Your Brain on M&A

Mergers and Acquisitions are at an all-time high. A merger or acquisition is one of the most stressful transitions a board can go through. With the future of their company up in the air, directors are thrown into uncertainty. This uncertainty leads to fear and anxiety which hampers decision making. Why does this happen, and how can we fix it?
BrainLuckily for us, there is plenty of research on the brain to help us understand the effects of stress on our emotions. Based on this research we can combat the fear and calm our brains to regain control of stressful or chaotic situations.
When we run into uncertainty, our brain goes into panic mode. This triggers one of our most basic instincts, fight or flight. We are tempted to run away and hide. Our brain basically shuts down. This is at its core, one of our most human tendencies.
The problem with this is that when you are on a board that is faced with a merger or acquisition, you cannot run and hide, you have a responsibility to your fellow directors and your stock holders to stay and fight. When faced with a fight, your brain begins experiencing stress which disconnects our emotions from our cognitive thoughts. This means that our reason and logic is put on hold to make room for our emotions. This is why you see so many board fall apart during hostile takeovers, mergers, and acquisitions.
When people are making decisions with their emotions, they are less likely to do what is best for the company. Another effect of stress is the release of cortisol. Cortisol is a hormone produced by your body that inhibits collaboration, reduces the efficacy of your immune system, and makes us feel paranoid. This is important – cortisol inhibits collaboration.

A director experiencing stress (which is impossible to avoid during a transition like a merger or acquisition) is less likely to be able to collaborate effectively with their fellow directors, CEO, or chair.

Stress is our enemy; so how do we fix it? How can a board work together to make rational and sound decisions in times of uncertainty and stress?
The answer goes back to the brain. If emotions are the problem, then we must use emotions as the solution. When the brain is in panic mode (fight or flight), it looks for safety in emotional connections. If a director looks around and sees people they trust and are put in a safe environment, the stress dissipates and cognitive function is secured.

If directors lean on each other during difficult times, they are more likely to avoid the pitfalls of fear and anxiety.

This means they have contact with one another – they know they can call each other and vent when things become overwhelming or frustrating. The best cure of stress is emotional connection and secure attachments.

SunEdison Board of Directors

SunEdison Board of Directors

It takes time to build relationships like this, but it pays off big when it comes down to the wire. The alternative can be detrimental to a company and can destroy a merger deal. Recently, SunEdison (a solar energy company) and Vivant (a solar installation company) had a failed merger which would have been extremely beneficial for both companies. The failure can be tracked back to several poor decisions made by SunEdison who will now have to pay “well over” the $34 million break-up fee. SunEdison tried to go too quickly in their earlier years by making acquisitions they were not ready for, and the recent drop in oil prices has put stress on the solar industry. There is also evidence of coercion of the SunEdison board of directors and an internal investigation into their financials. If the SunEdison board had a safe environment and were able to establish emotional connections, it is far less likely that their merger would have fallen through. It is also likely that they wouldn’t have made acquisitions they were not ready for.
Keeping emotions in check can be difficult, but creating a safe environment and strong relationships is a good place to start. With mergers and acquisitions reaching a global high of $4.9 trillion in 2015, it is more important than ever for public companies to prepare their boards for the possibility of a transition.
For more information on how emotions work in the boardroom, please contact us at [email protected].

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