3040414 pmi conference slides april 22-530pm v5

May 2, 2013

Carolyn Vavrek, PartnerHeidrick & Struggles - Leadership Advisory Services

M&A As The Ultimate Leadership Test:

Are Your Leaders Ready?

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1 Leading a transaction1 Leading a transaction

Agenda For Today

2 Case Study: Leading a merger of equals

3 Main takeaways

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What separates the best from the worst?

What makes a good leader?

At Their Best

BUYERS

► WHAT THEY DO: Understand the strategy. Translate information to action. See decisions in a broader context. Think outside of the personal impact. Have confidence in the outcomes.

► HOW THEY ACT: Listen. Influence. Reframe.

► WHAT THEY SAY: “I hear you but look at it from this perspective.”

SELLERS

► WHAT THEY DO: Create relationships. Build bridges. Act as ambassadors for their company. See the transaction as a learning opportunity. Have faith in the outcomes.

► HOW THEY ACT: Show-up. Share. Seek.

► WHAT THEY SAY: “Interesting. Please help me to understand more.”

At Their Worst

BUYERS

► WHAT THEY DO: Miss the broader context. Focus on the short-term. Keep score of decisions as win – lose. Focus on their personal gains. Worry.

► HOW THEY ACT: Challenge. Deflect. Belittle.

► WHAT THEY SAY: “I don’t believe you. What’s in it for me?”

SELLERS

► WHAT THEY DO: Hide information. Block people. Selectively participate. Negotiate everything. Focus on their personal gains. Doubt.

► HOW THEY ACT: Hide. Lie. Question.

► WHAT THEY SAY: “You are wrong. My way is better”

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Critical Leadership Competencies

Source: Heidrick framework for assessing leadership effectiveness. Competencies critical in a transaction situation highlighted.

LEARNING AGILITYUnderstanding the Environment

► External awareness► Best practice perspective► Customer orientation► Internal awareness

DEDUCEMastering Complex Business Problems

► Analytical thinking► Conceptual thinking► Creative thinking

SELF LEADERSHIPMastering Self

► Adaptability► Emotional facility ► Self development

POSITION SPECIFIC REQUIREMENTS Business/Functional Mastery

Customized, critical:► Business/Functional Acumen► Business/Functional

Experience

ENVISIONLeading Visionary Change

► Visionary leadership► Organizational buy-in

EXECUTELeading Results

► Driving results► Decisiveness/Decision

making► Drive and determination► Managing innovation

ENGAGELeading Involvement

► Openness of communication

► Team leadership► Relationship building► Modeling key values/ ethics► Delegating and empowering

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Critical Leadership Competencies

Source: Heidrick framework for assessing leadership effectiveness. Competencies critical in a transaction situation highlighted in bold and yellow.

LEARNING AGILITYUnderstanding the Environment

► External awareness► Best practice perspective► Customer orientation► Internal awareness





POSITION SPECIFIC REQUIREMENTS Business/Functional Mastery

Customized, critical:► Business/Functional Acumen► Business/Functional Experience

ENVISIONLeading Visionary Change







► Team leadership► Relationship building► Modeling key values/ ethics► Delegating and empoweringENVISION

Leading Visionary Change







► Team leadership► Relationship building► Modeling key values/ ethics► Delegating and empowering





Option 2

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1 Leading a transaction


Agenda For Today

3 Main takeaways

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Exercise

Question 1

Which of the two leaders would you recommend the Board select to lead the combined company? Why? What conditions / assumptions would change your recommendation?

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Exercise

Question 2

In the first meeting with you (the integration leader), the CEO asks you to advise him on his role in the operational integration, customer engagement, people selection, ongoing business issues, Board relations etc. What do you recommend to him?

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Date May 2nd 2013

NEW YORK CITY, NY, May 2nd 2013/Newswire/ --

At the first Board Meeting after the merger, the

CEO presents the integration workplan,

integration budget and estimated financial /

operational impact of the transaction. Your

team had been working on the plan with the

executive team till the night before, with

relatively minimal input from the CEO.

You learn from the CFO that the Board received

the plan with skepticism. The Board’s main

concern was around the execution risk, which

seemed high given the fast pace of internal and

external integration, including aggressive use

of supplemental external resources

(consultants). The CEO defended the plan

based on his own experience, which the Board

(and particularly the Chairman) did not buy. He

could not give details behind the presentation.

As a result, the Board did not approve the plan

or budget and requested further research,

benchmarking, details. This delay has

significant implications for you and the

company.

Breaking News!!!

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Exercise

Question 3

What do you do immediately? What do you think is going to happen next? What could have been done to prevent this situation?

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3 Main takeaways


1 Leading a transaction

3 Main takeaways

Agenda For Today

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Main Takeaways

Leadership is the most important enabler in a transaction

Leadership comes in different flavors

Leadership is not just an individual but a collective effort

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Possible Posters With Quotes

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2008 issue of the Journal of Business Strategy

Mergers and acquisitions destroy leadership continuity in target companies’ top management teams for at least a decade following a deal. Target companies lose 21 percent of their executives each year for at least 10 years following an acquisition – more than double the turnover experienced in non-merged firms.

2008 issue of the Journal of Business Strategy

Mergers and acquisitions destroy leadership continuity in target companies’ top management teams for at least a decade following a deal. Target companies lose 21 percent of their executives each year for at least 10 years following an acquisition – more than double the turnover experienced in non-merged firms.

Option 2

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2013 Heidrick & Struggles research on New CEOs

I would reprioritize my actions in my first months. I rolled up my sleeves and started ‘extinguishing fires’. Instead I would spend more time on longer-term actions like strategy clarification, operational efficiency, and sales improvement.

