CLOs Can Drive Mergers and Acquisitions Success
Research suggests up to 70 percent of mergers and acquisitions fail. Understanding the M&A leadership component is critical to improve a company’s chances of success.
I am a true believer that leadership is the differentiator in whether organizations are successful or not. Its why, while deciding on the topic of my dissertation in the Penn Chief Learning Officer Executive Doctoral Program at the University of Pennsylvania, I chose to explore the relationship between what I call collective leadership capability — the aggregated leadership capabilities across all levels, individual contributors through C-suite executives — and mergers and acquisition success.
I identified a specific set of leadership skills for both acquirers and targets that correlate to M&A success — success being defined as total shareholder return versus the large cap index of country the acquirer was headquartered — by gender, managerial level, corporate function, specific industry sectors and countries, as well as geographic regions and cross-border deals. This veritable treasure trove of new insights sets the stage for a much larger and more important role for CLOs in M&As.
You will likely ask how? To provide context, let’s first examine the role CLOs currently play in M&As. Historically, a CLO will focus on learning systems integration, reviewing a target company’s training classes and programs, and conducting training sessions during the deal. The success of any M&A will not hinge on these types of activities. However, where CLOs have major player potential is in supporting their chief human resources officers by providing a laser-focus on leadership capabilities as the acquirer and targets.
Culture is another area that receives a high level of attention during deals. It is true that any type of cultural assessment can benefit integration planning targeting specific cultural dimensions in both the acquirer and target companies. However, culture is the wrong starting point in terms of the human aspects of M&As.
If you think these deals are major change events for both the acquirer and target, you would agree that major change requires leaders at all organizational levels with the right skill sets to enact positive changes in culture, and in the new processes and organizational structures an M&A integration creates. Additionally, because leader behaviors drive culture, these behaviors in an M&A context come from leaders’ skills, and how they use them. The bottom line is that you need to do cultural assessments, but not before assessing the existing leadership capability component to determine whether you have leaders with the right leadership skillsets to ensure M&A success.
How do you assess acquirer and target leadership capability during a deal? If you are like most CLOs, you manage and oversee leadership development programs. Within these programs are likely efforts to appraise leaders via 360-degree leadership assessments or other types of evaluations. Typically, this data is shared with the individual leaders, and leads to specific individual development plans. After this happens, the data is filed away and never used again. This is unfortunate because this data, when aggregated and viewed in a different perspective, provides incredibly valuable insights into leadership capabilities for acquirers and targets. With this insight there are several clear steps CLOs can take to be a major player in M&As:
- Understand acquirer and target collective leadership capabilities. Ideally, during the due diligence phase, the CLO at the acquiring company should look at up to two years of previous leadership assessment data for both his or her company and that of the target. That will provide a representative view of both organizations’ collective leadership capabilities.
- Identify individual leaders with the right M&A leadership skills. Some leaders are better leaders because of how they use their skills. The same thing applies to M&As. Identify leaders in both companies who have the right M&A skills to enable an efficient and effective integration.
- Develop a deal-specific leadership integration plan. With insights gained during the first two steps, CLOs are positioned to do what they do best, enable learning and relationship building. Knowing what the collective leadership capability and individual leader components look like, CLOs can develop specific leadership integration plans that leverage M&A leadership strengths and mitigate risk areas. The types of interventions available to CLOs to mitigate leadership risk areas include leadership engagement workshops, mentoring, executive coaching and leadership development.
CLOs and their teams have a unique opportunity to play more meaningful and impactful roles in M&A success. Knowing that research tells us up to 70 percent of M&As fail, and of those, another 50 percent will destroy shareholder value, understanding the M&A leadership component is critical to improve a company’s chances of success.
Keith Dunbar is the founder and CEO of Potentious. To comment, email editor@CLOmedia.com.