Reply To: Cultural integration – Do you measure/track the employee satisfaction?

#119058

Best practice is to do exactly that. Unfortunately, too many do not or are ineffective at it. The work of integration tends to revolve around the transactional and not the tactical/strategic when it comes to human capital and culture integration. In other words, the actions of integrating benefit programs, compensation programs, organizational reporting structures, and resource allocation. This is not to say that no attention is paid to cultural integration, just that too little tends to be. There are many studies over the last 15+ years by Mercer, Deloitte, Towers Watson, and many other consulting firms that reflect the leading causes of transaction failure within the 1 – 3 year window post-transaction close are largely due to human capital & cultural issues. The root cause of this is unsatisfactory human capital due diligence pre-close. Talent was not appropriately assessed, the wrong talent retained or released, ineffective retention strategies implemented, the social/emotional well being of the employees between all merging entities ineffectively (if at all) attended to, all of which led to loss of key talent post-integration and with it the institutional knowledge and intellectual property that fueled the original transaction thesis. What talent remains tend to be less engaged, less effective, or worse, actively resistant. So much attention is paid to the very tangible financials – does the transaction make financial sense, will there be increased shareholder value in some way – and not enough attention paid to the intangible human and cultural components of the merger.

As a good example from the recent past, take the merger of Newell Rubbermaid and Jarden Corporation. 2 very different business models – one a centralized, process driven, operating model company and the other a decentralized, opportunistic, holding company model, very much the essence of Private Equity loosely connected. While Newell Rubbermaid had been, 7 years prior, where Jarden was at the time of the merger discussions in 2015, they either had a very different experience through their transition or forgot all the lessons they learned. When Jarden (actually the larger volume company at the time) was acquired by Newell Rubbermaid, not enough attention was paid to the cultural integration. It was more “my way or the highway” and less a methodical process of gaining buy-in. Too much was planned out and implemented post-integration that should have been examined more closely pre-transaction execution. The human capital due-diligence stage (if it was ever really performed ahead of time) was rushed and the result was disgruntlement by Legacy Jarden leadership that led to lawsuits and eventually spinoff of most of the Legacy Jarden divisions just 2 years later – Rawlings Sporting Goods, Process Solutions (LIFOAM, Jarden Zinc, Jarden Process Solutions, etc.), Waddington Group, USPC, Pure Fishing, and others. The company went from a high of $16B annual sales post-merger to under $9B just 2 years later when spinning off those brands. Leadership changed, share price stagnated and then fell… it was a mess.

The importance of effective Human Capital Due Diligence cannot be overstated. This includes examination of all human resource functions, culture elements, and the development of effective integration strategies for human resources that addresses the intangible, social/emotional well being of the people, and strategically targets the appropriate key talent to retain or release. Prompt execution of the human capital plan should be aligned with the integrated entities new strategic plan and followed with frequent and persistent measurements of the engagement, tracking of retention, and adjustments made to keep the ship right-sized, level-set, and propelling growth.

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