Winning - Jack Welch [78]
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Once again, deal heat is behind a mistake that pervades many mergers, a thoughtful predeal analysis of cultural fit.
Now, most companies have a relatively straightforward time evaluating strategic fit. Most managers (and their consultants or bankers) have the tools and experience to assess whether two companies fill meaningful gaps for each other in terms of geography, products, customers, or technologies (or all of these), and by combining, create a company that, even with some inevitable overlap, is stronger and more competitive.
But cultural fit is trickier. Even with a cool head, the compatibility of two sets of value systems is a hard call. That’s because lots of companies claim they have the same DNA—they believe in customer service, analytical decision making, learning, and transparency. They value quality and integrity, etcetera, etcetera. Their cultures are high performance, results driven, family friendly, and the like.
In reality, of course, companies have unique and often very different ways of doing business. But in deal heat, people end up assessing that every company is compatible. Cultural fit is declared, and the merger marches ahead.
That was clearly the case when GE bought Kidder Peabody, a disaster I mention in the chapter on crisis management and wrote about extensively in my last book. But just to briefly summarize here: a company with GE’s core values of boundarylessness, teamwork, and candor could not merge with an investment bank with three values of its own: my bonus, my bonus, and my bonus.
For me, the lack of cultural fit was never more apparent than the day that the full magnitude of our problem—for lack of a better euphemism—was really hitting the fan. It was a Sunday afternoon in April 1994, and a team of GE and Kidder Peabody executives had been working around the clock since Friday evening to figure out why we had a $300 million shortfall in reported earnings. It was already pretty clear that a Kidder trader named Joe Jett had posted phantom trades, but what we needed to understand was why and how this behavior had slipped through the bank’s controls, and just as importantly, its culture.
I joined the team that day to get their report, and over the next several hours we came to understand the situation and comprehend its consequences for the company. What blew my mind was that three times during the afternoon and evening, twice in the hallway and once in the men’s room, the same thing happened. A Kidder Peabody manager on the team approached me, and with a worried look on his face, asked me in one way or another: “What’s this going to do to our bonuses this year?”
Ten years later, it still sends me over the top.
In the end, with the sale of Kidder Peabody to Paine Webber and ultimately to UBS, the deal ended up being OK for our shareholders. But the truth is, we should have never put the organization through the trauma that merger wrought. When it was all over, I swore I would never buy another company unless its values were a close match with GE’s or it could easily be brought into the GE fold.
I passed over some deals on the West Coast in the ’90s because of my concerns about cultural fit. But I just couldn’t go down that values-mismatch road again. The booming technology companies in California had their cultures—filled with chest thumping, bravado, and sky-high compensation.
By contrast, our software operations in places like Cincinnati and Milwaukee were made up of hard working, down-to-earth engineers, most of whom were graduates of state universities in the Midwest. These engineers were every bit as good as the West Coast talent, and they were paid well but not outrageously.
Frankly, I didn’t want to pollute the healthy culture we had.
Every deal affects the acquiring company’s culture in some way, and you have to think about that going in. The acquired company’s culture can blend nicely with yours. That’s the best case. Sometimes, a few of the acquired company’s bad behaviors creep