Virtual Summit Recap: Tone at the Top - Intersection of Leadership and Culture in M&A

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Nice job. So are you really going to host this conference yourself?

Yeah, of course. Why wouldn't I?

Well, what am I going to do?

You can make some eggnog.

I like that idea. I'm Kisam Patel and you're listening to M and A Science, where we talk with deal professionals and learn valuable lessons from their experience. This podcast focuses on stories, strategies, and what actually happened during M and A deals. This interview is a rewind from our virtual summit. Hope you enjoy it. If you want to see the full version with video, visit mascience.com welcome everybody.

To our next session. Tone at the Intersection of Leadership and Culture in M and A. Our speakers for this session include Dr. Clint Kendrick, Director of Strategic Talent Initiatives at SC Johnson Sally Cunningham, HR Executive and Integration at Sativa, Dr. Keith Dunbar, Managing Partner at JKD's Talent Solutions, and Keith Crosby, Global Leader, Acquisitions and Outsourcing, Leadership and Change at IBM. Thank you guys so much again for being here and take it away.

Thanks so much, Marcia. We're really glad to be here. For those of you that are on the line, you'll notice that we have a Keith Crosby and a Keith Dunbar. I will do my best to keep folks in order here and it may become J, Keith and Keith. So we'll sort that out as we go through. We're here today to talk about the intersection of culture and leadership in M and A. To get us started, I'd like to have each of our panelists talk a bit about their experience in M and A. Why don't we start with you, Sally?

I'm Sally Cunningham. I'm HR Executive and the HR Integration Leader for Cytiva, which is formerly the GE healthcare life sciences business. We were actually just acquired on April 1 by the Danaher Corporation and we are an independent operating company under their Life business. We are about 7,000 people in 40 countries. We closed right in the middle of COVID and are running a very interesting integration right now. So I'm excited to be here and talk to you all a little bit about that.

Thanks Sally, Jay, Keith, how about you?

Great to be here everyone. My experience is probably north of about 30 deals, but most of that has come since 2014 when I got my doctorate at Penn. Focused on the leadership factor in mas and consulting with companies to help them understand where they have leadership strengths and leadership risk areas they need to address.

Thanks and Keith.

Thanks Clint. Hi everyone. I'm Keith Crosby and I lead a small practice of Org change Consultants at IBM. We are a dedicated team to the M and A space for IBM for all internal deals. We work not only in M and A but also divestitures. We also do some hybrid type deals. Like I said, we're not HR folks, but we are or change people. We're a very acquisitive company so we have a lot of activity going on at any point in time. We've got a global team and I've been doing this for about 12 years now. I have been in consulting for about 28 years, but don't use that number, please. Thank you.

Thanks Keith. I'll go ahead and just share a little bit about my background as well. Even though I'm facilitating the discussion, I may throw in an insight or two that maybe isn't covered by one of our other panelists. So I'm Clint Kendrick. As of Monday, I'm the Director of HR Strategic Talent Initiatives at SC Johnson where I own our HR M&A practice as well as talent analytics. Prior to that, I've done about 70 deals with both Oracle and Boeing, as well as a small Chinese company I worked for briefly. Really excited to be here. We'll just go ahead and jump into the questions. A McKinsey study showed an almost even split between innate cultural differences and poor leadership when looking at the reasons so many deals fail to meet their investment thesis. Why do you think culture and leadership are so critical to a deal's financial success? Keith, we'll go ahead and start with you.

As you're well aware, we could have an entire conference just on trying to define what culture is. But for this conversation, we're going to say that culture is really the way things get done. Okay, so I'll take these one at a time and talking about culture, the reason it's important to understand the culture in M and A is because in an acquisition, for example, you have an acquiring company that has a specific type of culture that they live and breathe in and you have another company which they're trying to acquire, which may have something that is not exactly the same. It's important to understand those two differences. So for example, you want to understand how we do rewarding for the two companies and the acquiring organization. They may have a very process driven, very approval driven way of working and the acquired company may have a very innovative, agile way of working, spinning up teams, you know, at any point in time and having just a different way of working all together. Also, we can look at the way we do the actual work itself. The acquired company may be focused on deadlines and quality and the acquired company may be focused on the customer experience. So the reason it's important to understand these two things is because when you throw them together and try to make sure that the company can deliver together against the business case, without knowing those nuances and differences between the culture and the leadership, you're going to have problems. The same thing with leaders. Some companies like the acquired leader, they may have an organization of leaders that are acquiring this company that are very hierarchical, very top down leadership, command and control. And it may be a very flat organization they're acquiring where the leaders do a lot of consensus building and that sort of leadership style and encouraging risks and failing forward fast. Just think about those two things with the culture and the leadership coming together. If you don't know that and don't know where those problems are, you won't know how to build a plan to address them. And the plan can be anything from how to adopt something that one of them has, how to decide on doing something new, culture wise, or how to understand that the new leaders that you're acquiring may need some more enablement. All of those things pull together. Unless you build a plan out to address those things, you can have a very negative impact on your business case and the ability to deliver against the goals you're trying to achieve.

