6 tips for aligning organizational cultures during a merger

What is organizational culture?

Organizational culture refers to a company’s beliefs, values and attitudes, and how these influence the way your team acts and makes decisions.

Culture affects how people experience a company. It can be seen in policies such as dress code and office hours, and it informs things such as workspace design and employee perks.

Culture is usually set by a company’s leaders and shapes what behaviour is acceptable or unacceptable.

“Culture is not something that shows up on the income statement or balance sheet,” says Devesh Dwivedi, Senior Business Advisor with BDC Advisory Services. “Culture is a direct reflection of the founder and early team that built the business.”

It’s also a set of behaviours that you, as a boss, have allowed to take place in a group setting, he says. “You may not have shown that behaviour yourself, but you may have allowed it,” and offers the example of people regularly coming in late to meetings. “What you permit is what you promote.”

Learn all you can about the other company’s culture

A company’s culture is an important asset, just like its building facilities, intellectual property, customer relationships and employees. So, it’s vital in a potential merger to find out as much as you can about the other company’s culture—just as you would about their finances.

“You need to perform an audit to understand their culture and values,” says Adam Nalepa, Senior Business Advisor, with BDC Advisory Services. “This involves interviewing staff, key individuals and stakeholders, and getting a feel for how they operate.”

According to Nalepa, this kind of deep dive shows whether their values are embedded in their middle management and leadership. “Do they have that northern star, that guiding light? Do they know why they come to work each day?”

If you want to understand another company’s culture, observe its management style, work quality and employee relationships, see if these align with your philosophy and if changes are needed.

If turnover is high, consider the reasons. Is it industry competition, an aging workforce, or something preventable by the company?

Since evaluating culture can be tricky, and you’ll want to avoid asking questions during negotiations, it’s best to have a neutral third party conduct the audit.

How to find out about another company’s culture

If you’re looking to merge with another company and want to find out how well its culture fits in with yours, there are questions Dwivedi suggests you ask (through a third party):

• How do you make decisions?
• How do you budget?
• How do you spend money?
• How do you promote people?
• How do you decide on raises?
• How do you plan equipment purchases?
• Why were the last three people fired?
• What reasons did the last three people who chose to leave give for their departure?
• How do you pay out dividends?
• What’s your take on gender pay gap?
• How do you deal with environmental sustainability?

How to bring two cultures together before a merger

Nalepa says too many businesses fail to take the merging of cultures seriously. “Oftentimes we see two companies coming together and there’s a lot of discussion on synergies of operations, but very little focus on the people. There’s an assumption that, ‘Oh, we’ll just be under one umbrella now.’”

He advises merging businesses to make these key efforts:

• Dedicate one or more people to manage the transition.
• Maintain open communication with employees (many of whom may be worried about their jobs).
• Ensure that all staff understand the reasons behind the changes.

6 ways to integrate company cultures

Nalepa says many of the companies he advises are small-to-medium-size businesses that don’t have their own HR departments or any entity to deal with the high-impact changes that mergers bring. He suggests ways that will help you and the other company—even if you’re small outfits—merge your two cultures.

1. Dedicate a job to the merging of cultures
   It helps to have at least one person dedicated to the transition. This person can handle communications, identify opportunities for improvement, assess potential barriers to the potential merger and report their findings to the leadership team.
2. Clearly explain why the merger is happening
   Employees need to understand the reasons behind the merger—whether your company is acquiring another company or being acquired. Nalepa emphasizes that this crucial information is often communicated poorly, if at all.
3. Be transparent and reassuring with all the changes taking place
   Explain to employees the benefits and possible challenges the merger will bring them. Hold townhalls and workshops to help everyone understand both companies and ease employee concerns.
4. Give your employees a sense of purpose
   People should know their roles, responsibilities and purpose, and how they will contribute to the company’s goals.
5. Solicit feedback from employees
   Create a feedback loop to gather employee input on various issues, which will help the business understand the impact of the merger and help the integration run more smoothly.
6. Know when to stop soliciting feedback
   Too much input from various parties and too many opinions can prolong the merger’s timeline. At a certain point, you must decide when you have gathered enough feedback.

When a merger brings in cultures clashes

Dwivedi has seen many odd-couple mergers, where one company was more formal in their processes than the other.

“One was used to making decisions by budget, the other doing it more cowboy style,” he says of one in particular, explaining that the latter company lacked things like clear schedules and job descriptions.

He suggests that when businesses clash, they should set a target operating model. “This means that, yes, I had my own way of operating, but this is how we will run this now. And these are the behaviours we find acceptable and unacceptable,” says Dwivedi, who cautions patience, since “culture is one of those things that you’re not going to fix in one day.”

Nalepa, too, has seen inconsistencies among the merging businesses.

“You’ll see a situation where Joe is getting three weeks off, but not Bob.” He also met one business owner who used “a gut feeling” to decide who got bonuses each year.

Nalepa emphasizes the need for established policies that clearly communicate expectations to employees and create an even playing field. Dwivedi agrees: “Let’s have a very clear, objective way of assessing people.”

Sometimes, differences in company cultures can lead to reverse mergers, where the policies of the acquired company become the guidelines for the new single entity.

“Culture is not at the mercy of the size of the business,” says Dwivedi, who has seen smaller companies with better practices and strategies than the larger company acquiring them. “You must admit when your company isn’t being run as well as it could be. The real question should be ‘What is best for my business?’”

Nalepa has seen larger companies adopt the practices of the businesses they acquired: “There are good examples of larger businesses that listened to the smaller company they acquired and adjusted how they operate accordingly.”

Next step

Considering a family succession, a sale or a transition to employees or managers? Download the free BDC guide, Preparing your Exit Plan.