Acquiring minds want to know: What’s the key to a successful corporate merger? As it turns out, it’s strong leadership assessment and development programs.
According to research conducted by Hewitt Associates, an HR consulting and outsourcing firm, the effectiveness of leadership and talent processes is a key contributor to successful deals. With deal activity — mergers and acquisitions, divestitures and initial public offerings (IPOs) — expected to pick up in 2010, addressing leadership and talent will take on increasing importance and require sustained effort.
“These issues — leadership and culture — because they’re less tangible and less measurable, continue to perplex organizations as to how to handle them,” said Elizabeth Fealy, global leader of Hewitt’s corporate transactions and transformations group. “This really requires sustained focus not only of HR, but the leadership team, to integrate leaders, and you see that [often in] the top companies for leaders.”
The research, part of Hewitt’s quarterly M&A “pulse” surveys, indicated that 72 percent of the 278 organizations surveyed around the world expect deal activity to increase during the next two years. A majority of companies (65 percent) indicated that leadership and key talent retention are key to the success of a deal, and nearly half reported that they lost critical employees at the same rate or at a higher rate than non-critical employees. A separate Hewitt analysis of 96 companies representing $568 billion in total deal value found that more than 10 percent of a deal’s value depends on the rate at which critical employees leave during or after a corporate transaction.
“The level of rigor around this process needs to be pretty high, and the sustainability of the assessment and then integration and on-boarding of the leadership and key talent needs to be very consistent, not only around the diligence [phase] and at close, but further on,” Fealy said.
In comparing survey responses from companies that exceeded their deal objectives with those that did not, organizations reporting that they achieved or exceeded their goals had more robust leader identification and assessment processes in place. Those high achievers also reported that they deployed those processes in transactions.
“When the overachievers and the underachievers assessed the impact of their processes, the overachievers pretty starkly outshone the underachievers in terms of saying their processes are more effective,” she said.
Both overachievers and underachievers reported that leadership and talent strategies were important to the success of the deal (69 percent and 62 percent, respectively), but a minority of underachievers reported that their strategies and processes were effective (32 percent) compared with 70 percent for overachievers.
“The biggest takeaway is you have to walk the talk,” Fealy said. “You can say that you have an approach, but if you don’t apply it, or if it’s an approach that’s not effective, it’s not going to deliver the results you need.”
What can CLOs do to ensure the company retains its value, both before and after a transaction or merger? Fealy said there are intervention opportunities throughout an M&A process to ensure that leadership and talent value is retained.
These include having leaders and key talent participate in integration teams, having them participate in ongoing leadership development programs and on-boarding, and assigning them coaches and mentors.
“Both the overachievers and underachievers trail off from [the] close [of the transaction] in the level of sustained activity against these types of interventions, but the overachievers definitively are doing this more than the underachievers,” Fealy said.
Fealy also recommended that companies conduct a robust review after the close of a deal that goes beyond the limited evaluation conducted as part of the diligence phase.
“Your level of information about leaders [and] your level of access is going to be limited,” she said. “A refresh of that within a few months of close to make sure you truly understand if these are the right folks to take the company forward is key.”
Having an effective leadership and talent development strategy and building that into the transaction operating model is important. Having this approach in place can help leaders head off post-merger difficulties with governance, communication and assignment of roles and responsibilities.
“There’s a lot of focus in deals around announcement and closing, and we need to make sure there are leadership interventions along the way to make sure they understand what their role is, what they need to do, how you need to take the new leaders under your wing and bring them forward, but also continue those on a quarterly basis just as part of your regular operating model,” Fealy said.
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