Reading the Culture Clues

Reading the Culture Clues 
During M&A

In M&A, doing due diligence traditionally involves a financial and strategic assessment. We ask specific questions—What are the risks and liabilities? What are the market opportunities? —that are useful in considering some factors. Yet, if we don’t know how to assess and manage culture, the people side of the M&A equation can come up short during due diligence.

People are a strategic consideration during M&A. Executives rank the ability to manage culture as more important to M&A success than financial or strategic factors, but they also acknowledge that they tend to undermanage this critical aspect.

Cultural due diligence is an emerging thought, and there are a lot of unknowns about how to do it. The process requires more than a comparison of each company’s articulated values or mission statement. That’s because an organization’s culture is reflected in what’s valued and what’s practiced. Those components may be aligned (on the surface), but the culture for each organization could be dramatically different. And after integration, those differences will impact the collective organization’s ability to deliver value to customers, stakeholders, and employees.

Values AND actions matter

It’s important for us to read these “culture clues” early on to mitigate the impact on all the people involved. Doing cultural due diligence means looking at what each organization professes to value, as well as how those values are lived out at all levels of the organization. Which means we need to talk about habits, or the ways in which people live out their values.
Animation of a magnifying glass to read the clues during cultural due diligence
As individuals, teams, and even as organizations, we form habits that align with what we value. The impact of those habits can differ (for example, an individual refusing to use video conferencing versus an entire organization of people not using it).

A basic operational “habit” or process is how decisions are made. Let’s say two companies are going through an M&A. Company A’s decision-making “habit” is that the person in the room with the highest rank or level makes the final call. Yet Company B’s culture encourages the “person closest to the customer” to make the call. These two organizations have fundamentally different principles or values in decision-making, as well as different habits in seeing those values come to life. When you attempt to blend those cultures, there may be clashes in understanding and decision-making authority, unless those differences are identified and managed ahead of time.

Here’s another example: If Company A places high value on workplace flexibility, it may be culturally acceptable to work from home as much as possible. The organization may even offer financial incentives for doing so (such as offering a stipend, meaning workspace rent is lower with more employees working from home). That’s a financial and cultural decision that impacts several aspects of operations, while also recognizing what and where employees place value. And the end result is a culture that looks and feels very different from Company B, which values face-to-face contact in the workplace and limits the number of hours employees may work from home.

Put another way, “The available evidence suggests that…poor sociocultural integration will block successful task integration, and task integration cannot be driven faster than success with sociocultural integration.”

“…task integration cannot be driven faster than success with sociocultural integration.”

Considerations for cultural due diligence

To get a deeper look at a company’s culture during the M&A process, we must be to ready to “read the clues” during cultural due diligence. Take stock of the following components and ask yourself, How are these elements showing up within this organization?

Rites and rituals (e.g., celebrations, activities)

“Heroes” (those who are recognized as personifying the truest form of values)

Communities and networks

  • How does the company convey the necessary information to get the job done?
  • What about social outlets and interaction between others?
  • How are these networks bringing new members into the culture and reinforcing the organization’s cultural messages?

Codes and norms (the “rules of engagement” in an organization, often articulated in the form of policies and procedures)

Stories, myths, and legends (company history and other stories that embody the organizational culture and emphasize what the organization values)

A thorough culture assessment and corresponding map of these and other elements can help organizations intentionally plan how they will evolve together. This requires a commitment from leadership to invest the time and energy required to create an integrated culture that will fully activate the broader strategy.

Reading the cultural “clues”

Every M&A deal is unique. What (and who) you will have access to during the due diligence process varies, and sometimes we see only part of the picture. Pay attention to what’s glossed over or taken as a given. Those are the things that often carry the heaviest cultural weight or have the most significance to employees.

The answer to a successful M&A isn’t necessarily to find a partnering organization with a similar or compatible culture. Rather, there must be intentional management of those cultural differences that builds cultural understanding and promotes creative synergies. Cultural due diligence is just one part of the M&A process, but it’s an important one to address early on.