Selker Leadership

Over the past seven years I have, as a consultant, been inside two significant global companies and in a position to observe the details of several acquisitions. It was impressive to see how the companies developed their “continuous short lists” of target companies they would track throughout each year. They had solid processes to measure and compare the targets to ensure a high probability of a generous payoff. They had plans, processes, and assigned lots of talent to get to the acquisition phase and bring home the bacon.

Most impressive of all was their ability to conduct financial due diligence. They had boxes of spread sheets and tons of financial data. They measured everything and produced a final valuation term sheet that eventually was briefed to the board and provoked a decision to proceed or not. Most of the time if the brief reached the board the decision was “Go forward.” In each of the cases I witnessed, however, the decision was informed by every factor except the talent quotient. No one performed a leadership and talent “due diligence” on the target company in comparison to their inside talent. They always assumed that the target company had inferior talent and that their “inside team” was the one who was most capable of leading the transition. They firmly believed they had measured everything needing measurement and that they would exceed the goals which had been established for the acquisition.

They were dead wrong.

Even so, in their bliss, they would get the team together and someone would say, “OK, lets do the deal, lets drive through this and lets make the numbers happen.” As they found out, the “driving through” part eventually involved crashing into a wall.

In each case, the transition time-period required to integrate the target companies stretched into years rather than the planned-for months. Inside executives who were good leaders in the context of their old organization were exactly the wrong leaders who had the wrong set of experiences needed to lead the integration of separate teams and manage the change required to transform their organizations. Most of the elegant due diligence numbers went up in smoke as the value of the acquisition fell far below expectations for the company and for Wall Street. The numbers that should have worked so well, over time were not working at all.

Numbers were not leading the company, people were. This little killer fact had been ignored.
 
These very sophisticated companies, so good at measuring most things, had not recognized the need for or developed a competency in “leadership due diligence”. The lack of rigorous diligence in this single domain was the prime cause of their acquisition and integration problems. Both companies, the acquiring and the acquired, held assumptions which were proved wrong about who should be in key leadership roles and who was the best fit. There was little understanding of what really were the right competencies and experiences needed. Even if the competencies and experiences had been identified correctly, their leadership did not know what to do and how to do it.

Most companies have problems with mergers and acquisitions. And, most of the time the leadership-knowledge-void plays a key role in failures or under-performing organizations in the post acquisition period. It is feasible to suggest that the value of 90 percent of large acquisitions could be improved by 30 percent or more (financial results) just by focusing on leadership due diligence and getting the right people on the job at the outset.

The reason this is not happening is because, just as in the examples noted, implementing “leadership due diligence” for recruiting new people, assigning people to critical jobs, or sorting through a comparative talent pool during an M&A process, is not a core competency of most companies.

The annual performance appraisal dance inside most companies is conducted at a surface level, generally driven by politics and loyalties rather than actual measured performance. Assessing new hires is often “outsourced” to a search firm that rarely puts candidates through a rigorous evaluation process. Instead of having confidence in the search firm’s abilities to do more than a surface level assessment, the onus for a deep assessment is pushed onto the client company. By and large search firms play the odds, producing enough candidates who are willing to meet with you who have similar titles in similar companies within similar industries, thereby increasing the probability that you, the client, will select one of them in the absence of any real rigor to the process. Likewise, making critical internal executive assignments is a swirl of internal political barter more often than it is based on a deep and current assessment of a person’s ability to stretch into their next level of performance.
 
On the other hand, those companies known for their unmatched ability to compete globally are also those who have developed a critical edge and core competency in leadership due diligence. They insist on objective and rigorous assessments of all key people and they focus on developing their leaders to attain their highest potentials. They are known for hiring, developing and retaining highly talented and capable people. By large and far, their M&A strategies and execution are successful and innovative because they recognize the importance of “leadership due diligence.”

Given that “leadership due diligence” can be practiced and learned, the great mystery remains why more companies do not practice this as a means to attain a higher level of performance? There are operationally proven methods and tools of leadership due diligence that people can learn to use and master. This undiscovered rich capability is waiting to be found and deployed in the global markets.

Unfortunately for most shareholders, the likelihood is that only a few companies will take the time to invest in one of the highest pay-off exercises available. Search firms will continue to play the odds. Leadership and personnel decisions governed by politics and loyalty will continue to be the norm. Financial spread sheets and valuation formulae will continue to be the preferred ways and means to support M&A strategies. The “numbers games”, after all, are a lot sexier than the hard work of figuring out what people can really do and what they cannot do.