Learn how to create cultures that thrive through M&A and change management in this webinar, hosted by Kazoo’s Dania Shaheen and 2U’s Rachel Naugle. We’ll talk about three common M&A mistakes:
- Thinking one culture must “win”
- Bringing in HR too late
- Not having leaders explain why the M&A is happening
Plus red flags, examples, and action steps! Watch the video above, or check out the time-stamped transcript below:
00:08 Dania Shaheen: Before we jump into our agenda today, I just wanna take a moment to introduce myself and then have Rachel introduce herself as well and talk a little bit more about why we’re so passionate and why we’re here to talk to you all about M&A and change management and keeping culture alive during these times. For myself, I’ve had a really diverse career in mergers and acquisitions, IPOs, divestitures, debt, so various kinds of change management. I’ve always been somebody who’s raised my hand for those challenges. Started my career at Deloitte as a consultant and moved my way through doing various deals, things like that, as I grew and developed my career.
00:49 Dania Shaheen: Before coming to Kazoo, I spent some time in corporate strategy and management at AT&T, before coming to Kazoo to work on strategy as well as people operations. It’s been wonderful to be part of so many deals, and as my career has spanned over a decade at this point, I’ve noticed such an evolution in the space, and so I’ve always been so passionate about keeping culture strong during significant times of change. And early in my career, even when everyone else was focused on the numbers, I was always that culture champion that really wanted to make sure that people had a voice at the table. So for me, this is a topic that is very near and dear to my heart. Rachel, I’d love to have you introduce yourself as well.
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01:33 Rachel Naugle: Yeah, thanks so much, Dania. Very excited to be here, everyone, especially presenting alongside Dania. Her expertise is awesome to hear from, and I’ve learned so much just being here presenting this with her. But a little bit more about myself… So I’m a current manager of compensation at 2U, which is an ed-tech company based out of Maryland. Before that, I was working more predominantly in benefits administration, and so mostly within the total rewards sector of HR. But really excited to be talking to you all today about M&As, because like Dania said, it is an ever-changing, growing part of the business and the world that we’re living in, and I think the best way to continue to get better with them and learn from them is to learn from other people who’ve been through them and then also learn through your own experiences. So excited to share some of the knowledge that I have and it should be a really fun-filled and informative hour.
See how 2U joined forces with Kazoo
to maintain culture during change
02:26 Dania Shaheen: Agreed. Rachel I’m so excited. She and I have been through some of this content and she’s got such wonderful stories to share that I’m excited to go through all this with you. So before we jump into the meat and potatoes of this presentation, I wanna go over the agenda. So today we’re gonna be covering three topics and then opening up to Q&A, but the first is going over common M&A culture mistakes. Second agenda item is building culture during times of change, so we wanna give you all some really wonderful actionable advice and examples. So those will be the three topics we’re covering, and then we’re excited to open it up to Q&A. And on that note, I would actually love, before we jump into those common missteps… I know you’ve heard from Rachel and I about why we’re so passionate about making sure culture stays strong during these times, but I actually wanna share three amazing quotes from recent publications that really help to illustrate why it is so important to keep culture intact during times of significant change. The first quote is from Gallup.
Why culture matters during times of change
03:35 Dania Shaheen: “As anyone who has experienced the process can attest, there is incredible pressure within an organization to boost the return after an M&A deal has been struck. The result many times is chaos.” That’s pretty spot-on. I think most deals, even the best-laid ones, can often have the feel or a little bit of chaos, so I love this quote from Gallup. The next one. “While many consider culture a non-financial risk, 30% of transactions,” and this number is a great one, again, “30% of transactions fail to ever meet financial targets due to cultural issues.” This one came from a recent publication from Mercer, and it’s spot-on. In fact, I’ll be honest, when I first read this, I thought, I’m surprised 30%… It’s quite high, and that’s just the reality of what we see. If you don’t keep your culture intact and you don’t keep track of it, you can see a deal fail very, very quickly.
04:38 Dania Shaheen: And then the next quote. This is a few statistics from a recent report from Aon Hewitt. “The percentage of highly engaged employees is cut in half during M&A events.” The next one, “68% of companies who are losing critical talent at a high rate during M&A did not have an approach to culture.” And then the last, “There’s a 23% increase in actively disengaged employees after a change event, even if no one’s job is affected.” So even in the best times and some of the best-laid plans, going through such significant change is very, very daunting for your workforce. So content like this and going over best practices is always really, really important, and so it’s not just Rachel and I saying it, or not just myself, but even some of these sources and what we’re seeing currently coming out in the market.
Common M&A mistake #1: Believing that one culture must “win”
05:36 Dania Shaheen: So on that note, I’d love to pivot into one of our first common mistakes. The first common mistake that I’d love for us to touch on is around believing one culture has to win. This is one of the first mistakes I tend to see over and over again, this notion that, again, one culture has to win. The reality is, is if you strong-arm culture, it won’t stick. And then if you assume one culture’s best, you actually miss a great opportunity as a leader to develop the culture within your own company.
06:14 Dania Shaheen: So the culture of the company being acquired or being merged or whatever that significant change event is, it shouldn’t just be thrown to the side. It’s something you need to look at and you need to evaluate. And I’ll be honest, like people, company culture, it varies. And so when we look at current multi-generational workforces, everyone from Boomers to Gen Z, the cultural tenets within your organization, they can vary. It can be everything from traditional keep your head down, to very open and transparent. It’s very dependent on some of that dominant workforce within the organization. But there is one thing that tends to unify all individuals regardless of what generation and what traits they fall into; it’s the corporate structure that they sit in and the satisfaction of their needs. So making sure that everything from pay to inclusion and belonging is covered, and it’s something that you’re keeping an eye on and making sure you’re reinforcing through your culture.
