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Ten Behavioral Guidelines for Management When Aquiring Another Company
by Rick Johnson
May 17, 2006

Ten Behavioral Guidelines for Management When Aquiring Another Company

The following Guidelines need to be adapted to the specific circumstances of the acquisition, and to the environment in which management finds itself operating. These Guidelines include some specific Dos and Don’ts.

1. “NOTHING WILL CHANGE”

One of the first and most critical responsibilities of managers in the new parent organization is to command personal and collective credibility among the employees and managers in the acquired company.

Probably and the most rapid irreversible way of destroying any chance of developing and building credibility is to state that, “Nothing will change.” This statement is an absolute NO NO!.

There are four main reasons to avoid this statement:

1) It can very easily happen that external circumstances (such as a change in market conditions) can oblige you to make short-term changes. Even if they are inevitable and truly unrelated to the acquisition, there is every chance they will be perceived in the acquired company as evidence of management’s insincerity, or at best, the new management’s incompetence.

2) Even though you take every reasonable step to retain management personnel in the acquired company, one or more of them may leave voluntarily quite soon after the deal. It is highly likely such a departure will be attributed to you, and again used as evidence that you are secretly orchestrating changes according to a completely invisible hidden agenda.

3) Most of the people in the acquired company are smart enough to know that the chances of you buying their business with the genuine intent of making no changes are very slim indeed. Not only is it factually almost never true, most people in business know it is factually almost never true. Just making the statement begins to undermine credibility.

The very best interpretation which is likely to be put on the words, “Nothing will change,” is that you really have no idea what to do next, and think that this statement will buy you time to figure out the next step. This suggests not only insincerity, but a fair deal of incompetence as well.

The worst interpretation is that you are simply not to be trusted, and that the people in the acquired company had better concentrate their energies on looking out for themselves and closing ranks against you.

4) One variation of the “Nothing will change” statement which is potentially even more disruptive is to say that, “THERE WILL BE NO MANAGEMENT CHANGES.”

It implies there will be other changes, but does not specify what they will be.

It tends to give other employees the perception that managers are a protected species, but they are clearly not.

It can confuse employees as to who is included and who is excluded.

With normal levels of executive turnover – regardless of any specific events associated with the acquisition – it is likely to be violated within 3 to 6 months.

2. COMMITMENTS, PROMISES AND HALF-TRUTHS

Any commitments to action of any kind which are made by managers in the new parent during the early stages following an acquisition take on an unusual significance among the people in the acquired company.

This is the first opportunity to test the values, attitudes and sincerity of the new management, and it receives a great deal of attention. Commitments will be taken very seriously and failure to live up to them will be perceived as evidence of insincerity and lack of trustworthiness.

It is therefore valuable to develop a definition of which managers are permitted to enter into commitments on behalf of the company.

Commitments

This definition is applied to not only formal written commitments, but also to verbal understandings. When an executive makes a commitment, he should not underestimate the symbolic value of implementing it, nor the potential for disaster if it is not followed through.

· DO make as few commitments as possible.

· DO make those commitments which you are 100 percent sure can be kept.

· DO NOT make commitments which you may not be able to keep.

· DO NOT commit to anything which is beyond your personal control.

There are three useful guidelines for dealing with situations where commitments are called for:

1) Commit to evaluating alternatives rather than carrying out specific actions.

Example : “We are committed to taking every opportunity to expand the company’s product range in cases where an analysis of the investment required shows a satisfactory return.”

2) Commit to take action over a reasonable time horizon, avoiding any expectation of immediate change.

Example : “Because we are committed to an overall improvement in working conditions here, we are working on facility plans which we think will enable us to make substantial changes in the next seven or eight months.”

3) Commit to actions which take into account significant external or internal variables.

Example : “We will keep the plant in production and continue to build up volume as long as market conditions remain strong and our cost levels in the plant are competitive with other production facilities.”