Great. Thanks, Keith. Sally, what would you like to add to that?

I think that Keith did a great job of identifying the landscape that you may be dealing with as you work on a deal and you are thinking about culture and engagement and leadership. For me, I'm a very real life example. I came from GE where I, you know, for the last 14 years I've been working on deals in that business and I've been a deal lead and I'm usually in the position of being the acquirer and not the acquired. And so here I am, day 72 after being acquired. And my real life example is just what we're going through as a business coming into the Danaher Corporation. The thing that really has struck me on this particular transaction is that we're really lucky that coming in we have a certain level of independence as an operating company to kind of set our own course. My experience right now is I've never seen a workforce that's been more engaged. And I think there are a number of factors really influencing that. There's a lot that our business is doing in the fight against Covid and helping find or support an ultimate vaccine for COVID 19 and so there's some things like. Like that that are really driving engagement in the business. But even before, when we were preparing for close, we did so much to figure out who's going to run change leadership for our business. How are we going to pulse employees and understand what's going on on their minds and in their hearts as they go through this transition. And we've taken some very proactive measures to help manage the change process. And how much is hitting the organization at once. It's been remarkable. The organization is running on all cylinders right now. I think it's really because we took it seriously from the very beginning and our CEO supports it. And our CEO has put the right people in place to help manage the change. And he listens. If he sees that something is kind of rolling off course, he steps in to help correct it. I think that's been very important because we know that an engaged workforce is a productive workforce. And a productive workforce drives revenue. And isn't that what everyone wants at the end of the day?

Thanks, Celly. Jay. Keith, anything that you'd like to add?

I totally agree with what both Keith and Sally had to share about the topic. From my perspective, these two areas, culture and leadership, are critically linked with one another. Right. You know, for me, there's a lot of focus on culture, obviously, and why it's important to deal success. And in that case, if you think about leaders influencing their followers and followers influencing their leaders and the situations that they work in, that's really that culture box that we talk about. Why it's so important to understand that the thing that feeds that though, is really that leadership skill and trait. So whether a leader is skilled or unskilled in a particular area, it will manifest itself as poor leadership across a number of different areas. And so I think that's why you really got to pay a lot of attention to both of these together. So it's not an either or that's something that we brought out in most recent report that we wrote for the conference board called the M and A Leadership Playbook, that it's got to do these things together. Not one or the other great.

Culture and leadership have been identified as significant M and A issues for literally years. I remember browsing some books that were written in the 80s that pointed to research done in the 60s about culture and leadership in M and a. But Baker McKenzie shows that about 70% of serial acquirers don't think they do a good job assessing leaders and culture. When do you think companies should start looking at culture and leadership issues in a deal and why? Jay Keith, why don't we start with you?

I think fundamentally that when you look at the deal process cycle, you know, for the conference board, we looked at five stages of the deal process cycle. And the optimum point to start looking at the leadership piece is as soon as you identify a potential target. Because the deal thesis rationale and the deal objectives are going to drive what you need leaders to be able to do and both the companies to successfully execute on those as the acquirer, you're in a much better position to start understanding where you have leadership strengths at the individual and the collective level as well as with the organization that you're acquiring. Trying to find out some initial ideas of where they stand on that through looking at social media posts and other things that are available to you. Obviously for the acquired company, it's much more difficult to get access to them at the right point. You then have the issues of even if you're coming in to do leadership assessment work to help the deal be successful, you have these biases that the data is going to be used to make decisions about who stays or who goes. You have other biases from the acquiring company perspective where they don't believe that they should be assessed because they're the winning company in this deal arrangement. So you got those dynamics working against you the whole time. It's really a matter of how do you convince organizations that looking at this at some stage in the process is vitally important to them to having a successful deal? I can tell you that when we did the leadership factor and M and A research, the conference board, we asked people these questions about why do you do any type of leadership assessment in your deals? And it kind of mirrors what you saw here in the data from Baker McKenzie. Most of them in the interviews understood that leadership was important, but they didn't know what to do about it and so they defaulted to doing nothing about It. Yeah.