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As a leader in transition, you have a finite window in which to make a lot of change; after that, the organization’s gravity just sucks you in, and you’re back into business as usual. There’s a period of six to nine months when everyone expects the new guy to make changes, and you have to move quickly to make the best use of that opening.

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If I could do it over again, I would re-charge that sense of urgency around a change roadmap, and realizing that it really is about having a finite amount of time. Was I being as clear as I needed to be? Was I driving as much change as I needed to? I would be more explicit on the people front, focusing on the top team and one layer down, and moving more quickly to get it right. I would think very hard about how I needed to spend my time differently.

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Identify the critical few things that are most important, then stay focused on them. Keep in mind that whenever the CEO or the Board ask questions, people have to scramble around finding the answers; be judicious in the number of questions you ask, so you don’t get your people off task.

2020

Research

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Interesting M&A Leadership Quotes from Different Sources

► Journal of Business Strategy July 2008 Vol 29 – “A study published in the July/August 2008 issue of the Journal of Business Strategy suggests that mergers and acquisitions destroy leadership continuity in target companies’ top management teams for at least a decade following a deal. The study found that target companies lose 21 percent of their executives each year for at least 10 years following an acquisition – more than double the turnover experienced in non-merged firms (Newswise, July 14, 2008). (Trying to find actual source – article by Jeff Krug)

► Mercer – Impact of Culture on M&A - “For example, in a 2004 transatlantic study of executives involved in M&A deals, 75 percent of them cited “harmonising culture and communicating with employees” as the most important factors for successful post-merger integration.”

► Senn Delaney – The compelling business case for culture integration in M&As - “It’s been well documented over many years that up to one third of mergers fail within five years, and as many as 80 percent never live up to their full potential. A great deal of evidence indicates that the ultimate success of mergers and the amount of time it takes to get them on track is determined by how well the cultural aspects of the transition are managed.”

► Senn Delaney –The compelling business case for culture integration in M&As - “A study published in the July/August2008 issue of the Journal of Business Strategy suggests that mergers and acquisitions destroy leadership continuity in target companies’ top management teams for at least a decade following a deal. The study found that target companies lose 21 percent of their executives each year for at least 10 years following an acquisition – more than double the turnover experienced in non-merged firms.

Research – to be made into a conference slide

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From Deloitte – How Transformative Leadership Skills Can Deliver Success

► Deloitte– “After weeks of negotiations and due diligence, it’s easy for the leadership team to forget that some stakeholders may be caught off guard when they hear about a pending deal.

― Effective leaders control potential rumors and speculation by considering the perspective of their stakeholders—analysts, shareholders, employees, vendors, and customers—as they respond to each group’s concerns.

― Influential leaders go beyond control; they create good buzz. Along the way, they provide the words that spur stakeholder excitement and anticipation by sharing the value that will likely emerge from the combined entities. From this common message, the vision can be tailored to each group and milestone along the journey of merging the organizations. Laser-focused on new opportunities for all, influential leaders set realistic expectations through clear, honest, and transparent actions and words.”

► Deloitte -- Engaging Leadership to Lead Differently -- Effective transformation through M&A demands that functional leaders demonstrate a new set of skills. “As a prime member of the leadership team, CFOs should challenge themselves and other leaders to think and act in ways that balance the demands of the future with the needs of the present,” Ms. Fernandes notes. They also should identify what they can be doing differently to help move the organization forward by:

― * Encouraging a collaborative environment among the leadership team with integration planning that is transparent and synchronized.

― * Asking themselves to communicate specific ways finance can contribute to the new organization’s goals—and how to reward the finance staff for doing so.

― * Identifying synergies that could be created within various areas and how to go beyond the obvious growth and cost savings.

― * Making sure that frontline managers have the information, training and tools required to explain each employee’s role.


Source: http://deloitte.wsj.com/cfo/2012/04/30/how-transformative-leadership-skills-can-deliver-success-in-ma

http://deloitte.wsj.com/cfo/2012/04/30/how-transformative-leadership-skills-can-deliver-success-in-ma

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From Egon Zehnder – Return on Leadership (joint study with McKinsey)

Egon Zehnder

While such organic growth is driven by excellence across a broad cadre of senior managers, the study’s analysis suggests that inorganic (M&A) growth is driven primarily by top teams. The key competencies for M&A differ too: top executives must have mastered the ability to shape sophisticated, integrated strategies that address customer needs and market trends (Exhibit 2). To be within the top-quartile inorganic growth bracket, executive teams of the respective companies had to excel in a broad range of competencies; along with Customer Impact, two additional key competencies came out very prominently:

― Market Insight – the ability to look beyond the company’s current context to discern future growth opportunities

― Results Orientation – the ability to lead and transform a business for high performance

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Egon Zehnder

► While such organic growth is driven by excellence across a broad cadre of senior managers, the study’s analysis suggests that inorganic (M&A) growth is driven primarily by top teams. The key competencies for M&A differ too: top executives must have mastered the ability to shape sophisticated, integrated strategies that address customer needs and market trends (Exhibit 2). To be within the top-quartile inorganic growth bracket, executive teams of the respective companies had to excel in a broad range of competencies; along with Customer Impact, two additional key competencies came out very prominently:

― Market Insight – the ability to look beyond the company’s current context to discern future growth opportunities

― Results Orientation – the ability to lead and transform a business for high performance


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Egon Zehnder


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From McKinsey – Do you have the right leadership for your growth strategies


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From Mercer Study – Impact of Culture on M&A


3040414 pmi conference slides april 22-530pm v5

Design

transaction leadership

leading results

leadership effectiveness

leadership continuity

main takeaways leadership

ultimate leadership

different flavors leadership

competencies critical