Aspects of Cultural, Leadership and Shareholder Differences in a Merger - Research Paper Example

Aspects of Cultural, Leadership and Shareholder Differences in a Merger Table of Contents Cultural Difference 2 Role of Shareholders 6 Leadership Styles 9 What should have been done by the parties involved? 11 Reference List 17 Cultural Difference In Richard Barrett’s words, the organisation culture is just a reflection of the perception (beliefs and values) related to leadership in that organisation. He had also stated that the issue of survival have become global, but the strategies to deal with them are still national (Fullinwider, 1996, p. 65). The above two statements highlight a fact that culture of an organisation is a significant element and it is established and maintained by its human resource. Cultural difference was defined by the American Heritage English Dictionary as “The totality of socially transmitted behaviour patterns, arts, beliefs, institutions and all other products of human work or thought” (Barrett and Eneroth, 2012). This signifies that when a group of people work together or spend time together, they develop a pattern of habits that become the culture of an organisation. Now when another company merges to form a joint venture, the human resource of both the companies have to work in coordination with one another, although they are used to different ways of working or spending time. This is where diversity or difference arises in an organisation. Culture in case of private companies are usually quite random and is highly influenced by the decisions of the senior managers, while in case of public companies, group dependability is higher. In such cases, cultural difference is considered to be an obstacle for the success of the alliance (DeChesare, 2013). In a survey conducted by CFO Research Services in 2004, it was found that among every five respondents, one of them considered cultural clashes to be the primary reason for alliance failure. This raises a question in the minds of readers about the true perception regarding cultural difference during joint ventures or mergers (Chanlat, Davel and Dupuis, 2013, P. 250-251). In this section of the study, the discussion would focus on the aspect of cultural difference between two organisations with reference to the first part of this research study which is on the joint venture between Vebego and The Risse Group. In this joint venture, Vebego is the holding company, whereas The Risse Group was the public owned subsidiary. Vebego and Risse successfully drove this joint venture for a span of two years. However, the problem had started with the entry of a third party called Westrom Group, which was a similar company like, The Risse Group. The intention of a public private joint venture was to bring in the knowledge and experience of the public company and since private companies are good at handling business aspect, they can take care of marketing and administration segment carefully. However, the issues was created after the entrance of the third party because the existing companies made the new organisation responsible for many significant decisions, but only the support staffs were considered within the joint venture to handle the operations. The policies and framework for including a third partner was not rightly decided which had augmented the challenges for the joint venture. In this scenario, the cultural transformation tool (CTT) developed by Richard Barrett would be the best way to discuss the lesson learnt from this situation, thereby stating the probable recommendations in this context. The CTT assist in cultural evolution of the organisation, which further help the leaders to manage the operations. Barrett introduced a consciousness model with seven levels, which are evolutionary in character. He did some modifications to Maslow’s Hierarchy model. In 1998, he had developed a model, which was also called CTT. As can be seen in Figure 1 below, there are seven levels of consciousness such as, service, making a difference, transformation, cohesion, self-esteem, relationship and survival (Barrett Values Centre, 2009a). Figure 1: Cultural Transformation Tool Source: (Barrett, 2009) The figure shows how after an organisation after surviving, developing healthy relationship with its stakeholders and gaining self-esteem, which signifies goodwill and recognition, moves towards the phase of transformation. In this place, the role of leaders along with their leadership qualities for developing internal cohesion comes into play (Barrett Values Centre, 2009a). When the leadership team in the organisation is not in alignment, then the organisation can be at odds and the probability cultural entropy is enormous. This is the position where the joint venture of Vebego, Risse and Westrom presently stands. Lack of leadership qualities had led to mismanagement and non-alignment of the business operations. However, in order to make a difference, attain the best position in service offering and make the joint venture a success, the qualities mentioned in Figure 2 needs to be integrated (Cultural Transformation Tools, n. d.). Figure 2: Building Internal Cohesion in Organisation Source: (Barrett Values Centre, 2009b) It can be well derived from the above discussion that it has been understood, that public companies are better in efficient service offering, but management capabilities are not their core competencies as these are big companies. Private companies, on the other hand, are efficient at management and marketing because the work culture in there is competitive, owing to its smaller size and high influence of