of tremendous importance in todayâ€™s business climate. The brand and the cul-
ture of a business are intangible assets that are of utmost value, yet rarely taken
into account. Taken together, the increased visibility which results from the
valuing of intangible assets, and the improved understanding of what is neces-
sary to control, mitigate and eliminate the risks associated with a decline in
asset values, should lead to strengthened risk management, reputation manage-
ment and financial modelling procedures. The innovative approach also
presents the opportunity to refresh and redefine key parts of business process
Improved techniques for risk and reputation management;
The mitigation of threats/disaster recovery planning and crisis management;
Chapter 13 â€“ Social and cultural risk management 299
The sourcing value chain and other partnerships; and
Alignment and incentives for all betterment initiatives, e.g. corporate
More powerful applications of the tool relate to issues such as:
The implications for strategy;
Articulating and communicating the corporate character and personality of
Stakeholder engagement and management by the alignment of internal
behaviours and external expectations; and
Change management programmes.
Broadly speaking a brand is regarded as a particular product or a characteristic
that identifies a particular producer. To be a successful brand one of the most
important issues facing the board â€“ and the marketing director specifically â€“ is
to establish a customer-driven corporate culture. Cultures can motivate and
stimulate companies and increase productivity and profit. A positive culture â€“
especially one that espouses CSR and many of the features described in the
context of enlightened corporate governance â€“ can be invaluable. Creating a
sustainable marketing culture has been described as one of the hardest tasks
facing business. It requires:
Proper training and education;
Sharing of good practice;
Awareness and commitment on all levels; and
Excellent corporate communications.
Marketers of a business also have to think and act as brand champions. Brand
strategies include the consideration of the following questions:
Has a clear philosophy on the corporate brand evolved?
Has there been a thorough investigation of the brand portfolio?
Has it been established which brand needs boosting â€“ perhaps by buying
brands â€“ which needs extending and which needs pruning or selling?
Has the management of the brands been incorporated into the organisational
Is there a logical system for brand naming?
Has the company tried to establish a financial value for its brands?
Have the local nuances in new markets been thoroughly investigated to try to
decide which brands can travel?
In terms of corporate culture certain questions can form an initial checklist that
can impact on several departments:
Is there a defined strategy for changing the corporate culture?
Has a corporate identity programme been carried out in place of noticeable
corporate cultural change?
Is there real communication in the organisation or do employees tell superi-
ors what they want to hear?
Part C â€“ Overview of the Social Aspects of Business Risks
What is the first impression from the reception when calls are answered?
What is the role of the marketing director?
What is the role of marketing beyond spending on advertising?
Has restructuring been considered to integrate marketing with sales?
Do the various departments know what the others do?
Is there a philosophy of moving staff around to perform different functions?
Change in culture must be focused on:
Leadership style; and
Organisational processes and functions.
Bearing in mind those issues of brand and culture, the business world has wit-
nessed many strategic alliances as a way to secure competitive advantage, share
costs, leapfrog into new markets or protect existing ones. Such alliances can
appear in a variety of forms, from full-blown mergers and acquisitions or joint
ventures to cooperation agreements in areas such as licensing, technology and
RT&D agreements, long-term buyer/seller agreements and market alliances.
They can provide positive advantages, by helping companies to:
Gain competitive advantage with less risk and expense than going it alone;
Gain economies of scale from partners in the same sector;
Share development costs;
Swap technical know-how;
Gain a wider presence â€“ this being useful when takeover targets are scarce;
Overcome cultural and language barriers;
Enter complementary product lines; and
Enlarge distribution reach.
Change management is another significant area that requires ongoing business
focus. Change has become a constant theme of business life. Cultural, social,
technological and economic and political changes are occurring at an acceler-
ated pace. Every day we see different products as a result of competition, new
methods as a result of e-commerce (see Chapter 11) new markets as a result of
globalisation and different customer needs. The business has to try to cope with
these changes by establishing new organisational structures, re-engineering,
alliances, mergers, holistic takeover, acquisition, joint venture and so on.
Therefore business managers should be alert to all changes in order to meet
them effectively. The change in the business environment is creating many new
challenges which businesses will have to anticipate and meet effectively, to
align their business with changing markets and customer needs. Some of the
significant challenges have been represented by 5 Cs: competition, change
management, complexity of business, control needs and creativity. In order to
manage the issues effectively, efficiently and effortlessly it requires a drastic
cultural shift in the way that we approach business.
Chapter 13 â€“ Social and cultural risk management 301
Not only should business therefore develop a proactive culture as part of
its ongoing cultural due diligence, but also it should seek a similar approach in
potential business partners and business transactions.
Culture clash in mergers and acquisitions (M&A):
Comment has been made regarding the high failure rate of M&A post-completion
despite the traditional due diligence processes. The research data on why some
55â€“77% of mergers and acquisitions fail in meeting their intended results is
absolutely clear; the failures are overwhelmingly attributable to â€˜culture clashâ€™
which occurs as attempts to bring the two organisations together are made. This
makes merging the two organisational cultures or establishing a new culture for
the merged organisation extremely difficult, if not impossible. It is important to
How to avoid the culture clash, which has been shown to be the major cause
of M&A failure; and
What to do post-merger when expected results have not occurred.
In those instances where the organisations are merged, the ongoing direct and
indirect costs of unresolved â€˜culture clashâ€™ issues are high, and require the
merged organisation to focus on internal issues and problems rather than on the
marketplace, the customers and the competition.
Cultural due diligence
The cultural due diligence (CDD) process is a systemic, systematic and research-
based methodology for significantly increasing the odds of success of mergers,
acquisitions and alliances. It is an until-recently overlooked parallel process to
the traditional financial and legal due diligence that is considered absolutely
essential to any merger or acquisition.
