Why M&As Fail – For CEOs and Board Members

Some say that the reason why some M&As don’t succeed is because board members can’t agree and have too many differences. But research shows that is not a good indicator, it is an easy one to see but the real problem is distance. It is whether you have moments on your board where you feel safe, connected and really sure that you are being heard and understood. When you have such moments, it is okay to have differences. If you don’t feel safe and connected on your board, the chances of the M&A failure are much higher. This is because when human beings cannot connect with people they depend on they find it alarming. Not because we are immature or unsophisticated but because we are human beings. We are born to bond. Research shows that when we form safe connection with people we depend on, it makes us stronger and provides us with a sense of secure base and the courage to take risks.

As human beings we long for connection. It is wired in our brain as part of our survival code. We need to know that the people we depend on will be there for us when we need them and thus, when we can freely express ourselves and ask questions, our brain stays calm and connected. When we can’t or don’t feel safe to do that, our brain sees it as a danger cue and triggers a fight-or-flight response. As a response, we either start to argue or shut down and the board starts a negative cycle that gets its own momentum and leads the M&A process on a path of a disaster and we don’t understand what’s going on.

The most common negative pattern starts with one person complaining, criticizing, and getting very angry and the other defending, stonewalling, and distancing. One starts to push and the other starts backing off. The more one backs off, the more the other pushes and they get caught in a cycle that pushes each person away and they start to think of the other person as dangerous, as an enemy and they start to respond to the other person as dangerous and as enemy. Since emotions are contagious, these types of interaction patterns create distress for the rest of the board and leaves the board disconnected.

In order for us to feel safe to take risks and explore new possibilities, such as M&As, the brain needs reassurance that we are not alone and that our board members will be there for us when we need them, such as to answer our questions and address our concerns.

If you observe a successful M&A process, you will see that board members are:

  1. Staying accessible even if when they are feeling stressed. Because emotions are contagious, when any one of the board members are not open and accessible, it affects everyone on the board. By being accessible you are sending clear emotional signals to each other that you are safe, you are open and you there to answer questions and help in times of uncertainty and stress. This is important for the brain to know as part of the survival code. When your board members can be accessible, it will pull the board closer together and instill the confidence they need in moving forward to take new risks for the M&A process to go through.
  2. Staying responsive and empathetic to the worries of others. Validating feelings and concerns. Do your best to understand and feel what the other person is going through. When board members can do that, they will be able to help each other regulate their emotions that otherwise may be overwhelming. Research shows that when emotions get overwhelmed, cognitive abilities, creativity and ability to collaborate with others is slowed. When there is no one to turn to, the brain sees the relationship as dangerous and everything becomes suspicious. Provide comfort to each other as it will bring you closer together and enable the board to move forward, completing tasks and adding value to the discussion.
  3. Staying emotionally connected. Seeking and maintaining attachment with people they depend on, is the most powerful motivating force. Staying emotionally present during discussions provides us with the energy needed to move through the process. The presence of a positive attachment provides a sense of comfort and security. Research shows that feeling of connection is a natural antidote to anxiety and distress. Engagement is one of the important aspects in keeping the board attached to the M&A deal, it promotes confidence necessary to risk, learn, and stay on course all together. This means that board members are actively engaged in discussions, asking questions, taking initiatives to learn and assignments that moves the deal forward.

The M&A process presents many challenges.

One thing that board members don’t realize is the impact they have on each other. As an example, think of the time when you feel stressed or worried and as you talk to one of your board members, it soothes your nervous system down, it changes the hormones that are released in your blood, it reduces the cortisol level (a stress hormone), your heart rate slows down and the whole body responds and calms the brain which allows you to regain your emotional balance, continue with your task at hand, be open to new experiences. By staying accessible, responsive and engaged, you will be able to co-regulate each other’s emotions and keep the board focused on keeping the board together.

This is what happened to Allergan when they were fending off a hostile takeover attempt by Valeant and then subsequently merged with Actavis. The board leaned on each other and retained communication internally about their stress, fear, and anxiety. This gave them the strength to say no to Valeant and find another company (Actavis) that ended up making shareholders $25 billion more than the original offer.

As you approach M&A deals, besides the technical aspects of the deal, pay attention to emotional distance. It is essential that your board members feel safe, connected, and supported. It is okay to have differences as long as you are maintaining emotional safety. One way to ensure this safety is to bring on professionals that can help you in navigate emotions in the boardroom. Paying attention to board relationships, valuing them, and understanding how alarming disconnections are for human beings is the first step towards creating emotional safety.

Mergers, acquisitions, and hostile takeovers tend to bring the most stress into the boardroom and managing that stress is essential to keeping everyone at the top of their game.

This kind of stress can (and often does) tear boards apart, especially when directors are unsure of their role or fiduciary responsibilities.

Bringing on legal counsel during these situations will help board members remain independent and provide the board with important information about their responsibilities which will add to emotional safety. It may seem like unfamiliar territory, but the research shows that when we can create emotional connection and feel safe with the people that we depend on, we can resolve any difference which will lead to many successful mergers and acquisitions.

To learn more about emotional safety in the boardroom, please contact [email protected].

Contact Form - Contact Page