07:24 Dania Shaheen: And I’ll say this manifests itself by, when you see employees of a company being acquired, no one should feel like their culture and way of life is being threatened, especially right at the start. That’s just a recipe for uncertainty, and what that can do is it can bring up defensiveness and overall disengagement before you’ve had a chance to present or to talk about what the combined company culture could look like. And so part of the mistake I tend to see here is companies are just not open about their own cultural tenets during this time. They fail to assess where there are gaps or areas to come together and align during times of M&A. And so I know when Rachel and I were talking about putting content together for this, she had some amazing stories and experiences to share. Rachel, do you mind sharing a little bit about what you’ve seen at 2U around believing one culture has to win?
08:21 Rachel Naugle: Yeah, absolutely. So just to give a little bit more context, too, about 2U and a company that we just recently acquired is so 2U is a company that’s been around for a little over 10 years now. So pretty well-established at this point, but definitely still in some of our high-growth phase. And so we’re acquiring a lot of companies. And the company that we just acquired is only about three years old. So something that was interesting, especially during this time of acquisition was we, as the legacy 2U side of the house, were looking to strengthen our culture, but then also move away from this start-up mentality and move to a little bit more corporate, a little bit more business-focused.
09:03 Rachel Naugle: But then we acquired this company that was entirely start-up mentality, still very young, three years, three years old, which was great, and that’s why we were attracted to that company and wanted to have that deal. But that was just something that we had to be really mindful of, of as we as the parent company, so to speak, were shifting a little bit away from that. We needed to be mindful that that was still the full culture of the company that we were acquiring.
09:30 Rachel Naugle: So we needed to have a more slow transition. And like you pointed out, Dania, no one should feel threatened at the start when we’re first acquiring a company. So we had to be really thoughtful of what do we do right at day one, but then what do we have a slow transition on and more thoughtful decisions about? Because even though it might be a good business decision and it could save us some money, it could definitely have a significantly higher cultural impact, which would be greater than the dollar loss or dollar gain of cutting things.
10:00 Dania Shaheen: Yeah, absolutely, Rachel. I think it’s so spot on, you bring that up. Because when you lose the folks and the human capital behind the work, it can, it can cost your business significant dollars, which is, touching back on some of those statistics and some of those stats we were looking at earlier, that’s why deals slow down, it’s when you’re not mindful, again, of that culture that you’re bringing in. I love your example. In fact, we experienced this ourselves at Kazoo.
10:26 Dania Shaheen: When I first came on to Kazoo, it was, at the time, YouEarnedIt, and we were in the process of acquiring HighGround. And so we just experienced first-hand and developed, similar to you all, we saw the opportunity to look at our own culture, look at the YouEarnedIt culture, look at the HighGround culture and determine what the best was from both worlds, and bring those together to form Kazoo’s new culture. So I love that you all were doing that at 2U. And we’ll touch on this a little bit more in the advice section.
Common M&A mistake 2: Bringing HR in too late in the process
10:58 Dania Shaheen: So moving on, wanna talk about the second cultural mistake that we tend to see, and that’s bringing HR in too late. So it’s a fairly common mistake. In my… And I’ve touched on this a little bit in my introduction, but in the past 10 plus years I’ve been in the deal space or been somebody who’s actively worked on various M&A transactions, it was early in my career, it was all about buying a company and gutting it, for lack of a better word. You oftentimes had very critical financial targets that you had to hit. And so it was really just about acquiring that company and just moving quickly to achieve those financial targets. I would say in the past 10 years, it’s been a slow plus evolution, but talent acquisition, culture, employee satisfaction is now part of the M&A discussion. A savvy M&A team is going to be thinking about how to keep human capital there, how to keep employees satisfied, how to keep them engaged so that they are actively working to help you achieve the additional goals required through an M&A deal.
12:08 Dania Shaheen: And so as we saw from those quotes at the start of the presentation, the ability to bring HR in and keep culture intact, it can make or break a deal. So bringing HR in, it’s gotta happen early. Ideally, somebody from the people, talent, human resources practice is part of the due diligence of the M&A. And so I’m pretty sure, as I said that statement, if anyone who’s a traditional M&A practitioner is listening, they’re probably rolling their eyes a little bit at me, but I can’t iterate enough how important it is to have, again, somebody for people, talent, the human resources practice just sitting at that table.
12:50 Dania Shaheen: I’ve always been an advocate of having somebody from the people function there, it really helps to set you up for possible culture clashes ahead of time. They represent the people where they cannot be at the table representing themselves. And so not doing this on the front end, it costs a lot of time in the long run. So, if you don’t have that people person there at the deal that’s talking, walking through some of that due diligence, you’re oftentimes playing catch up after the deal’s completed. And so again, remember those stats you saw at the beginning of the webinar around engagement, turnover, etcetera, you risk not achieving those key financial targets when you don’t bring people into the deal discussion. And so, Rachel, I know you touched on the deal you worked on at 2U, I’m sure you probably saw a lot of this, when did you guys at 2U start to make sure people were the key part of that discussion?
13:46 Rachel Naugle: Yeah. So, this one definitely resonates with us a lot, so I guess the best example I can give is with our first M&A, we acquired a company in Cape Town, South Africa. And so this is a key example of where HR was brought in a little bit too late, and it was… When we first acquired this company, we weren’t really anticipating a full integration with them. We thought that maybe we would have two sides of the business and they would still operate more in their own realm, but then at the time, we quickly realized that wasn’t the best course of action moving forward. And so everything happened so quickly, and so it wasn’t as seamless of a process as it could have been because everything was just moving so quickly, and someone from HR wasn’t brought in from the start to really think about how this impacts the employees, and that’s the biggest thing that I can say to this.
