Do companies make people accountable for M&A failure?
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Growing via M&A is not an easy strategy for companies. There is a lot of uncertainty, management hubris, integration complexity, unrealized synergies, etc. I like to compare the process of searching for a target company with stock picking. Stock picking does not work on average. There are a lot of good companies, but with a 30% premium that you need to pay on average, they are not looking so good. Some companies grow via M&A strategy and are doing several deals per year. These companies are doing due diligence, valuation, PMI planning, and execution. Several experts are involved in each step and they set deal rationale, predict synergies, and time to realize them. After 3 years promised revenue and cost synergies could be compared to the real numbers. If it is clear that the deal failed, should we find the responsible? Should corporate development who proposed the deal rationale or business unit managers who failed to integrate be fired? Or maybe no one cares in 3 years and the same people are making the same mistakes again and again. How is your company learning from past M&A transactions and what are the consequences for people involved in case of failure?
In my opinion, yes companies make people accountable for M&A failure. Directors and officers play fundamentally different roles within a corporation. especially for the role of the board, the board’s principal responsibility is to protect and enhance stockholder value. Mergers and acquisitions offer one way that stockholder value can be increased. At the highest level, the board is responsible for approving or setting the strategy for a business, and management is responsible for executing that strategy.
I do not believe most companies do so – are there examples of companies which have made people accountable in such situations?
I would say typically they do not hold people accountable for M & A failure. Reason’s for failure are many and it is often difficult to point the failure at one or two people.
To my mind, there are different levels of accountability – and for different things. The CEO is accountable to the board for strategy – if growth through M&A is a central strategy, than she or he is accountable if it fails. Or should be. At a more micro-level, I believe it critical that one person, who owns a P/L for the company at some level (product, region, division), sign up as the business sponsor when an acquisition is contemplated. It becomes their responsibility to ensure strategic and cultural fit, and to bring to bear the resources needed to execute to the investment thesis. If this fails, then the accountability falls to them. I would make similar points about legal and financial advisors undertaking due diligence: if they do not dig deep enough and vet the deal, then they own responsibility for this failure.
Some deals will fail. That’s inevitable. But when they do, it’s critical to know why and to have someone who can explain that “why” in detail. The right person to do that is the person “accountable.”
This is such a great question. This, of course, depends on how you are defining accountability. I agree that companies have not historically held anyone accountable for failures in terms of taking any sort of employment action in connection with failed deals. I do think it is important, however, to review acquisitions post-close against the acquisition case and to ensure that integration is proceeding in the manner initially planned. This will help a buyer achieve its acquisition goals and also make adjustments to its acquisition strategies and workflows where needed.
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