The economic downturn has made U.S. companies more attractive acquisition options for overseas organizations, which could mean some significant cultural challenges for HR.
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With the declining value of the dollar, there's been a fire sale on American companies lately. HR leaders have been coming into work and discovering they have new bosses who don't speak the language -- sometimes literally. And experts predict that despite the global economic turmoil, corporate America will continue to be an inviting target for foreign investment.
That being the case, American HR executives have their work cut out for them. When a U.S. company is acquired by, or merges with, a foreign company, the national cultural differences can be overwhelming to the American executives.
Perhaps the acquiring company is Korean -- and the Americans go into joint meetings without realizing that, as is the norm in Korea, many of the most important decisions have already been made.
Or perhaps the new owners are French -- and the Americans feel stifled by the multiple layers of rules and routines that support the French way of coping with uncertainty.
It's the HR leader's job to help his or her executive team understand and accommodate the cultural differences that will inevitably arise. And the stakes are high, according to mergers-and-acquisitions experts, business professors and HR leaders who have been through the process.
"The greatest tripwire in cross-border deals is getting people to work together," says Mark Arian, Towers Perrin's global leader of mergers, acquisitions and restructuring, who is based in New York. "National culture has to be grappled with, it has to be understood and it has to be accommodated."
When it is not, American executives may feel frustrated and confused. Decisions don't get made. Productivity -- from the executive level on down -- falls off. Customers are lost, and new ones aren't acquired.
"People go through the motions but stop working," says Elisa Hukins, the cultural integration leader for Mercer's mergers-and-acquisition consulting services. "Both companies say, 'The reason we came together isn't being realized.' "
Minimizing Cultural Differences
Many American executives -- including some in HR -- fail to recognize how important national cultural differences can be, and mistakenly believe they're minor details that will work themselves out.
That was the case several years ago when Johnson Wax Professional, a subsidiary of S.C. Johnson based in Racine, Wis., merged with DiverseyLever, a subsidiary of Unilever N.V., based in Rotterdam, The Netherlands. Both companies made commercial and institutional cleaning products, and it seemed a natural fit, says Sue Pils, the former vice president of HR for global corporate functions at the Racine-based combined company, JohnsonDiversey.
"Initially we said, 'We're in the same space.' We were both like the little brother or sister in the parent company," says Pils.
But some of the initial meetings between the two executive teams -- to decide issues such as which product lines would win out -- did not go well.
"The Dutch executives were incredibly open with their thoughts and feelings and would be blunt," says Pils. "They would lay all their cards out on the table and be open and honest, and they would be strong in their convictions. You'd be in a meeting and they'd say, 'I think you are wrong. This is the way it should be.' "
Says Pils, "We were used to 'Midwest nice' -- a lot of consensus-building, a lot of collective brainstorming. We would say, 'Let's talk about what the opportunities could be.' They would say, 'Let's get to a decision.' "
Even though both teams spoke English, says Pils, "when we brought these two teams together, it was like they were speaking different languages."
Communications broke down. "It was shocking when we went into these meetings," says Pils. "Both teams had something to lose if it didn't go well."
Pils saw she had to step in. Neither she nor the other American executives knew much about Dutch culture, says Pils, "and I began reading like crazy."
She combed through books on the Dutch, and went to HR Web sites that compared American and Dutch attitudes. "There's a lot of information out there," she says.
She passed along to her executive team what she was learning. Although the majority of the executives at DiverseyLever were Dutch, others came from throughout Europe -- so Pils helped her own team understand those cultures as well.
At the same time, she met with the executives of DiverseyLever -- both in Racine and Rotterdam -- to tell them about how things worked at her company.
"It was me going to them and saying, 'This is our culture and our norms,' " she says. " 'This is how we make decisions.' "
Says Pils, "I started networking with individuals on both sides of the house. I would go to each of the pairs individually -- the financial leaders or IT leaders -- and say, 'Tell me your issues and concerns.' "
Often, after meetings, she would stop by the American executives' offices.
"I would say, 'How do you think it went?' and 'This is what I saw,' " says Pils. "I would try to coach them on things I felt perhaps needed to be followed up on. I offered my services to facilitate a discussion."
