There is a hurdle to be acknowledged: most in this world of business and transactions are used to working in a world governed by quantitative data that can be measured and analyzed: EBITDA, interest rates, IRR and ROI, exchange rate or bond yields. Assigning a critical value to culture in business and transactions, is asking for an acknowledgment of the importance of a markedly non-quantitative factor in business. This requires a fundamental shift in our overall calculus, away from what we’re comfortable with and into an area in which too many are uncomfortable. The good news is that these guidelines could, and should, lead to a much greater degree of comfort and success in this pervasive but often unrecognized and important phenomenon of culture.
Lastly, some of what follows will seem obvious—that said, it is often so obvious as to be ignored, to our detriment.
Every transaction is influenced, if not determined, by culture: it takes place within culture. Culture is the water in which we fish swim. But when we find ourselves in a process with persons who are not “us”, not Americans, not New Yorkers, not Parisians or Milanese, just “not us”, the issue of culture looms larger, presents more interesting challenges and has the potential to play a much greater role in the process and results. From the first phone call between two people to how smoothly the process will go to whether the “deal” will ultimately hold together—culture is a key determinant.
Beyond the culture which every individual brings with him or her, there is another “culture”: the culture of nations and institutions, which certainly can effect the deal process—from the view of some nations that certain industries or certain companies are part of the nation’s patrimony and therefore subject to different and often unwritten rules, to the role of labor unions in corporate governance, and even in the United States, the inter-agency committee CFIUS which makes determinations about “national security” and its role in prospective deals, which one might argue are more cultural than legal. These issues will not be the focus of this paper, but the shadow of this broader culture does extend to much of the discussion.
The primary focus here, is on the role of the individual and his or her culture in the initiation of deals, the deal process and the success (or not) of the resulting transaction. The purpose is not to identify specific cultural “traits”, which are in any event constantly evolving and vary both from place to place and among individuals even from the same place, but rather to identify the role and importance of culture and suggest ways to thrive in a complex cultural environment.
Why Culture Is Important.
The culture of the individual, and our ability to understand it and work with it is important for at least three major reasons, and probably a hundred more:
(1) Trust is central to any deal process, and we more readily trust others whom we perceive to be like ourselves—a conclusion we reach based on our perception of the other’s culturally-determined behavior;
(2) Culture guides, if not fully determines, both external behaviors during the transaction process and, importantly, internal processes and decision-making on all sides; and
(3) Among the hundred other lesser but still important reasons is the simple fact that the more we understand the culture of the people we’re dealing with the more comfortable we’re going to feel and the less likely that our own behavior or theirs is going to be met with surprise—in the board room or in the restaurant. And we all hate surprises.
More than one major deal in recent years has “failed to launch” or not survived the process, or come because key participants were not adept at understanding the other’s culture. From very large deals like the ongoing efforts to acquire the French group Alstom in which we have seen (until the press lost interest) Americans, Germans and Japanese engaged in a complex competitive dance around the French maypole, each involved not only in trying to manage the culture of the French, including the role of the French government, but also to assess the competitor’s strategy: German, American and Japanese (which for the moment the Americans seem to be winning) to “middle market” and smaller deals involving, for example, family-owned companies, there is no question that an understanding of the culture of the other is critical to success.
To avoid the pitfalls of cultural differences and turn them into advantages, we need first to be aware of culture, much as a fish swimming in water might have to learn that it is in fact surrounded by water. We must understand our own culture both for good and bad (in terms of the process and the people) and how those positives and negatives may be perceived by another. And we need to bring the same awareness to the culture of the other and determine how best to work within this framework to communicate, build trust, and ultimately get good deals done that stay done.
Starting with the premise that understanding the other side’s behavior and mind-set are key to building trust which in turn is critical to initiating, managing and completing a transaction successfully, how do we begin?
