Culture Clash

Introductory textbooks in management, introduction to business, and organizational behaviour introduce the concept of organizational culture and note its importance for both organizations and the people who work in them. Culture is usually defined something like this: the shared assumptions, experiences, stories, beliefs, norms, and ethical stance that characterize an organization and collectively influence the organization's style and how employees act. A brief summary definition might be this: "It's the way we do things around here."

There are many interesting questions that arise regarding organizational culture, three of which are as follows: (1) What happens if two companies with widely differing cultures merge? (2) Do mergers get called off because of concerns about differences in organizational cultures? (3) What if the top management of a given company disagrees with lower-level employees about the kind of culture the organization should have? These three situations are analyzed below.

Vale and Inco: A Culture Clash

When two companies with different cultures merge, a culture clash may result. Consider the case of Vale, the Brazilian mining company that bought the Canadian iron ore giant Inco for $17.6 billion. Shortly after the purchase, there was a meeting of executives of both companies, but the meeting ended suddenly when one of the Brazilian managers lost his temper. That was the first sign that the cultures of the two companies were different enough that problems were going to be evident. Over the next few months, many Canadian managers, engineers, and operating staff left the company. For example, of 29 managers who were involved in a strategy session shortly after the merger, only 6 were still there a few months later.

In retrospect, it is clear that the cultures of the two companies were quite different prior to the takeover. At Inco, there was a constant exchange of ideas, and decentralized decision making was encouraged by top management. But at Vale, top managers gave orders and expected them to be followed. Not surprisingly, Vale experienced resistance from Inco executives who did not agree with that approach. Some observers think that since Canadian companies were used to taking over Brazilian companies, not the other way around, that Canadian executives had trouble doing what their new bosses wanted.

But even beyond that possible explanation, there might have been difficulties because of differences in the products the two companies focused on before Vale bought Inco. Vale's focus was on iron ore, a basic commodity that is mined using a relatively simple technology. But the underground mining of nickel, which is a key ingredient in stainless steel, is a more complex undertaking. One Inco manager likened nickel mining to having a Ph.D., while iron ore mining was like having a high school diploma. Canadian managers obviously felt some disdain for their new Brazilian bosses.

The cultural differences between the two companies were not limited to the top level of management. In the 1980s, the miners union had given up annual wage increases in return for a bonus based on the price of nickel. When the price of nickel soared, workers received large bonuses. Vale now wants to raise the threshold at which the bonus kicks in, and also wants to convert the defined benefit pension plan to a defined contribution plan. The union is strongly resisting. Vale is seen as a company with an "attitude," and Vale's management has been very aggressive in dealing with the Canadian workers it inherited from Inco.

One of the most visible signs of the culture difference is the lengthy strike by the United Steelworkers union which began in July 2009. In March 2010, workers rejected an offer to settle by a wide margin, saying that Vale's offer was far short of what the union members expected. Vale then took legal action against the union, accusing it of vandalism, assaults, and death threats. It also laid off many employees and shut down various projects because of the uncertain economic environment. In mid-April 2010, Vale announced that it was going to bring in replacement workers in order to get two of the nickel mines back up to full production. On July 13, 2010, the Ontario Labour Board heard presentations from the steelworkers union that Vale was bargaining in bad faith. That was one year to the day that the strike began. The federal government has not gotten involved in the dispute in spite of claims by the union that Vale is a foreign company that is trying to change the culture of Canadian union-management relations.

Roger Agnelli, Vale's CEO, says that the cultures of the two companies will simply have to adjust. But Vale also indicated that it is removing the name "Inco" from its nickel business. (Note: The Vale takeover of Inco has not gone nearly as smoothly as the Xstrata takeover of Falconbridge, the other large Canadian nickel miner. Xstrata gave Canadian managers a lot more say in changes that were made after the takeover.)

