Canadian HR Reporter Weekly

October 31, 2018

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October 31, 2018 Published weekly by Thomson Reuters Canada Ltd. CUSTOMER SERVICE Tel: (416) 609-3800 (Toronto) (800) 387-5164 (outside Toronto) Fax: (416) 298-5106 customersupport.legaltaxcanada@tr.com www.thomsonreuters.ca One Corporate Plaza 2075 Kennedy Road, Toronto, Ontario, Canada M1T 3V4 Director, Media Solutions, Canada: Karen Lorimer Publisher/Editor-in-Chief: Todd Humber todd.humber@thomsonreuters.com (416) 298-5196 Editor/Supervisor: Sarah Dobson sarah.dobson@thomsonreuters.com (416) 649-7896 News Editor: Marcel Vander Wier marcel.vanderwier@thomsonreuters.com (416) 649-7837 Sales Manager: Paul Burton paul.burton@thomsonreuters.com (416) 649-9928 Circulation Co-ordinator: Keith Fulford keith.fulford@thomsonreuters.com (416) 649-9585 Art Director: Dave Escuadro david.escuadro@thomsonreuters.com (416) 649-9358 ©2018 Thomson Reuters Canada Ltd All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, photocopying, recording or otherwise without the written permission of the publisher (Thomson Reuters, Media Solutions, Canada). Focusing on corporate culture critical for M&A success: Survey BY SARAH DOBSON When it comes to mergers and acquisitions, more than two-fifths (43 per cent) are delayed, termi- nated or see purchase prices negatively impacted because of culture issues, according to a survey from Mercer. Two-thirds (67 per cent) of respondents said they experienced "delayed synergy realization" due to culture issues, found Mercer's report Mitigating Culture Risk to Drive Deal Value, based on respons- es from more than 1,400 mergers and acquisitions professionals in 54 countries. "We spend a whole lot of time on the deal ra- tionale, the deal structure — what is the change agenda, what is the external environment doing that's bringing this integration to light, what is the business case for that change? — and we tend to, in the midst of that, assume that culture happens by default, that it'll just happen. We fail to focus on the people side of the business that really drives suc- cess," said Ilana Hechter, a partner in career busi- ness at Mercer Canada in Toronto. "Successful business leaders that really proac- tively adapt the same rigour in the front end with regard to culture as they do with their due diligence for all the financial aspects of the business, this re- ally leads to more success, and really this makes up culture — culture being at the epicentre of any busi- ness transaction." Whoever has the power dynamic in the merger, that's where the culture comes into play, according to Lynn Brown, managing director of Brown Con- sulting Group in Toronto. "If it's a smaller acquisition, there's just an as- sumption those smaller entities get scooped up and you will become the culture and it's not really considered. For employees, it's huge," she said. "And people don't recognize enough that it's re- ally important to do well and to recognize people are coming from a different culture and how that's different — everything from how people operate and how people manage, to policies — and is the organization that is driving the merger... are they aware of that? And are they making good decisions about how they're going to best help those people to assimilate into the new culture?" Drivers of culture Three-fifths (61 per cent) of respondents said "How leaders behave, not just what they say" is the number 1 driver of organizational culture, found Mercer. "Leaders are really aligned with the vision and the deal long before the rest of the organization is, and they tend to — once the deal closes — look to middle management to domino or influence teams to align themselves and to adopt new ways of work- ing," said Hechter. But many middle managers don't have the ca- pabilities or support to inspire their teams accord- ingly, she said. "ey haven't been part of these discussions pre- viously; they're still moving up their change curve from a cultural perspective. ere's legacy cultures that are still going to be maintained, and then new culture that's obviously part of this integrated or- ganization, so it's really dependent on both senior leadership and middle management, because indi- viduals look to their middle managers for direction and for guidance." It's not just about assimilating Company A cul- ture with Company B's, but creating a new culture, said Brown. "And it's the leadership that talks about the new culture, and tries to drive that forward, that tends to be successful." Solutions for success e report also offers a three-step plan on how to best mitigate culture risk: First, clearly articulate deal objectives and risks; second, insist on "confir- matory cultural diligence"(such as assessing leaders and identifying red flags); and third, prioritize cul- ture (including measurement and communication), especially through the first 100 days post-signing. "Approaching it in the same way — with the same rigour and diligence that we do with all other finan- cial aspects of the deal — is critically important," said Hechter. "ere needs to be a concerted effort at the start and all the way through, to be aligned on how the organizations will operate together, what the cul- ture is going to look like, what it's going to do, and how it's going to work together, how is that work environment going to come to life, and how do you integrate that and infuse that into day-to-day op- erations, from both sides?" It's all about change management, alleviating people's fears and walking the talk, said Brown — and human resources plays an important role in the process. "If it's the first time you're going through a merg- er, HR tends to get tasked with doing a lot of the legwork of the transition, so things around: 'Is ev- erybody switching to benefits and is everybody get- ting on the payroll, and who's going to work in what department and are we laying people off?'" she said. "And the really important thing is for HR to be at the table at the strategy meeting when this is happening. I think it happens more (often), but it doesn't always happen. It also depends on how se- nior is the HR person in the role."

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