What is Culture
An anthropologist classically described “culture” as an integrated system of learned behavior patterns which are characteristic of the members of a society and which are not a result of biological inheritance. To be a bit less academic, for our purposes, culture is how people think about things and make things happen, it’s about how, faced with similar challenges and similar issues, people behave differently, in ways large and small, depending on who they are and where they’re from and typically where they were “formed”.
Culture is not a fixed point. It is constantly evolving. Television, the internet and the many varieties of social media are making the others much more familiar with us–and as others both resist and adopt what they are seeing and hearing, they may become a bit more like us—more in appearance than in substance. (This is true of course so long as US content dominates these media). And even without this cross-contamination, culture changes as people and society grow and shift with migration, education (increasingly multinational), travel and just plain age—and lest we not see the water we swim in: the growth of multinational business. And, yet another cautionary note, not all “others” from the same place are going to reflect their own culture the same way. And as a younger generation of business people, bankers and lawyers and other professionals, come into positions of influence and management with experience with Twitter and Facebook and Instagram, not to mention LinkedIn, among others, these cultural variations are also becoming more generational than they had been in the past.
This evolution, variation and even growing similarities do not in any way lessen the importance of culture to the success of what we set out to do in multinational transactions. Indeed, to the extent these differences have become more subtle in recent years, it only means that we need to be more vigilant and sophisticated ourselves in perceiving and understanding the manifestations of culture.
Now What—How to Manage Culture in the Business Process
Before throwing in the towel, the good news is that a banker, lawyer, business person, can do a very good job of managing the cultural factor and using it to advance (and not impede) the deal process. The process of getting there can be seen as a series of steps: Homework, Observation, and Openess, steps which are overlapping and interactive.
Homework. Learning a few words in the other’s language is probably a good idea. Probably also not a bad idea to read some local history and if you’ve got the time, a recent locally-written novel that may give you some insight into current social and cultural views. Even in the UK, which sounds a bit like the US, there are very significant cultural differences, and one key to that understanding is history. Knowing a bit about local news (although be careful with local politics!) can prove to be useful. As we may be impressed when a foreign colleague comments on the performance of the Yankees or asks about the water issues in California, we can advance our cause by knowing that the cab drivers in Paris, Milan and London are striking against UBER (that also has some immediate practical significance as this is being written!) or asking about the local hero’s prospects in the World Cup, Wimbledon, or the US Open (assuming they’ve haven’t already been beaten).
Not only do you show interest in their country, their society, but their answers will tell you about them, how they think, how they see the world and if you’re paying close attention, how they now see you. And by showing interest, you are showing respect, and also helping to avoid the small misunderstandings that can create fractures in the trust you are building.
In addition, this will give you some early insight into thought processes, some stereotypical, like the northern European desire for organization contrasted to the southern European tendency to be more freeform (although every bit as focused on getting to an endpoint) which is useful in managing the process and the relationships. Ultimately, much as one prepares for a deal by an intense study of the business and the industry involved, knowing the players, the numbers and the structures and where, for example, the bad inventory is hidden, one prepares also by examining closely the “water” in which this fish will swim.
Observation. Look around, eyes and ears wide open. Read the body language. For Americans particularly, try to respond more slowly than you would in a US board room or law firm conference room. Give yourself time to understand and appreciate what is really being said. And watch what they do. Watch how they’re dressed. Watch how they behave with each other. Do they shake hands? How boldly or not do they acknowledge each other? How deferential are the juniors to the seniors? How formal is the setting? A meeting in a wood-paneled board room with Old Masters on the wall and marble-topped 18th C. French cabinetry in a Belgian banking house sends a very different signal than a meeting on a terrace of a chic “fashionista” hotel in Milan or in a faux-antique gastropub in Chicago. And you may assume the venue was not chosen at random and that the locals, whichever locals they may be, are proud of it.