So, I mean, I totally agree with J. Keith. That's our philosophy together with you on that. Interestingly, we look at it very early on, you know, when we get access to the fact that we're targeting a specific organization and start doing our homework, doing our intelligence, you know, the available information online. We're looking at things like, you know, what is there corporate stewardship all about? What are their values? What is the stuff that we're hearing on these public forums about the way they run the company, the employee satisfaction, those types of things. The same thing for the leaders. We're looking at what their backgrounds are, what kind of publications have they had, have they done TED talks? And also really important for us is to look at the relationship map for the leadership team that is in the acquired company, because you want to understand if they've worked together two or three times before, if they went to school together, those types of things, because that helps us to build a hypothesis in our minds of this is a group that's either been together a long time or not been together for a long time. But what it does for us is it allows us to create a hypothesis for what we think the culture is and how we think that leadership team works together. And then when we go into the actual due diligence, we have a hypothesis that we can either get affirmed or we can probe in deeper to get some new information. And always keeping the lens on that. To J. Keith's point, these guys are probably trying to sell their company. So we have to be thinking about the answers we're getting. But it also allows us to take our original hypothesis, refine that a little bit more, and then think that's maybe a little bit different. About us is we continue to focus on leadership and culture throughout the life cycle. So once we've closed the deal, we want to get that same type of information from middle management, from the managers, the line managers, and from the employees. Once we've done that and say, the first quarter after close, we've got a pretty comprehensive picture of what it really is like inside that organization. And then that gives us an idea of how we need to address leadership to help them be more enabled to deliver, and how we need to bring the cultures together to make sure that we don't miss anything and have organizational risks that can impact our business case.

So, Keith, when you start doing your work, are you doing that after loi? Pre. Loi.

It's after loi.

Okay. Celi, how about you?

I'll just quickly kind of wrap this up. It's funny because Keith Crosby and I have kind of very similar experiences in this particular area. And Keith just said it so eloquently. I'll give you an example because we did a lot of the same things. I had a checklist at GE that I would follow. And if we were looking at a target, the earlier that I knew the better because there's a lot of information you can gather online, LinkedIn, and in different places, you can find a lot of information on the executive team, where they graduated from, where they've worked together before. But I very distinctly remember one time we were pre loi. We were one of a few different businesses that were looking at a particular target, and we flew to a city and, you know, we're in the, you know, the hotel conference room and they're giving us their spiel. And there were three executives for this business who had worked together at two previous companies, and they were private equity folks who, you know, they just kind of went from one deal to the next together, and they had a wonderful rapport. But we knew that they had no interest in coming with this deal because they were going to go on to their next thing. They kind of threw in this woman who was the quality leader for the business and put her on the panel, and they completely ignored her during the presentation. It was just painfully obvious that they were running their show and she was, you know, here's somebody in the business and, you know, here's our female executive. And they didn't even bring her into the conversation. That was a pretty obvious one where I thought, you know, we're going to have some real challenges to overcome here. And, you know, after we went through the process, the target just didn't end up being a good match for us. We didn't end up going any further in this particular deal. But. And I was glad that we didn't because I knew that it was going to come with a real set of challenges.

One thing I didn't hear any of you saying is, please don't let us know about the deal until you're ready to announce. I hear a lot of HR folks and other functions that don't get disclosed until it's time to announce the deal. And nobody here said that that's a best practice. I'm glad that we're. Hopefully we get in a little earlier so that we can create interventions earlier on. Keith, I think you had something else to add.

Just a quick comment. And I was talking about how we continue to look at the leadership and the culture throughout the Life cycle. One of the first things that we do to make that happen right after close is we have a leader alignment session where we look at everything from operating model to culture to who's going to lead the business to who's going to support the business that helps drive the next year, two years, five years of how this thing moves out into a successful closure. But I think that's a critical thing that we all look at. I mean, Sally and I talked about this many times, you know, doing a leader alignment session after close to get everybody on the same page from both organizations. So you have a pretty good landscape of what's coming up.

