The Dark Side of Leadership: When a Merger Destroys Organizational Value
Most of us who work for or collaborate with large organizations have heard this before: company mergers and acquisitions are not always value generators. There is plenty of academic research and anecdotal evidence that points to that. A good study by BCG from 2007 gives an optimistic point of view on the topic saying that when you consider the value M&A creates for the acquiring company things don't look so good.
Between 1992 and 2006, for example, 58.3 percent of deals destroyed value for the acquirers’ shareholders, producing a net loss of 1.2 percent for all transactions.
When you factor in the value created for the stakeholders of the acquired company then you see that more value is created than it is destroyed to the tune of 56% of the deals generating a positive gain of about 1.8 percent. Here's a link to the article if you are interested. Mmh. Allow me to take my academic hat off for just a moment and say this:
BIG FREAKING DEAL!
If 1.8% gain is the best that a supposedly successful acquirer can accomplish then I have to question either leadership capabilities and/or the motives of those in charge. Ok. Now that I got that out of the system, I can focus on my reflection again. I am not the only one who thinks that in some cases mergers are not about shareholder value creation, but more about senior execs concerned with their career and financial prospects. After all who would not want to have a merger on their resume and the financial benefits that come from it? Enter the notion of the dark side of leadership in M&A transactions. Others have already written on the topic of personal value maximization and lost shareholder value. I am more interested in what organizational value gets lost in the process. In one of such transactions that I have had the privilege to observe up close, I noticed how the definition of lost value goes truly beyond the stricter financial and operational metrics that M&A practitioners tend to focus on. In this particular transaction, the whole business development team was disbanded in a matter of weeks. It was replaced by a skeleton crew from the acquiring firm who knew little about the clients or the different business model of the acquired organization. What they lacked in experience they made up in leadership pride. You can already guess how many million dollars of revenues were lost in the next few months. But that's not particularly my point and critically not the only thing acquiring executives should be concerned with. What we should all be concerned with is how to keep in check the dark side of our leadership style when we acquire other organizations. So, here are some suggestions and I hope that you will add to the list as well: Rule No. 1 - As a conqueror, it is easy to quash valuable dissenting voices. Make sure you create a space for candid conversations. Rule No. 2 - It is inevitable that people will leave and an "us vs them" mindset will only make matters worse. Make sure you truly embrace the talent who stays on. Rule No. 3 - Short term financial considerations are important, but there are other long-term factors you need to monitor. A recent merger is the most opportune time to create a balanced scorecard. I could go on with my rules but would love to hear what your thoughts are. I am passionate about the topic and all contributions are welcome and encouraged.
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