Of course, we all think we know our own culture, and Americans acknowledge variations between the Greenwich-born Harvard MBA and the Iowa farmer (who might also have an MBA) and we’re smart enough to know that the Harvard MBA and the straw stuck behind the farmer’s ear may be signifiers of style, but not necessarily of intelligence or skill. But the “other” in today’s multinational transactions is a much more complex other than we knew a decade or two ago He or she may be a Frenchmen with an MA in tax from NYU, a Swede who has worked in Hong Kong most of her life, or an Italian educated at Oxford who paid his dues at Bain & Co. in Boston. And by the same token Americans no longer wander into a Paris cafe demanding a cheeseburger. We’ve all begun to outgrow our stereotypes. The issues of “culture” today no longer resolve themselves into a simple “Businessman’s Guide to Doing Business in X” paperback handbook. (I recently noticed an article on doing business in France that noted that “being on time is a key to courtesy”—what it did not say, is that in France (and elsewhere) being late is a not uncommon way of demonstrating to the “other” that he or she is less important).
That we’ve moved beyond the stereotypes does not make culture any the less important, it just makes it a bit trickier to see and hear. (A bit like the famous line that the US and England are countries separated by a common language). The risk of errors, misunderstanding, lack of trust, and consequently difficult processes and blown deals, is even greater when the cultural signs are more subtle. What this means is that we need to be even more sophisticated and more sensitive in seeing the other and teaching ourselves how best to work with the other.
A central expressions of culture is of course language., The chances are that the meetings are being conducted in English. Just because someone speaks English well does not mean that they will act or think like an American or a Brit (who don’t behave like each other in the first place). And, while it may be your first language, it’s something the other has learned possibly in school and possibly later. It is important to keep in mind that although your non-native-English-speaking counterpart may sound fluent, there is a fair chance that he or she is not. One must be cautious not only in understanding what they’re saying, but also very careful in how one speaks. To the extent the American can eliminate colloquialisms and vernacular expression and stick with a more formal English, he or she will help to avoid being misunderstood or not being understood at all. “He just let that one slip between his legs” is going to be meaningless to someone who didn’t grow up playing baseball– and worse, subject to gross misunderstanding. And if you’re not sure about what someone has just said, it’s OK to ask, not to criticize the speaker’s English but because you’re unsure of your own understanding. Clarity is key and questions can often show you’re invested in the process, paying attention and want to make sure you’re getting exactly what they’re saying.
Another cultural factor, not often considered, is time. While most American deal-makers tend to see time as beginning with the opening shot and ending with the closing—for many, from culturally-determined financial and business perspectives, this “deal” is only one point in a much bigger picture which may come from a long history and extends much further into the future. This perspective can affect both how various “deal points” are valued and the pressure (or not) the party may feel in getting the deal done. The CEO of a US public company may be focused on year-end tax and reporting considerations, while the CEO of a Milan-based conglomerate may be focused on the shape of the empire he’s creating for his grandchild. And, as we’ve all come to recognize, a “public” company in continental Europe, is often a “family” business. Indeed, Americans grow up in a world in which working for the family firm is sometimes considered the “default option” while in Frankfurt or Milan it may be both an obligation and an honor, respected by all –cultural differences like that can make or break a deal if the heir apparent is offended.
And while all this is spinning around you, remember that the “other” is not “the enemy” and will be open to trying to understand your ways and means as well. This is not a process in which you must play by their rules or they by yours . . . but to the extent you can understand and manage the game within their rules, you will come out ahead. Even in the minutia, this is also a time for humility—at least in manners.
Openness. Once you’ve adopted an observant stance, the next step is to consider what you’re observing and be open to it. This doesn’t mean you become a mimic, which would be a bad idea in the first place, no one like to feel they’re being mimicked, even if it’s your good faith effort to adopt their ways. Do not try to imitate what you see, but do not reject what you’re seeing: evaluate it and use what makes sense in the process moving forward. Stay authentic, even as the “authentic” you becomes more flexible, more aware and more understanding, you are still not “them”. Observation and openness should continue from the very first contact through the closing and beyond.