3. DEMONSTRATE KNOWLEDGE

Part of the self-defense strategy which will be adopted individually and collectively by people in the acquired company is the belief that managers in the new parent do not understand their business.

This perception bolsters individual egos, but also adds to the threat that you will act out of ignorance, make serious mistakes and ignore the valuable contribution they may be able to make.

Broad generalizations are likely to add to this belief. There is a need for communication to be very specific, and for continuing tests of understanding to be made. This is especially the case where industry jargon or operating procedures are different.

As an example, the following statement would be a model of crystal clear and precise communication in one major manufacturer in Detroit , and is probably meaningless gobbledygook to everyone else in the English-speaking world:

“Because of the Top Ten NVH related problem identification in the GSM’s DC of 10:11 , which mainly affects Essex V6 LCY, I believe we should make it an agenda item at the next PPRC to evaluate either a DIP on PDI in the field, or a teardown at PTA.”

Industry jargon is a useful form of shorthand, and also serves to add prestige to the individual who has command of it. Be aware that it needs to be well enough understood for your instructions and questions to be comprehended and acted on.

4. FEEDBACK

Anything an executive says to an employee or manager in the acquired company will automatically be assessed for hidden meaning, such is the need for knowledge and understanding.

  • DO limit any observations and comments to the task at hand. DO NOT make general or throwaway comments, which can so easily be misinterpreted.
  • DO ask for feedback. A conscious effort is usually needed to approach a situation in a frame of mind to focus on receiving feedback, but it is extremely valuable to know what impact and reaction your own words are having.
  • DO check understanding. Bear in mind many of the people in the acquired company you are dealing with are likely to misinterpret what you are saying or read between the lines.

5. RUMORS

It is highly likely that a number of rumors will be in circulation in the acquired company. These are typically the products of misunderstanding, and often have as much to do with wishful thinking as any reality.

Even so, the absence of hard facts, the communications vacuum which the acquisition entrains, and the uncertainty of the situation combine not only to foster the development of rumors, but also more importantly, to lend them credibility.

  • DO be constantly aware of rumors, even if they are ridiculous or circulating at a low level of the company.
  • DO NOT ignore the damage that can come from rumors circulating among secretarial staff. These often receive a high level of credence because secretaries are perceived to have access to confidential memos, phone calls and meetings.
  • DO ask about rumors, in order to flush them out into the open, and deal with them. Remember that a rumor, which can be confronted, can be dissipated. A rumor, which is left in circulation, will feed on itself and become increasingly difficult to handle.

Dealing With Rumors

There are five useful ways of confronting and dealing with rumors:

1) If possible, state plainly the rumor is nonsense, and explain in simple business terms why it could not possibly be true.

2) Defuse the rumor by telling people that under the circumstances it is natural for rumors to circulate, and it is almost always true that they are not borne out by later events.

3) Emphasize that the rumor would need a lot of analysis and decision making to have occurred before it could be true, and that there has simply not been enough time for anyone to do this.

4) Emphasize that your company – and indeed any professionally managed company – makes changes thoughtfully and gradually, so that sudden actions are not consistent with your way of doing business.

5) If the rumor is accurate, or partially accurate (which is only a 5% to 10% probability) – you should point out that it is only one of a number of rumors, and as such does not deserve any more credibility than any of the rest.

DO NOT fight fire with fire. Counter-rumors or other kinds of disinformation “planted” by executives in the parent company almost always add to confusion, uncertainty, hostility and lack of credibility, and quite rightly so.

6. INFORMATION

One of the most critical problems for the people in the newly acquired company is a lack of information, and a lack of trust in information. After all, most of the people had no part in the decision to sell, were not asked their views, and know nothing about the new owner or new management.

The years spent by the old senior management team in building trust and confidence has been largely dissipated, and an enormous information gap has suddenly appeared.

Most employees react very negatively to being sold, as this event tends to underline the fact they have little control over their lives. Because people need to feel in control, they have a very profound need to understand their new environment so they can come to terms with it and begin to exercise influence. Feelings of powerlessness will result in negative behavior, hostility and the characteristic “fight or flight” reactions. The feeling of powerlessness can be partially overcome by filling the information vacuum.

