Organizational Culture in Mergers & Acquisitions

In today’s volatile economy it is more important than ever for a firm to be able to strategically and tactically manage its resources effectively. During the 1980-90’s recession there was an incredible wave of corporate mergers and acquisitions throughout the world. This was one of the five largest M&A wave periods ever witnessed. In Recession-Proofing Your Organization, Peter Navarro states that during a downturned economy one successful way of managing business cycles is through mergers and through the acquisition of companies at bargain prices when “executives pursue a buy low, sell high strategy”, (2009, p. 49).

Cultural compatibility is one of the greatest barriers to integration of organizations and yet also one of the least frequently investigated during due diligence, (Badrtalie & Bates, 2007). In 1998 when Daimler-Benz and Chrysler merged during the 80’s-90’s wave, Chrysler was the most profitable car company in the world and Daimler-Benz was suffering from increased competition in the luxury automobile market. Chrysler recognizing the need to diversify its line during this period of time had just acquired American Motors Corporation, AMC, to pursue the minivan market and was now looking to merge with Daimler-Benz to strategically poise itself for future growth in the luxury automotive market. The merger was announced as a merger of equals but there were clear signs that the process was not going to go smoothly from the beginning due to a clash of workplace cultures.

Daimler-Benz was a stricter more hierarchical structure, with innovation working its way up the corporate ladder until it was approved by the company’s leadership, while Chrysler’s culture was more relaxed allowing middle-managers to pursue initiatives on their own often without the consent of executives. While all executives at Daimler-Benz flew first class and generally pursued a more luxury oriented philosophy in keeping with their branding, only senior executives at Chrysler were accustomed to this, however, Chryslers’ executive compensation package was a great as five times that of the executives at Daimler-Benz.

Dress policies reflected this difference in culture as well as did the amount of time employees spent in the office, with Chrysler allowing a much more relaxed dress code and lighter office hours during non-peak performance periods. Furthermore, issues such as where the company would be headquartered, the name of the company, and even the differences between the US accounting and the German accounting system proved to be difficult to manage during the merger negotiations. During the negotiation process Daimler-Benz consistently took the upper hand, by being intractable in their demands during the process. Decisions on other organizational culture issues as well as most other issues went in Daimler-Benz’s favor while Chrysler limited its negotiations to issues concerning profitability, physical assets, and capital, a strategy that had probably worked well for them during their recent AMC acquisition. The AMC acquisition represented two companies with a somewhat shared corporate philosophy and organizational culture merging resources; it appears that Chrysler failed to recognize that it needed to realign its priorities when dealing with a culture so diverse from its own.

Within two years of the merger, in the midst of a continuing culture clash, Daimler Chrysler experienced, “a mass departure of American talents”, (Badrtalie & Bates, 2007), leading to speculation that this was actually more of an acquisition by the German company than a true merger. Following this initial exodus the company experienced large scale financial losses that the company has yet to recover from, with shares of Daimler-Chrysler trading at about half of what shares previously traded for either of the two companies individually.

In conclusion, there is never a true merger of equals, especially in an international arena, unless the organizational cultures can be blended rather than imposed on one another. Bazerman writes that “too many negotiators focus only on claiming value and therefore fail to create value”, (p. 161). The merger between Daimler-Benz and Chrysler would not have even been considered if either company hadn’t previously had a history of success and if both companies could not originally have seen the potential benefits of the merger. Although Daimler Benz succeeded at the negotiating table with obtaining their demands for the merger, through their cultural arrogance they have lost what they initially valued and they are still suffering the economic consequences.

References:

Bazerman, M. H., & Moore, D. A. (2009). Judgment in Managerial Decision Making (7th ed.). Hoboken, NJ: Wiley and Sons.

Badrtalie J., & Bates D. (2007, June). Effect of organizational cultures on mergers and acquisitions: the case of Daimler/Chrysler. International Journal of Management, 24 (2), 303-318. Retrieved from ProQuest ABI/Inform Global.

Navarro, P (2009, Spring). Recession-proofing your organization. MIT Sloan Management Review, 50(3), 45-51. Retrieved from ProQuest ABI/Inform Global