C-Suite Advisory

Driving Change While Respecting Culture in the COVID M&A Environment

We watched with awe and curiosity in 2021 as the global marketplace spent $5.8 trillion on acquisition deals, speeding past the former annual record by $2 trillion. Cash-rich and eager to capture more market share, companies made more than 63,000 transactions, according to a Harvard Law School Forum on Corporate Governance paper, emerging from their 2020 caution to capitalize on soaring stocks, high company valuations, and low interest rates.

Analysts project the buying binge to continue in 2022 as, according to Morgan Stanley, the “key elements that made the 2021 M&A market so strong are largely in place.” That’s welcome news for the global economy’s overall health. However, deal-making leaders would do well to refresh themselves on the history of Amazon and Whole Foods.

The giant of tech retail bought the iconic grocery brand in 2017 for more than $13 billion, a transaction many thought paired ideal partners. Turns out, their cultures didn’t match at all.

Whole Foods employees shared stories of food shortages and “crushed morale” under Amazon’s governance. Harvard Business Review detailed the incongruity of their operational styles, citing the divergence between Amazon’s “tight” culture and “Whole Foods’ “loose culture.” They didn’t fit, and employees suffered.

According to Deloitte, 30 percent of mergers fail because companies fail to integrate their cultures. McKinsey reports that 25 percent of leaders cite the “lack of cultural cohesion and alignment” as the primary reason mergers fizzle.

With more companies pursuing more M&A deals, more will likely fail because leaders either make cursory attempts at cultural integration or don’t address it all. In a pandemic (or even a post-pandemic) environment, that strategy becomes even more inadequate.

The Great Resignation that began in 2021 gave life to a workforce’s discontent. A record 4.5 million U.S. workers quit their jobs in November, according to the Bureau of Labor Statistics, with 22 states reporting an increased quits rate over October. M&A might not have driven this trend, but the stress of acclimating to a new corporate culture might have led many to their breaking point. 

 COVID-weary employees have faced two years of disruption and uproot. When a new stakeholder enters the picture, employees could feel compelled to say enough. But when conducted properly, a merger might incentivize people to stay.

To accomplish that, CEOs must appreciate the cultures of the business they are acquiring. In addition to their solid financials, leaders must bring a human component to these deals, creating not only scaled market share but also a new organization for which people want to work. 

In my nearly two decades as a CEO for consumer product and industrial businesses, I have been fortunate to observe what works and what doesn’t in M&A. Successful outcomes occur when the acquiring business approaches it as a partnership, fusing the best of both companies to drive growth. 

How to do that? Here are three suggestions.

Bring a High Emotional Intelligence to M&A

Employees have spent two years coping with stress and anger. They’re anxious and tired. As a result, many disengage, a circumstance that more workplace disruption could exacerbate.

According to Gallup, just 20 percent of global employees consider themselves engaged at work, and 41 percent said they experienced “a lot” of worry. Gallup estimated that this combination cost employers $8.1 billion worldwide.

“If 80% of an organization’s employees are not engaged, the organization’s resilience during a crisis will be at high risk, and leaders won’t be able to consistently reach their goals,” Gallup concluded in its 2021 State of the Global Workplace report. “There is no way for a leader to be effective when their people aren’t paying attention to them.”

Understanding what employees confront already, leaders must bring a high emotional intelligence to mergers. Be open, genuine, transparent, and humble when assimilating new employees. Introduce them to your culture while welcoming theirs. Transitions are difficult. Leaders who communicate effectively, show empathy, and exhibit positivity will have better success.

Match Words with Actions

Words are important, but employees — from those in the warehouse to those in senior management — pay attention to actions. I have watched several CEOs deliver speeches about respecting a new company’s culture but then act antithetically.

In one instance, I witnessed a CEO tell associates of a newly acquired company how ineffective their current leadership was and how much better new management would be. In another instance, I observed a CEO mock the culture of an acquired company directly to team members, humiliating them as a first impression. That group would underperform under its new management.

Leaders have a responsibility to demonstrate their commitment to newly acquired units through deeds as well as words. Dismissing incoming employees and their culture immediately raises questions about a leader’s integrity. It also can demoralize a workforce before the integration process even begins.

M&A deals can lead to painful reorganizations and separations. Because of that, your new employees will activate their reflexive job-preservation mode. From this space, they’re watching, wary but alert. To calm and engage them, show them your leadership style and intentions. Don’t just tell them.

Recognize the Value of ‘Human Capital’

Human capital might not reach the balance sheet but is among the chief assets of an acquisition. Leaders who acquire companies spend considerable time evaluating the financials of their targets. They should invest similar diligence into evaluating the people behind those assets.

“We buy companies to get excellent people,” Meta CEO Mark Zuckerberg once said, yet some companies have not learned that lesson. In M&A deals, employees of the acquired company are more likely to leave than employees of the acquiree. That’s true, particularly in the tech sector, which has established a strategy known as “acqui-hiring,” or acquiring startups to hire top talent.

Yet J. Daniel Kim of the University of Pennsylvania’s Wharton School found that, in high-tech startup acquisitions, acquired workers leave their new firms at a much higher rate than regular hires. Kim’s study found that 34 percent of acquired workers leave within one year of an acquisition, while 12 percent of conventional hires leave their startup in the same period.

“… [U]nlike regular hires who voluntarily choose to join a new firm, most acquired employees do not have a voice in the decision to be acquired,” Kim wrote. “I posit that this lack of worker choice instigates organizational mismatch, thereby elevating turnover rates among acquired workers.”

Integrations are challenging even during the best times. After two years of COVID, they have proven more difficult. Therefore, leaders should view the M&A process as an opportunity to improve their company’s culture as well as its market share.

Be sensitive to what new employees value before making significant changes. Guide new employees through that change candidly. Understand their culture before the acquisition process begins and give top talent a reason to stay. Ultimately, your new company might provide better access to opportunity, more transparency about leadership, and a more positive work environment.


Written by Robert Logemann.

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Robert Logemann
Robert Logemann currently serves as the CEO for the Tyden Group, a leading manufacturer of track and trace systems, and has built his career by optimizing business and management processes. Over the course of his career, Logemann has helped struggling companies in fields spanning the gamut from medical technology to consumer goods find success. Robert Logemann is an opinion columnist for the CEOWORLD magazine. Follow him on LinkedIn.