A good fit: merging firms should consider culture compatability

Why is culture so important to merger integration? In 2006 Harvard Business School published a study entitled 'Nine steps to prevent merger failure'. It examined what it called nine 'deadly sins' that are risks to the successful execution of a merger. One of them was described in the study as 'cultural disconnect'. All too often, in my experience, the cultures of two businesses are overlooked, any merger planning process.

Understanding the respective cultures of two firms is crucial in deciding both whether to merge them and how to execute any merger of them.

Why does culture matter in a professional services firm?

Mention the word 'culture' and some people will repeat tired old jokes about mould in unwashed coffee cups. That does a disservice to a key component of any business, and one particularly crucial to planning for the effective execution of a merger.

A professional services firm's culture is, for want of a better word, its personality. The firm's leaders - the partners - are the creators of its culture for a very straightforward reason: the culture of any given firm could be said to be nothing more than the aggregate of the way its partners choose to do business, the way they behave. It's the air that we breathe, the water that we swim in, how it feels to work somewhere.

Although any culture can be changed, when a culture is 'baked in' to the personalities of the partners, the change process will not necessarily be quick or easy.

Virtually all professional services firms will have a page on their website setting out a summary of the firm's culture and values. The crucial question in evaluating a firm is whether those words are just words or whether they actually describe accurately how the firm and its people behave in their real world. It is one thing, for example, for a firm to say that its people are team players, but quite another thing to ascertain whether those people actually behave as a team.

Given that the only stock on the shelves of a professional services firm is its people, how those people behave and do business is just as important as their technical competence and professional skills (and arguably even more important, in a world in which technical competence is increasingly 'taken as read'). That is why culture really matters in a merger context.

Finding the right cultural fit is therefore crucial

'There have been many people over the years that I haven't liked, or maybe they've taken pictures that I didn't like, but it's never meant that I couldn't have respect for them... It's difficult to explain, but usually when people are saying that something is no good, often what they really mean is that "it's no good for me."'David Bailey, Photographer

No two firms will have identical cultures, because no two firms have the same people in their partnerships. It is also vital to acknowledge that this is not a question of 'right' and 'wrong' cultures, nor about 'likes' and 'dislikes'. The task is therefore not to find identical cultures, or right cultures, but rather compatible cultures. In the words of David Bailey, a firm needs to find something that is 'good for it' in the culture of another firm.

Let me illustrate that with two examples from real conversations over the last few years, with two partners in two different law firms, each very successful and well respected. The senior partner of one firm described to me how his partners made decisions, sitting down together around a table on a weekly basis. He was perfectly well aware that that decision making process was probably unique - and certainly not common - among sizeable law firms in the twenty first century, and accepted that it might well not work for most firms, but it worked for his firm and was an important component of a cohesive team culture for his partners. The partner in the other firm explained to me that they were a 'one man one vote' partnership when it came to making decisions, and that 'the one man with the one vote' was their managing partner. The observation was made with evident affection and respect for their managing partner.

Neither culture is 'right' or 'wrong' and neither is 'better' or 'worse'. They are, however, very different. Trying to blend the decision making styles of those two firms - one consensual and the other hierarchical - into one merged entity would be challenging. It is therefore really important to identify the cultures of two firms, and to be satisfied that they are compatible, before trying to merge them.

Identification with a view to evolution, not preservation

Having achieved clarity and understanding as to what the two cultures are, and that they are compatible, it is then important for all partners to truly accept and understand that the merged firm will not be the same as either pre-merger firm. One of the attractions of a merger of two firms is the opportunity to integrate, and benefit from, the different elements of the two cultures so as to create a better whole.

So often over the years, both in my own firm and in firms I have advised, I have heard variations on 'we did it this way' (sometimes intended to connote good) or 'they did it that way' (sometimes intended to connote not as good) in terms of culture, values, and behaviour. But the crucial question is: what is the right way for the merged firm to do it? Sometimes it may well be the case that the best thing to do is what one of the pre-merger firms did. Equally, sometimes it will be better to move to a way of doing things that is new to the merged firm and came from neither pre-merger firm. In either case, however, the vital piece of the jigsaw is an understanding that the pre-merger firms are 'the past' and 'a foreign country': what now matters is what is right for the merged firm.

Integration and execution is about evolution and improvement, not about preservation, protection or, worst of all, 'one upmanship'.

Actions speak louder than words

'The three rules of Wall Street: Never play by the rules. Never pay in cash. Never tell the truth.' F Ross Johnson, President and CEO, RJR Nabisco

Lip service is one of the most dangerous enemies of post-merger integration. In a newly merged firm the staff will watch the partners very closely to see how they actually behave as individuals, both in terms of actions and in terms of body language, and will themselves behave accordingly. And so will the clients of the firm! Ross Johnson was a client of Wall Street when he made the observation recited above - he focused not on the words spoken but on what behaviours he believed he saw. In case any reader is not yet convinced of the importance of culture and behaviour, it matters to our clients too.

As a merged firm evolves, changes, grows, and develops in order to realise the potential that should have been one of the main reasons for deciding to merge, not only the partners but all of the people in the firm must keep in mind the crucial importance of actions, not just words.

Cultural integration is a team game: everyone needs to play

It shouldn't need saying that the partners in a firm should truly understand the importance of culture and values, but successful cultural integration isn't just a task for 'management' or 'boards'. Every individual makes a difference, by how they live and what they do.

Once again, that applies at all levels. So, after one merger, an individual partner was described to me by his departmental colleagues as a 'brooding presence'. He thought he was not interfering, but the non-verbal messages he was transmitting were very loud and clear.

After another firm had settled its strategic plan it took its in-house costs draftsman to articulate the view that the plan could only be executed by merger for the partners to see that clearly. When a third firm, relatively newly merged, published its culture and values statement, a young secretary became an inadvertent champion of them by reciting them to a partner behaving contrary to them, with the result that the behaviour in question changed.

Effective execution requires the participation of everyone in a firm, not just management or the boards. And it will take time. Years ago I was struck by an observation by Geoffrey Howe, the first managing partner of post-merger Clifford Chance, when he was interviewed on the tenth anniversary of that merger. He was asked how long it had taken to achieve 'one firm' post-merger. His answer was five years, because he thought it had only really happened when there were more people in the firm who had only ever known Clifford Chance than there were people who had known the pre-merger firms Clifford Turner or Coward Chance.

Creating - genuinely creating - a merged firm culture is not a quick job at the best of times, which is why it is really important that the two merging cultures are compatible and that everyone in the merged firm understands the need to play their part in the integration process.

Don't simply varnish the cracks!

'Culture is one thing and varnish is another.' Ralph Waldo Emerson

If a firm understands what its culture really is (and why it is as it is), takes care to ensure that its merger partner is culturally compatible, embraces the opportunity to benefit from change, realises the importance of actions and that those actions should come from everyone in the firm, there is a significantly better prospect of that firm executing a merger successfully.

If, on the other hand, a firm does not understand those things, the risk it runs is that it will execute a merger merely by applying a coat of varnish over some structurally significant cultural cracks, that will then almost certainly re-appear at a later date and inhibit its prospects of success.

Mark Jones leads the professional practices consultancy at UK law firm Addleshaw Goddard
(www.addleshawgoddard.com)

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