The structuring of effective, comprehensive and consistent communications is vital to the process of beginning to win commitment among employees in the acquired company.

  • DO develop a coherent communications story.
  • DO identify those individuals in both companies who are credible, persuasive and effective communicators.
  • DO assign specific communications roles and responsibilities to individuals. If necessary, temporarily relieve them of their other responsibilities.
  • DO counsel managers to direct questions to the selected communicators, if others are not able to respond to them.
  • DO utilize existing communications channels to the fullest – bulletin boards, house magazines, employee letters, departmental meetings, videotape, management meetings, computer hook-ups and E-mail, employee training facilities, etc.
  • DO add to the existing array of communications resources, particularly if messages need to be made public more rapidly than the existing arrangements will allow.

7. QUESTIONS AND ANSWERS

There are dozens of questions which employee at all levels believe they have a legitimate right to have answered.

  • DO ensure that all executives who will interface with any employee in the acquired company in any capacity fully understand their role in ensuring all reasonable employee questions are answered fully, in a responsible manner, and in a timely fashion.
  • DO structure an internal communications channel so that questions can be routed to those individuals who are charged with the responsibility of answering them.
  • DO develop a system to circulate questions and their answers to all managers interfacing with employees in the acquired company. This has two benefits. It ensures consistency, and it also ensures that many questions, which may otherwise never surface, but are nevertheless on the minds of many employees, are answered publicly.
  • DO NOT avoid questions, delay responses or allow questions to go unanswered. These patterns will simply add to the information vacuum and cast increasing doubt on your goodwill, integrity, professionalism and competence. If a question cannot be answered because it is a confidential matter, DO say so. In practice, most employee questions can be answered, and the fact that you refuse to respond to a small number of questions will not be viewed negatively.
  • DO NOT procrastinate. If it’s not possible to answer a question, explain why. It is rarely effective to promise to get back to the employee with an answer and then fail to do so. This type of behavior is noticed, and rarely viewed positively.
  • If you do genuinely need to refer a question to another manager, or if a response will take time; DO give a commitment about responding and follow-through. Your ability to make and stick to this kind of commitment will be respected.

8. LISTENING

The art of listening goes far beyond hearing the words that are spoken. In the early stages following an acquisition, the way in which comments are made can be as important, or even more important, than what is said.

Tone, delivery, body language, all indicates what the speaker is really trying to communicate, and what his underlying thinking and attitudes may be.

Disciplined, investigative listening is a useful tool and can be used as an integral part of the transition process to gain substantial amounts of useful information about attitudes, as well as giving good indications as to where implied meanings and hidden agendas may lie.

  • DO create opportunities for investigative listening, not only in everyday working situations, but also in more relaxed social contacts. It is sometimes valuable to have small lunches with different groups of employees, not only to conduct the more formal question and answer sessions, but also to have an opportunity to listen.

9. A QUESTION OF STYLE

The way executives who interface with employees in the acquired company conduct themselves has tremendous impact on the potential for success in the subsequent relationship.

It is tempting for executives in the acquiring company to adopt an air of superiority – even if they do not do so consciously. There can be a tendency to perceive oneself as part of the “winning” side, and take pride in the accomplishments of their employer, including of course the acquisition.

  • DO NOT allow these feelings to show. The people in the acquired company will be very nervous of their new masters, and any evidence that they are adopting the approach of a conqueror will tend to increase fear, hostility and resistance.
  • DO show respect for their achievements and competence; this is particularly important when a large company acquires a smaller one.

Typically, executives from the new parent will be perceived as a threat. Above all, you will be perceived to have absolute power and close to complete ignorance – an exceptionally dangerous combination. You are legitimate only because you work for the company which made the acquisition – you are both unknown and unproven, as well as being unwelcome.