senior management on the employees. In this scenario, this strategic alliance can function only when right leadership skills are used to employ the competencies of both in order to cover up their weaknesses (Cultural Transformation Tools, n. d.). Role of Shareholders Merger and acquisition are one of the fastest ways to upscale the operations of the organisation and broaden the product portfolio or enter into new markets. However, whether this step destroys or enhances the value of the shareholders is a million dollar question. The role of the shareholders depends on whether the merger or acquisition between the two firms was friendly or just a hostile takeover (Faille, 2013.). The merger or acquisition executed or planned with a right vision and at right price would surely enhance the shareholders’ value. On the other hand, if it is not well managed or initiated with a wrong vision, it would destroy the value of the shareholders. The appreciation of shareholders’ equity and value management should be the major focus for the corporate managers of the organisations (Mourdoukoutas, 2011). It has been found that 83 percent of the mergers have been unsuccessful in offering any benefit or value to the shareholders. The keys to shareholders’ value appreciation in case of mergers are diligence, evaluation synergy and integration of project planning. These are considered to be the hard keys towards success, while the soft keys are communication, selecting appropriate management teams and resolving the issues associated with cultural differences. The strategic alliance which is formed with the integration of the above mentioned hard skills and soft keys, offer high premiums to the shareholders (KPMG, 1999). Now if the shareholders’ value in this case is considered, then it can be seen that after the end of 2012, almost 80 percent of the merger with Westrom was damaged. The employees in the middle level and senior level management had quit their jobs and the sales turnover of the venture had dipped to 35 percent and later, to almost zero. Both the public companies were blaming each other and were upset with the poor performance of the private company. This joint venture did not utilise the soft keys such as, selection of appropriate management teams, before initiating the operation with the third party. The issues that emerged due to cultural differences were not handled and one of the key issues was the lack of suitable leadership skills. Communication was meagre with the new partner and not much employees of the third party were involved in significant business operations, so they naturally felt neglected. Shareholders in companies are not only there for enjoying their shares of profit at the year end, but also for participating in the significant decision-making of the company. However, in case of this joint venture, the contribution of the shareholders in terms of decision-making was found to be inadequate. Gareth Morgan in his book, Image of Organisation (1988), has stated his findings on the major environmental trends that the management as well as shareholders must explore in order to identify the core competencies. The functions include studying the environment, managing the organisation proactively, promoting creativity and sharing similar vision. The management which handles the existing joint venture should have studied the environment in order to include a new party. They should have laid down a common or shared vision and objectives for all the three companies to follow, which was not the case as it can be derived from the consequences. Remote management for development of skills and harnessing the habit of utilising IT would have encouraged communication on real-time basis (Morgan, 2006). Since the private company in this alliance was responsible for management and operation, they could have controlled the situation. As studied in the first part of this report, the private companies are usually influenced by the decisions taken by its senior management, thereby signifying that the shareholders and the senior managers were supposed to control, monitor and manage the chaos which had taken place due to lack of leadership skills and farsightedness. Leadership Styles Leading others and leading oneself is not the same, but leading others effectively begins with leading self. Now, leading an organisation requires additional set of skills and competencies. It has been stated by Barrett that complete spectrum leaders reveal seven level of conscious leadership. Firstly, the survival consciousness in the leaders, it can be generated by developing an environment of physical safety and financial security. Secondly, relationship consciousness can be integrated through open communication and creation of a healthy working environment. Thirdly, self-esteem consciousness can be developed by monitoring the progress towards the goals of the organisation. Fourth is the transformation consciousness, which occurs when the leaders are accountable and responsible for their actions and delegate authority for encouraging employees to improve their performance. Internal cohesion is one of the major functions of a leader. Similarly, external cohesion leads to strategic alliances, thereby resulting in development of service consciousness, which signifies aligning the requirements of the organisation. In this backdrop, the case of Vebego and Risse would be analysed. This will assist the readers to understand the role of leadership in organisation and how the shareholders and senior management were incapable of handling challenging situations. In Vebego, the managing director had enormous responsibilities