She also had more formal sessions with the American executives. "If the CFO was having a meeting with his team leaders, I would say, 'Let's take a half-hour to talk about cultural differences,' " she says.
There was also some role-playing -- she encouraged the American executives to imagine what the Dutch were saying about them. "It was brainstorming," she says.
Because the two companies were working to integrate their teams, Pils knew that it was just as important that the Dutch and the other executives from DiverseyLever understood the Americans.
"You've got to do it both ways," she says. "If you only coach one team, the other half is going to be struggling."
Pils admits it was hard work. "For an HR person, it's 24/7; how can I get the groups together? You have to constantly be challenging the team to do it better."
She believes it all had a positive effect on the way the two teams communicated.
"I think it definitely helped," says Pils.
"It's never 100 percent, but there was more understanding."
No one, of course, is certain how the economic downturn will affect cross-border mergers and acquisitions. Tight credit may temporarily slow the number of deals being made. But experts say declining stock prices could make American companies even more attractive to foreign investors, even if the dollar increases in value, as it has been doing. And, they say, globalization has many engines and drivers -- finance is just one -- and it will continue through good markets and bad.
Nevertheless, it makes sense to prepare for possible upheaval. (See chart here on 10 major deals that occurred in the past two years.) This is especially challenging for U.S. employers.
Part of the problem, say the experts, is that many American executives haven't had to worry about cultural differences -- so they haven't given the question much thought.
"There is an American ethnocentrism because of America's economic hegemony, and because you can be successful in America without knowing about other cultures," says Dave Thomas, a professor of international management at Simon Fraser University in Vancouver, British Columbia, and co-author of Cultural Intelligence: People Skills for Global Business.
When American executives do think about how business works in other cultures, they often have an inflated sense of superiority that can derail cross-border mergers and acquisitions, he says.
"It's common for Americans to view other countries' management styles as inferior," says Thomas. So when American companies get purchased, he says, they're "going to have a potentially negative view about the acquiring culture."
Says David Carter, chairman and founder of Merryck & Co., a London-based business mentoring firm, "Americans are much more parochial, naïve and unworldly than any other country. They assume everything in the world works the way it does in America, and when it doesn't, they want people to conform to their way."
Because many American executives haven't thought about cultural differences, they don't fully understand what national culture is, says Deborah Allday, who is in charge of mergers and acquisitions for the Hay Group in the United Kingdom, and who is based in London.
It's not just about etiquette, she says. "Cultural attitudes not only affect our behavior, they affect the fundamental ways we experience the world and our views of others." And in a merger or acquisition, she says, "the views of people on both sides of the deal might be colored by those fundamental biases."
This happens on two basic levels, experts say. American executives whose companies have been purchased not only have to deal with their counterparts on the other management team, but also with the other company's corporate culture -- which is largely a product of national culture.
"There are several layers of corporate culture," says Allday, "but at the very core, or bull's-eye of the target, is national culture."
Gerard Hofstede, an influential Dutch writer often cited by mergers-and-acquisitions experts, has identified several major cultural dimensions that shape companies. One is what he calls "uncertainty avoidance," the extent to which people feel comfortable or uncomfortable in unstructured situations.
Companies in countries with high uncertainty avoidance factors -- such as France, Japan and Mexico -- often cope with anxiety through strict rules and policies, while companies in countries such as the United States, China and Sweden are generally more relaxed and less rule-oriented.
These differences and others -- such as whether a society favors collectivism (as in Latin American countries) or individualism (as in the United States) -- can have a profound effect on corporate culture.
For example, in the United States, decisions are often made during meetings, but in China, Japan and other Asian countries, executives usually get together and make the decisions beforehand -- and then present them at the meeting, says Jim McKay, Watson Wyatt's mergers-and-acquisitions engagement leader, who is based in Chicago.
"Obviously, that's very confusing to American executives who think they are there to offer their opinions," he says.
Allday cites another way corporate culture is shaped by national culture. Americans are "can-do- and action-oriented," while Asians are generally more reflective and "spend a lot of time considering everyone's point of view," she says. Americans may find that corporate decision-making in Asian companies takes a frustratingly long time.
Paul Schneider, managing director of the Oakbrook, Ill.-based HR consultancy SSP BPI, says there's even a third level of culture that comes into play when an American company is acquired by or merges with a foreign company.
