to scream when he was displeased. The new CEO just raises his eyebrows. Civilized, but what does it mean?
Failure to understand and accept culture change is such a monumental mistake that it can even jettison a CEO, as the dramatic ouster of Philip Purcell illustrates. Purcell had been CEO of retail brokerage house Dean Witter when it merged with investment bank Morgan Stanley. He became CEO of the combined company. At Dean Witter, Purcell had presided over a culture that permitted him to be remote and autocratic. Morgan Stanley's culture was a collaborative one where the previous CEO kept his door open, walked the corridors, and often modified his decisions according to what he heard from senior executives. Morgan Stanley's rainmakers not only bristled at Purcell's high-handed ways, but some walked out the door. Their departures threatened the firm's revenues. In June, Purcell left.
As a worker below the CEO level, you will almost certainly have to accept the new way of doing business, an out-of-culture experience almost as disorienting as if you had been spirited out of the country and settled in a foreign land.
Here are some guidelines that will help. They are primarily for managers and employees of the subordinate company but useful to those who are at the company setting the rules. "Their lives are going to change, too," says Peg Neuhauser, a management consultant based in Austin. "They have to interact with different people. Everybody has a lower flash point during mergers. As a result, there are not just tribal wars between companies. Old tribal wars within the pre-existing companies break out again as well."
1. Learn the new culture.
But even before you do that, understand your own culture. A surprising number of workers don't even realize that their company has a culture--a distinctive code of behavior, language, and customs, a manner of operating, and a way of thinking about the world outside. "That's especially true of big companies," says management consultant Kathleen Miller of Louisville, Ky. "They just assume the world does things the way they do." When you study the other company's culture, focus in particular on how decisions are made and who makes them. Use your network to locate and talk to executives of the other company. "Get them to tell anecdotes about the company," Miller advises. "Do they describe the company as operating like a family? Are promotions political?"
Michael Gould wishes he had done more homework before he sold his company, Learning Tree University, to Corinthian Colleges in 2003. Both companies were in the post-secondary education business, but the similarities were mostly superficial. Learning Tree offered day- and weeks-long courses in disciplines such as project management to adults well into their careers, including nurses and other professionals. Corinthian provided basic college courses to high school graduates. The two companies had different approaches to everything from marketing to training their faculty members.
Gould assumed that Corinthian would allow Learning Tree to continue in its ways. "I should have sat in on their senior management meetings and walked the corridors to talk to their people before agreeing to the sale," he says. "I would have had a better sense of how rigid they were going to be." As Gould tells it, Corinthian insisted that Learning Tree discard its direct-mail campaign targeted at professionals and adopt Corinthian's broader TV marketing technique. "It was using a tennis racket to play golf," says Gould, who departed. (In an E-mail, Corinthian says: "Learning Tree was losing money when we acquired it, and misrepresentations related to those losses are among the main reasons the acquisition failed. We closed the Learning Tree Centers in May of last year.")
When one company takes over another, says consultant Barry Phegan of the Meridian Group, headquartered in Larkspur, Calif., "it says that it is going to use the best ideas and methods of both companies. But it doesn't do that. It imposes its will on the other company."
That is often the case even when the dominant company knows little or nothing about the other company's business. "The new guys were so smart, so rich, so successful that they thought they knew everything about everything," says an exasperated former executive of a blue-chip company taken over by a younger one. "At one meeting, some of the ideas they had about how we should conduct our business were so outrageous, some of us thought they had to be kidding." But they weren't. "They came in with such momentum," the former executive says. "They were deities."
2. Embrace change.
Don't believe those assurances from above that your job and chain of command will remain as before the merger. "If a merger is well done, it will probably affect everyone in the company," says Denver-based management consultant Gary Cook. "It is a wrenching experience. All of your reference points will be under attack." But the assault need not defeat you, especially if you demonstrate that you are enthusiastic about change.
Some managers and workers conclude that the way to survive a merger is to keep their heads down, avoid being noticed, and therefore be spared. That's a bad strategy. "They think that as long as they are not objecting to new conditions, they are being cooperative," says Neuhauser. During a merger, though, everyone becomes somewhat paranoid, Neuhauser observes--the executives of the subordinate company for obvious reasons, the executives of the dominant company for more subtle ones. The executives of the acquiring company are concerned that at least some executives of the subordinate company will try to sabotage the new organization. As a result, passivity may be interpreted not as quiet compliance but as sullen resistance.
"Position yourself as a champion of change," advises Neil Lebovits, president of Ajilon, which provides temporary professional staff for international companies. "Let the new management know that you are excited about change and that your people are excited about it as well. Don't complain to anyone, including your old colleagues, about how bad the changes are." Train yourself never to utter the words 'This is not the way we used to do things,' a phrase that seems superficially neutral in attitude but is sure to be interpreted as subversive. "If there's ever a time in your career for being a good sport and accepting turmoil, a merger is it," says Neuhauser.