to handle. He had the responsibility of managing operations, handling and controlling finance and also, managing the senior management team of the joint venture. For a person of 35 years, it is typically difficult to handle so many responsibilities. This had revealed that the responsibilities within the joint venture were not evenly distributed. Leadership skills of the managing director of Vebego were not strong enough to well manage every individual situation. If the seven levels of consciousness are considered in this case, then it can be understood that John, the managing director of Vebego, was juggling his responsibilities and his consciousness was working towards his own survival and career growth and not for the self-esteem, relationship building or services of the company. There were no internal and external cohesion, due to which the culture of the organisation did not reflect any value addition or beliefs of the leaders (Barrett Values Centre, 2009b). The link between the personality of the leader and the culture in the organisation is visible when the chief of the company and in this case, the managing director, integrates it in the organisation. Leaders have their own style of working and managing organisation. The leadership style of the managing director of the joint venture can be considered to be task-oriented with his focus only towards what he had wanted to achieve. Then again, he was not an approachable person, whom the management could go to in case of problems. Traits of bureaucratic leadership were also visible in John’s management because he had climbed to the position of a managing director from a management trainee by stringently following the path of regulations and not through effective leadership or qualities to efficiently manage people (Mind Tools Ltd, 2013). In this context, the theory of leadership transition can be discussed in order to analyse the leadership traits that John should have possessed in order to well manage the joint venture and lead it to its success. Leadership transition signifies opportunities that improve the leadership skills in the organisation and show them the right direction. It includes linking strategic thinking and careful development of the organisation (Gilmore, 1990). It can reinforce the purposefulness of the venture. Leadership is considered to be paradoxical and is required during emergencies, so it can be inferred that leadership is mostly required during challenging situations. Transformation periods are complex because of the complicated set of stakeholders who are interested in self fulfilment, although difficult circumstances might prevail in the organisation. This is what exactly happened in case of the joint venture discussed in this study (Gilmore, 1990). The employees of the third party had left as soon as they found that the joint venture was not working out. The management of the third party and the other public company had not only blamed each other but also, had blamed the private company (Vebego) for their mismanagement. This is the situation where John was supposed to take up the stance of leadership transformation. According to the new concepts, those prevail in case of leadership is that the leaders are like boundaries, responsible for regulating the changing environment in a calm and smooth way, so that the business operations are not hindered. This indicates the lessons that John should have considered for saving the venture from its final failure (Mind Tools Ltd, 2013). What should have been done by the parties involved? In this study, the lesson learnt from the merger of Vebego and Risse was analysed and also, the consequences of involving a third party in the joint venture was evaluated. The reason behind analysing the cultural difference, role of shareholders and leadership style, in this case, was to identify and highlight the issues that led to the failure of the joint venture. However, in this part of the study, the discussion would specifically include suggestions for all the three parties. All these three companies have played a significant role in this joint venture and its failure. Vebego was the private company which was responsible for the management, marketing and operation of the merger company. However, as discussed, John, the managing director of the company, was focused but not approachable. Inspite of being goal oriented, he did not have leadership skills to manage tasks and human resource efficiently. Risse, the public company, was the older subsidiary in the merger and had successfully taken the merger forward for two years. The employees and management of Risse were accustomed to the work culture of the merger company. So, their blunder lies in not supporting Vebego and its management when matters went out of hand due to the third party. They had played the blame game with the third party but had made no contribution towards saving the merger. Westrom, on the other hand, had no intention of maintaining a sustainable relationship with the other allied companies. The management with employees, as described in the first part of the assignment, were neither wholly involved in the business functions nor were the employees themselves interested to take up responsibilities (Theimann, April and Blass, 2002). Considering the present scenario that has been described above, the suggestions for each company would be discussed with regards to CCC programme. CCC programme signifies: why change? Change what? and change how? These questions will assist in identifying the answers that will help organisations to decide the type of intervention that they must undertake to