When Egos Collide
Perhaps business schools should add anthropology* to the curriculum: the parallels between the behaviour of corporate executives and that of great apes are uncanny*. The spectacular collapse of the supposed alliance of drug giants GlaxoWellcome and SmithKline Beecham is a textbook example.
There was a clear business logic to the union of the two pharmaceuticals giants. The deal gave the companies a drugs research and development budget more than twice the size of their closest rivals, Novartis and Merck, and the combination of their complementary research technologies could have left them streets ahead of* the competition; cost-cutting alone could have saved $1 bn. But because these two great beasts of the jungle (the CEOs of the corporations) chose to throw sand in each other’s faces, the deal is off, at least for now.
Corporate egos cause problems but they seem to be inevitable in a business culture that prizes drive, determination and leadership above all. Having the strength of personality and the ability to outmanoeuvre* others is a fundamental prerequisite to climb to the top of the corporate ladder. So with a power-hungry alpha male at the top of each company, it is not surprising that every time a mega merger is announced, there’s a high probably of a boardroom bust-up. Nicholas Bates, head of Human Resources Management at the European Business School, says many senior businessmen actually go off the top of the scale on personality tests. ‘Some of them are almost psycho-pathological and would have no hesitation taking everyone down with them. Some are verging on* paranoid. Nevertheless these are precisely the sorts of personalities that companies want because they can transform a business; the problems only appear when they have to get together with peers in their views. Then clashes are inevitable.
Europe’s most spectacular and public bust-up was between automotive giants Volvo and Renault. In September 1993 Volvo and Renault announced they were to tie the knot, with Volvo holding a minority 35% stake. However, three months later Volvo shareholder and senior management rejected the marriage plans because of concerns that the deal undervalued Volvo, and was turning into Renault takeover, without Renault paying the acquisition premium. Simmering* resentment over charming Pehr Gyllenhammer’s dictatorial management style at Volvo added spice to the management revolt. The divorce is reputed to have cost Volvo several hundred million dollars and forced the resignation of Gyllenhammer after more than two decades in the driving seat.
Egos play such a large role when two giant corporations come together that it is hard to make them work unless one personality is prepared to make a back seat or step down. The $26 bn. marriage between Swiss giants Ciba and Sandoz to form Novartis in 1996 is often held up as a textbook example of how mega-mergers can work. It is successful, but much of that success is dependent on the fact that key personnel were ready for retirement, or were prepared to relinquish* old roles in favour of new opportunities in other scenarios. Compromise* is essential if mergers between two powerful corporations are to work to the advantage of both parties and their shareholders. Otherwise friendly discussions break down and can easily turn into all-out war. In the corporate jungle, the question is now whether the imperatives of shareholders can control the egos of managers, to force through deals that deliver them the financial return they expect.