14:39 Rachel Naugle: So, bringing in the HR perspective really thinks about that individual employee experience as opposed to the big picture. And it’s easy to get sucked into thinking about that big picture, but we do have to keep in mind, again, the stress we talked about before for that individual employee during the time of M&A, and making sure that that HR function brings that perspective.
15:00 Dania Shaheen: Yeah, you are spot on, Rachel. It is so easy to get sucked into the big part of the deal, it’s “Oh, we’re looking to hit this financial target, we’re looking to grow 30%, 40%.” But to your point, if you lose sight of the people and the individual employee, you risk that big picture, and so it’s really important to lay that foundation. So that’s an amazing point. As people leaders, we just can’t underestimate how important it is to advocate for culture early and often. And so touching, so bringing in HR too late is a great, great common cultural mistake. And so I wanted to take this moment to transition into our third common cultural mistake, leaders don’t communicate the why.
Common M&A mistake 3: Not communicating why you’re changing
15:46 Dania Shaheen: And so this is the third most common mistake we typically see, not communicating why. So, you just introduced this change to everyone in the organization, most people are not open to change. Change is very difficult on an individual. So, if you don’t let employees know why, getting them and really letting them know why, so that you can either get them excited for the future or at minimum, you wanna get folks at least, at least not negative about the future, because the instinct with change is to move in a negative direction. And so what you’re really looking to do is get people at least neutral, if not excited, and I’m all about setting realistic goals, which is why I’m gonna throw in at least be neutral to that comment, because again, that instinct during times of change is to get a little bit negative. So you’re looking for consistency here, you’re looking to build some energy and excitement around what’s going on.
16:47 Dania Shaheen: So, a big mistake we see is companies just not keeping a strong, consistent message that’s repeated throughout the process. And so that strong, consistent message, that’s the rally cry, so that rally cry helps to cut through uncertainty and helps to gain alignment. If the why is not resonating either business or culture-wise, you’re just setting yourself up for some of the engagement issues we again talked about in the recent research earlier. You’re going to see drop in engagement, you’re going to see that attrition, and then again, you’re gonna struggle to hit the big picture, the reason that you even undertook and went through the deal process. Rachel, talk to me a little bit about what you guys have seen at 2U and how you bring stakeholders into the process.
17:37 Rachel Naugle: Yeah. So, this is definitely something that 2U is also focusing on with all of our M&As, of having a really clear message that can be shared externally, and that’s really the key because we also know for our M&A folks, it’s often that we need to keep the details of a deal close until kinda the last minute, which is then where we see everyone else rushing a little bit, but having at least one consistent message or one email that we can go out to maybe squash some of those rumors, squash some of those anxieties that are coming out or the murmurs is really helpful in starting to have that clear communication and releasing some of that stress that we’ve been talking about. That consistent message will decrease the unknown and then also hopefully decrease that opportunity for miscommunication and just poor communications across the board.
Common M&A red flags to watch out for
18:31 Dania Shaheen: That’s great. Those are really wonderful points. And so as we wrap up talking about some of these common cultural mistakes, I know Rachel and I, it was really important to us to kinda wrap it up and talk about just some of the common red flags we see. So, at this point, we’ve covered some of the current research, we’ve covered common mistakes when it comes to M&A events these days, but I wanna quickly touch on some red flags for everyone listening today. So, if you’re dealing with M&As fallout now or have it on your radar, these are some great step checks for realizing something might be wrong and action is needed. So, red flag number one. If you hear wildly different messages from people on the floor, it’s a clear indicator your why or central message isn’t resonating.
19:23 Rachel Naugle: Red flag number two would be making decisions without the right stakeholders. So, if you’re in an M&A meeting and someone starts talking about benefit strategy and no one from the benefits team is there, that’s probably a red flag to get those people in the room as quickly as possible.
19:39 Dania Shaheen: That’s great. And then red flag number three: When there’s no feedback at all, good or bad, trust me, that is a very scary sign. You might think, and so you might think negative feedback or tension in the organization is a red flag, but it’s not necessarily. That’s very, very normal. And so when Rachel touched on red flag number two, bringing the right stakeholders in, oftentimes, because folks don’t wanna have that tension, they don’t wanna have that feedback, they may hesitate to bring the right folks in the room. It’s actually a really key part to a successful deal and to establishing the right cadence. It’s really, really normal, again, to have that feedback, that tension in the organization.
20:24 Rachel Naugle: Yeah, hearing you talk about that, Dania, always makes me smile because it is definitely something that you feel like should be a negative, but really, is a positive. And something that I’ve always had to remind myself when we’re doing this, having these conversations, and maybe they do get a little bit tense is that all of that tension is coming from a place of good. The people in the rooms always wanna make the best decision that’s best for the whole company and really, I do think, have to come from a common ground of, “This is now one whole company and we need to make the best decision possible.” And having some of that tension and that healthy debate is good to make sure that that ultimate decision is what’s best for everyone.
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21:06 Dania Shaheen: That’s such a great point, Rachel. I love that you’ve highlighted… Just having that voice in your head saying, “Folks are coming. They’re coming from a good place. The intentions are good.” That’s a great way to approach a lot of those conversations. And so on that note, would love to put a quick poll out. We’d like to know which common M&A mistake has hurt your company the most. So the first option: Thinking one culture has to win. Second option: Bringing HR in too late. Third option: Leaders not communicating the why. Or the fourth option: “None, we’re perfect.”Poll: Which M&A mistake has hurt your company the most?
