The Institutionalized Gaslighting of Employees

According to Bain & Company, “Many companies don’t start thinking seriously about integration until a deal is signed—and that’s always way too late.” This comes as no surprise to any employee who has been through multiple M&A integrations.

80% of M&A Deals Fail

The Bain M&A Practitioners 2023 Outlook Survey concluded that 80% of deal failures were due to a failed integration. The issues responsible for these failures included “did not plan for integration risks,” “did not successfully execute expected cost synergies (and revenue strategies”), “difficulty integrating management teams,” and the reasons that hoard most of the focus, “lost customers,” and “could not retain critical talent.”

You Can’t Ignore Human Behavior

So why is this? Why do so many deals fail to deliver on their promises to employees as well as to their shareholders? Because of what I call the institutionalized gaslighting of employees…driven by a pseudo transparency, the persistent marginalization of deeply embedded company cultures and values and ultimately, the rejection of the psychology of human behavior. It’s always fundamentally about people. And people aren’t necessarily motivated by logic, especially when they have fears, which are of course, emotionally based.

Change Management is Ony as Effective as The CEO

The good and bad news is that there is no magic to moving successfully through an integration. Change Management teams can’t do the heavy lifting by themselves. And by that, I mean if the leader doesn’t lead, and defaults to what is currently “best practice standards,” without getting into the weeds at the outset to address very specific cultural challenges, the integration is likely to fail. Change Management is not simply a box to tick in the hopes of magically delivering a fully integrated, passionate, unified, insanely productive (and efficient) organizational culture that thrives and exceeds expectations.

Objectivity is Worth its Weight in Gold

And if the leader defaults the creation of a new brand—including the articulation of the company’s Vision, Mission and Values to an internal team (with potentially its own special interests)—the integration is likely to fail. It may seem convenient to task a qualified internal team to drive this, but there is simply no way they can be objective when it could affect them. It may seem like a good way to get “buy-in” to the new brand, its vision, mission and values, but that buy-in (assuming it is achieved) is limited to a fraction of the company’s workforce.

You Can’t Pick and Choose Which Due Diligence to Do

Bain is absolutely right. “Integration” starts way too late. Failed integrations are evidence that dealmakers didn’t really do (all) their due diligence. They failed to understand the true risks to integration. These risks are different for every merger. Different when merging a young company with a mature company. Different when merging a family-owned company with a public company. Different when merging two companies that have been savage competitors for decades. Often, it is actually very divergent values that are being force fit. Failed integrations are failed deals. And failed deals are proof that mergers and acquisitions are much more than financial transactions. They are also human transactions.

How integrations are approached needs to change drastically. Here’s a start.

1.     Ensure that perceived “synergies” are validated by people actively involved in the day-to-day operations. Executives often underestimate how things get done on a daily basis. If not, these imaginary synergies will rapidly disappear as the integration is implemented. Often, leaders make these 100,000 ft assumptions that rank-and-file employees could invalidate (or validate) in a heartbeat.

2.     Be searingly candid and transparent with employees. Drop the pseudo-transparency which is a misguided effort to retain employees. The minute the deal is announced, your highest performers have already started the new job hunt. Your average employees will stick around awhile, potentially jockeying for new roles. And don’t worry about your mediocre employees. They’re not going anywhere. They’ll stick it out as long as they can. Net, net, relying on inertia isn’t a great talent strategy

3.     Kill the corporate platitudes and vapor-speak. It fools no one. Any employee who has been through one or more mergers and integrations knows to run for the hills when they hear the word “synergy,” code for layoffs, budget cuts, role changes, travel bans and infinite mind-numbing integration meetings. And when leadership relentlessly ignores obvious cultural challenges, all they do is burnish their image as being out of touch, making everything they say come across as not credible, or trustworthy.

How can employees recognize pseudo-transparent corporate communications during a merger integration?

1.     There is no clear vision for the future.

2.     The risks of the integration are never truly articulated or communicated.

3.     The specific cultural challenges are never mentioned.

4.     How decisions will be made is never codified or communicated.

Leaders can talk all they want and repeat the official “mantra” ad infinitum to their employees, but if their communications do not address the issues above, it will fall on deaf ears. And the integration is destined to fail—meaning that the deal also fails; it doesn’t deliver opportunities, growth and rewards to employees; nor does it deliver on the expectations of a public company’s shareholders. Furthermore, the single biggest impetus a board can give its leadership to deliver a successful integration is compensation directly tied to very ambitious organic growth goals.

Finally, how can leaders improve the odds of a successful integration?

1.     Have (and communicate) a clear meaningful vision of where the company is going. If it’s just that the integrated company is “bigger” or allegedly “better positioned,” the integration will likely fail. Leaders don’t have to predict the future, but they do have to “pick a broad distant target” and be just as clear about what the company will not (or no longer) do.

2.     Talk about the risks of the integration. Bring everything out into the light. Disallow any sacred cow. This helps employees understand how their actions impact the company’s health and its future, which directly impacts them.

3.     Put the cultural challenges under floodlights. To downplay them sends the message to employees that leadership just doesn’t “get it,” thereby diminishing credibility from the get-go making inspiration impossible. Explain the “whys,” be relentlessly objective. Go way beyond the superficial.

4.     Be crystal clear about how decisions will be made going forward. This is especially important when there are obvious redundancies. What is the new decision-making philosophy? This will help reduce or eliminate the “us vs them” mentality.

5.     Be bold and fully, genuinely transparent. Share the business plan in a way that has been re-articulated specifically for digestion by an internal audience. Tell employees to update their resumes if they are not on board with these plans.

6.     Engage outside sources to evaluate and validate integration risks, and to articulate your new brand strategy. Again, this will create the impression that it is a fair playing field, that the best interests of the new entity will drive decision-making and make it more likely that leaders will gain a more objective version of the “truth” about their culture(s).

It’s way past time for the M&A integration playbook to be reinvented. Dramatically.