Boards now seeing Culture as the big merger success factor.

August 22 2019

Boards now seeing Culture as the big merger success factor.

We’ve noted for some time that Strategy is number 1, but Culture eats it for breakfast, and the good news is that the Director community is increasingly coming out and clearly identifying the importance of culture.

While this may be partly in relation to directors responding to tighter regulation and the impact of royal commissions on directors’ duties, it also just makes good business sense.

It was clear again at this week’s M&A Conference, held over two days in Sydney and Melbourne, that Boards are now increasingly focused on assessing the cultural and social implications of M&A deals before signing on the dotted line.

Board discussions about culture in M&A, are often emerging only when the bankers leave the room, according to Sam Mostyn, a non-executive director at Transurban, Mirvac and Citi Australia. That’s when it’s time for the critical discussions about cultural fit and whether the proposed transactions will necessarily enhance the value of the company, she said.

Ms Mostyn said as directors put more emphasis on building culture and leadership and being more customer-centric, the role of investment bankers must shift with it.

AMP and Westconnex director John O’Sullivan noted that boards should also look through short-term challenges around a deal, including upsetting existing management and boards.

He may have been stating the obvious in saying that if two organisations were so culturally different that they couldn’t be merged, then you shouldn’t do the deal. But he did note also that if such a deal was done, “there will be cultural upheaval”.

Along with continuing M&A deals in the coming year, it’s expected that demergers will also boost deal activity.

The important thing is not to leave culture till the last minute. Business strategy alignment is one thing, but culture is what enables all the apparent gains to be delivered with reasonable efficiency or not. This includes culture at the Board and Exec levels, as well as deeper into the organisations. Great organisational mergers, and there are some within our client group, are more likely when the culture conversation is started early.