You know, Keith, you answered actually a question that came in in the chat while this was being answered. So I'll throw it out to Sally and Jay Keith as well. And that question is a lot of times members of the senior management team are misaligned or have different interpretations of why the deal's being done. What tactical interventions do you recommend to achieve the alignment and ensure that there's that strong tone at the top? Keith, you just talked about a leadership alignment session. Sally J. Keith, anything that you would.

Add to that, we've done in a number of the same things where having that leadership alignment session, that communication is so important. And certainly at the very top levels of the organization, we would absolutely expect that there's going to be some lag between the top level of your organization and as you fall deeper into the organization at that top level, it should be very clear. But I think if we're seeing those types of issues where there's a misalignment, a lot of times it's on the buyer and it's because they haven't really thought through. They've been so excited about this shiny object coming in. They haven't thought through what exactly they're going to do with the business once it's on board. And so aligning that very quickly internally as the buyer and will certainly help facilitate the right conversations on the other end.

I've seen the same thing in deals that I've worked on where there's a lack of direction, alignment and commitment. They don't know what the new direction is for the company, how they fit into it as the acquired company. Without that, they can't align their work across different parts of the organization effectively and efficiently. Bottom line is the most important piece is commitment to this co creative future. And so that was one of the M and A leadership practices we talked about in the most recent article from the conference board that I mentioned.

And the one thing I would add is never underestimate. The power of an effective integration leader can be really, really important to have that person be the glue that helps hold everything together, including helping ensure that there is strategic alignment. When I look at members of the HR M&A roundtable, which I chair and many of us are part of, I see companies handling their culture and leadership diligence a number of different ways, including dedicated M and A teams, people working on special assignments, or using outside consultants, among others. What do you think some of the pros and cons of these approaches to culture and leadership diligence are?

I would say for us, part of the strategy that we have for our growth strategy is a lot of inorganic growth. So we expect a lot of M and A activity every year for our annual growth strategy. And as a part of that, that means many acquisitions. We found that for us what works is to default to having dedicated teams. So for instance, my team is a dedicated team of OCM consultants. We work on every acquisition that we have. We have a seat at the table from the beginning and all the way till we close the deal out. And we do quarterly reviews where we participate in that. For us, that's important because my team and I understand how the business works inside of IBM. We understand all of the business units and the lines of business. We work directly with the GMs and their senior leadership team. And we're a consistent face on all these acquisitions. Right? They're used to seeing us. They know what we're there for, they know the value that we bring. And we've built those strong relationships over years and years. And so that helps us to sometimes when we have to challenge them around things, around what's causing their attrition that they don't want to hear, we've got data to back it up. Another thing is because we've done this for quite a while and we do a lot of data collection on every acquisition that we have. Through survey results, through meeting with focus groups, one on one roundtables and things like that. We have tons of data that we've collected over the years. And we have the ability internally to take that data and look at trends on certain types of acquisitions or certain types of leadership styles or certain types of organizational risks. And that affords us the ability to have predictive analytics. So we can look at an acquisition coming in very early, compare it to something that looked like this two or three years ago or last month, and say, based on what we see here, here are some things that we really need to look out for in the culture side and the leadership side. For us it's effective for that reason that's the big pro for it. However, we do supplement teams sometimes when we are in a unique situation with say organized labor in different countries. So we may bring in our employee relations or labor relations. And a few years ago we were building a brand new line of business and it was going to be built completely off of acquisitions. And so we brought in an external consultant to talk with us about what's the org design model look like, how does it integrate with all the business units and that sort of thing. So while we're not just married to only doing dedicated teams, we do use supplemental teams, consultants and that kind of thing. We don't have any part time folks on the teams across the whole structure. Most of us are dedicated and it's been the fact that work for us.

Thanks, Keith.

Sally, however you do, it depends on the type of resourcing that you have. And as long as you're doing it in a thoughtful way that works for your business, you'll get it done. But to Keith's point, when you have a situation where you have a large sophisticated team that repeats deals all the time, you're going to get a better output from that. And so anything that you can do, and I can tell you from my experience at GE when we were really doing a lot of deals and doing multiple deals in a year and within a particular business unit. So I get a lot of deals back to back for a number of years in our healthcare business, for example. So we started to build a bench. We knew that I would be in more of the consultation type role and managing the project plan and advising and counseling the specific business that was doing the acquisition. We tried to build this pipeline of HR folks within the function to build up an M and a skill set. We had a training course that people could go through and a number of materials available for people. Nothing really replaces working on a real deal. But having some idea of how to see around certain corners that might come up is certainly helpful. And I think that leveraging consultants, we've done that off and on throughout the years as well. And there are great times to leverage a consultant to come in and help facilitate a very specific thing, get you through a difficult piece of your acquisition, especially where you don't have a skill set that exists. But I would advise you to then learn how to do that so that you can keep it in house next time because you know internally you know your organization better than anyone else. And that's really where you want that knowledge to be.

