“We cannot direct the wind, but we can adjust the sails.” — Bertha Calloway
Board roles are well-worn, but they’re not carved in stone. Of course, boards deal with CEO issues. They govern, provide strategic direction and oversight to company objectives and performance. They’re instrumental in policy-setting, finance, and compensation concerns, including key decisions surrounding M&A. This was true before the pandemic, and it’s certainly not going to change.
However, the acquisition process has had to transform and change due to the impact of Covid. Before Covid, boards entered acquisition discussions later in the process, often just in time to review all the numbers and make sure the transaction made strong strategic and financial sense before giving their blessing. During Covid, business went virtual, introducing new challenges; yet the M&A playbook for boards has remained relatively unchanged. Boards continue to focus on numbers more than people, yet, during Covid, the complexity of the people factor in M&A has grown even more challenging.
Boards need to broaden their scope in the M&A process, particularly as recovery looms and the consolidation market heats up. They should not ignore the human side of M&A because, ultimately, half of M&A and the value of a transaction is about the blending of two groups of people.
As I write this, the U.S. just passed 530,000 Covid-19 deaths and 29 million cases. By now, most of us know people who have been impacted, sometimes severely, by this pandemic. Meanwhile, nationwide vaccination stands at 26.4%, and seemingly all interactions occur virtually. Some companies understand the strain, even burnout, this puts on workers and shareholder value alike; some don’t. But conducting an M&A process with people under these conditions introduces greater challenges and many potential pitfalls.
In short, Covid has created an urgency to prioritize humanity and empathy in the M&A process. It is, in fact, a necessary part of the board’s due diligence process, and the need for that humane diligence won’t disappear when we reach widespread immunity.
Businessolver’s fifth annual report, the “2020 State of Workplace Empathy,” offers some fascinating if occasionally disappointing findings. For example:
• Companies are slipping in empathy. In 2018, 95% of HR professionals rated their own companies as having empathy. Just two years later, during the pandemic, that number plummeted to 77%.
• Empathy links to business productivity. 74% of employees noted being willing to work longer hours for an empathetic company.
• 87% of CEOs believe their fellow peers in general are empathetic. Only 45% of employees agree.
• 94% of employees feel face to face is the most empathetic way to communicate.
The report also shows that the vast majority of employees (88%) consider flexible schedules that will accommodate caring for family, as well as work-from-home options, to be important or very important. Given this, you can imagine the clash that might ensue if a company that has taken empathy to heart in practice gets acquired by a company that has not. Such conflicts are part of why acquisitions often fail due to poor diligence and assessment around cultural fit. Expect these cultural disparities to be more pronounced during and after Covid.
Look again at that CEO empathy statistic above and question whether your board falls into the same perception gap. If a board believes it is empathetic, but employees see no sign of this, how do you expect perceptions of a board-supervised M&A process to go? Empathy ripples outward into other concerns that might be more familiar to boards, such as cultural compatibility, stakeholder reactions to the acquisition, and employee morale. If boards are unsure how to address empathy directly, then these other factors may be more accessible and serve as a collective proxy for empathy.
So much of these human M&A elements boil down to communication. Factors like morale are easily quantifiable through pulse surveys, but this depends on executive and management structures that value such communications and will heed their results. Similarly, everyone knows that key talent is important in M&A, but understanding key talent’s feelings obviously requires asking them. Do they believe in the deal? Do they recognize how the transaction will bring critical IP or new capability into the business? Are they being made to feel a part of the process or only dragged along?
These preliminary communications open doors to subsequent human issues: Who will lead the integration and why them? Not having a strong executive sponsor in the acquired company is a kiss of death. That person or group needs to be integral in the process from pre-deal far into post-deal, because the real acquisition work doesn’t begin until after closing. Before closing is 80% money; after closing is 80% human, which is to say 80% based on empathy.
In my experience, pulse surveys are essential to quantifying the human side of M&A processes. Valuable survey metrics include:
• Employee sentiment in both the acquiring and acquired groups. Survey on engagement before and after the acquisition to gauge any extent in emotional downturn.
• Retention of not only acquired employees but also key management and key talent who were identified during the deal. An exodus clearly indicates unexpected dissent and/or culture clash.
• Perception of synergy. Every transaction is expected to generate synergies, and the subsequent financial documents will give one impression of synergy. But also find out if people feel there is synergy. You might discover that they perceive high levels of redundancy or excessive cutting, either of which will undercut morale.
Even consider returning to these pulse surveys a year or two post-merger. For example, what became of the key talent identified during the deal? Are they languishing, or did they become leaders? Again, empathy will likely be a factor.
It Can’t Always Be Video
This brings us back to current and post-Covid processes. How do you handle this human-centered work in a virtual environment? As we all know by now, Zoom/Teams/Webex fatigue is a real thing. Trying (inevitably unsuccessfully) to overcome the dampening of physiological cues and compression of voice and breathing subtleties takes a toll. At a time when we need more humanity in the M&A process, our medium for cultivating that humanity is stifling.
It’s not to say that virtual meetings are bad, and they’re clearly better than no meetings at all. However, there’s a time and place for virtual meetings, as long as they are supplemented with important two-way interactions focused on M&A’s human concerns. If there’s no other option, then sure, video will have to suffice. Otherwise, push for that in-person presence, even if socially distanced.
Whether M&A meetings are virtual or face-to-face, there should be other data-driven elements in the discussion, such as Slack communications analysis. The more data you have, the more a complete picture of the person and organization will emerge. This begs the question: Do you base your assessment of communications on gut feel and empathy or cold data? I believe the answer is both. When in doubt, though, I’ll lean on data first and then cross-check those analyses with emotional impressions. Naturally, that emotional signal is going to be clearer in person than over video.
Setting Tomorrow’s Template
We’re entering a period when companies will face a choice over how they will conduct communications going forward. In the past year, a time of immense loss and social vitriol (which also breeds the impulse for social distance), we learned that companies can survive solely with virtual communications. Moreover, they can function more economically with remote technologies than by requiring face-to-face meetings — at least in the short term. If there is a bias in the M&A process on finances and economy, then it may be tempting to minimize in-person communications or at least relegate them to virtual interactions.
However, if you see the need for more humanity in your M&A process, if you want to enjoy the many tangible and intangible benefits that come from increasing empathy, then I encourage you to consider the above and make people a greater part of your board’s M&A due diligence.