Conflicting cultures cannot explaining takeover failures

A number of studies point to conflicting organizational cultures as one of the main reasons behind the failure of the DaimlerChrysler AG takeover (Blaško, Netter and Sinkey 2000;

Weber and Camerer 2003; Vlasic and Stertz 2000). But while many cross border mergers do fail, some of them do succeed despite radical differences in organizational culture. What is it specifically about differing cultures which seem to stand in the way of success in cases such as DaimlerChrysler AG but is neither a necessary nor sufficient showstopper in other cases such as Daimler-Benz / Freightliner or Renault-Nissan?

Thus far this study has shown how both Daimler and Chrysler in early 1998 were under tremendous pressure to do something in the highly dynamic “urge to merge” phase of the global car industry in the 1990s. This pressure perhaps forced them into a quick and unwise decision to agree to a takeover. This was particularly evident in the radically different outcomes of the negotiations in 1995 and 1998 between the two companies. Although Chrysler was being targeted for a leverage buyout by its biggest stockholder and a former CEO in 1995, the offer of “help” from Daimler in the role of being a white knight was carefully weighed up until both sides agreed to remain friendly but to enter no form of cooperation. As Vlasic and Stertz (2000) have shown in their analysis of the Lone-Star and Q-Star alternatives discussed at the time, the working groups scrutinized all the options meticulously and could ascertain no meaningful synergy interfaces between Daimler and Chrysler. This was not the case 3 years later when Daimler CEO approached Chrysler CEO Eaton at the Detroit automobile show in January 1998. A group of less than 10 people,

and decided the biggest takeover in industrial history in less than 4 months (Vlasic and Stertz 2000).

Secondly, as was discussed in the last chapter, the study has also shown how a “merger of equals” is the most difficult kind of merger to implement. Stahl et al. (2004) suggest that the fate of DaimlerChrysler AG was sealed due to differing company cultures. The discussion of the different types of mergers in the last chapter was an important pre-requisite for narrowing down our search for the reasons behind the failure of the DaimlerChrysler AG takeover. A

“merger of equals” is only one of five “models” of post-merger strategies and this focus allows us to start making sense of a lot of the inconsistencies and frustrations in the seemingly unending stream of studies of cross-border mergers and acquisitions. As soon as one starts looking at 10 or 100 or 1,000 case studies the statistical results are biased if one does not first discriminate between different merger strategies. This bias can then lead to blanket generalizations such as Weber and Camerer’s claim (2003) that the DaimlerChrysler AG takeover failure was simply indicative of the expected failure of any merger due to incompatible company cultures:

Differences in culture between the two organizations were largely responsible for this (DaimlerChrysler AG) failure Operations and management were not successfully integrated as “equals” because of the entirely different ways in which the Germans and Americans operated: while Daimler-Benz’s culture stressed a more formal and

structured management style, Chrysler favored a more relaxed, freewheeling style (to which it owed a large part of its pre-takeover financial success). In addition, the two units traditionally held entirely different views on important things like pay scales and travel expenses. As a result of these differences and the German unit’s increasing dominance, performance and employee satisfaction at Chrysler took a steep downturn (Weber and Camerer 2003 401).

Although all of the individual details in the above quote are somehow correct details of the story, the analytical conclusion is incorrect due to a lack of cohesion in the explanation and a failure to differentiate between details, consequences and reasons. A shopping list is not a recipe and the description of varying cultures is not sufficient to explain why their integration must necessarily fail. There is a risk of reductionism present here which is similar to the previous chapter on Hofstede (1980) and intercultural differences. Moreover Weber and Camerer’s claim (2003) that their experimental approach shows why practically all mergers

between companies with varying cultures must necessarily fail is empirically unproven. As Very, Lubatkin and Calori (1996) have argued, in some cases cross-border mergers between different national and company cultures the presence of obvious differences can elicit feelings of attraction rather than negative tension. Building on the work of Schein (1985) and Rousseau (1990), they point out that organizational culture might be so unique in each case, that practically no two companies can be identical, a fact which begs the question concerning the chance of success for any merger. Their major contention is simple but powerful.

The objective fact that two merging organizations’ cultures differ does not necessarily imply that the selling firm will naturally resist any post-merger consolidation attempts.

Indeed, the acquired firm, for various reasons, may be attracted to the buying firm’s values, and may willingly assimilate their ways (Very, Lubatkin and Calori 1996)

Analogous to the DaimlerChrysler AG metaphor of the „marriage made in heaven“, it is obviously true that many couples thrive based on the attraction of opposites. For example, some German women are attracted to some Canadian men in part because they are different, whereas some German women are not attracted to Canadian men because they are not German. No one gave the Renault-Nissan Alliance a chance when it began at the same time as the DaimlerChrysler AG takeover. This was a clash not only of two radically differing national cultures but also a clash of two radically differing corporate cultures. However, it has worked. Despite the financial crisis and the horrendous Tsunami last year, Renault-Nissan has posted record results in the last three year, with a growth rate of 10% in 2011 and sales of more than 8 million vehicles (DaimlerChrysler AG Internet Appendix 6.1). It is sometimes possible to choose the best of both possible worlds. The children of the author have a German mother and a Canadian father. When it comes to sports they support Germany in football and Canada in ice hockey. Weber and Camerer (2003) cannot explain such examples.

Similarly in their study of approximately 350 French and British firms which had been acquired, Very, Lubatkin and Calori (1996) could not ascertain that executives either for reasons of national cultural or organizational differences experienced the change as necessarily “stressful”. The possible “positive” impact of combining two radically differing national and corporate culture has also been suggested by Morosini, Shane and Singh (1998) and Larsson and Risberg (1998), papers which have already been mentioned in the discussion of Hofstede’s theory. Failure seems to be dependent on a description of exactly how the

rather than on the evident fact that there will always be differences between two organizational cultures. Stahl et al. (2004) describe the reluctance of the Japanese tire giant Bridgestone to move in and “clean up the mess” after they acquired the US firm Firestone as a case of false management perception. Fears of being perceived as “the ugly Japanese”

overruled the common sense realization that Firestone required a radical restructuring of its corporate culture. In such cases it is quite possible that the management of the acquired companies is fully conscious of its weaknesses and would be pleased for an external force to intervene, in much the same manner as an external consulting firm is regularly pulled into organizations in order to overcome internally gridlocked situations. The willingness to perceive differing corporate cultures as positive depends on a number of factors, which were not present in the DaimlerChrysler AG takeover, but as the next section will argue, the existence of differing corporate cultures in a merger of equals is not a conditio sine qua non for their failure.