21:57 Dania Shaheen: Oh, we’re getting real-time results here, Rachel, I like this.
22:00 Rachel Naugle: I know, this is so fun! [chuckle]
22:02 Dania Shaheen: So fun! So we’re seeing an early leader in option C, leaders not communicating the why. I know. That’s interesting.
22:13 Rachel Naugle: That’s interesting.
22:15 Dania Shaheen: That is interesting. Rachel, of the three for you, which do you feel has been, and I know you’ve been through a few deals, what do you feel is probably the most common mistake you’ve seen throughout your career?
22:26 Rachel Naugle: Yeah, I think from its… This was right after my first acquisition, I would say the biggest challenge we had was bringing in HR in too late. But then now, I would say across the board, it would probably be communicating the why ’cause I think no matter how often we are talking to leaders, or really emphasizing that communicating the why is important, I think there is still some sort of barrier that leaders might need to come over or just work through to make sure that we are communicating that why consistently and often. So I’m not super shocked that that’s the one that’s leading right now, and I would definitely agree that that is what I’ve seen most often as well.
23:10 Dania Shaheen: Yeah, no, that’s spot on. I think I’ve seen a good mix of all of these, but I will say I am very happy to see no one selected D ’cause at that point, Rachel and I discussed if we saw D was the dominant answer here, we were just gonna thank you all for your time, but I’m glad to hear that we’re seeing some of these common M&A mistakes. And so on this note, something I’m always really passionate about is not only, because of my experience, it’s always easy for me to talk from the top of the mountain or talk about certain things, but I wanna offer some practical advice and really start to… Actually, if we could go ahead and flip back to the presentation, would love to start to talk about advice for M&A culture building. So this is something very near and dear to my heart ’cause we can talk about mistakes all day long, but let’s talk about real ways to actually work through some of these common mistakes.
How to bring cultures together
24:09 Dania Shaheen: So the first piece of advice we wanna talk about is addressed in that first common mistake. So how do we avoid the mistake of assuming one culture has to win? How do you avoid the culture clash? So we’ve got a few bits of advice here. The first I’m gonna touch on is really doing the cultural due diligence. And so what I wanna caution everyone here is it’s easy to put a lot of pressure on yourself and think, “Oh, my gosh! These cultures, they have to come together overnight. We very, very quickly have to get through the norms of each business.” What I’ll caution you on is cultures don’t come together overnight. You’ve gotta ensure you’ve got the strategy in place and you’ve identified and have a grasp of both cultures before going in and starting to pull these cultures together, making sure you’ve got strong stakeholders throughout the business to bring your message home.
25:06 Dania Shaheen: So when I talk about due diligence, I wanna clarify, I do mean that we should be erring on the side of being more inclusive versus exclusive at the start. So if you’re too quick to burn a company jersey, if you’re too quick during the deal to say, “Hey, we are all company Y now,” you’re gonna ruffle a few feathers. It’s about taking time to appreciate what the company has, but get people excited about growing into the future. So it’s a fine line here. You don’t wanna wait too long because that would be mourning, and you don’t want people to get negative about what’s going on, but you wanna get people time to appreciate and you wanna give them time to grow. And so that’s really a key one here. Rachel, do you mind talking a little bit about some of the cultural due diligence you guys were doing at 2U for some of your deals?
26:02 Rachel Naugle: Yeah. So, something that we started doing that’s become a best practice for us is having what we call discovery sessions, which is exactly what you just talked about, Dania. So, for us, it could be a week long, it could be two weeks long, depending how much time we have, to get everyone in the room. All the key stakeholders identified and talk about everything. So, that is everything from culture, it might also lead into a little bit of the administrative functions of how they do their compensation, how they do their benefits, and asking every question imaginable to really understand where people are coming from. What’s the norm right now? And then just kind of compare notes in some respects, and it’s a very neutral ground to just learn from each other. And that’s always been so helpful for us to really kind of start from the ground, build up to see where everyone currently sits and then know what kind of, what is important to them from a culture perspective.
27:00 Rachel Naugle: Something we saw with some of our companies is maybe there’s one benefit that’s really important to them that we know, even if we’re changing our benefits for open enrollment, that’s something that we probably shouldn’t touch right now, because that’s really important to them, or this company doesn’t have a bonus right now, but they’ve always wanted one, so maybe that would be something, an easy plan design that we can build for the future year. So, thinking about where the company is coming from, and even if it’s more administrative, all of those have cultural impacts that then will lead to happy people.
27:28 Dania Shaheen: It’s great, Rachel, at 2U how you guys have truly understood that culture manifests its way in so many… It manifests itself in so many different ways, it’s wonderful how aware you are of the various aspects there, so spot on. Love that you guys are doing that. The second piece of advice we’d like to offer is finding the culture gap. So, culture does not stand down during times of M&A, it’s going to change as part of this event, and so that is a good thing to kind of get everyone to accept, it will change, it will not stay the same, whether you like it or not.
28:08 Dania Shaheen: And so this is a time and an opportunity to use that change to your advantage. So no culture is perfect. If you’ve done your cultural due diligence, you’re going to know what’s strong about the incoming culture, Rachel talked about this with the sessions they were doing at 2U, so you’re gonna know what’s strong about the incoming culture, what those employees appreciate about it. And so you can use that to actually add or shore up gaps in your existing company culture, it’s a really, really great opportunity to kind of enhance and build the existing company culture. Rachel, I know you touched… I know we talked about this a little bit before, but do you mind touching on it a little bit more, finding those cultural gaps?
