Understanding National Cultures in M&A

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By Mark Herndon
May 4, 2016

(Eighth in a Series on Culture)

This week’s topic is an increasingly important one for many acquirers. A question in our recently completed survey, the State of M&A Integration Effectiveness, asked, “When acquiring globally, we tend to experience integration challenges or business results that are…” The answers were not surprising. Thirty-five percent of respondents indicate that their global M&A results are “much worse or somewhat worse” than domestic deals, while only five percent indicate their global M&A results are better than domestic deals.

"We should not attempt to change behaviors driven by national culture.  Rather, they provide us with a baseline understanding of local values and behaviors."

Global M&A is more complex than domestic transactions for many reasons, but one of the most frequently cited is the difficulty in understanding and dealing successfully with the differences between national cultures. To help guide us on this important subject, I’m delighted to introduce you to a mentor, friend, colleague and renowned expert on this subject. Len Gray is the former Global M&A Practice Leader for Mercer and the founder of Mercer’s M&A Ready™ Executive Development Program which is now in its 14th year and has offered in approximately 10 countries and five languages. Over the last 30 years with both Mercer and Deloitte, Gray has lived, worked and consulted extensively across all global regions. As he recently retired from Mercer, we are pleased to have the opportunity to work with Len in his capacity as an advisor to the M&A Leadership Council.

I had a chance to discuss the importance of understanding national cultures in M&A with Len recently and wanted to summarize our conversation for you here: 

MH: Len, let’s start by helping us understand how you define the difference between national culture and organizational (corporate) culture.

LG: There are significant differences between national and organizational culture, yet both are very important to consider carefully as companies grow through global acquisitions. It may be helpful to briefly capture the definitions used by thought leaders in the field, Geert Hofstede and Edgar Schein. Based on significant research over many years, Hofstede defined national culture as “the collective programming of the human mind” which shapes individual values through socialization in their early years. Schein defines corporate culture as “the beliefs and values shared by senior managers regarding appropriate business practices.” In terms of how these may be viewed during a transaction involving multiple country and region cultures, national culture is a given and needs to be understood, recognized and respected as interactions are taking place with others in all of the organizations involved in a deal. Corporate culture is different in that it is created and perpetuated by those who are part of an organization—ideally in a thoughtful way to support the business objectives of the company.

MH: Everybody’s heard the phrase, “the unfortunate thing about stereotypes is that they are so often true.” What is your view on national cultural stereotypes, and what should we as M&A professionals do to understand and deal with these stereotypes?

LG: Stereotypes are generally reflective of typical behaviors which we frequently observe in a given location or country. The danger is that we can overgeneralize from the stereotypes in a way that does not reflect individual behavior which may be experienced or, worse still, our reactions may be tainted by the conventional wisdom reflected in the stereotypes. The more positive and helpful view is that stereotypes enable us to consider and begin to understand local business practices, etiquette and cultural clues which can be used to work more successfully in different parts of the world.

MH: Beyond the surface level of stereotypes, there is substantial research that has validated certain core national culture attributes that are distinctly different among and between certain national cultures. This downloadable resource, Hofstede – Dimensions of National Culture, briefly summarizes this research. What are some of the most important core attributes to be aware of during an M&A?

LG: The Hofstede dimensions are well researched and give us insight on differences between countries in the key categories of power distance, time orientation, career success/quality of life (masculinity-femininity), uncertainty avoidance, and individualism-collectivism. These dimensions are a good framework for measuring and considering differences between cultures.

I also recommend Terri Morrison’s publications and similar research based on her Kiss, Bow, or Shake Hands books which provide summaries of business practices and expectations for major countries. I came to view her book as required airplane reading while traveling to new countries during my time in Asia. It is important to emphasize that the national culture side of our cultural challenges is one where leaders must become knowledgeable and respectful of local practices in a way that allows them to behave with deeper understanding and appreciation. We should not attempt to change behaviors driven by national culture. Rather, they provide us with a baseline understanding of local values and behaviors as we shape our organizational culture and expectations to support the business objectives of the combined company following the merger.

MH: Once we are aware of and able to discern differences in core national cultural attributes, what should we do about them, for example, during M&A integration?

LG: The significant research on culture during M&A integration consistently shows that while leaders indicate culture as one of the most important challenges in doing deals, it is rare to see cultural integration issues addressed in a planned way. National culture awareness and behaviors supporting the beliefs of others is reasonably easy to accomplish through training. It is harder to understand current organizational culture, develop a plan for aligning culture with business outcomes and then to consistently execute that strategy as part of the overall change leadership approach during integration.

To increase the likelihood of success, it is necessary for acquirers to have a culture integration process in place which begins with preparing and training integration team members in advance and during projects. The methodology followed must consider national culture considerations as well as the more difficult organization culture integration opportunities.

MH: Can you share an experience that you’ve had where being aware of and respectful of the host national culture made a positive impact during an M&A integration?

LG: I had an “aha” moment while working on a project in India when a team leader had agreed to complete a specific activity but, unlike the other parts of the project they were responsible for, no progress was being made. I reached out a few times to see how things were progressing but received elusive replies. As part of my training in preparation for living in Hong Kong, I was exposed to the idea that sometimes “yes can mean no” in parts of Asia. After several weeks of working with this team leader, it dawned on me that the barrier to getting this part of the project completed may have been that we never really had full agreement about the right actions even though planning had been done together with what was viewed as a very collaborative process.

As it turns out, there were several alternative ways to complete the required activities. I had a conversation about a few of the possibilities with the team leader and, to our relief, we arrived at a way to move forward using an alternative approach. We were able to save face for everyone involved and complete the necessary activities. Without cultural awareness training, both this specific integration objective and our ongoing relationship with this key individual would likely have been at risk.

MH: Len, thank you for your insights and guidance on this important subject!

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