The people in the acquired company are very eager and hopeful of finding that you are an honest, hardworking, competent executive, that you are aware that you do not know much about their operation, and that you respect them and are willing to give them a chance to prove themselves.

The most successful approach is humble, good-natured, open and factual.

  • DO NOT hide your ignorance of what is going on – it will become rapidly obvious to those around you if you do not know what is happening, and you will not be respected if you pretend.
  • DO try to imagine your feelings if you were in the position of the acquired-company executive. This is especially important if you have taken over a much smaller company, as in these circumstances people are often very intimidated.

Bear in mind that the acquisition has bruised many people’s egos, and that for the most part they now need building up most of all.

Some useful behavioral guidelines for the executive who has to work in the acquired company or at the new inter-company interface include the following DOs and DON’Ts:

  • DO avoid any behavior which might be perceived as arrogant. Your dress, your hotel reservation, your limousine or rental car, whether you get your own coffee or make your own phone calls – all are indicative, and so easily send the wrong signals.
  • DO avoid any behavior, which could be perceived as threatening. Hold meetings with parent company colleagues off-site, keep your office door open, try to spend little time alone, use your hotel room or home to make confidential calls.
  • DO show that you value the people in the acquired company. Admire those of their methods and achievements which you find positive, arrange for answers to their questions, dispel silly rumors, take time out to give consideration to their problems.
  • DO pay attention to the details of promptness, courtesy and helpfulness. The fact that you are perceived to be a polite, considerate individual will help dispel other concerns about your honesty or competence.
  • DO seek out every opportunity to get to know the people as individuals, so that you can identify and build on common experiences, attitudes and beliefs.

10. DIRECTION

People in the newly acquired business expect that the new owners will make changes. Their willingness and ability to respond to those changes very much depends on their clarity of understanding when it comes to direction.

If the new owners and managers are themselves not clear in the direction they aim to go, this simply adds to the confusion, uncertainty and fear which are already present.

If you are clear, but do not make an absolute priority of communicating your direction so that it is clearly understood, the effect is equally negative.

  • DO make a point of clarifying direction as early as possible, if only to eliminate rumors and remove options which are not under consideration from the minds of employees.
  • DO establish and communicate some broad guidelines for direction quickly. More detailed objectives, goals and plans can be evolved progressively.
  • If the managers and employees in the acquired company know what is expected of them, they can concentrate their energies in a focused and task-oriented way, rather than concentrating on speculation and feeding on uncertainty.
  • DO establish some short-term goals rapidly.

People need to know what to do next. Action plans with a 30, 60 or 90-day horizon will command attention, and serve as a means of getting people back to work.

Vague, strategic long-term goals are useful to dispel the worst concerns (shutdown, spin-off, major lay-off), but they do not constitute a call to action. If managers have specific measurable, realistic and challenging short-term assignments, they have something to get their teeth into.

You will have replaced uncertainty with focused effort, and the people in the acquired company will usually want to prove themselves to the new management by performing well and achieving the goals which have been set.

It does not really matter if these short-term objectives are in fact critical to the success of the business. They serve to focus energies and overcome perceptions of uncertainty. People like to be busy and show what they can achieve. You can refine and amend short-term objectives as you go as long as the initial direction is not completely in the wrong direction. Amendments are feasible as you become more knowledgeable about the new business.

DO NOT worry about short-term goals which involve evaluating alternatives, proposing or developing longer term plans, setting up joint task forces to make recommendations – in all these cases the call to action both removes uncertainty by gaining commitment and participation, and also focuses attention on task oriented activities which allow managers in the acquired company to prove their value to you.

If you do not define and communicate short-term goals, there is a risk which is even more serious than that effort will fall off simply because managers feel no sense of purpose. A common phenomenon is that managers in the acquired company will AVOID as many decisions as possible, minimize exposure to risks, and back away from existing ongoing tasks in case they are not popular with new management. If they do not understand what you want, they will work very hard to avoid giving you what they think you may not want.

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