The Role of Organizational Culture in Thwarting Mergers

Some planned mergers never happen because concerns about a culture clash inhibit negotiations. For example, in 2009 two Japanese companies (Kirin Holdings Co. and Suntory Holdings Ltd.) announced plans to merge in order to create one of the world's largest beverage companies. It was thought that a merger would create a company that could break out of the domestic Japanese market and become a major player on the international scene. But the merger never took place, partly because of differences in the management styles of the two companies. Kirin (a member of the Mitsubishi group) has solid, traditional management, but Suntory has a unique management style which is influenced by the fact that families own about 90 percent of the company's shares. During negotiations, the two companies simply could not reconcile the differences in their two corporate cultures and the merger was called off.

A planned acquisition of Sun Microsystems by IBM also failed to occur. When rumours of the takeover started circulating, James Gosling, Sun's executive vice-president, warned that there would be a culture clash if the acquisition occurred. He said that the developer staff at Sun were "weirder" than those at IBM. In fact, Sun does have a somewhat radical corporate culture because it has been pushing open systems like Unix. This contrasts with IBM's more proprietary approach. In April 2010, the merger talks broke off because the two companies could not agree on terms.

A similar-looking situation was evident when Kraft Foods tried to acquire Cadbury in 2009. Andrew Bonfield, the finance director at Cadbury (the maker of such well-known brands as Caramilk candy bars and Bubblicious gum), warned that Cadbury's unique corporate culture would be lost if Kraft acquired it. He said that the Cadbury "magic" was important for the brands it markets. The company's CEO, Todd Stitzer, also weighed in, saying that Cadbury's culture of "principled capitalism" is what makes Cadbury great. The British public was concerned about losing one of its icons, and Warren Buffett sold off almost one-quarter of his Kraft stock when he heard about the plan. The two companies do, in fact, have quite different histories and cultures. Cadbury has tried to build a socially benign business and recently launched a fair trade initiative with its Dairy Milk brand. By contrast, Kraft has been a much more traditional multinational business firm. In spite of these concerns about differing cultures, Kraft did acquire Cadbury early in 2010 after protracted negotiations. Any problems that might arise as a result of combining two different cultures have yet to be determined.

Culture Clashes Within Organizations

Culture clashes don't just happen when two independent companies try to merge. They can also occur when a top manager's vision for a culture comes into conflict with the culture that lower-level employees prefer. Consider the situation that has arisen at the DeGroote School of Business at McMaster University. In 2004, Paul Bates, a Bay Street brokerage executive who was one of the pioneers of the discount brokerage business, was hired as dean of the business school. When he sought reappointment for a second term as dean in 2008, he was opposed by 80 percent of the faculty, but the views of faculty members were overruled by the board of governors and Bates was reappointed for another term. Many professors are unhappy with Bates' corporate management style; they accuse him of bullying and intimidation, and of not understanding the academic culture of the school. Those who support the dean say that he has done good things for the school, and that the faculty members are biased against anyone who isn't "academic" enough. A report issued by the McMaster Office of Human Rights and Equity Services concluded that the business school has a dysfunctional work environment, and that immediate action should be taken to resolve the problem. The report also noted that the school has a history of conflict between deans and faculty members.

Sometimes a new top executive is brought in to change the corporate culture in response to a crisis the company is facing. Edward Whitacre, the CEO of General Motors, is one such person. He was recruited in 2009 and given the mandate to turn the company around and change GM's plodding culture. But Whitacre does not have an easy job because GM is going to have to introduce massive changes in order to dig itself out of the financial hole it is in. He wants to reduce bureaucracy and push decision-making authority down into GM's many management layers so that decisions are made more quickly and the company becomes more responsive to changes in the marketplace. And he realizes that the culture needs to change quickly or the company may not survive. Prior to Whitacre's arrival, decisions were not made until they were approved by many different committees. A few years ago, the company introduced a program to stamp out bureaucracy, but the committee that was guiding the effort had trouble deciding how many committee meetings were necessary to achieve the goal. That kind of dithering is not what Whitacre has in mind.

