When Harrah´s Entertainment Inc. acquired Caesars Entertainment Inc. in June 2005, the Las Vegas-based gambling giant wanted to get a sense of how well the two companies´ cultures would fit together. At the time, Harrah´s was the world´s third-largest gambling company, and with its purchase of Caesars - another Las Vegas-based industry leader -- the merged company became number one.

The deal was characterized as a friendly "merger of equals;" still, there´s bound to be a cultural divide when any two companies combine. And so, with the help of management consulting firm Accenture, Harrah´s developed a 60- to 70-question culture survey and distributed it to both companies´ employees at the supervisor level and above. Employees answered questions such as how open and informative the company was; how involved they were in decisions that affected their jobs; whether they considered the company a good place to work; and how they viewed the company´s reputation and integrity.

"We wanted to get a feel for the key culture differences and identify where there were gaps," says Vern Jennings, who worked 10 years in human resources at Harrah's, including a stint as vice president of HR for Southern Nevada, and is now senior vice president of integration and operations at Harrahs. A main goal of the assessment, he says, was to retain as many high-level employees as possible.

Command-and-Control at Caesars Vs. Open Communication at Harrah´s.
The survey was revealing. Because Caesars itself had made many acquisitions over the years, its culture was somewhat fragmented. However, one generalization was that many of its properties tended toward a command-and-control culture, which contrasted with Harrah´s more communicative one. For instance, Jennings says, Caesars was more tight-lipped about sharing key business indicators with staff, while Harrah´s freely communicated performance results as far down into the organization as possible.

In addition, supervisory roles differed at the two firms. At Harrah´s, frontline supervisors performed high-level duties like hiring, performance appraisals and disciplinary discussions; at Caesars-owned companies, these responsibilities belonged to higher level managers. "We define a supervisor as truly being a leader of the operating unit, and within some of Caesars´ properties, it was more of a lead position that provided work direction," Jennings says.

Armed with that knowledge, Harrah´s formed a committee to assess the two companies´ cultural differences, ascertain where the most critical clashes would occur, identify the best aspects of each company´s culture and work out an integration plan, all within a year after the deal closed.

Merging Companies Must Identify Cultural Differences to Resolve Them.
As an experienced acquirer, Harrah´s is well aware that getting an early jump on exposing and closing culture clashes is crucial to the success of any merger. "Knowing where the culture gaps are is critical," Jennings says. Indeed, failing to align the cultures of merged companies is a common reason that mergers fail, according to a 2004 Towers Perrin study. Cases in point: Bad marriages between AOL and Time Warner, and between Chrysler Corp. and Daimler-Benz.

According to the study, which surveyed 200 companies in the United States and Canada, early involvement from HR in a merger or acquisition significantly improves the success of subsequent deals. And while HR executives in the past played a fairly limited role in M&A planning and due diligence -- only becoming more involved at the formal merger integration stage -- close to two-thirds of participants say they are involved in M&A due diligence today.

"When you´re doing an M&A, it´s imperative to have HR involved upfront during the due diligence stage," agrees Michele Toth, vice president of HR and administration at Northrop Grumman Corp., a $30 billion global defense company that has acquired three multibillion-dollar companies since 2001. "It´s important to realize what the gaps are early in the process so you can formulate your integration strategy around those predetermined gaps," she says.

Cultural Assessment Should Begin Before the Deal is Closed.
So it´s best to get started early, during due diligence. While it´s not possible at that time to conduct a formal cultural assessment because of confidentiality reasons, trained professionals can get a sense of the target company´s overall environment, leadership styles and employee issues, Toth says.

HR managers can also search for public documents, as well as make personal observations as to how decisions are made and what kinds of people and behavior are rewarded, according to Robert Thomas, a senior executive at Accenture´s Institute for High Performance Business.

Toth also studies the target firm´s leadership styles, benefits and ethical tone, using sources such as the corporate Web site. She prepares a list of questions, as well as documents she wants to review, such as leadership correspondence, performance review forms, employee engagement surveys, benefits and policies and procedures.

"You can´t get into every little tidbit of information, but you might ask for general policies and procedures around vulnerable topics such as how the company resolves employee issues," she says. "And if there´s no documented process, you know that´s a risk area."

