KCRA Q&A: Dr. J. Keith Dunbar of Potentious
Dr. J. Keith Dunbar is the Founder, President and CEO of Potentious, a
boutique consultancy focused on the role of leadership in the context of
mergers and acquisitions. He sat down with KCRA’s Liz DeVito to discuss
his research on the leadership competencies that drive deal success.
KCRA: Research indicates that up to
70 percent of mergers and acquisi-
tions fail to meet objectives and ul-
timately destroy shareholder value.
Why the low success rates?
Dunbar: Significant research has been
conducted addressing the reasons for
the poor track record regarding M&A
success, however, the research has historically focused on the hard aspects,
such as financials, capability matches,
and geography. While the research is
valid, it has not gone far enough in
helping executives understand why
poor deal performance continues, because it overlooks the impact of the
human element in deal success.
KCRA: Your research into the soft as-
pects impacting deal performance is
unique in that it focuses on a single
factor—leadership. Why is that?
Dunbar: I have been interested in the
role of leadership in organizational
performance for quite a long time.
As I delved into the M&A literature,
however, it became abundantly clear
that no one had ever deeply investi-
gated the relationship between leader-
ship capability and deal performance.
This really surprised me considering
M&As are major change events for
both acquirer and target companies,
and much academic research pointed
to the impact of leadership on suc-
cessful organizational change. Addi-
tionally, while there was plenty of re-
search on the role of culture in M&As,
none quantified the impact of leader-
ship. I think culture is the wrong start-
ing point, because leadership is the
foundational element that determines
M&A success. You need strong lead-
ership to effect the change needed to
align cultures in M&As and achieve
other stated objectives of these deals.
KCRA: Why does the conversation
emphasize culture over leadership?
Dunbar: There is a very real fear
factor around cultural risk in M&A.
High profile failures linger in executives’ memories, such as the Time
Warner-AOL deal of 2000 that stumbled on the culture clash between an
old media and a new media company. However, executives need to shift
their focus from M&As as cultural
integration events to those of a major change events for both acquirer
and target companies. Shifting to this
perspective clarifies the role and relevance of leadership in M&As.
KCRA: Your research analzyed individ-
ual leadership assessment data of over
30,000 executive, senior and middle
managers representing 94 M&As con-
ducted between 2004 and 2008. Can
you summarize your key findings?
Dunbar: Most importantly, I found
that there are specific leadership competencies that impact deal success, as
measured by total shareholder return.
The weight of these competencies differ for the acquirer and target companies. For example, senior executives
at the acquirer have greater effect on
M&A success, whereas middle management at the target company has a
greater impact on M&A success. This
is a critical finding because so much
focus during due diligence is on identifying the top one or two levels of leadership in the target company to retain
to ensure a smooth integration. This
is the employee segment that is identified and incentivized to remain with
the acquirer for one, two or three years
following deal close. There has been
too little effort placed on understanding the leadership capabilities of middle management in target companies.
KCRA: At which point during the
deal phase do you recommend ana-
lyzing leadership capabilities?
Dunbar: The results of my research
suggest that assessing the collective
leadership capabilities of acquirer
and target companies should be part
of the due diligence that precedes an
M&A offer and supports integration
planning. It also suggests that middle managers at target companies are
crucial to success and that efforts to
retain them could be beneficial.
This interview appears in KCRA’s
recently released research, HR Consulting in Corporate Transactions.