28:51 Rachel Naugle: Yeah, definitely. So something that 2U has also tried to do is in any deal thinking, “Where maybe are we lacking?” Or, “What are they doing that we absolutely love?” And we’re really lucky that we have a CEO that is so culture-driven, we have this energized population of people that will have sometimes spontaneous dance parties, and we’re really lucky that we come from a culture that leads from the top all the way down. Yeah, you’ll have to come to one, Dania.
29:19 Dania Shaheen: I can’t wait.
29:21 Rachel Naugle: But it’s always great that then when we’re acquiring other companies to really look at their culture, and the best example I can give is with a company that we acquired in Cape Town, South Africa. So, Oceans Away. They have this core value that really aligned to ours, but we didn’t have a core value that encompassed everything that they were talking about, so the example of that is we formally adopted their core value of relationships matter, and so now that’s our ninth core value as a whole business, and that’s been really helpful to show, we believe this and we believe in you as a separate company that we were acquiring. But we weren’t doing this as well as you were, and now we’re formally adapting that into our own culture as well.
30:10 Dania Shaheen: And I bet the Cape Town employees, probably, do you think they were surprised that you guys brought that on and made that part of the 2U culture?
30:17 Rachel Naugle: I think they were. I think so, and it was huge for us too, I think even just on the US side, the legacy 2U side to say, “Oh, this is more than just a deal as well, this is a true coming together of two companies that now have this value-based connection,” that I think shows that we actually care about the other people, and care about the other company, and it doesn’t feel as transactional.
30:43 Dania Shaheen: I love that. And actually, that’s a great transition into our third point on this slide, leading by example. So, what Rachel just talked about, looking at both cultures, identifying that, having the leadership within the company and the talent team really look to bring on that cultural value from the Cape Town deal, it sets the example, it sets the example and the tone for the company. So, this one seems subtle, but it makes a huge difference during M&A events. It would be great if employees read every announcement and they were all in right away, but that is very idealistic thinking, it does not happen. So, this is a critical time for you to show as well as tell.
31:29 Dania Shaheen: And so what we mean by that is to be strategic about recognizing examples of people adopting, adapting the cultural change, making sure leadership is really setting that tone and making a point to amp up your employee recognition program. So nudge leaders to do the same, kind of reinforcing some of the cultural values from the combined company. We do this at Kazoo using our platform, putting the spotlight on the right kinds of recognition that are coming through your recognition program. Again, something we did a Kazoo when we were bringing everyone in together, making sure your newsletter, intranet, any high visibility areas of the organization, that they’re showing and leading with the example of showing great cultural adoption.
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32:17 Dania Shaheen: Physical reminders. This is one that’s often overlooked, but very important. Creating collateral for announcement day. Screens in the break area, signage in the office. If you’re re-branding, going through the new colors, putting all that up is really, really important and helps to be this visual reminder and get folks fully bought into what’s going on.
32:45 Rachel Naugle: Yeah. So, we definitely have been able to do some of what you just described, Dania, and we’ve been able to brand every M&A that we’ve had, which at first, I’m not a social media person, so I was like, “Ooh, I don’t really understand.” But it’s definitely been helpful of having on our digital signage around our offices, seeing #BetterTogether with both company logos, and just simple things like that where it’s like, yeah, we are really coming together in a bunch of different ways and bringing these two cultures together. And like I said before, we’re so lucky that we have a CEO that really cares about culture and really knows the emphasis of this, but there’s ways that frontline managers can do this as well.
33:28 Rachel Naugle: I always think the sign of a good leader is someone who is really willing to learn and ask the questions. So… Specifically and especially with the Cape Town deal, not only was it our first huge M&A as a company, but also our first international deal, and then also just so far away that it was culturally, as a company, but then also as a country, very different from what we’re used to in the US, so we often found ourselves saying, “Hey, we really don’t know a lot about South African culture, just teach us about it. What are your values? What are your interests?” And that, really, I think, went a long way too to say, “I don’t know, but I really wanna learn and I really wanna make sure that we’re aligned together.”
34:09 Dania Shaheen: That’s great, Rachel. And just to give people a perspective on the time, ’cause I know sometimes presentations like this can seem, again, a little idealistic, and we really wanted to find a balance between giving practical advice as well as highlighting some best practices. Rachel, how long did it take for you all to get comfortable and familiar with that Cape Town culture? This wasn’t something that happened overnight, right?
34:32 Rachel Naugle: No, definitely not, and I would even make the argument that we’re still working on it, because you’re always evolving with the new company and learning other cultures, but I would say it took us a couple of months to really feel more solid, and it definitely took actionable items like inviting them to our team meetings and having those discovery sessions and just asking those questions, that really helped us get to a more comfortable point.
35:03 Dania Shaheen: That’s great. And so that’s actually a wonderful pivot to our next piece of advice. Again, because so much of this can take a lot of time, the second piece of advice revolves around our second common cultural mistake, how do you get HR a seat at the M&A table? So how do we avoid the mistake of getting HR or people on culture teams involved too late in the process? How do you get that seat at the table? My personal advice is building advocates for the people function.
35:35 Dania Shaheen: So my challenge would be, to folks listening, is, have you or others on your team forged a relationship with folks on the ops team, on the deal team, on the M&A team, whatever your company may call it. You know some of the individuals that will be involved in the M&A process, so do you have advocates during those periods of M&A and growth? Do you have those relationships? And if you don’t have them currently, you don’t have to wait for a deal to start to build and foster that relationship. It’s actually something you can think about now, and it’s a muscle you can start to exercise now. Rachel, how did you all tackle this at 2U, ’cause it sounds like you’ve done a great job of starting to bring people and talent to the table. How’d you guys all do this?
