Prioritize Cultural Due Diligence Throughout the Entire Deal Process

Accelerate the Culture Due Diligence Process

October 2019 Article

By:  Tracy Levine

To guarantee success, your human capital strategy must be a critical business priority.  Delay of people due diligence until after the transaction closes can undermine the very purpose of the deal.

Culture Due Diligence in the Age of Employee Disengagement

Gallup Research found that during the last 18 years, an average of only 30% of employees have been actively engaged at work.  Cultural Due Diligence is becoming a best practice for companies as they evaluate the effectiveness of their human capital model, and workforce organizational structure, and whether the processes currently used are likely to keep employees engaged and attract top talent.

Companies are now using benchmarking tools to evaluate cultural competitiveness. Substantial changes to culture are often required prior to deal initiation if a company intends to achieve strategic objectives and deliver the promised value of M&A deals.  

M&A deals have a bias for speed, and often there’s a temptation to cut corners when evaluating the culture and workforce.  Every deal has its unique challenges, and gaining insight about  behaviors, personalities, values and motivations of stakeholders creates a distinct advantage for companies preparing for post-deal success.

Understand The Myths

Myth 1

Financial Due Diligence is Important, People Due Diligence Can Wait

The story we’ve been sold:  The conventional process for M&A begins with M&A strategy, progresses toward target identification, and includes other steps toward post-deal integration.  The deal process is time-proven, financial due diligence is more important than human capital due diligence, and there is no reason to change the standard M&A process.

Fact:  People due diligence is usually completed late in the deal process after spending significant time and money on financial due diligence.  Communication strategies for target approach, ongoing deal communication, and negotiation are based on experience of the M&A deal team.  Target team member behaviors, motivations and communication preferences are not known, so opportunities to customize communication, build trust, encourage transparency, and develop engagement are missed.  Some promising deals are lost to competitors.   It doesn’t have to be that way!

The Solution: CoreEngager™ helps companies improve the probability of successful deal close by early assessment of target company deal team members.  CoreEngager™ insights empower M&A deal teams to develop custom communication strategies during the early deal stages, and these strategies are used to build trust, transparency, and engagement to close successful deals.

Myth 2

Selection of Post-deal Candidates is Important, People are Unpredictable

The story we’ve been sold:  Selection of candidates for the post-deal team is a high priority M&A deal component, and it is not possible to predict a person’s ability to work well as part of the post-deal team.  Some will perform well, others won’t, and post-deal executives will work through issues when they need to.  Retention of top talent is a big challenge.

The Fact:  M&A deal leaders who conduct people due diligence for target company top talent normally rely on incomplete and ineffective evaluation tools, so they fail to gain useful insight to motivations and behaviors.  As a result, it is difficult to evaluate potential relevance, value-add, and probability of engagement by proposed members of the post-deal team.  Deal leaders are forced to rely on ‘gut feeling’ to make decisions, and it is common for over half of the target company employees to resign during the 2 years after the deal closes.  It doesn’t have to be that way!

The Solution: CoreEngager™ helps companies improve their selection decisions for post-deal candidates by early assessment of target company top talent behaviors and motivations.  CoreEngager™ insights empower clients to develop custom communication strategies which are used to build trust, transparency, and engagement, and increase successful top talent retention.

Myth 3

Culture is Important, Post-deal Integration is Unpredictable

The story we’ve been sold:  Effective post-deal culture is difficult to design and even more difficult to achieve.  Target company leadership team members must exit at deal close for post-deal integration success.

Fact:  Leaders of the legacy target company often fail to align and collaborate with the post-deal team, and this causes unnecessary delays and ineffective execution of integration strategies. Post-deal integration strategies are based on experience of the M&A deal team with limited pre-close input from legacy target leadership team members.  Expectations are delivered and mutual promises are made without clear understanding of communication nuances. Pre-close and post-close team behaviors, motivations and communication preferences are not known, and customized communication strategies are not developed.  Opportunities are missed as members of the post-deal leadership team work to gain scope clarity, set KPIs, and agree on expectations for accountability, integrity, and collaboration.  As a result, leaders limit their effectiveness in building trust, encouraging transparency, and developing team member engagement.  It doesn’t have to be that way!

The Solution: CoreEngager™ helps companies improve post-deal integration results by early assessment of post-deal leadership team members and their direct reports, individually and collectively.    CoreEngager™ insights empower post-deal leadership teams to develop custom strategies for scope clarity, KPIs, accountability, integrity, and collaboration.  These strategies are used to design and execute a communication plan that builds trust, transparency, engagement, and EBITDA.