Somebody Please Lead…

On the Chicago to Denver leg of my Rail Trip to CSCMP my “roomette” was across the hall from a couple from Madison, Wisconsin. We sat while the train was in the Chicago union station and chatted, getting to know each other while waiting for the train to depart.

The gentleman was the “President” of a company that created and maintained computer systems for the restaurant industry. His firm had merged with another firm of about the same size. I asked if the systems being sold were compatible. They were which helped the merger. But the cultures of the two parts of the company were not completely compatible, which was causing grief in the operations.   It was a “merger of equals”, but my new friend was starting to question how much was really equal.

Culture clash is a normal when two businesses merge. When the merger is a takeover resistance by the smaller company is sometimes “futile”. Sometimes the smaller company gets designated as the leaders, because the smaller company was profitable and the larger was not. To be sure with all of the bank failures that have happened there is going to be lots of culture clash going on for the next few years.

There is no “Merger of Equals”.

A “merger of equals” is a different kettle of fish from the direct takeover. To start, there really is no such thing as a “merger of equals”. Go back and look at the past 30 years of corporate mergers and the entire list of deals that were announced as merger of equals failed. Some failed in spectacular bankrupts while others just failed to reach the goals of the combined entity. 

The Daimler Benz / Chrysler merger and resulting sale is an example of a merger that was a merger of equals in name only. The failure was not the decision to make the deal happen, but the terms. It should have been announced as a takeover; the Germans should have come in, announced that they had conquered Chrysler, eliminated key American managers and installed German Executives that knew that they had to stay until the American unit was fully assimilated as part of the German corporation.  The deal, as it was executed was not authentic. The two companies made a big deal about being “equals” and created a management structure that became cumbersome to navigate decision through. The Germans were “buttoned down” and the Americans were mavericks. It was not long before the size of Daimler placed crushing pressure on the Chrysler management. That pressure was expected, because the American managers never bought into the idea that Daimler was an equal; in their eyes Daimler was an occupier. 

What made Chrysler, well, Chrysler, was the “spit in your eye” plucky attitude of a company that had a cultural soul of rising up from near corporate death experience multiple times in its history. Daimler Benz is a poster child for rigid discipline in the fine Prussian style. Equals? NO WAY. It was dishonest on the part of the two management teams to think that the merger would work.

There is a more spectacular example of a failed “merger of equals” that I was reminded of on my train trip; the merger of the Pennsylvania and New York Central Railroads into the PennCentral.   The two companies had been rivals for almost a century, fighting over freight and passengers. Each railroad had a proud history, and each railroad had a distinct culture. Yes, they were both railroads, used the same American Standard Gauge, but from there they were opposites. Nothing matched, signals, computers, work rules, electrified tracks, the list was endless.

Worse, while everyone in top leadership positions stated it was a merger of equals, the effect was a takeover of the NYC by the PRR. In a short time as decisions were made about which “system” would get used, the political PRR dominated the discussion and the PRR “systems” were selected. The PRR was the “Standard” railroad. Problem was, the New York Central was a “System”. The operation of the NYC operated like a program in a computer with a high degree of discipline. The PRR ran on a cult of personality, strong managers ran the road. The cultures, just like everything else, were in polar opposite.

 And just as the Chrysler middle managers did not accept the Daimler way, the NYC middle managers got sick of PRR arrogance. Truth be told, the NYC ran a better operation, and those managers knew it, and they resented that their management “sold out” to the enemy. Few really accepted the change, but only a few really did anything destructive; but they did allow for some whoppers of sabotage to happen. One story is on the eve of the data processing integration over to the PRR systems somehow the punch cards for the application software got “mixed up”. There are stories of a few operators “throwing” decks of punch cards into the air and then mixing the cards up.

We all know what happened to the PennCentral. It went bankrupt. The broken shell of the two once mighty railroads were merged with other week and dying northeastern railroads into the Consolidated Rail Corporation (Conrail) and after years of federal subsidy and years of management improvement, including the painful development of a new culture and  systems, Conrail started to make profits and the government get paid back. 

The key to the Conrail recovery was authentic leadership that focused on building a culture that worked together and focused on change and improvement.    After a few years of profits, Conrail was divided between CSX and Norfolk Southern where the pieces are still being digested.

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