36:28 Rachel Naugle: Yeah, so we’re lucky that our organization is also a little flat, so our chief people officer is very close with our CEO, so I think that definitely helps us in this respect, of our chief people officer will obviously advocate for someone from HR to be in those conversations, but I think the biggest thing, like you said, Dania, is to really advocate for yourself as well as your either function within HR or just HR as a whole, to be in those rooms, and so once you find that HR advocate, make sure that they understand what they’re advocating for, and you can make that argument to them, and really give them that “why” and that rationale as to why you need to be in those conversations of, if X doesn’t happen, then we’ll have a negative result of Y or something like that.
Pro tip: Present the business case for your M&A
37:15 Rachel Naugle: But that really bleeds into the next point as well, of presenting the business case. And for this I think it’s two-fold, of, one, if you haven’t done M&As before, do your research. Think about what are M&A deals that have gone well, that haven’t gone well, and the perspective that you’re coming from. So if it’s… I’m biased, the compensation team, think about what are things that would be a negative impact if compensation wasn’t brought in early from a culture perspective? Or HR as a whole and then narrow down into your individual function. But thinking about that, and you can use the stack at the start of this presentation as a jumping-off point, is gonna be really helpful to then present that business case to your HR advocate.
38:00 Rachel Naugle: And then on the other side, if you have done M&As in the past, really learn from your mistakes, your triumphs, the whole process to understand, this is what went well, and then this is where we have some room for improvement, or even if something did go well, were there any negative repercussions down the line, even if it seemed smooth? So really being able to have debrief sessions after a full M&A with your team and really thinking about where there’s areas for improvement in what the next deal would look like if it were to happen weeks later or something like that.
38:32 Dania Shaheen: Yeah. I think that’s great. The only thing I would add to that is, when you think about building those relationships, and Rachel shared some great real-world examples, the relationship is… Can be beneficial for both sides. And we touched on this a little bit earlier with some of those quotes from… Sorry, from some resources where we talked about how culture is that cornerstone of a successful deal. As I mentioned before, the world of M&A is changing and it’s changing rapidly, so when we look at a dashboard that a deal team would typically look on, metrics like ENPS, so employee net promoter scores, attrition, turnover, those, for many, many deals, are actually key statistics on the M&A team’s radar, they’re key data points that they’ll look at, so there is a lot of mutual value that comes from forging that relationship because you as a people leader or talent leader, you’ll have a good grasp of ways to influence those numbers and keep them steady during times of significant change.
39:39 Dania Shaheen: So finally, I wanna touch on the third piece of advice, how can leaders deliver the why effectively? This is one… And again, this out of our poll was one that I think a lot of you are probably anxious to hear about, I can’t stress this enough, it’s important to keep strong, consistent messaging that’s repeated throughout the process.
40:01 Dania Shaheen: So not only immediately after the deal is completed, but we’re talking almost a year, a year plus afterwards. This rally cry helps cut through uncertainty and rumors that do affect engagement through an M&A process. And so one of the first points here is phasing key stakeholders in early. And so the goal with this is to vet and strengthen talking points, so that rally cry, those talking points that help to support those, as they’re released. So what I’ve seen, at least in my experience, is a big shift in the world of M&A. There’s an openness now to bring more stakeholders in a little bit earlier. It used to be very hush-hush. I remember one of the first deals I raised my hand to be part of, it was a 100,000 person company, and I think by the time they were done doing the M&A activity, maybe like 10 people knew what was going on. It was crazy that so few people knew something so big that was going to happen in the company.
41:07 Dania Shaheen: Today, I’m seeing the change. Now, when I go through deals or when we’re talking about acquiring a company or merging with a company, we are bringing people to the table earlier, and people themselves, the individual employees in the company, they’re seen as human capital during these deals, you need them on your side to hit the goals of the deal, so they need to be considered. It means bringing more stakeholders to ensure you’re delivering your why effectively.
41:36 Dania Shaheen: And so as someone who loves not only theory and you should statements, I wanna provide some actual advice on the phases of effective messaging, so how to cascade why throughout the organization. Phase one that I would recommend is working with a savvy coms or PR person to nail the messaging beforehand. So you want talking points that are believable, that resonate with people, you wanna vet and collaborate with executives on the team that you wanna bring in the fold, just somebody you know who does a great job with some of the communications within the organization, you wanna bring them in early, and you wanna have them give the language the right kind of sound and voice.
Pro tip: Pull in your mid-level managers
42:20 Dania Shaheen: Again, something that resonates. Phase two, after you’ve kind of completed phase one, is pulling in mid-level managers. This is probably a little bit closer to announcement time, possibly even just a couple of hours before the announcement is made. These folks are day-to-day interface with the employee and they’re often forgotten, but mid-level managers are essential for rolling out messaging effectively and having healthy conversations across departments. They’re the ones that are gonna be able to tell you what’s going on within the organization, so if they know your rally cry, if they know the why and the supporting points behind why this deal is happening and why this stage is happening, they are wonderful megaphones to kind of help spread the good word throughout the organization. And then if we think about phase three, there are what I like to call shadow leaders, and this sounds a little sneaky, it’s not sneaky. There are individuals in every organization that are outside of your people managers and your executive team, they’re not gonna be evident when you look at an org chart, but they’re actually strong cultural drivers within the organization.
43:32 Dania Shaheen: There’re people that individual employees in the organization naturally turn to, even if they don’t directly report in to them. And so one of the great things about working here at Kazoo is I now have a tool that helps me identify these people. It used to take me forever to identify key shadow leaders and cultural drivers within the organization. I actually use the Kazoo platform to do this. I look at our engagement tool, and I actually look at recognition and who’s getting recognized, to identify those key cultural pillars, and I very quickly look to bring them into phase three and make sure they have that messaging, they have that why, and so that they’re equipped to do that within the organization.