One of the things Whitacre has done to change the culture of the company is to be more hands-on and accessible than his predecessors (who spent most of their time in the executive suite). He may be succeeding with that strategy because GM employees talk about "Ed sightings" in the hallways and cafeteria. He also visits GM manufacturing plants to talk to workers. At the Lansing, Michigan plant, Whitacre (dressed in jeans and a t-shirt) talked directly to workers, and at a GM plant in Fairfax, Kansas, Whitacre told workers he had taken the CEO's job because he thought that GM was an American institution that the country couldn't afford to lose. Whether Whitacre can change GM's culture enough to make it a success remains to be seen.

Questions for Discussion

1. How important do you think the idea of organizational culture really is?
2. Can the CEO of a company really influence the culture of an organization in a substantial way?
3. Consider the following statement: The idea that a culture clash is important is overstated. People generally are so focused on doing their own jobs that abstract issues like "culture" don’t influence their specific behavior very much. Do you agree or disagree with the statement? Defend your answer.

Sources: Gordon Pitts, "Kraft CEO Still Digesting Cadbury Takeover," The Globe and Mail, June 7, 2010, p. B8; "Vale Resumes Negotiations with Striking Sudbury Nickel Workers," National Post, June 5, 2010, p. FP4; Heidi Ulrichsen, "Vale Inco Plans to Bring in a 'Couple Hundred' Replacement Workers," Sudbury Northern Life, April 19, 2010, www.northernlife.ca/news/localNews/2010/04/replacementworkers-190410.aspx; Stacey Lavaillie, "Date Set for USW, Vale Inco Bad Faith Bargaining Hearing," Sudbury Northern Life, April 9, 2010, www.northernlife.ca/newes/localNews/2010/04/olrb-090410.aspex; Sharon Terlap, "GM’s Plodding Culture Vexes Its Impatient CEO," The Wall Street Journal, April 7, 2010, p. B1; Kristine Owram, "Sudbury Strike Becomes Longest in Inco's History; Little Hope for Resolution," The Canadian Press, April 6, 2010, www.google.com/hostednews/canadianpress/article/ALeqM5j90NJ-uvH5ZhfZy08T; Steve Hamm, "IBM-Sun Merger Talks Off," Bloomberg Businessweek, April 5, 2009, www.businessweek.com/technology/content/apr2009/tc2009045_914072.htm; Paul Waldie, "Culture Clash Pits Business School Dean Against Faculty," April 1, 2010, www.globecampus.ca/in-the-news/aritcle/culture-clash; Bernard Simon and Jonathan Wheatley, "Heading in Opposite Directions," Financial Times, March 11, 2010, p. 10; "Corporate Culture Clash Took Fizz Out Of Merger," Asia News Network, www.asianewsnet.net/print.php?id=10019; Michael de la Merced and Chris Nicholson, "Kraft to Acquire Cadbury in Deal Worth $19 Billion," The New York Times, January 20, 2010, www.mytimes.com/2010/01/20/business/global/20kraft.html?pagewanted=print; Simon Bowers, "Cadbury Warns of Culture Clash Under Kraft," www.guardian.co.uk/business/2009/oct/21/cadbury-kraft-sales-profits-job-losses; "James Gosling Warns of 'Culture Clash' if IBM Buys Sun," Computer Business Review, March 23, 2009, www.businessreviewonline.com/blog/archives/2009/03/james_gosling_w.html.

Answers to Questions for Discussion

1. How important do you think the idea of organizational culture really is?

Some students will conclude that while organizational culture is an interesting concept, it is not really very important in practical terms. They may reach this conclusion because it may not be easy to define exactly what a specific organization's culture really is. Because of that, the conclusion is then reached that culture probably doesn't have much of a practical impact on people in the organization. This conclusion may have some merit for companies with weak cultures (i.e., those where core values are not strongly held and are not widely shared among employees). But for companies with strong cultures (i.e., those where core values are strongly held and widely shared among employees), the conclusion that organizational culture is not important is difficult to defend because various studies have shown that a strong culture is associated with good company performance (see, for example, J.B. Sorensen, "The Strength of Corporate Culture and the Reliability of Firm Performance," Administrative Science Quarterly, 47, 2002, pp. 70-91).

