Some corporate mergers, like marriages, end up on the rocks

By Scott Sleek
Monitor staff

Two giant automakers have barely walked down the corporate aisle together, and already organizational psychologists are predicting a divorce.

Like newlyweds who discover they can?t agree on anything, Daimler-Benz and Chrysler Corp. appear destined for trouble in the merger they announced in April, says psychologist Mitchell Lee Marks, PhD, a San Francisco?based management consultant.

'Daimler-Benz has a strong sense of cultural superiority; it regards itself as the pre-eminent automobile manufacturer in the world,' Marks says. 'Chrysler, by contrast, is ?just? the number-three automaker in the United States. You can almost hear the folks in Stuttgart saying, ?We?ll show them how to run a car company!?'

And that superior air will probably irk Chrysler?s top managers, he predicts.

Marks speaks from observational experience. He?s been involved in more than 50 mergers during the past 15 years. And he?s seen far too many newly allied companies discover their corporate cultures fit together poorly.

In fact, up to 80 percent of corporate mergers and acquisitions fail to garner the expected financial gains, mainly because the deal-makers fail to anticipate the psychological and philosophical clashes that can undermine the alliance, industrial/organizational (I/O) psychologists say.

Yet new mergers are being announced almost daily. And the trend is becoming a big line of business for I/O psychologists who specialize in helping two or more companies join forces effectively. Some psychologists are using tenets of marital therapy to help companies maintain a workable union.

'It?s not inevitable that [merged companies] will fail, if they pay attention to the right things?like immediately resolving their different ways of doing business,' says organizational psychologist Addie Perkins Williamson, PhD, of Stamford, Conn., who works with companies that enter mergers and acquisitions.

What goes wrong?

While top executives of two companies may decide that merging operations makes sense competitively, the human antipathy toward change often infects the work force and erodes the alliances, psychologists say. At the top level, executives may find they?re unwilling to adopt their partners? way of doing business, as Northwest Airlines and KLM Royal Dutch Airlines found when they joined forces in 1993.

The two companies began deriding each other?s cultures in the business press, took their differences to court and, earlier this year, disbanded the alliance, notes Marks. Such cultural clashes can occur even between merging companies from the same country, says Rich Michaels of Michaels McVinney, Inc., a Boston-based corporate education and development firm. (Michaels? firm uses many techniques grounded in psychological research and theory.)

A prime example, says Michaels, is GTE?s 1997 purchase of BBN Corp., a technology firm that was in the forefront of developing the Internet. BBN is a research-oriented company made up of scientists and technology 'wizards,' he says. Many of those valuable employees resigned because they thought GTE would impose a new, much more businesslike atmosphere on their workplace, he notes.

'They weren?t in fear of losing their jobs,' Michaels says. 'They were just worried about what this new culture was going to be like.'

Employee morale can plummet as soon as a merger or acquisition is announced, psychologists say. Workers almost immediately fear that they?ll lose seniority or expected promotions. They lament the loss of control of their jobs. And at worst, they worry about losing their jobs as the new partners combine operations and shed redundancies.

Top talent may leave the company altogether, and workers that remain will become angry or scared, and thus unproductive, says Marks.

Morale appears to be most at risk among employees in the company being acquired, says Gary Mottola, PhD, senior market analyst with Peco Energy Co. in Philadelphia. Mottola was involved in a recent study on the effects of mergers and acquisitions on employees. He and his colleagues recruited 263 college students to participate in a role-playing experiment. Some participants role-played middle-level managers in two fictitious companies?'Acme Corp.,' a large manufacturing firm that was acquiring 'Bolt Corp.'

The researchers found that employees of both the Bolt and Acme corporations felt more threatened and less committed to their 'jobs' the more they had to adapt to new policies, pay scales and technology systems.

Previous studies have shown a similar resistance or decline in morale among employees who fear their organizational culture will disappear in an acquisition, Mottola adds.

Making the alliance work

Psychologists use a variety of techniques to help newly aligned companies keep their best workers and maintain healthy morale. Williamson and her colleagues, Erika Hayes, PhD, of Tulane University and Cheryl Henderson, PhD, of Stamford, Conn., try to help companies develop realistic expectations about a merger, just as they would help romantic partners anticipate some of the struggles they?ll encounter after they marry. They encourage companies, in the premerger (premarital) stage, to really learn about and understand each other and to make sure they each have the same expectations about the merger.

For example, they worked with a large American corporation that bought a foreign travel agency. At first, the corporation was only interested in enhancing its economies of scale and had no desire to learn about the travel agency?s business strategy, Williamson says. But in merger talks, officials at the agency convinced the acquiring corporation to absorb the agency?s successful business practices, and not just its personnel and equipment.

Unfortunately, few executives take this step before entering a merger agreement, Henderson notes. After the merger is under way, Williamson, Hayes and Henderson encourage companies to address and resolve problems before they escalate out of control. For example, executives should immediately tell key employees that they?re needed, lest those workers resign for fear of being laid off, Hayes says.

Both Mottola and the co-author of the merger study, Samuel L. Gaertner, PhD, professor of psychology at the University of Delaware, suggest a common group identity model, which guides two parties from a 'them and us' to a 'we' mind set. Even simple steps, like forming a whole new company name instead of hanging on to the name of one of the partners, can create a stronger sense of unity.

Marks uses a variety of approaches to help companies make a smooth merger, particularly in the area of employee relations. For example, he?s helped companies develop programs to minimize the stress that employees may feel in the midst of a merger. The programs are designed to help workers:

? Understand and manage the stress they?re feeling over the merger.

? Consider new ways of thinking, rather than embracing the old way of doing business.

? Stay informed about the merger progress and the implications it has for their jobs.

? Find ways to get involved in building the newly formed entity so they have a stronger sense of control and investment in their jobs.

Marks says that more companies are recognizing the need to address work force issues immediately after embarking on a merger, he adds.

'I?m getting called in not just frequently, but earlier in the process,' he says. 'It used to be executives waited until all hell broke loose, until they lost their top talent. Now I?m getting called in before the government even approves the deal.'

Further reading

'Joining Forces: Making One Plus One Equal Three in Mergers, Acquisitions and Alliances,' by Mitchell Lee Marks and Philip H. Mirvis (Jossey-Bass, 1998).

'How Groups Merge: The Effects of Merger Integration Patterns on Anticipated Commitment to the Merged Organization,' by Gary Mottola, PhD, Samuel Gaertner, PhD, Betty Bachman, PhD, and John Dovidio, PhD, Journal of Applied Social Psychology (August 1997, Vol. 27, No. 15, p. 1335?1358).