"There's individual personality, corporate personality -- and the government personality of the country," he says. For example, the labor laws in Britain, France and Germany are much tougher than in the United States, he says, so it's more difficult in those countries to reduce staff and make other organizational changes. There is sometimes a long learning curve for the foreign buyers of American companies, who may assume the labor laws in the United States are the same.
Need to Know
All these factors can create corrosive conflict between American executives and their foreign counterparts, and ultimately hamper the operation and growth of the new company, experts say.
But, they add, often when an American company is purchased by or merges with a foreign company, the American executives don't do enough to understand the cultural differences.
One reason, says Arian of Towers Perrin, is that many executives think such differences will work themselves out without much trouble.
"The deal sounds good on PowerPoint from an operational, financial and serving-the-client standpoint" -- and so the executives tend not to worry about what they see as a minor detail, he says.
They also may feel they don't have to learn about the cultural differences, or that there's no place to go to get the information, or that the information is so vague it's unhelpful, he says. And, they overestimate their own ability to solve any problems.
"People think they're good at relationships," says Arian. "Every executive team thinks they're in the top quartile."
Here's where HR leaders can -- and must -- play a critical role, experts say. But all too often, that doesn't happen.
It may be that the American HR executives are just as lacking in knowledge about cultural differences as the rest of the management team. Or they may be more aware, but don't know where to begin. Or they may simply be unable to get the C-suite's attention.
"You have to look at what level of respect HR has in the organization," says McKay. "If you're viewed as tactical and not strategic, if you're not part of senior management, when you go to the senior team with these issues, you're probably not going to be taken seriously."
Another problem, says McKay: "If HR says, 'Let's have a cultural session,' it's kind of dismissed as a soft HR issue."
McKay and other experts recommend that HR leaders begin working with their executive teams as soon as they learn of the impending acquisition or merger. In many cases, they will have weeks or months to prepare, but if it's a hostile takeover, there may not be much time.
In those cases, McKay says, HR executives need to move quickly. "Once you're in a meeting, it's too late," he says. "You can't discuss issues and educate yourself at the same time."
One quick, low-cost method is to use your own employees -- wherever they are in the company.
"Say you're bought by a Korean company," he says. "Is there anyone in your organization who has lived and worked in Korea? Have them talk to your executive team."
McKay recommends against giving seminars on cultural awareness.
"There needs to be a dialogue, there needs to be a Q-and-A," he says. "You need to find out what's on people's minds, and to better understand whether the executives understand what's being said. And recognize that this is an ongoing process -- it's not a one-time event."
Says Arian, "When you address due diligence, address the cultural issues. Build this in early in the process -- it's as important as financial due diligence."
Then, he says, "build awareness with the leadership team -- take the team through basic training. If you don't have internal expertise, bring it in."
In the last few years, UPM-Kymmene, a Helsinki, Finland-based company that makes products from forests, has bought several paper mills and other plants in the U.S. and Canada. Kevin Fitzpatrick, who is based in Chicago and heads North American human resources for the company, often helps his executives understand and adapt to the cultural differences with the Finns.
When the company rolled out a global-leadership-training initiative, some North American executives resisted, saying the new approach -- which differed from the one they had been using -- might make it appear they were managing inconsistently.
Fitzpatrick encouraged the executives to "reflect and reframe" -- to take time to think about the issues, and see how the project might be handled in a positive way.
One executive, in particular, was resistant to the new leadership training initiative, and wanted Helsinki to leave his plant alone. "I had to coach him, and convince him that there's value to being part of this company, 'That's where your capital comes from -- you know that. So how can we embrace the leadership program and make it meaningful for our U.S. employees?' "
It's not uncommon for people to react emotionally -- and negatively -- to the imposition of foreign approaches to business, and reflection helps them to see the larger picture," says Fitzpatrick.
"If you realize a change is being driven by a cultural difference, it's less likely to threaten your personal or social identity, and you're less likely to make an emotional decision," he says.
"That's what HR needs to do -- to help leaders go offline and think about the situation in a fresh way," says Fitzpatrick. "And to reframe what may be a change in course to what is consistent with your values and principles as a leader."