Thanks, Sally.

Jay Keith yeah, I think I would echo what Sally said. So coming at it from the outside consultant perspective, the pro that organizations like myself bring as we become more highly specialized in the consulting world is specific specialized capability solutions that organizations can use to be more successful in again, achieving their deal value through their deal objectives. Right. And the con, as Sally references, I should never go into a consulting relationship where I'm not imparting my knowledge to that client. So as she says, they can do this themselves at some point in the future because there are some consultants out there, right. That don't take that approach. It's don't teach people how to fish, but teach them. Here's the hook. I'll teach you how to fish the next time.

I will caveat this by saying that, you know, we all tend to work with larger cereal acquirers, so your mileage may certainly vary if you're part of a smaller organization. Just a shameless plug. I've written the HR Practitioner's Guide to Mergers and Acquisitions Due Diligence, which is out on Amazon. For folks that are that smaller group that are looking at a way to think about their due diligence, I'd offer that as a resource as well.

That was a good plug, Clint.

Thank you. I tried to sneak that in there.

Well done.

A question that we seem to hear a lot when we talk about leadership is retention. Retention of key leaders is an important part of many Lois can definitely be a negotiating point if leadership offers or closing conditions or retention is part of delayed deal consideration arrangements like earnouts or holdbacks. Retention is also a fundamental assumption for business continuity and synergy realization on a number of deals. So I'd love to hear some of your thoughts on who should be considered for retention, how long retention periods should be, and what retention mechanisms might be used. I know this is a really big question, Sally, why don't we start with you thoughts on retention?

This is one of my favorite topics. Sometimes good, sometimes bad. I used to say that retention was going to eventually be the death of me. I think the number one thing that you can do is give people a compelling reason to come to work every day. We kid ourselves all the time thinking that money is going to solve problems. When I'm working with our leadership teams on retention, I'm certainly considering the top leaders in the organization and kind of where they are and so forth. But I'm really working very hard, especially during due diligence and before we go Public with a deal to have access wherever I can to key people below the top leadership team. We've had a number of targets over the years that have allowed that, which has been extremely helpful. So you know, your software architects, your senior scientists, really the brain trust of the organization, trying to engage them as early as possible, ensuring that things like their compensation is competitive, helping them build a network, giving them a sense of a promising future. Because that's the stuff that people want. I mean, that's why I go to work every day. It's not because someone's giving me a bonus. That's the icing on the cake. And I would never turn down a bonus if someone wants to give me one. I want to have a compelling reason to come to work and do interesting things with interesting people. The other thing that I do is I engage the HR leader at the target as early as possible. I engage the HR leader in my current business that's taking on the acquisition so that they can start coming in and helping assess talent. That's our wheelhouse. We love to do that stuff. Bring your HR leads in as quickly as possible. There is a time and place for cash incentives of various types where they can be leveraged, but they are not going to be your ultimate drivers of engagement. And I've seen a lot of situations where a business that's doing an acquisition, will they go, oh, I've got on my checklist, I have to do something with retention. They throw a couple things out there and they think they're done. And what they forget is that this is a courtship when you sign those agreements. This is when you need to really start engaging your key talent for the long term because that money is only going to hold them over for so long. And that's when you want to work on like what development opportunities are there, what's next, what are the deal value drivers, what do I get to work on, how do I get to be part of whatever this great future is going to be? And I also do another thing where a lot of times we'll see. And I think this is starting to be a little old school for a lot of folks. Now. We used to say that the cash incentives related to retention were very much time based. And I've never done that. If we're giving someone a cash incentive, it's tied to a specific goal, it's tied to a deal value driver or something that the business is expected to deliver post close. Whether it's the launch of a product, moving into a new market, going live with systems and tools. And not everybody's on the same time frame with their bonuses either. We're not dragging them out any longer than we have to. But they're generally tied to like, okay, if we're going to launch this product in six months, then we're going to pay out bonuses in six months. We make them very timely and associated with something very specific that's associated with taking the business forward. There's just nothing more poisonous than a visible business leader who doesn't want to be there. I have witnessed that on a number of occasions where, you know, we've had a CEO, cfo, COO who they just didn't want to come into GE and that's okay, they're a startup person or they want to retire or whatever the case may be. And I had a situation with a CFO once who really just wanted to retire. We initially had talked to him about coming in and here's a retention and here's some long term incentive and blah blah, blah. And we could tell that just wasn't where his head was. And once we got through that and we figured out what he really wanted because we had an open dialogue with him pre close. We made the arrangement that he was going to exit the business 60 days post close. He had a very specific set of work that he was going to do to transition. We were able to be upfront with that once the closing happened, like, hey, the CFO is going to retire, but we've got this plan in place and we're going to transition this work and he was able to make the graceful exit that he really wanted to make and we were able to get what we needed out of him in that period of time post close.