The CDD process is proactive problem solving in advance. By assessing the
characteristics of both organisationsâ€™ cultures as soon as possible in the merger
process, potential culture clash problems can be predicted, prioritised and
focused on in a comprehensive cultural integration plan. Such a plan will
guide the integration of the two cultures, or the building of a new culture for the
merged organisation in full consideration of the cultural issues and landmines
that are a part of the terrain. Bearing in mind the failure rate and the costs
involved in every way, cultural due diligence is at least as vital and necessary
as traditional legal and financial due diligence in providing an informed basis
for executive decision making and planning, and perhaps more so in increasing
the odds of success of the merger or acquisition.
Cultural due diligence involves sound leadership and management. It
offers decision makers in both organisations:
Comprehensive, data-based predictions of culture clash problems that will
occur within the merger process;
Part C â€“ Overview of the Social Aspects of Business Risks
The relative priority of those problems; and
Recommendations on how to eliminate their cause or minimise their impact
before they occur.
The results of the research in this regard are clear: cultural due diligence is
overlooked at the peril of the success of the merger or acquisition.
It is therefore also important that a business develops a positive proactive
culture as part of its ongoing due diligence and corporate governance practice
before any transactional issues are raised.
The CDD process
It is important to bear in mind that organisational culture is critical to organisa-
tional effectiveness. Also managing the culture is vital to successful business
operation. This is particularly important in times of large-scale change (see
above), such as an acquisition or alliance. Fiduciary responsibility and due dili-
gence require careful examination of the cultural aspects of any acquisition as
a major component of the ability to actually run the operation and achieve the
As in the case of any sound organisational research the CDD process
employs both qualitative and quantitative data collection, and includes:
Documentation reviews; and
Web-based CDD surveys.
One approach to analysing and organising CDD data is to group the findings
within 12 domains of the CDD process, although the data can be organised
around the key elements of the business plan, or in a manner that will be of
greatest value to the two organisations.
When performing cultural due diligence it is necessary to gather operational
and behavioural data on the relevant domains in both organisations; the one
acquiring and the one acquired. Once data is collected from both organisations,
this can be contrasted and compared, having regard to potential areas of con-
flict and/or misunderstanding and of synergy and leverage.
A brief description of each of the 12 domains follows. These descriptions
provide a general sense of each area and are not meant to be definitive.
1. Intended direction/results: ascertain, from the top of the organisation to the
bottom what the company intends to accomplish. What is the business plan
about, what is the intent and purpose of the organisation, what results are
expected from the business activity of the organisation, and, most impor-
tantly, how are these things talked about, described and communicated?
Chapter 13 â€“ Social and cultural risk management 303
2. Key measures â€“ what the company measures, why and what happens as a
result: the key measures say a lot about the manner in which the company
and its executives and staff are driven, particularly when you also consider
the consequences for each measure. A comparison of key measures across
the two companies is an important consideration and cultural indicator.
3. Key business drivers: what are the primary issues driving the business strat-
egy? Is the focus on competitive edge and, if so, how is that defined â€“ price
differentiation, quality, market share, service, reliability or what? This
demonstrates how the company views its industry and its subsequent efforts
within the industry. If one company defines success in terms of total market
share while another defines it as net profit margin, there is considerable room
for disagreement around things like what actions are appropriate to correct
unacceptable results, or deciding on appropriate new product offerings.
4. Infrastructure: how is the company organised, what is the nature of the
reporting relationships, how do the staff systems interface with the line
systems? What is the nature of the relationship between groups and units
in the organisation?
5. Organisational policies and practices: what formal and informal systems
are in place and what part do they play in the daily life of doing the work?
How much flexibility is allowed at what levels in which systems? What is
the relationship between political reality and business reality?
6. Leadership/management practices: What is the balance between leader-
ship and management approaches with staff? What basic value systems
about employees are in place? How are people treated and why? How does
the business plan get implemented through the management system? How
are decisions made? Who is involved in what, and when?
There are clear behavioural differences between management and leader-
ship functions and both are clearly important in running a successful busi-
ness. The issue is around which approach is predominant in each area/
department of each company. This domain relates primarily to the middle
management group but has obvious impact on the next area.
7. Supervisory practices: what dynamics are at play in the immediate over-
sight of the performance of work? Supervisory practices have a major
impact on employeesâ€™ feelings about the company and the work they do.
The nature of the interaction between the employee and the immediate
supervisor is one of the primary tone-setters for the culture of the company.
8. Work practices: how is the actual work performed? Is the emphasis on
individual responsibility or group responsibility? What degree of control,
if any, does the individual worker have on the work flow, quality, rate,
tools utilised and supplies needed?
9. Technology utilisation: both in relation to internal systems and equipment,
as well as the services and products provided to customers. How current is
the technology being utilised? What are people used to in relation to tech-
10. Physical environment: how do the workplace settings differ? Open work
spaces versus private offices, high security versus open access, buildings,
Part C â€“ Overview of the Social Aspects of Business Risks
furniture, grounds? All can have a bearing on how people feel about work
and the company. Changes in these areas, particularly if it is perceived as
arbitrary, can result in bad feelings for years.
11. Perceptions/expectations: how do people expect things to happen? What
do they think is important? What do they think should be important versus
what they believe the company feels is important?
12. Cultural indicators/artefacts: how do people dress and address each other?
What is the match between formal work hours and actual hours spent
working? What company-sponsored activities exist and what are they like?
These 12 domains cover the relevant issues of corporate culture. However, at least
two areas commonly mentioned in discussions of corporate culture may appear to
be overlooked, values and beliefs, and myths, legends and heroes. In actuality,
data on these issues is imbedded in the 12 domains. By digging into each domain,