Art or Science? How to Select a New Leadership Team After a Merger or Acquisition
Selecting a leadership team is one of the most important decisions the CEO of a newly combined company will ever face. Employees, investors and board members will be watching closely because the selection decisions set the tone for both the near-term integration process and long-term capabilities and culture of the business. The choices also reflect on the CEO as an individual. Given this broad impact, it’s important to make the right decisions for the right reasons. But how? Should CEOs use a scientific approach that is fact-based, analytical and objective? Or should they focus on what some might consider a softer side of leadership, emphasizing subjective factors such as personality, loyalty, motivation, politics and team chemistry?
Here is the debate every CEO should consider when choosing a new leadership team:
Leadership selection is a science
“We should follow a scientific approach that is fact-based, analytical and objective.”
|Leadership selection after a merger is critical to success and needs to be done rigorously and objectively.||When choosing a leader, it is more important to pick the right person – e.g., someone with the right personal qualities and connections – than to pick someone with just the right skills. A leader who looks good on paper might not be the best fit.|
|CEOs face tremendous pressure to reward loyal lieutenants who were good soldiers for the old company and throughout the deal – even if their skills are not appropriate for the new business. An objective selection approach provides a way out of this predicament.||Sometimes it’s not about individuals – it’s about the team. It might make sense to keep a leadership team together – for the sake of the organization -- even if some of the individuals are not ideal candidates.|
|CEOs are also under a lot of pressure to choose their leadership team quickly, which forces them to rely on gut instincts. A scientific approach to executive selection allows a CEO to take careful aim while still moving quickly.||A rigorous, fact-based approach can create unnecessary delays and angst without adding value because the so-called facts often are biased. As one CFO said, “the fair process is the one where I am selected.”|
Leadership selection is an art
“The personal dynamics of leadership selection are what matter most. Our choices should be based on important subjective factors such as personality, loyalty, motivation and team chemistry.”
|Leadership – and leadership selection – is not an exact science and can’t be reduced to facts and formulas. Subjective factors such as personality and chemistry are ultimately what will drive behavior and results.||Personal biases, favoritism and snap judgments are human nature. The best way to overcome those biases is by following an objective, consistent approach.|
|Ignoring the human elements of leadership selection can lead to bruised egos, disengaged managers and staff and general resentment, which damages morale and productivity.||This is business, not junior high school. We need to make decisions that are best for the company, even if it hurts some feelings and isn’t popular.|
|Leadership selection has a symbolic impact and sends a powerful hidden message about the company’s priorities. For example, choosing too many leaders from one side of the deal can offend and alienate employees from the other side. This kind of subjective factor is critical and should not be taken lightly.||A scientific approach to leadership selection can take subjective factors into account. They just need to be identified, captured consistently and then built into the selection process.|
Carolyn Vavrek, Principle, Deloitte M&A Consulting Services
As the CEO of a newly merged organization, your goal is to select leaders who will create and drive value, whether they come from the legacy company, the acquired organization, or from the outside. Regardless of their past experiences, the new leaders must demonstrate competencies and behaviors that align with the strategy, operating model and desired culture of the future organization.
The selection process will test your own leadership skills. You will need to deal with potentially volatile egos and remain objective as you keep the long-term good of the organization at the forefront. You will need to distinguish between people who have the ability to lead and those who simply want to lead; and between people who should stay and those who want to stay.
We have found that the best selection decisions tend to come from balancing the "science" of a structured, rigorous and objective selection process with the "art" of assessing subjective qualities such as leadership ability and cultural fit. Here is a five-step approach to leadership selection that combines both science and art:
- Step 1: Define the future vision of the new organization. Before you can select new leaders, you need to define the organization’s operating model, structure and strategy. Executives with political clout may exert pressure to create roles for themselves and their loyal lieutenants. Accept this pressure as a fact of life, but keep your main focus on creating leadership roles around what needs to be done in the future -- not what happened in the past.
- Step 2: Define the critical job requirements and leadership attributes. Clarify expectations by defining the specific job requirements and leadership attributes that will be needed to execute the new vision – including the required competencies, behaviors and technical knowledge. Compare the new requirements against the current leadership positions in both organizations to provide a baseline for determining whether existing leaders have the right skills (or can acquire them with time, coaching and determination). Look for individuals who have demonstrated effective leadership while driving growth in a transformational environment.