After the Ink Is Dry, It´s Time to Dig Deeper.
After the deal is closed, you can start digging further. Thomas suggests forming two teams, each made up of people from both companies. One team examines the acquirer, while the other studies the target company. You can conduct a formal survey in addition to doing your own detective work.

According to Corporate Management Developers, Inc., a management consulting firm in Hollywood, Fla., relevant questions include: What's encouraged here? What's forbidden? What's really valued? What are employees held accountable for? What are people rewarded for? "Is there tight security, or are things loosey-goosey?" suggests Jacalyn Sherriton, president of the firm. "Do people smile at you?"

Toth says a potential risk area can be found when you explore the ethical standards of the acquired company. "You can ask for information on existing Equal Employment Opportunity Commission charges or outside claims against the company, or even whether they have an ethics program," she says. "There´s tremendous data you can get."

You can also engage employees in telling stories about the company. For instance, Thomas of Accenture suggests that the teams use techniques such as critical event analysis, where they review how recent corporate crises were resolved, scrimmages, where they simulate how each organization makes decisions, and narrative analysis, where they compare and interpret tales of success, failure and redemption in the company.

Once the data is collected, you can start assessing where potential conflicts are and which are most crucial to resolve. "It´s important to find out what has been important to the company being acquired and look at the gap and then figure out where you can be flexible," Toth says. For instance, Northrop insists that certain things be maintained, like its dispute resolution process and code of ethical conduct.

Merging Cultures Doesn´t Have to Mean Banning Those Birkenstocks.
"But if the dress code at the target firm is shorts and Birkenstocks because that´s what makes them tick, we won´t say they have to wear business attire every day," Toth says. Northrop has also been flexible about its compensation structure, at least during an interim period in which HR can better understand the new company´s approach.

As for Harrah´s, after the survey revealed its cultural differences with Caesars, the company quickly developed a leadership training program that provided supervisors with clear expectations of their roles. And it also held a leadership orientation meeting that required monthly management meetings to cover subjects such as customer satisfaction results, financial performance and competitive information.

But there are many gaps Harrah´s has yet to resolve. For instance, it has a more strict attendance policy than Caesars does. And while Caesars offers higher base pay, Harrah´s offers significant bonuses, as well as long-term stock options. "Before we make a wholesale change to 30 of our businesses, we need to take the time to understand these issues better," Jennings says.

It´s really a question of figuring out what you want to preserve from both cultures in order to meet the merged company´s strategic goals. Brien Palmer, a consultant with InterLink Management Consulting in Pittsburgh gives a hypothetical example of two companies, one entrepreneurial, the other more hierarchical. "Let´s say we wanted the merged company to be decentralized and make quick decisions," he says. "The question is, how do you capture the first company´s culture in a way that doesn´t discredit the other company´s culture?" Palmer says.

HR Can Help Relieve Employees´ FUD Factor.
Minimizing the fear, uncertainty and doubt that is part and parcel of integrating two cultures is also a key role for the HR department. Harrah´s worked on this issue by partnering HR leaders with regional division leaders to discuss with employees key cultural differences that were revealed by the survey.

"HR needs to make sure that the issues and concerns that employees voice in the survey are dealt with in a way that establishes openness and dialogue," Jennings says. HR also has to help the leader deliver on promises made during these dialogues. "There´s nothing worse than having an open discussion where people are candid and then nothing gets done," he says.

The big lesson that Toth has learned through Northrop´s many integrations is to forge an integration plan but to also be flexible. An ongoing merger of cultures "is something you have to keep a pulse on all the time," she says. "One of the greatest problems is thinking you can go in there and make an assessment and that´s it."

Mary Brandel is a freelance writer based in Newton, Mass. The article originally appeared in Workforce Insights on Veritude.com, an online resource about emerging labor trends and issues.

Veritude provides strategic human resources - the talent, technology and tactics that growing firms need in order to anticipate and adapt to changes in the workplace. Veritude is a wholly owned subsidiary of Fidelity Investments. Headquartered in Boston, the company serves clients throughout the United States and Canada and is part of Fidelity´s ongoing investment and leadership in outsourced HR services. To review other articles, research and expert analysis relevant to HR professionals seeking to stay informed, please visit www.veritude.com.  For more information, contact: inquiry@veritude.com or call:1-800-597-5537. 

^©2006 Veritude,LLC.  Reprinted with permission.