When cultures collide

The proposed multi-billion pound merger between Taylor Woodrow and Wimpey is the latest high-profile union between corporate giants. If approved it would create the largest housebuilder in the UK and follow Google’s acquisition of You Tube, News International’s takeover of Myspace.com and the fusion of Time Warner with AOL into the headlines.

Mergers and acquisition (M&A) activity is a fact of life in today’s business world. But that doesn’t mean a merger or takeover is always going to be successful. There’s a lot more to making it work than product synergy and executives who share the same vision. One of the biggest hurdles is the inevitable clash of corporate culture and nowhere is this felt more than on the ‘shop floor’. So what’s the secret of a successful merger?

According to a recent study, more than 90 per cent of M&As fall short of their objectives because of a lack of focus when combining corporate cultures. David Derain, the European M&A director of corporate strategy consultancy Hay Group, which conducted the study comments: ‘Firms prioritise financial and systems due diligence at the expense of the vital, intangible assets, critical to a merger process – such as business culture, human capital, company structure and corporate governance.’

Derain’s UK counterpart, Deborah Allday, says it is people that are central to business culture and their treatment will determine if mergers are successful. ‘The intangibles in a construction firm are the people who manage the client relationships, the people with good links to the planners and local authorities, and the project managers, of course. These are the unrecognised assets who go home every night. And whenever a merger is announced you can be sure the head hunters will already be hitting the phones. If you want to hold on to them it’s important to engage with them as early as possible and say: “this is the strategic vision for the future”.’

Graham Jones of performance consultancy Lane4, offers another angle. ‘A company’s culture is “the ways things are done around here”. It might mean having to read between the lines to understand what in one company an email from the chief executive really means or being aware that in the other company upward feedback doesn’t exist, for example.’

Murray McCall, partner with legal firm Anderson Strathern, says there are a number of cultural differences that may need ironing out out to ensure a successful merger. ‘You might find one firm’s culture takes discrimination very seriously while another allows lively banter. There could be potential for confusion there.’

Also, any changes to sick pay and maternity leave, or the imposition of, say, attendance monitoring, can create an unwelcome ‘them and us’ mentality on the shop floor he adds. ‘The new entity must clearly communicate the new values so there is no confusion,’ says McCall who suggests genuine employee engagement is required to do this – it’s got be more than an everyone email. Allday agrees: ‘Take a qualitative approach. Walk around and talk to the staff to see how they are taking the news. Ask their opinions.’

Employers must introduce changes through a proper consultation process. And that, says McCall, can mean engaging with unions or an elected employee representative. Salaries, obviously, are a major issue too. ‘You have to equalise salary scales post merger. You don’t want two pay rates. But thrashing out the precise terms and conditions could come further down the line, post merger because there might be some natural fallout. Ultimately, those in it for the long run will embrace integration before terms and conditions are finalised.’

Whenever a merger is announced you can be sure the head hunters will already be hitting the phones

Taylor Woodrow says that the biggest challenge facing their merger with Wimpey is IT integration. ‘Most companies don’t have anything like the same systems in place,’ says Doug Weston, an executive board member of Taylor Woodrow’s construction arm (which will remain a discrete company within the proposed merged group). He reels off a number of issues. Is the capacity enough? Does it provide the right support? What are the additional licensing costs?

Cultural integration is being tackled, however. Taylor Woodrow communications director Ian Morris explains that an integration team, hand-picked from both firms, will lead the process. ‘Having a mixed team reassures all staff that the merger is not a crash and burn exercise, that it’s been undertaken in a fair manner. We want to hold on to the best people. And we want to look for best practice in every thing we do. It makes commercial sense.’ Weston concurs, suggesting that communication workshops will help to smooth the transition.

Selecting the top tier of management is equally crucial for successful mergers. Says Allday: ‘It can’t be a case of “you get the chairman, we get the chief executive”. It shouldn’t work like that. Both sides have to be objective.’

From the outside it looks as if this is what Taylor Wimpey – the proposed name of the new firm – is doing. Wimpey chief executive Peter Redfern will maintain that position at the head of the new company, with Taylor Woodrow supplying the chairman, Norman Askew. But Taylor Woodrow chief executive Ian Smith has already said publicly that his exit and Redfern’s instalment, ‘made sense for the business’, while others have reported that the merger had been brokered in an ego-free environment.

Smith is not the only one to lose his job.

As with all M&A there is significant fallout. From a combined workforce of 14,000, 700 will be made redundant. Both firms have said all site operatives will be retained with only duplicated administrative staff affected.

But that might not be the end of the story. A refocus of management structures could lead to more job cuts post merger. There may even be a need for more recruitment. If, though, as Allday suggests, you look after the cultural assets as assiduously as the finances, your firm will be better placed to deal with such changes.