- Step 3: Objectively evaluate candidates and select the new leadership team. Analyze all available historical data – including performance reviews, 360-degree feedback and personal experience and references – to understand each candidate’s past performance and behavior. Use predictive tools such as leadership competency tests and behavioral interviews to objectively assess a candidate’s future potential. Personality assessments conducted by outside experts can provide additional information about a candidate’s management styles and behaviors, helping you identify leaders who not only possess the required technical skills and competencies, but also fit the desired culture of the new organization. Although this additional information can be dangerous in isolation, when viewed collectively it can spur creative thinking and validate gut instincts.
- Step 4: Work with each leader as an individual. The selection process puts individuals to the test by requiring them to lead with confidence in the face of great uncertainty. A merger amplifies the best and worst qualities in people, so watch their behavior closely. Don’t assume you have all the information you need. Take the time to get to know leaders from both organizations. Ask probing questions about what each leader wants to do. You might be surprised. No matter what, provide strong and visible support for each candidate and treat everyone with dignity and respect. This shows stakeholders that you and your organization have integrity and sets a precedent for how future decisions will be handled. It also provides a safe fall back position if any of your selected candidates decide to leave.
- Step 5: Develop leadership announcement plans and back-up plans. Even before the new leaders have been selected, develop a detailed plan for announcing the decisions to the candidates and key stakeholders, including employees, investors, board members, suppliers and customers. Have back-up plans in case certain leaders do not accept a position, or if there is an information leak. Once the decisions are made, inform selected candidates as quickly as possible through one-on-one conversations that include pre-close offer letters with details about compensation and benefits. After acceptance from all leaders, a prompt introduction of the new leadership team will create a smoother transition and help engage and retain employees. It will also send them a signal about how they will be treated in the job selection process. Use multiple communication channels -- such as one-on-one meetings, town halls, leadership meetings, staff meetings, corporate newsletters and e-mails -- to help employees understand not only the “who” but the “why” of the new leadership structure. Also, consider using media and communications coaching to prepare the new leadership team to effectively communicate with employees and other stakeholders in ways that are consistent with the new company’s culture and values.
Selecting a leadership team is a unique opportunity to set the future direction of your new organization. To be effective, you must balance the science of a rigorous selection process with the art of assessing subjective factors and managing interpersonal dynamics. This balanced approach will help you choose a capable leadership team that shares your vision for value creation and growth -- without a lot of collateral damage.
A view from the Oil & Gas sector
Michelle Seale, Senior Manager, Deloitte Consulting LLP
For a lot of the oil & gas companies I work with, using a fact-based, analytical approach to selecting leadership may sound good – but only in theory.
Because in practice, let’s face it: most oil & gas companies have a long way to go in terms of having all the facts and figures they need to make objective decisions in the HR realm. This gap can be even more pronounced in a newly combined company following a merger or acquisition. Performance reviews. Long-term career and goal-setting objectives. Peer reviews. 360-degree feedback. Even leadership competency tests. These are the types of tools you need to have in place to start generating quantifiable data for decision making. They’re also the types of tools that most oil & gas companies haven’t come around to adopting.
At least they haven’t adopted them yet. Because as anyone working in the industry already knows, keeping top talent in the pipeline is a big challenge – one with deep roots in the oil bust of the ‘80s and the lackluster supply of qualified talent coming from schools and universities in subsequent years.
The shoot-from-the-hip approach that guided big decisions at oil & gas companies through the years just doesn’t cut it anymore. Making sure you have the talent you need to fill high-level positions and fuel future growth in this environment will require a more focused, structured effort from the HR organization, using the same tools that companies in other industries have relied on for years. From there, you’ll begin generating the data you need to guide some of the most important decisions your company will make about its future leadership – based on facts, not the whims of intuition. And as the economy recovers and we begin to see more merger and acquisition activity in the industry, the need for a fact based, analytical approach to leadership selection is even more critical to the success of the newly combined company.
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