INDUSTRY INSIGHT

The role of leadership and culture in merger and acquisition environments

The chemical industry has witnessed a considerable amount of Merger and Acquisition (M&A) activity in recent years. Chemical companies need, more than ever, to ensure these deals are creating value. In this article, Heidrick & Struggles discuss the importance of understanding the organizational landscape and suggest a variety of integration interventions including the four principles of culture shaping.

Over the past few years, the chemical industry has seen a major expansion of M&A activity, with the combined value of deals reaching an all-time high in 2016. 2019 chemical M&A volumes are forecast to be slightly less than the previous years, but nonetheless could continue to provide a robust market for growth.  However, majority of Mergers and Acquisitions are accompanied by a multitude of risks and complications.  Effective leadership and cultural transformation efforts can play a huge role in helping organizations deal with the challenges more effectively.

A deep understanding of the two organizations

Understanding the two entities in depth is critical in any merger environment. Merging companies might readily assess their differences and find ways to address them, which can happen as early on as the deal process. This can give Leaders the time to plan the merger in a way that builds on each organizations strengths and mitigate the risks. Using an organizational diagnostic tool, typically in the form of a questionnaire, has multiple benefits; first and foremost it can help to establish a baseline, a starting point.  We believe considering the following 13 factors of organizational performance are key in an M&A context:

  • Mobilize: clarity, customer first and energizing leadership;
  • Execute: ownership, simplicity and winning capabilities;
  • Transform: challenge, collaboration and innovation;
  • Agility: foresight, learning, adaptability and resilience.
“2019 chemical M&A volumes are forecast to be slightly less than the previous years, but nonetheless could continue to provide a robust market for growth.”

Being cognizant of key strengths and development areas can raise awareness, facilitate conversations and lead the way for appropriate interventions. Viewing the two companies through this lens can flag issues and build upon the ‘new’ entity in certain ways.  Each company will have a different profile and a unique plan of action.  However, below we consider a number of more critical areas, largely driven by the leadership team, which can help provide a smoother journey for GCC chemical companies.

  • Clarity surrounding the new company: Clarity when creating the ‘new’ organization is key; the top team should be clear on their own roles and aligned to the new company’s goals. In effect, this requires creating a new company at the top. In an M&A environment, this can be the most difficult initial leadership challenge, considering this needs to be done with relative speed.
  • Customer first mentality: Stakeholders such as customers tend to be relatively neglected in a merger environment. There is a common view that they should be protected as much as possible.  This ‘sheltering’, in most cases, does not work well.  During uncertain times, only a small number of companies see the opportunity to go beyond communications alone and energize key external relationships.  Focusing on creating a customer first mentality throughout the organization will be vital during this part of the journey.
  • Communication and the corporate story: Factors such as energizing leadership and ownership, can in part help us convey certain messages during these uncertain times, such as through communicating the corporate story. Building a strong corporate story is extremely important in the context of chemical companies. Communication of the corporate story prior to the merger announcement enables stakeholders to interpret the merger themselves.  It should be easy to understand, frequently repeated, and able to drive people into action.  Leaders should provide timely communication at the various stages along with the ability to remain transparent and consistent.  Furthermore, openness to challenge, feedback and debate, will be even more important during this period of uncertainty.
  • Agility and focused learning: Agility plays a large role when we consider merger environments. Such that, the ability to learn quickly to avoid repeating the same mistakes with a focus on continuous improvement cannot be underestimated. Learning must be taken as a personal responsibility and should take place in the top team early on.  This combined with the ability to adapt to changing circumstances and recover quickly from setbacks is a powerful combination within the context of a merger environment.  Understanding the current climate and where certain areas might be highlighted early on can help remove the unknown, particularly during these already uncertain times.

 

Culture shaping

There are a variety of integration interventions which, alongside the leadership journey, can play a huge part in the success of a merger, one of which is culture shaping.  Frequently, companies approach culture as a box ticking exercise and a discrete, HR-driven integration effort. However, working purposefully and strategically towards shaping a cultural transformation is a complex journey which requires commitment from the top.  Bringing organizations together and investing early on cultural integration is important in order to capture maximum value.  Specifically; (1) defining a focused and compelling purpose for the transformation (purposeful leadership) (2) investing in the institutionalization of new mindsets including personal change (3) Broad engagement including a visible and active group of ‘culture champions’ who work with commitment and (4) Systemic alignment and reinforcement across various levels with importance placed on ongoing training, coaching and feedback can help ensure long term sustainability of the culture journey .

“Broad engagement including a visible and active group of ‘culture champions’ who work with commitment and systemic alignment and reinforcement across various levels can help ensure long term sustainability of the culture journey.”

Conclusions

With the flurry of M&A activity in recent years in the chemical industry, the key is to really delve into the organizations at hand as early as possible, readily assessing their similarities and differences. Organizational frameworks can in part help with this. Driving certain leadership behaviors and in particular; creating some level of clarity, a customer first mentality, clear communication and fostering an agile environment with focused learning can serve as a strong foundation. Culture shaping can also play a critical component in merger success.  In instances where organizations have gone through multi integration programs previously, with a mix of organizational cultures that perhaps have been neglected, this maybe even more critical.