Culture or Leadership? – That is the Question

As a practitioner and researcher in the M&A space, I have read just about every piece of academic research and consulting firm perspective on M&As. One area that gets significant focus, and for obvious reasons, is the role of culture in successful and less successful M&As. Whether Harvard or McKinsey and all of those academics/consultants in between, culture gets almost all of the focus. Even in the context of people challenges referenced in academic research as a key contributor to success or failure in M&As, culture is the frame of reference used to look at those people issues.

For example, McKinsey wrote a very good paper on culture in M&A that discusses their approach to cultural due diligence titled “A McKinsey perspective on getting practical about culture in M&A.” The report lays out a clear set of activities that acquirers need to consider in M&A due diligence to include things like Environment & Values, Innovation, External Orientation, Leadership,…Leadership? Yes…Leadership.

Why is Leadership Part of Culture in M&A?

Excellent question. Like McKinsey, many consultants lump leadership into cultural due diligence. What most are specifically looking at in cultural due diligence are “Leadership Styles.” Leadership style is the manner and approach of providing direction, implementing plans, and motivating people. As seen by the employees, it includes the total pattern of explicit and implicit actions performed by their leader (Newstrom, Davis, 1993). Types of leadership styles include authoritarian, laissez-fair, and participative, for example. This is an important piece to understand because it helps to understand why a company’s culture behaves the way it does. Additionally, if there is a difference in leadership styles between the acquirer and target, this information can influence the approach to cultural integration.

Another reason to focus on this aspect of leadership is because there is research that has quantified impact of leadership styles on organizational performance. So on the outside it makes sense. Yet, there is more to the story. As Belias and Koustelios point out in their research piece “The Impact of Leadership and Change Management Strategy on Organizational Culture.”

“The main task of management today is the leadership of firm change. Good strategic change leadership involves instrumental roles and big interpersonal skills. Good change leaders find out the important dimensions of change leadership. Being able to balance the roles depends mainly on whether a leader has certain qualities needed for good change leadership. Finally, strong skills support these key change leadership qualities.”

Skills? Yes leadership skills. M&As are major change events for both the acquirer and target companies. Any successful change effort requires more than just an understanding of culture and leadership styles, it also must include a focus on what leadership skills can help effect the changes that an M&A bring, as well as application of collective leadership in both companies to drive the change. Starting with culture negates the benefits of having the right leaders with the right M&A leadership skills at the right levels…working towards the stated objectives of the M&A.

Collective Leadership Due Diligence as the Starting Point in M&A

The challenge is significant for successful M&As AND the approach is clear. While cultural due diligence is critical in M&A success, it is not the starting point for successful M&As. The main reason why is that understanding what the acquirer and target cultures are and what the future culture may have to evolve to for company success requires collective leadership with the right sets of M&A leadership skills at the right levels in order to effect the changes that are identified.

Cultural due diligence will continue as a key aspect to address but not all people issues are a nail looking for a hammer. First and foremost, successful M&As are about having the right collective leadership capability…That is the starting point.