An exciting, if time-consuming, period for directors is when the company they support conducts a merger or acquisition. There is a lot to review: Is this beneficial for the firm? Are the goals achievable? Is the deal reasonable? The directors’ responsibility is not done when the dust settles — they play an important role in guiding the company through a successful integration process.
While it does not receive the press, fanfare or focus of the transaction itself, integration is key to the company achieving the benefits it anticipated when making a case for the acquisition or merger. The justification for the transaction often takes the form of synergies, new customer opportunities, shared technology, cost rationalization and enhanced customer access. It is through the integration process that these benefits are realized (or not realized).
It is not the board’s responsibility to manage the integration. Following the definition of roles and the “noses in, fingers out” philosophy, this must fall on the company’s executive leadership team, and the board should not overstep this role in integration except in special circumstances. The CEO and his or her team should develop and implement a plan that takes into account strategy, investments, knowledge-sharing, culture, change management, people and an appropriate timeline. For companies that are serial acquirers, a structured, repeatable process is essential to obtain the most benefit from this strategy.
Instead, the board should ensure that the management team has a well-thought-out integration plan before the acquisition is approved and then monitor the effectiveness of that plan over time, just as it would oversee other high-level activities. A board consisting of experienced professionals can offer guidance when that plan runs into delays or challenges.
Some of the questions directors should be asking are:
Is the plan realistic? Has management thought through how it will conduct integration work while not losing sight of the overall company strategy and other priorities? Will resources at the acquiring company be expected to continue their previous roles and dedicate time to integration, which could overload them? Has the company leadership established priorities and recognized opportunity costs? Does the plan include reasonable timelines and not assume that everything will proceed quickly and perfectly?
Are there measurable milestones? To understand if the integration is going to plan or needs further assistance and focus, incorporating integration milestones into the plan is key. With these milestones and periodic updates on progress from the CEO and his or her team, the board can understand if the integration is on track without having to micromanage the process. This can lead to either board confidence in the work of the executive team or suggestions and requests to modify the plan, resources committed or timeline.
Are there periodic reviews? Updates on integration progress against plan can be added temporarily (as long as needed) to the board book and discussed at board meetings. If such meetings are quarterly or bimonthly, that is an appropriate frequency given the extended time required for most integrations. More frequent updates may be more than the board needs to perform its role and could take executives’ time away from the integration itself.
Does the plan address the culture change that employees at the acquired company will be facing? Companies often think about new IT systems and equipment, customer and supplier relationships, and efficiency gains from the acquisition, but often do not adequately consider the people side — how this integration affects the people at the acquired company (and, usually to a lesser extent, the people at the acquiring company) and how culture and change management will be included in the integration. These are critical aspects of retaining key, experienced personnel and realizing the most benefit from the transaction. The board will want to verify that the executives are taking this into account and giving it the attention and resources it deserves.
How can directors help with guidance based on their experience in acquisitions? Directors have often served as executives or board members at companies that either acquired firms or were acquired. This background provides invaluable knowledge that the current company should take advantage of. Executives should feel comfortable asking directors about those experiences so that the board can evaluate the specific integration and share best practices, as well as pitfalls to avoid. This can be especially beneficial when the board members collectively represent a variety of industries, including ones different from where this firm operates.
Are key assumptions reasonable and risks identified? The board can assist executives by asking questions about the plan to ensure that it does not assume a best-case scenario. There are many complications that can emerge from the complex integration process. Ignoring them can lead to delays, added costs, disgruntled employees and failure to realize the full potential of the acquisition or merger. Key personnel at the acquired entity could leave or refuse to cooperate with the plan and its changes. Equipment and IT implementations can be delayed and overrun their budgets. Existing personnel may be overextended. These are just a few of the risks the board can ask about.
Is there a lessons-learned activity to enable improvement in future integrations? Like other projects, companies that execute multiple acquisitions and mergers can get better at the exercise and provide more value to the stakeholders (including the personnel at future acquired companies) by learning from previous integrations. Waiting for the next integration to start and trying to remember what happened last time is too late. The board should ensure that the integration plan includes robust lessons-learned exercises at certain milestones so that opportunities for improvement can be captured and stored for future use.
In the end, a merger or acquisition is deemed successful or not successful because of the integration activities that follow the financial transaction. While those activities are the purview of company executives, the board plays a key role in ensuring a thorough integration process, updates on its progress and adjustments when needed. Working together in their respective areas, the board and management can partner for the best results.
Steven Lustig is a director of both Loh Medical and Atlanta Technology Angels. A recognized thought leader in supply chain and risk mitigation, he is founder and CEO of Lustig Global Consulting.