Leading an organization through a merger is on par with playing chess—one bad move, and you and the organization are on its backfoot playing defense. It is therefore critical to stay one step ahead and in control, as the individuals tasked with leading a merged entity can have an outsized impact on success. In fact, a study conducted by law firm Baker McKenzie demonstrates that 44 percent of mergers fail due to poor leadership around the integration.
The good news? An intentional approach can ensure you avoid missteps and have the right executive talent in place on day one. As playwright Moliere once said, “It is not only what we do, but also what we do not do, for which we are accountable.” This is certainly true when it comes to mergers. Below are six areas of accountability to consider when building the new company’s (NewCo) executive team.
1. Build Your Executive Talent Bench for Today’s Challenges and Tomorrow’s Opportunities
A cohesive integration requires a commitment to rigorous self-examination, great timing and exceptional leaders. Make leadership a priority during your diligence process to pinpoint the executives who can steer the company through the integration. But selecting the leaders based solely on the integration needs may mean risking the organization’s longer-term success at the expense of a successful integration. To mitigate this risk, identify leaders who are not only exceptional at navigating through change and ambiguity, but who also have the potential to drive new areas of growth and development for the business’ longer-term needs. By keeping an eye on the succession implications of bringing in NewCo executive talent, organizations will ensure they have the executive talent they need for today while accelerating the growth of tomorrow.
2. Assess with a Fresh Lens
Do not assume the current executive teams from either legacy organization are the teams you will need for the new entity. Leaving this unaddressed is one of the top reasons that integrations fall short, so it is important to define the type of leadership the organization will require. This could mean orienting towards finding exceptional operational leadership, the “talent magnets” that inspire followership or innovative thinkers who will disrupt each legacy organization’s products and services. Once these requirements are defined, this becomes the criteria against which you should begin assessing talent. Ideally, this should be done in partnership with a third party who can provide talent benchmarks and objective assessments to ensure the selection process is fair and unbiased. This objective third party view, along with having select board members tasked with providing feedback on selection decisions, is of paramount importance.
3. Define Clear Roles
A lack of clear roles can significantly slow down the leadership integration process. After all, how can stakeholders make decisions if they do not know who is responsible for interviewing and selecting candidates?
To help your team get on the same page, clarify decision-making rights upfront and establish the role of the board, CEO, HR, and the third-party partner. Who will be responsible for recommendations vs. providing input? It is important to make sure that the interview and selection process is the same for all candidates. Implementing these boundaries will take the guesswork out of candidate selection and determine who is responsible for signing off on each hire. The result: more precise executive hires in a shorter span of time.
4. Communicate, Communicate, Communicate
In times of uncertainty, under-communicating can be a pitfall. An end-to-end communication plan is a great way to combat this. It can provide transparency into the selection process and clarify the ins and outs of talent selection.
Develop your communication plan early and revisit it often. Be sure to convey how hiring decisions are made and what is being done to ensure equity and objectivity. Most of all, be prepared to reiterate these messages and have them reflect your overarching vision. Messages often need to be shared in multiple forums, multiple times in order to be heard. Executives require a high-touch communication strategy that feels bespoke to them but is rigorous and well-planned.
5. Understand and Manage the Risks
Failure to successfully transition into an executive role can significantly impact the integration’s success, including missing critical integration KPIs, diminished board confidence in the CEO’s leadership and low employee morale. These risks are heightened by staggering transition failure rates. In fact, 40 percent of senior executives fail within the first 18 months of starting a new position and 87 percent of HR professionals rate leadership transitions as one of the most difficult processes leaders face in their careers. Transitions are also ranked second only to a divorce in terms of human experiences which create the most stress and anxiety. To combat this, ensure clear transition plans are in place to set up executives for success in their new, complex, larger, and more demanding roles. This can include providing clarity on their new stakeholder environment, being clear about their strategic priorities, and ensuring the teams underneath them include exceptional performers.
A lack of focus on diversity can also present significant challenges for the organization. These challenges can include not adequately prioritizing diversity, equity and inclusion (DE&I) investments, failure to create a culture where differing opinions are welcome, or simply having an executive team that lacks a diversity of talent. These risks should be mitigated by emphasizing inclusion in the NewCo business strategy, prioritizing the development of diverse talent, setting enterprise-wide diversity targets and ensuring that diverse talent from both legacy organizations are effectively retained.
6. Prioritize Candidate Care
Identifying the best talent is only half the battle. The key to building the right executive teams is recruiting and retaining top talent. This is where a white-glove experience can make a big difference. It is easy to forget that an integration selection process, which often includes choosing between two executives for one role, is actually an executive recruitment exercise. Leaders need to understand the NewCo vision, aspirational culture of the CEO, and opportunities for him/her going forward within the current and future roles.
Focus on “re-recruiting” current executives through a personalized approach that takes their skills and experience into account. This should include highlighting their long-term succession potential within the organization and their ability to shape its success.
Ensuring that there is a rigorous process in place to test the key areas of accountability can make a significant difference in the success of a merger. Combine strong tactics with relevant data points to identify gaps and find the best talent. Above all, do not overlook the importance of assessing your needs — it will allow you to move into the next phase of growth with an executive team ready to deliver short- and long-term goals.
- ERIC WIMPFHEIMER leads Russell Reynolds Associates’ Leadership & Succession practice Knowledge team. He is based in New York.
- ERIN ZOLNA is a senior member of Russell Reynolds Associates’ Leadership & Succession practice. She is based in New York.