One of the more difficult things to predict in a merger and acquisition context is how the cultures of the two entities will merge. Further, while many mergers claim to be a ‘merger of equals’ the reality is far different as there is always one corporate winner that continues to exist and one corporate loser that simply ceases to exist. This is true across industries and countries; witness the debacle of DaimlerChrysler and the slow downhill slide of United after its merger with Continental.

In the compliance space this clash of cultures is often seen. One company may have a robust compliance program, with a commitment from top management to have a best practices compliance program. The other company may put profits before compliance. Whichever company comes out the winner in the merger, it can certainly mean not only conflict but if the winning entity is not seen as valuing compliance, it may mean investigations and possibly even violations going forward.

These cultural differences were discussed by Erin Meyer in the Harvard Business Review article “Being the Boss in Brussels, Boston and Beijing”. The author identified four different cultures of leadership. Somewhat surprisingly, they are not segregated by geographic region. The author found that “attitudes toward decision making can range along a continuum from strongly top-down to strongly consensual; attitudes towards authority can range from extremely egalitarian to extremely hierarchical.” The four are: (1) Consensual and egalitarian; (2) Consensual and hierarchical; (3) Top-down and hierarchical; and (4) Top-down and egalitarian.

  1. Consensual and egalitarian 

This type of leadership is typically found in Scandinavian countries; Denmark, Netherlands, Norway and Sweden, where, “Consensual decision making sounds like a great idea in principle, but people from fundamentally nonconsensual cultures can find the reality frustratingly time-consuming.” Some of the things you should expect are decisions to take longer, with more meetings and process which requires you, as a Chief Compliance Officer, to demonstrate patience in the process. As a CCO you will be seen as a facilitator and must “take the time to ensure that the decision you make is the best one possible, because it will be difficult to change later.”

  1. Consensual and hierarchical

This type of leadership is found in Belgium, Germany and Japan; where the groups favor a leader investing more time in winning support of his underlings before coming to a decision. Your group will expect you as the leader to be a part of the discussions while being a part of the decision-making process. You should focus on the quality and completeness of information gathered and the soundness of the reasoning process because final decisions are commitments and not “easily altered.” Yet there should be a consensus and you must “invest the time necessary to get each stakeholder on board.” 

  1. Top-down and hierarchical

This group has the widest geographic range, including countries as diverse as Brazil, China, France, India, Indonesia, Mexico, Russia and Saudi Arabia. It is incumbent to remember you are the boss and expected to make the decision. The key ingredient is to “Be clear about your expectations. If you want your staff to present three ideas to you before asking your opinion, or to give you input before you decide, tell them. Old habits die hard for all of us, so reinforce—with clarity and specificity—the behavior you are looking for.” Particularly as an American, you must be care as an analogy may be interpreted as a decision.

  1. Top-down and egalitarian

This will be the structure that Americans are most familiar with and it includes countries most like the US: Australia, Canada and United Kingdom. These can be seen as speak up cultures, “no matter what your status is. You might not be asked explicitly to contribute, but demonstrate initiative and self-confidence by making your voice heard. Politely yet clearly provide your viewpoint even when it diverges from what the boss seems to be thinking.” Yet the final point, and this is what drives many other cultures crazy under this type of structure, is that decisions are not typically set in stone, there is a continual feedback loop of information which can affect a change in the decision when warranted so you must remain flexible.

These cultures will impact your compliance program as well, in addition to your role as a leader. Simply think of your hotline and the reluctance of many cultures to ‘speak-up’ or even raise their hand when they see an ethical or compliance issue. You must work with your various cultures within your organization to overcome such reluctance. Understanding this cultural disconnect is important. For many businesses, “the greatest business opportunities lie in the big emerging economies, which include Bangladesh, China, India, Indonesia, Russia, and Turkey. In nearly every case, these are cultures where hierarchy and deference to authority are deeply woven into the national psyche.” The management style of pushing decisions down in the “organization does not fit easily into the emerging-market context and often trips up Western companies on their first ventures abroad on the business side and most certainly in the compliance realm”, particularly if there is a different perception of what might be termed ‘ethical’.

Learning how your employees in other countries will approach decision-making and leadership will give you, as the CCO, insight into how they will approach compliance. It will require you to get out into the field to talk with folks. If your company grows organically or through mergers and acquisitions or goes the joint venture route, it will need to understand how your new employees will not only think through issues but how they will relate to instructions from the home office in America.

Three Key Takeaways

  1. Culture clash through a merger can be extremely negative for a company.
  2. What are the cultures of leadership in your organization?
  3. Learning how your employees approach decision making can provide insight into how the will approach compliance.

 

This month’s podcast series is sponsored by Dun & Bradstreet.  Dun & Bradstreet’s compliance solutions provide comprehensive due diligence reporting and analysis to reduce your risk of working with fraudulent companies by accessing a company’s beneficial ownership, reputation risk and more.  For more information, go to dnb.com/compliance.

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