44:17 Rachel Naugle: Yeah, I love hearing you talk about phase three, Dania, because that’s something that 2U hasn’t done, but hearing you talk about it, I’m like, “Duh, we should absolutely be doing that.” So I think it’s definitely something we were… I’m gonna look to take away from this and start implementing with our potential next M&A. But the only thing I would add to it is adding the HR VP team as a key stakeholder in this as well, and slotting them in somewhere between phase two and phase three, of really making sure they’re looped into everything, and then also from a culture standpoint, they’re really helpful from the company being acquired perspective, to really get an understanding of how might one department react to this or what’s the culture of one specific department and what should we kind of keep in mind as we’re communicating this or maybe fully integrating them into our existing marketing team or communications team, that kinda thing.
45:14 Rachel Naugle: So it’s definitely helpful to have them as a key stakeholder and partner throughout the process. And then that kinda segues perfectly into ensuring the message meets people where they are, of understanding what the current culture is for both the legacy company and then also the newly acquired company, it’s really helpful to see how do we wanna communicate and what is the best way to deliver this message effectively. And so an example for this is from the 2U side, we never really used Slack.
45:47 Rachel Naugle: It’s something that some people will use, but not tremendously across the organization, but a company that we acquired used it religiously. That was their main method of communication, they posted in it constantly, they had hundreds of different channels that they used. So that was something that we identified as this is the best way to communicate something to their entire employee population, we should probably use this to message some of our big messages. So we did also send out email communications ’cause that was within 2U culture, but bridging that gap between this is kind of our culture, but then also moving their culture in as well to make sure that they were understanding and had resources and access to everything that we needed them to recognize and understand as we were going through the deal. The one thing I’ll say about Slack is, and just social media platforms, is rumors can spread really quickly, so this is especially necessary too to have that why and that really clear message and consistent message that you can squash any rumors and make sure you’re being consistent across the board there.
46:52 Dania Shaheen: That is really great, practical advice, Rachel. It’s something that I just adore is that again, not only speaking to the theory behind a good deal, but actually providing some tactical, real advice to execute on that. You’re spot on about Slack and social media, so having that clear why message and making sure you’ve equipped key individuals within the organization, and to Rachel’s point even, maybe it’s phase 1.5, you know those HR VPs, etcetera, allows you to really keep a pulse on what’s going on and making sure that why message stays consistent. Thank you so much for that practical advice, Rachel. And so I’d like to go ahead and share actually a few examples of some deals that we’ve seen go really well, so deals that have closed the culture gap and seen success, and some deals that haven’t really done that all that well.
Examples from real M&As
47:51 Dania Shaheen: So the first deal I’m gonna talk about is a company… Actually two companies that came together that successfully closed the culture gap. It’s an oldie but a goodie. So AT&T and BellSouth, this was a deal… As I mentioned, I did spend some time at AT&T… And this was a deal that happened before my time, but it’s one of the largest M&A deals of all time, and so from both the financial and people perspective, it’s one to call out. They did it so well. The deal not only increased AT&T’s financial scope, gave them necessary cash flow, etcetera, but what they did is that they identified a lot of key BellSouth employees and the culture of BellSouth itself, and when they brought BellSouth into the fold, they did such a great job of merging the culture and some of those tenets that made BellSouth who it was, that AT&T actually brought some of those on as well into their over-arching company culture.
48:53 Dania Shaheen: And so while it’s still known as AT&T, decades later, as I would meet people at AT&T, I would still meet so many folks who were from legacy BellSouth and legacy AT&T who have since moved into leadership roles at what is now AT&T. It’s impressive to me to see so many folks who came from a company that was acquired or brought into the broader company that are still doing so well. And why is that? I would say if we look back at our advice, AT&T was conscious of good BellSouth policies and folding them into the culture early on.
49:30 Dania Shaheen: Another great example of a good deal, or a company who was able to successfully close the culture gap, is Disney and Pixar. So Disney had a very executive-driven process and culture whereas Pixar was a little bit more creatives-driven, and so Disney recognized that strength in Pixar and they actually used that to help strengthen that gap in their own approach, which I think is again really mature of Disney and that deal team. Both of the companies worked to close their cultural gaps and integrate employees quickly.
50:09 Dania Shaheen: And so it’s important to know, listen, no company ever does these things perfectly, but AT&T, Disney, they definitely did it better than most. And so let’s talk about most. Let’s talk about those companies that failed to do the cultural due diligence and didn’t quite know the best way to bring them on. I’m gonna kick it off with talking about Quaker Oats and Snapple. So at the time, in ’94, Quaker Oats had successfully managed the widely popular Gatorade drink, and so they had bought them and they thought they could do the same with Snapple. So despite the warnings from Wall Street, they acquired Snapple for about, I think, $1.7 billion, which Wall Street felt they overpaid.
50:55 Dania Shaheen: So in addition to overpaying, Quaker management just broke a fundamental law of M&A, which is making sure you know how to run the company that you’re acquiring, and making sure you bring specific value-added skill sets and expertise into the operations. So by Quaker Oats not paying attention to the people and the skills they needed from Snapple, they actually saw little value in that deal, and I believe had to sell it for a loss quite a bit later. Quaker Oats would have benefited greatly from bringing people leadership to the M&A table to better understand the underlying value that Snapple’s culture provided that business, but instead of doing that, they… Which they did not… They brought them on, thought they knew best, and unfortunately that deal floundered.