Thanks, Sally. Jay. Keith, how about you thoughts on retention?

I come at this from the perspective of identifying the right people to retain. And so the deal value leadership practice that I mentioned from the report that is intended to help you identify based on each specific deal objective, where is the value generated and who is the person responsible or the team responsible for generating that value. So through that process we want to identify who is the person and what leadership skills they need in this. And I'll give you an example. So let's assume that the deal objective is to move into China to sell lots more products, right? So our normal thinking might be that the SVP of global sales in the acquired company is the critical role in that organization, but in effect it may actually be that person sitting at the desk, that's the account manager in Shanghai. We force those kinds of conversations through the workshop by asking the right questions so you can identify who those roles are, so you can make sure you lock those people up and ensure that again, you attain that deal value.

Great. Thanks, Jay. Keith.

Keith, along with Sally. I mean, we've had this conversation many times. The toxic leader that you acquire, right? So one of the ways that we try to get around that, or try to at least understand that early on is during the due diligence process. We interview one on one with each of the CEO and his or her direct reports that are disclosed and due diligence. And part of our questioning is around talent. We want them to call names out who is the key talent that must be retained to make this be successful. Part of that conversation also is and tell us about you, you know, what are your goals and your aspirations. And we want full transparency. We know we're not going to get it completely all the time because they may be positioning themselves to sell the company, but what comes out of that is people will open up to you and tell you, I'd like to see this thing get through the three months or the six months, and I could give you a year. And sometimes I'll say that what they really want to do is just walk away close. You have to get under that. And sometimes those first interviews that we do give us insights into who's wanting to stay and who doesn't really have an interest in staying. The second thing has to do with what Keith said. And that same interview, we asked them to go deeper into the business and say, who is the key talent? Who are the rock stars? Who are the up and coming people that we really need to keep an eye on? Because we know that once an announcement comes out, the competitors are going to be swarming on them and we want to put our arms around those folks, embrace them, and say, you have a home here. What's it going to take to keep you? We go deep into the organization right after close. We try to figure out from the managers of those people and the upline managers and the middle managers and the people managers who are the up and coming stars. And to J. Keith's point, we document that and we figure out and work with those managers to say who's at risk of leaving, how difficult is it to be replaced and what would it take to keep them there. And to Sally's point, it's not always money. It's an investment. Because sometimes it's like, help them get a certification, help them finish their degree, let them go to a conference that they go to every year, stuff like that. So we look at retention obviously at the close point, you know, kind of at the top of the house. Soon after close, we go as deep as we can to find out where the talent is that's going to deliver that business cape and stay with us.

One other thing that I would throw out there that I found fairly successful for addressing both talent retention as well as cultural issues is what I call the post diligence huddle. After each group has completed their due diligence report, and regardless of where that goes in your organization, there's a lot of information that's pulled in at that time. I have found that organizations that pull everybody together after the formal diligence is completed and asks two questions inside. You know, one is how are we going to break this business when we move them over to our way of doing things right? So that's a culture question. How are we going to break this business that addresses culture? And the second one that I really like to have everybody answer is who are the key people that you saw when you were conducting your diligence? It can be really easy for us on the HR side and even the corp dev folks because we tend to deal with the top level of the organization where some of our colleagues that are doing their diligence tend to be a little bit deeper in the organization and can get some different insights. So I would just put in a plug for the post diligence huddle there. During this conversation, a few folks mentioned middle managers or people below the C level. When you think about the role of a middle manager in terms of both leadership and culture, how do you see that? What should that be? And Jay, Keith, I'm going to start with you. I know that you had some thoughts about that that ended up in Harvard Business Review.