bring about the change. The change can be incremental, radical, emergent or programmatic. In this study, the first C has already been answered and reasons for the changes have been identified. The second C has been identified through the discussion. Change in organisational culture (elimination of differences), role of the shareholders in the merger company and leadership in the merger company are the instant requirements. However, the response for the third C would be identified through the Model I theory-in-use (Svensson and Wood, 2008). This model was developed by Chris Argyris and Donald Schon in 1974, which was modified in 1978. It involves three steps, as can be seen in Figure 3. Figure 3: Model I Theory-in-use Source: (att. #2) The strategies that each of the companies in the merger should have considered with regards to the model described in Figure 3, has been explained below in Table 1. Companies Governing Values Action Strategies Consequences Vebego Control the activities and daily functions of the management and employees of all the companies. Equal distribution of responsibilities. Rational decision making. Develop a common culture in order to eliminate cultural differences. Continuous motivation. (Stark and Rausch, 2000) Encourage suggestions. Democratic leadership qualities. Approachable management for entertaining challenges of employees of the merger company. Make evaluation of strategies implemented and performance derived. Effective management. Smooth flow of operational functions. Increased revenue due to satisfied employees. The Risse Group Organising workshops for merged company’s employees, so that they get to understand the vision and common objectives of the company. Encouragement for developing diversified teams. Encouraging innovative ideas and curiosity among employees to learn. Team formation consisting of employees from different organisation. Encouragement to the employees of third party to contribute towards the services that the merging company is offering. Work along with the third party to include them in every task that leads to achievement of group goals. Excellent service qualities. Customer satisfaction. Generation of profit and revenue. (Stark and Rausch, 2000) Westrom Cooperation and coordination with the other companies in the merger. Encouraging employees to learn and train themselves to fit into the new work culture. Discourage any trade union upraise in the merger Training sessions for employees with sluggish performance so as to make them capable for the merger company. Cooperate in the services and other operational functions with Risse. Evaluate the performance of the employees and motivate them to learn and grow. Take up responsibilities for assisting significant tasks. Harmony and stable merger. Revenue generation and lesser errors. Reference List Barrett Values Centre, 2009a. Cultural Transformation Tools (CTT): Overview and Product Features. [online] Available at: < http://www.valuescentre.com/products__services/?sec=cultural_transformation_tools_(ctt)> [Accessed 26 November 2013]. Barrett Values Centre, 2009b. Building Internal Cohesion. [online] Available at: < http://www.valuescentre.com/leadership/?sec=building_internal_cohesion> [Accessed 26 November 2013]. Barrett, R. and Eneroth, T., 2012. Value-Based Leadership. [online] Available at: < http://www.valuescentre.com/leadership/ > [Accessed 26 November 2013]. Barrett, R., 2009. The Barrett Model. [online] Available at: < http://www.valuescentre.com/uploads/2010-07-06/The%20Barrett%20Model.pdf> [Accessed 26 November 2013]. Cultural Transformation Tools, (no date). Improving Your Business through Values. [online] Available at: < http://openingcreativity.com/Cultural%20Transformation%20Tools%20Intro.pdf> [Accessed 26 November 2013]. DeChesare, B., 2013. Private vs. Public M&A Deals: Got Divested Assets and a Stepped-Up Tax Basis? [online] Available at: < http://www.mergersandinquisitions.com/private-company-ma/> [Accessed 26 November 2013]. Faille, C., 2013. The Role of Shareholders in Mergers & Acquisitions. [online] Available at: < http://www.ehow.com/facts_7569049_role-shareholders-mergers-acquisitions.html> [Accessed 26 November 2013]. Fullinwider, R. K., 1996. Public education in a multicultural society: Policy, theory, critique. Cambridge: Cambridge University Press. Gilmore, T. N., 1990. Effective leadership during organizational transformation. Nursing Economics, 8(3), pp. 135-141. KPMG, 1999. Unlocking Shareholder Value: The Keys to Success. [online] Available at: < http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/KPMGM&A.pdf> [Accessed 26 November 2013]. Mind Tools Ltd, 2013. Leadership Styles. [online] Available at: < http://www.mindtools.com/pages/article/newLDR_84.htm> [Accessed 26 November 2013]. Morgan, G., 2006. Images of organization. California: SAGE. Mourdoukoutas, P., 2011. Do Mergers and Acquisitions Enhance or Destroy Shareholder Value? [online] Available at: < http://www.forbes.com/sites/panosmourdoukoutas/2011/10/04/do-mergers-and-acquisitions-enhance-or-destroy-shareholder-value/> [Accessed 26 November 2013]. Stark, E. and Rausch, E., 2000. Testing a model of the motivational role of budgetary participation on job performance: A goal setting theory analysis. Journal of Workplace Learning, 10(6), pp. 332-336. Svensson, G. and Wood, G., 2008. The serendipity of leadership effectiveness in management and business practices. Management decision, 43(7), pp.1001-1009. Theimann, N.M., April, K. and Blass, E., 2002. Context tension: Cultural influences on leadership and management practice. Ashridge Business School, 18(7), pp.01-23. Read More