Roy Howe found his openness to change essential when the West Coast supermarket chain he worked for, Lucky Stores, was taken over by a national chain, Albertson's, six years ago. "About 10 percent of the workforce was not going to accept change, no matter what; another 80 percent was not sure what to do," says Howe. "The other 10 percent accepted change immediately." He places himself firmly and comfortably in that final 10 percent. "In my career, all I've ever seen is change," says Howe, who started out as a truck driver and rose to become general manager of a Lucky distribution center, "so I've learned how to stay afloat and keep everyone happy."
The fusion of Albertson's and American Stores, Lucky's parent company, was not easy, says Howe. "People were irritable, and they managed differently as a result," he says. "I ran into a top executive of Lucky, and I said in passing that I was having a great day. He gave me a grim look that suggested I didn't understand how bad things were. When leaders give signals like that, the attitude goes down through the ranks." Counter employees in the stores began to tell customers how bad the changes were. Howe made an effort to stay relaxed and philosophical, recognizing that everyone in both companies was going through the painful trials of adjustment. Although he eventually departed, he did so without bitterness, feeling that he had been treated very well. (Albertson's declined to comment.)
3. Promote yourself.
Don't think of yourself as a victim, telling yourself that you have no control over what is going to happen to you, advises consultant Cook. Be assertive. Even before the merger takes place, you can encourage your current superior to find out how your division will communicate with the new company. Does the new company like meetings? Memos? E-mails? Try to get a sense of the new company's operating rhythm.
After the merger takes place, recognize that you are starting all over again. "People try to hold on to the existing social contract they have with the old company, what they have provided the company in the past, how the company has rewarded them," says Cook. Mentally tear up that old contract, and devise a new one. You can't assume that your new superior will go through your personnel file to discover what great work you've done. You have to step forward and bring your talents to his or her attention, says Cook. "Don't try to tell her about all 25 projects you've been working on for the past year," he advises. "Approach her instead by asking, 'Would it be useful to talk about some of the projects I've worked on that were important to the previous management?'"
Patrick Donohue, principal in the human capital practice at Deloitte Consulting, says that when the dominant company thinks about retention, it apportions people among three groups: Some are irreplaceable; others will be terminated as quickly as possible. The real challenge is in the middle group, where there is a lot of overlap between the two companies in functions such as marketing, legal, information technology, and human resources. "You have to ask yourself why you are needed in the new organization and come up with an honest answer," says Donohue. "You've got to stop thinking in terms of continued employment and start thinking about how you increase the organization's value."
4. Know when to quit.
Maybe you really can't fit in or don't want to. "Certain cultures run against an executive's grain--are just contrary to his or her nature or style," observes Kingdom of KornFerry. "Maybe it's the right time to say, 'I'm mismatched,' and move on to another company." The tough part--in addition to locating that great new company--is acknowledging that what you are feeling is not just the normal discomfort and anxiety of adjusting to a new culture but a deep alienation from it. "People who have moved multiple times are better equipped to make that distinction," says Kingdom. "They have adapted, or tried to adapt, before and have their antennae up."
Give the new culture a chance, but leave as soon as you realize you are a misfit and before you become demoralized. Monty Palmer probably stayed too long at IBM. Palmer had been a managing consultant at PricewaterhouseCoopers with an unusual specialty; he and his colleagues ran projects in overseas economic development funded by the U.S. Agency for International Development. When IBM bought PWC in 2002, Palmer found himself in what he considered a frustrating and restrictive culture. "Compared with what I was used to, IBM was very bureaucratic," Palmer says. "Before, you brought an idea to a PWC partner, and if he liked the idea, you went ahead. At IBM you had to go through a series of approvals. No single person had the final word."
As Palmer describes it, IBM may be the classic example of the company too big to realize that it has a culture. He found no awareness that other organizations might do things differently. He says: "The attitude at IBM was 'You didn't know about this procedure? Why not?' '' But Palmer stuck it out. "We consultants are problem solvers, so I kept thinking that I could show IBM that this was a better way of doing things in our part of the business," he explains. "But the reality was that IBM was not going to change for us. I should have left sooner." After two years he did leave and is now much happier at Development Alternatives Inc., an entrepreneurial foreign-aid contractor based in Bethesda, Md.
With corporations flush with cash and an improving stock market, the chances are good that the number of mergers and acquisitions will climb this year. That makes preparing yourself for the upcoming culture clash imperative. Be ready.
This story appears in the August 15, 2005 print edition of U.S. News & World Report.