Yeah, it's an important topic. I mean, I've looked at this from my doctoral research, the research for the conference board and other organizations research, and it's clear from what the research tells us, and a lot of this is applied, is that middle managers have an effect on deal success. From my research I asked this question, do middle managers or senior executives have a greater impact on deal success? And for the acquiring company, it was senior executives made perfect sense. They're the ones that are executing the strategy and deciding where the business goes. But for an acquired company was middle managers. And if you think about what Sally and Keith have been talking about, retaining people at the top, the reality is that like the CFO Sally brought up, they're not going to stay Right. Because they have reasons that they want to leave. Maybe there's another company that has piqued their interest that they want to go to. Engaging with middle managers as early as possible from a talent identification perspective, like we just talked about with the last question, is really important. The other aspect is also the idea of these being major change management projects in organizations. And so there was some great research out of Stanford. Guy looked at major change projects. What he identified from that is that 68% of those projects failed in the organization. The ones that were successful, it was because middle managers were involved, they were engaged, helping to set the path for what this project transformation was going to be in their organization. I think a lot of organizations inherently have heard this comment about the frozen middle, right? You got the employees on the bottom itching to change things. Senior executives are looking to change things. But that frozen middle is where the work has to be done. That's why when we go into deals, we're obviously looking at L1, L2, but we try to point our clients into an area where they're also looking at the middle management and where they are going to have challenges, either from a leadership and or the culture perspective in being able to achieve those deal objectives that they've lined up.

Keith, how about you?

I couldn't agree with J. Keith more. The middle management for us are the change agents, right? They're the ones that are executing at the employee level. They're the ones that are trying to emulate the behaviors that we want them to do to be successful. We need them to help the employees get engaged because we know the higher the engagement, the higher the productivity, the higher the revenue. Right. But the other side of that is they also need to be the conduit for bringing issues, risks, concerns, morale problems, bringing that back up the chain to the people that can make a difference in solving those problems. So I see that person as critical for, you know, disseminating stuff that's going to help us to be successful at the grassroots level, but also being that voice of the masses, going up to senior leadership to make those changes that we need to make. And we see that in just about every deal we have. So part of the role that that manager has to play is that we call it north and South Communications, providing feedback and delivering messages and just having that as a constant stream of information going back and forth from the executives all the way down to the employee level.

Great. Thanks, Keith.

Sally, I'm aligned with the two Keiths on this. The single most important influencer for your employees is their manager. As been stated, the middle layer of managers in the organization, they have the bulk of the population reporting to them. They're in the trenches. They know where the pain points are. You have to listen to them and engage them. I see a lot of organizations go to, well, let's go do a survey. Don't do a survey. Talk to them, get them in a room together, get them on a zoom chat, ask them how they're doing. As an HR practitioner for the last 25 years, I can't even tell you how many times I've been asked to administer a survey and, you know, nothing's been done with it. But what I do instead is I'll just do a focus group. I just bring people together and people will tell you what's on their mind if you ask them. For me, the best way to get in touch with that middle layer of management and really understand how they're doing is to get right with them. So when I make site visits, I make very explicit time to sit down with them. Now I'm having to find new ways to do that. The deal that I'm currently a part of, we read Jay Keith's research and published articles and we took that to heart and we know just how important it is to engage this particular population and we're taking some explicit steps to do so.

You know, if I can just throw in one additional thought on middle manager engagement, it's that it usually starts at a nouns. Having been an acquired middle manager, there is nothing more frustrating than being pulled into a meeting where you're told you've just been bought and I've got 30 minutes to sort out what's going on with me, right? Do I have a job? Can I feed my kids? Can I pay my mortgage? Right. All of this stuff about me that I've got to deal with, and then you've given me 30 minutes and no information and I've got to go take care of my team. I really would encourage companies to seriously look at the way middle managers are handled during the announcement process. Maybe give more than 30 minutes of time, give them some tools to cope with their own change process, and then give them some tools so they can go lead their teams through it. It's something I spent quite a bit of time helping us to update at Oracle. I found that when we did a better job of empowering the middle managers, the integration usually went much, much better. So we have an opportunity for some Q and A. And one of the first questions that we have here is about the Stages of grief. So if you think about that Kubler Ross grief model, where you start with denial, move to anger, then bargaining, depression, and finally acceptance. We find that people that are acquired often go through these stages, and the person writing the question pointed that out. So are there any practices that we can engage in for helping the organization to move through those stages in a more reasonable timeframe? What kind of tactical steps have you done to help people move? Denial, anger, bargaining, depression, acceptance.

