Winning - Jack Welch [80]
A final word on the reverse hostage dynamic. In the last moments of deal heat, companies often strike an earn-out package for the acquired company’s founder or CEO, hoping they will get retention and great performance of an important player in return.
All they usually get is strife.
The reason is that earn-out packages most often motivate their recipients to keep things the same. They will want you to let them run the business the way they always did—that’s how they know how to make the numbers. At every opportunity, they will block personnel changes, accounting systems consolidation, and compensation plans—you name it.
But an integration will never fully happen if there’s someone blocking every change, especially if that person used to be the boss.
What can you do? Well, if you absolutely want to keep the former CEO or founder around for reasons of performance or continuity, cut your losses and forget an earn-out package. Offer a flat-rate retention deal instead—a certain sum for staying a certain period of time. That gives you the free hand you need and want to create a new company.
Earn-outs are just one aspect of the reverse hostage pitfall. Yes, sometimes you have to make concessions to get a company you really want.
Just don’t make so many that, when the deal is sealed, your new acquisition can hold you up—with your own gun.
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The fourth pitfall is integrating too timidly. With good leadership, a merger should be complete within ninety days.
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Return for a second to those partylike press conferences that accompany most merger announcements. Even in pure buyout situations, the CEOs promise a new partnership ahead. The two companies will cooperate, reach consensus, and then smoothly integrate.
Unfortunately, if partnership building isn’t done right it can create paralysis. The two sides talk and talk and talk about culture, strategy, operations, titles, letterheads, and the rest—while the integration waits.*
For a change, deal heat is not the culprit behind this pitfall. Instead, it is something more admirable—a kind of politeness and consideration for the other side’s feelings. No one wants to be an obnoxious winner, pushing through changes without any appearance of discussion or debate. In fact, many acquirers want to preserve whatever positive vibes existed at the end of negotiations, and they think moving slowly and carefully will help.
I’m not saying that acquirers shouldn’t engage in debate about how the two companies will combine their ways of doing business—they absolutely should. In fact, the best acquirers are great listeners. They ask a lot of questions and take in all the information and opinions swirling around, and usually there are plenty.
But then they have to act. They have to make decisions about organizational structure, people, culture, and direction, and communicate those decisions relentlessly.
It is uncertainty that causes organizations to descend into fear and inertia. The only antidote is a clear, forward-moving integration process, transparent to everyone. It can be led by the CEO or an official integration manager—a top-level, widely respected executive of the acquirer—vested with the power of the CEO. The process should have a rigorous timetable with goals and people held accountable for them.
The objective made clear to everyone should be full integration within ninety days of the deal’s close.
Every day after that is a waste.
A classic case of moving too cautiously—and paying the price for it—is New Holland’s acquisition of Case Corporation in November 1999.
New Holland, a Dutch company with