51:46 Dania Shaheen: Another more recent bad example is Yahoo, Tumblr. This was a $1.1 billion dollar deal that ended up being written off completely. There’s a really great DIGIDAY article that digs into what happened, called Nobody at Yahoo Understood Tumblr, and it details a little bit of the culture clash there, if you’re interested in digging into that, but they would have benefited… And by they I mean Yahoo… Would have benefited greatly if they took time to mind the gap, which again is advice we provided you all. Nobody wanted to work for Yahoo because Tumblr had such a great company culture, and so instead of Yahoo looking internally to understand where the gaps in their culture were, again they assumed they knew best, they brought Tumblr on, they forced them to mold into what Yahoo! was at the time.
52:39 Dania Shaheen: And so by keeping the status quo and disregarding Tumblr’s culture, they lost a lot of that key talent, and unfortunately, that’s another deal that just went south. It has been truly wonderful, and I’ll let Rachel share as well, just kind of sharing our passion for keeping culture strong during M&A and change management. I was excited to kinda cover with you all today, and I know Rachel was as well, just these common M&A culture mistakes, believing one culture has to win, bringing HR in too late, not communicating the why, and then actually being able to talk to you all about some practical advice to help alleviate these common mistakes. We hope we provided you all with some actionable advice to get you all through tough times of change.
53:23 Dania Shaheen: And so actually, what we’d love to do is put a poll out there to understand… As you re-tune or redefine your company culture, what is your primary objective? And we’ve got three options for you, are you looking to improve productivity? Retain or attract talent? Or improve employee engagement? And on that, I’d love to see what the results are.Audience poll: What is your primary objective in redefining your company culture?
53:57 Dania Shaheen: Oh wow!
53:57 Rachel Naugle: We can see them already. [chuckle]
54:01 Dania Shaheen: This is great, we’ve got a couple of minutes left, and so Rachel, I’d love to touch on this, what are your thoughts on the results?
54:11 Rachel Naugle: Yeah, I think it makes sense. Improving employee engagement, clear front runner right now, I would say that that’s definitely something that 2U is putting more of a focus on as well, of… So we just closed a deal back in April and we’re getting them into our systems, actually the HRS system, our team is working on loading those employees right now, into our Workday system, which we’ll then feed to Kazoo, which we’re also a partner with. So I’m really excited for us to finally have that clear tool where we can see employees engaging, and I’m already so excited to give points on Kazoo and give recognition to people from the company that we just acquired side, of just as a really simple but impactful way to say thank you so much for all of your work with this, I know it hasn’t been easy, but we made it and it’s just a really great way to show employee recognition via engagement, but then also to get employees engaged post deal.
55:09 Dania Shaheen: Your… I’m excited for your excitement ’cause I agree. [chuckle] So I’ll be honest, even myself, right, and I chatted with you all about my experience in the world of M&A, this, working at Kazoo has actually been the first time I’ve done a deal with an employee engagement tool in place. I will never, ever work a deal again without an employee engagement tool like Kazoo in place. Truly, it is crucial for enhancing your company culture, for helping you deliver the why because it’s embedded in your engagement platform, it helps to really reinforce that message throughout the company. In fact, Rachel, as we were talking and preparing for this, I was like, “I wish I could give Rachel points.” I wish I could give Rachel [chuckle] recognition to say thank you so much for working with me on this webcast, ’cause it truly has been such a pleasure.
56:03 Rachel Naugle: I actually thought the same thing, I was like, “Where is Dania in my Kazoo platform?”
56:09 Dania Shaheen: Wonderful. So we’ve got two minutes left, I’m not sure what the timing looks like for Q and A, but Holly, I’ll hand it back over to you.
56:19 Holly: Yeah, great timing there. So we don’t have too much time, but I think we have just enough to squeeze in one question. A really good one that came in from Cory, he wants to know, so what if we didn’t avoid the culture clash, what steps can we take to fix it?
56:38 Dania Shaheen: Oh, that’s a good one.
56:40 Holly: That’s a really good one.
56:40 Dania Shaheen: Rachel, do you… Would you like to talk about some of the experience you’ve been seeing?
56:45 Rachel Naugle: Yeah. I think what I would say to that, Cory, which is a great question is, is really think about what can you do now? I always think if something goes poorly, things happen, and it’s really important to act quickly, but then also act intentionally, so where is the biggest issue that you’re seeing? Is it in one specific department, one specific area? Is it just one kind of overall feeling that the company doesn’t… The company being acquired doesn’t get the right sense that they’re feeling welcome into the company? Like what’s the overall tone of that tension and where is it coming from? And kind of thinking of what that key actionable, maybe quick win, but then also thinking of a long-term plan to really kind of course correct a little bit there.
57:34 Dania Shaheen: Totally agree with Rachel there. I think once you’ve diagnosed where that area of dissension is or where that issue is, you can really quickly actually probably apply some of the advice throughout the presentation, right? Getting that rally cry, making sure messaging is clear and consistent, you can still put that in place, it’s never too late, it may take a little bit more time, but it really never is too late to go and apply some of that practical advice.
58:02 Holly: Alright, guys, thanks for that answer. Really good stuff there. Folks, we do have plenty of questions coming in, but we don’t have time to get to those, we’ll make sure that your questions are passed on to the folks at Kazoo, so that you can be taken care of at a later time. Quick wrap up here, just to let everyone know that today’s webcast has been approved for HRCI and SHRM credits, those credit codes will be available sometime tomorrow, you can visit those or check those out rather on your My HRCI profile. One more big thank you to Dania, Rachel, and to you for being here. I really hope everyone has a great day.
Improving change management with technology
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