But strong cultures may also experience problems. For example, in a strongly entrenched culture, employees may not see the need for new and more effective ways of doing things; they may therefore have difficulty changing their behavior in order to adapt to changes that are occurring in the organization's external environment. A failure to introduce needed changes obviously is a threat to the company's future performance. A second potential problem is that a strong culture stresses conformity, but that may discourage diversity, both in terms of the kinds of people who are hired and the kinds of thought processes employees use to make decisions. A lack of diversity in an organization may mean that diverse strategies for dealing with change are not considered. A third problem with strong cultures concerns the workability of mergers, as the information presented above shows. Finally, a strong culture may encourage unethical or illegal behavior. At WorldCom, for example, the culture induced employees to follow orders and to hide information from auditors.

The concept of organizational culture is important because it directly or indirectly influences everyone in an organization. Some individuals may try to ignore the culture of their organization (or perhaps actively resist it if they think it is causing bad behavior), but the organization's culture will have an influence on them in any case.

2. Can the CEO of a company really influence the culture of an organization in a substantial way?

The CEO and other top managers have a significant influence on an organization's culture. As a negative example, at Enron, top managers like Ken Lay and Jeffrey Skilling promoted a hard-charging culture which motivated some managers to behave in an unethical fashion as they tried to achieve high performance financial goals that had been set. On a more positive note, Frank Stronach, the founder of Magna International, a successful Canadian auto parts manufacturing company, has very strong views on a variety of subjects, and those views have strongly influenced the culture of the company he started.

CEO's can influence their organization's culture because subordinates pay attention to the attitudes, words, and behavior of top managers. As well, subordinates may emulate the behavior of top managers because they think it is a good way to increase their chance for a promotion. Both these factors mean that the CEO of an organization can strongly influence the culture of the organization.

3. Consider the following statement: The idea that a culture clash is important is overstated. People generally are so focused on doing their own jobs that abstract issues like "culture" don't influence their specific behavior very much. Do you agree or disagree with the statement? Defend your answer.

Some students will agree with this statement because it sounds intuitively plausible. It is true that most people are concerned primarily about their own job, so it might seem that a general concept like organizational culture wouldn't have much impact on them. They might even say that they have no idea what their organization's culture is. Students who take this position will likely do so based on thinking about their current job, which they don't think is much influenced by the culture of the organization they work for.

Other students with a practical bent will think more broadly and will disagree with the statement because of the evidence presented above regarding the cultural difficulties that were evident in the mergers of Vale/Inco, Kraft/Cadbury, and Kirin/Suntory. They may also have had experiences (positive or negative) in their own work that showed how culture can influence individual employees.

Organizational culture is a subtle, but powerful, idea. The socialization process in organizations means that newly hired individuals are told about "the way things are done around here" so they can fit in to the culture. Socialization therefore influences the attitudes and behaviors of new employees. On an ongoing basis, culture influences the way that employees interpret what is happening, both inside the company and outside it. It also influences their ideas of what is the right way to do things and the wrong way.

Students will gain additional insights into the impact of culture by reading other accounts of mergers, some of which went fairly smoothly, and others which did not. As an example of the former, see John Gray and Raizel Robin, "The Brothers in Law," Canadian Business, September 29, 2003, p. 75. As an example of the latter, see Thomas Watson, "In the Clutches of a Slowdown: Plant Closures Might Loom in DaimlerChrysler's Future as the Carmaker Tries to Correct Past Management Errors, a Misread of What Consumers Wanted to Drive Off the Lot and a Clash of Cultures From Its Recent Merger," National Post, December 23, 2000, p. D7.