When a meeting in Paris is adjourned for lunch at a restaurant, this is not the time to say “oh, let’s have sandwiches sent in”. Maybe later, but first figure out how they like to proceed. There will be probably a be a time later in the process when you can demonstrate your desire to get something done “now” by asking to have lunch sent in.
Most people, whether from Los Angeles or Fort Worth, Brussels or Stockholm, tend to think that their own ways are better, if not The Best. So while we may all pay at least “lip service” to the value and quality of the other’s culture, at a deeper level, there’s still a tendency to be dismissive. As to Americans, after all we appear to have created the codified auction sale process (which most Europeans as buyers hate even if they do use it as sellers), Americans were, and forgive the term, the Masters of the Universe in investment banking and invented GAAP. First, they don’t necessarily agree, and in any event, they probably don’t like it. So, make no suppositions about their understanding of our process and our “ways”. Take the time to explain things even if you’re “sure” they already know them. Processes, rules and the like can be explained without sounding arrogant or implying that they are superior. And when they react negatively to something that we “know” must be done, be patient. The other is not stupid, in fact, the other is often very, very bright. Acknowledge that, and be patient. Ideally “our” way will prevail, but if you must accept “their” way at a minimum understand it and have figured out in advance how to deal with it. The old rule of “Firm but Polite” applies very much in this context.
Be “open” to all aspects of the other’s behavior. Never dismiss it out of hand. Work with it, not against it. And if you see a pattern of “rejectionism”, ask about it, try to understand where it’s coming from, that will give you some realistic chance of changing it.
Making use of this new knowledge: A new mindset.
What we’re really talking about is developing a higher level perspective on the reality that’s taking place in front of us so that we can integrate “culture” with all the other pieces of the puzzle that we’re used to dealing with in any transaction: structure, numbers and language. Ultimately, as we all implicitly understand, it’s about the people. And people are about culture.
A bit like Asian martial arts, it’s a question of understanding the other and using their behavior to advance the best ends of the process: translating and absorbing what we’re seeing and what we’re learning into our own behavior as we go through the process. (Again, with the caveat to remain authentic and avoid anything that looks like mimicry.)
For example, in a discussion about the size or necessity of an escrow, obviously we need to be able to understand that discussion in terms of its economic impact on the transaction and its future (how much money is set aside, how is it funded, how long does it last, what are the tests and thresholds for reducing it or drawing from it, and so on and so on) –but it is also important to try to understand why the escrow is so important to the party demanding it–what are they afraid of, and to what extent does that fear bear a rational relationship to the underlying risk? To what extent can you build more trust to counterbalance the fear, without having to throw more money in the pot! In addition of course to finding innovative way to offset the cost. Or if you’re the buyer, to make sure the risk is adequately hedged.
This is the mindset that every “deal” person should work toward. Its a bit like having a cultural analyst sitting on your shoulder, keeping company with all the other professionals and advisers who are already there, reviewing the process and looking for what’s “really going on” well beyond the words and numbers on the paper being discussed. This is something almost every good deal maker develops over time, but adding the “cultural” dimension in our world of multinational transactions will prove to be of tremendous benefit to you, the deal maker, to your deals, and, above all, to the client. (And, of course, if you’re the client, all the better!)
When you think about it, it’s probably what we’ve all been doing whenever we’ve started at a new school, moved to a new city or joined a new firm. We just find ourselves today working in a larger and more complex world but the fundamental truths are the same—make progress by understanding and respecting the other, and that means understanding and respecting their culture.
© Edmund Glass 2014
Note: Although the EACC has a diverse membership, and most members, American and European, are quite sophisticated in “cross-border” business, this brief piece is presented (a) to bring about a recognition of the critical role of culture in what we do, (b) to move from the pre-packaged “how to do business in X” model to a generalized broadly applicable approach, and (c) to focus on the US and Western Europe, although applying in principle to whichever borders are crossed. And while the focus is on transactions, the discussion applies equally to any multinational process or institution where people with different “cultural” backgrounds work together