Some 200 years ago, Jane Austen—one of Britain’s best-loved authors—wrote a famous novel about marrying. And money. Deep down that’s actually what mergers are about, too, so I thought to myself, “Maybe her classic, Pride and Prejudice, has parallels for merger integration.”
After all, “corporate marriage” is the most common metaphor used when people talk about combining two companies. And as for the part about money, well, M&A is always based on a financial proposition.
Since Austen’s story about 18th century England focuses on social class, let’s look at merger integration from that angle. In the hierarchy of power and status, the Board of Directors is the uppermost class…the top rung of the corporate social ladder…the highest level of governance.
So how do pride and prejudice affect the integration process in boardroom society?
Merging Begins at the Board Level
Actually very little has been written about the wedding of boards when companies marry. This is peculiar, given the importance of directors and the fact that boards are at the front of the line for integration.
Merging is ordinarily a top-down process. Directors go first. They’re the top link in the chain of command, and the makeup of the merger’s new leadership structure needs to be resolved as quickly as possible. Urgency in blending the two boards into one means this elite crowd will be among the first to feel three highly predictable dynamics triggered by a merger:
- A sharp increase in ambiguity and uncertainty
- A drop in the trust level
- Arousal of instincts for self-preservation
These are natural human responses. When change hits, the first scan is for danger. And as the playwright John Dryden stated, “Self-preservation is Nature’s oldest law.”
We can hope that directors will be selfless and statesmanlike as the board gets reconfigured, but let’s not presume that they are Vulcans. These power brokers fall prey to the very same “me issues” that will bedevil the entire workforce as the integration process unfolds. Incumbent board members wonder, “Will I get to keep my directorship? How might my role on the board change? What will happen to my compensation?” And so on.
These concerns make perfect sense. Since board personnel are the first batch of people facing consolidation in the merger, some will be the first victims of redundancy.
Integration is a politically sensitive process at all levels of an organization, but especially so in the rarified air of the boardroom. Pride is more easily bruised at this altitude.
After all, directorships are a badge of honor—ego gratifying, high octane fuel for one’s self-esteem. People who occupy these positions often covet the prestige more than any monetary rewards that come with a board appointment. Some find that the power carries the most appeal. Some put more value on the business connections that come with the job. Some prize most the upper crust coolness of being in a network of celebrity names.
Of course, there are other perhaps more noble psychic rewards, such as the intellectual challenge, an opportunity to contribute, or a chance to learn and broaden one’s self through board work. But regardless of how directors weigh the rewards as individuals, those who lose out in the board shakeup get their egos banged up a bit in the process.
So, does this matter? Why worry about someone’s potential for injured pride? Well, as folk wisdom says, “Wounded animals are dangerous.”
Merging Creates a More Complicated Agenda
At the very time directors naturally become more self-oriented, their workload becomes more complex. This is a particularly troubling situation because board effectiveness needs to be at its peak.
Let’s consider the new hazards.
First, merging introduces a fresh set of risk factors, a more vulnerable time for the business. Also the board’s workload ratchets up and intensifies. Priorities shift. The company comes under much sharper scrutiny by shareholders and the media. The competition circles, trying to take advantage of the situation. Directors must address a broad range of heavy-duty considerations regarding strategy, culture, operating style, financial pressures, etc.
Meanwhile, the board itself is being reconfigured, which causes distraction and a regression in teamwork. The crossbreeding process in merging the two boards involves new assignments for directors, changes in the pecking order, and adjustments to new personalities.
Trust is the grease that lubricates directors’ ability to guide and govern the new combined entity through the hazards of merger integration. But the trust level in the boardroom dips sharply in the face of these assimilation challenges.
The Clint Eastwood Observation
The movie star and former mayor of Carmel points out the danger here in his remark:
“The less secure a man is, the more likely he is to have extreme prejudice.”
Taking that statement to heart, we should expect that directors will become more influenced by their personal biases as dealmakers finalize the merger. And it’s reasonable to believe their thinking will rely more heavily on preconceived notions.
Obviously, as Eastwood suggests, this dilemma of slanted mindset can hijack directors’ objectivity. The natural result? More prejudicial problem-solving and decision-making threads its way into boardroom behavior. There’s an impulse to think, “Our company’s way is better”…”Our people are more capable”…”Our sense of what should happen is best.”
Ordinarily, these are honest points of view, even as they can be entirely wrong. Directors may be struggling to be fair minded and dispassionate. They might wish to analyze circumstances from a position of neutrality and probably would argue that they do. But such an intention and desire hardly guarantee success. Human behavior is what it is, the psychology of self-defense runs deep, and our prejudices deceive us all too easily.
Protecting the Board from Human Nature
There are, however, practical steps that can defend the board of directors against the political effects of pride and prejudice. Let’s keep it simple here, focusing on what I’ll call the minimum effective dose (MED) for dealing with board transitions during a merger.
MED is defined as the smallest dose that will produce a desired outcome. The MED not only delivers the most dramatic results, but it does so in the least time possible. Certainly more can be done, but more is not necessarily better—often greater dosages are wasteful. Maybe damaging.
Here are three of the most constructive moves you can make ...