Fits and starts
The curse of the corporate culture clash
● Tariffs, trade wars and rising nationalism may command headlines, but they have done nothing to dent global dealmaking. More than $2.5-trillion (about R33.8-trillion) in mergers and acquisitions have already been announced this year and if the pace continues, 2018 is likely to surpass 2015’s $5trillion in M&A deals.
Partly, this reflects the end of a long cycle of easy money in which companies are looking to get that last bit of juice out of their stock prices. Some of the largest deals, such as AT&T-Time Warner, Disney-Fox or CVSAetna, are about traditional companies trying to compete with the big internet groups by building scale. Either way, it is worth remembering that more than half of all mergers destroy shareholder value.
What sets successful mergers apart from the failures? In large part, it is having a good cultural fit. Corporate culture is, of course, predicated on many things: a company’s nation of origin, the type of talent it calls for, the industry it is part of, and so on. But all these can be categorised in a binary way: is the culture “tight” or “loose”?
While all cultures have their norms, tight ones — whether they exist in countries or companies — tend to enforce their norms quite strictly, whereas loose ones are more tolerant.
Michele Gelfand, a psychology professor at the University of Maryland, whose research on cultural norms has been used by the US Department of Defence, suggests that countries as diverse as Japan, Norway, Singa- pore and India have tight cultures. She classes those of Israel, the Netherlands, Greece and the US as more or less loose.
The results of her study of 33 nations, first published in the journal Science in 2011, show that levels of tightness were highest in South and East Asian nations, then the Middle East, and Nordic or Germanic countries.
The Latin, English-speaking and former communist nations are the loosest. The latter may be at least in part a response to a period of strict Soviet rule. Extreme cultures can trigger a counter-reaction, which is perhaps one reason the rise of a liberal coastal elite in the US has been countered by right-wing populism in the country’s heartland.
Globally, cross-border deals have nearly doubled relative to the first half of last year, meaning that cultural conflict could play a more important role in M&A than usual. In her upcoming book, Rule Makers, Rule Breakers: How Tight and Loose Cultures Wire Our World, Gelfand outlines research on 6 000 significant mergers in more than 30 countries between 1980 and 2013.
She finds that a large tight/loose gap between the corporate cultures of the parties involved resulted in a lower-than-average stock price and lower returns for the investor. The largest gaps analysed resulted in a loss of $30-million within five days of the
What sets successful mergers apart from the failures? In large part, it is having a good cultural fit
announcement, which seems to indicate that markets understand cultural gaps even when buyers themselves do not.
All this suggests that investors should perhaps be happy that Broadcom, the Singaporean chipmaker, was blocked from buying US tech company Qualcomm by the Trump administration in March. The two companies come from countries that are, according to Gelfand’s research, unlikely to mesh well.
But even companies within a single country can have wildly different cultures. Consider the recent Amazon-Whole Foods deal, which may give reason for concern. While many internet companies have loose cultures (think Uber or Facebook), Amazon founder Jeff Bezos runs his company with a tight top-down structure.
Performance is constantly surveilled, evaluated and reviewed. That is quite a contrast to Whole Foods, which has a looser culture that can be traced to its hippie roots.
No wonder there are now stories of grocery clerks crying on the job and store shelves going empty at Whole Foods.
This kind of culture clash does not bode well for investors.
Fostering diversity is not easy, but the best companies do it. Chinese internet groups such as Alibaba or Baidu are influenced by the strictures of the state, and yet they find ways to remain creative and nimble.
The key is not to be blindsided. Successful corporate marriages result when each partner knows what they bring to the table.