The deal that we're working on right now, it's almost like every meeting leading up to close, we threw that diagram up on the screen, and the first thing we did was just acknowledge that it exists. We've repeated over and over with our team that's been working on preparing for the transition and the ultimate integration. Everybody goes through this, and everybody goes through it at their own pace. Not everybody's going to do this on the same day or on the same time frame. We have started just by having an open dialogue about it. And I think that has helped a lot because I see, I witness in conversations that our leadership team has truly acknowledged that and respects that it'll come up as they talk about, oh, you know, we're going through this change and everybody's sort of doing it differently. Like, I hear them repeating the words that we shared with them as we were preparing them to get to the close. So that's been a really positive way to start this. Now, I think time will tell how we end up on the other side, but so far it's been really good. I've certainly worked on deals where we could have done this much better. And it's really come down to communication and that engagement of the middle layer of management like we were just talking about.

We're on the same page with that one. I think the best thing to do is to give them a voice, give them the opportunity to express their concerns. Acknowledge to Sally's point and J. Keith's point, they're going to go through it at different times and don't be surprised by it coming back over and over again. So what I mean by that is the first shock when they hear that they're being acquired. They're not going to hear the first things you tell them because they're going through what Jay Keith was saying. Do I have a job? Can I pay my mortgage? Can I feed my kids? So it's going to take several times of them hearing the same thing to really get their head around what's happening. So they need that voice. I would also say it's critical to enable the managers, as soon as the data is available, to share that with the manager so that they can have the answers. Some of the tactical things that we're starting to do is we use slack at IBM. And so we set up a slack channel for the acquired managers and the managers in that business team that acquired them. It's a series of FAQs. It's a series of a manager saying, hey, I've got an employee that wants to know this. What's the answer? Or when will we have the answer? That's been helpful. It's also helpful for us to open up a channel for all employees. It says ask me anything and it goes to our PMO office. And so it gives them a way to say, this may have already been asked, but this is a concern of mine. And then you'll see that there's kind of a feeding frenzy. They all start building on top of that. But it does give them a sense that somebody's there to listen and somebody's there to answer the questions. And then the last thing that I would say that we do is right after close we'll open up office hours. So we'll have a day where there's office hours for HR to be on site at the main location or something like that. So they're on site and you just ask them anything. And those kinds of things work well. But the key here for us is do it as soon as possible because without information coming down to them, they start getting nervous and rumors start being created and it's not a good place to try to dig out of.

Jay, Keith, any thoughts?

Dad, you know, the only thing that I would add that are pieces from each of you is Maslow's hierarchy of needs kicks in immediately. Right, that's what you brought up, Clint. Providing them the right set of tools is critical to helping them get through the stages of grief, I believe by preparing them emotional intelligence. Maybe emotional intelligence is a part of your organization reaffirming those kinds of principles, looking at communication, because one of the things we asked in the original study with the conference board was what top 10 leadership skills are most important across each of the five deal stages. And there was only one that cut across all five deal stages and it's communicates effectively. You think about how a message starts at the top and gets its way down to the endpoint employees. That gets muddled. And when messages get muddled, you are not accounting for Maslow's hierarchy of needs as we.

The only other thing that I would add to that is in our middle manager toolkits that we provide to those managers. I think there's some very practical things we can give them. Either the Kubler Ross Grief model, which is what we just talked about. There's something called the Bridges Transition model, which is a super geeky way of saying that when employees change, they experience a bit of a productivity dip until they get used to their new reality. Training managers on what to look for with their employees. Because each employee's journey through whichever model you want to use is going to be an individual journey. It's up to that employee to work their way through things. Equipping managers to know how to work with employees who are at different points of that change journey can be really powerful. I also personally, and maybe this is the recovering West Coaster in me, I like to include our EAP phone number. That's the employee assistance program. Some employees just get really stuck and the acquisition is just the straw that broke the camel's back. They might be dealing with a significant personal or financial issue and they just need to talk to somebody who's not their boss and not hr giving them that EAP number so they can go get a couple of counseling sessions to help them work through. Whatever's going on can be really, really invaluable. Jay, Keith, Keith and Sally, thank you so much. It's been a lot of fun. I know that we're all Open Networkers on LinkedIn, so if anybody wants to reach out and ask us questions, please feel free to do that. Marcia, thanks for introducing us. And Kisan, thanks for having.

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