Op-Ed:

Beware the Hidden Costs of Malicious Synergy

Synergy may sound like the name of a neon-lit nightclub from the early nineties, but the business buzzword maintains a celebrated status in high-level boardrooms the world over. Mention it in the workplace and you might be met with rolling eyes, yet synergy remains an overarching justification for most corporate mergers and acquisitions – inferring that when it comes to profit, synergy represents the infallible, higher-minded good.

Alas, the business world has become a battlefield of casualties from the kind of aggressive synergy that benefits a few at the expense of many. Whatever the original intent of management, malicious synergy often becomes a convenient cover-up for unholy (yet justified) practices like vulture capitalism, hostile takeovers, cost reduction, downsizing, manipulating stock prices or simply killing the competition.

If the upbeat definition of synergy represents two combined entities that become greater than the sum of their parts (1+1 = 3), then the opposite must also be true. Sometimes in business, 1+1 = 0, or worse, the math turns into a loss so devastating that neither entity recovers. The cheerful 'win-win' mantra of synergy fails to recognize the human fallout that may occur when blending the backlog of unresolved issues from two companies.

If It Ain’t Broke, Don’t Fix It

'Better together' is a great motto only when it’s true. Synergies based solely on cold accounting and short-term quarterly profits may overlook (or blatantly ignore) the less-quantifiable fallout that follows (e.g., absenteeism, job dissatisfaction, overworked employees, poor mental health). A common oversight is for leadership to believe they can make drastic structural changes without it impacting any of the positive elements of the pre-merger status quo.

Consider the broad culture of banking versus the local cultures that banks service. In 2007, Spain’s BBVA purchased Alabama’s Compass Bank for USD 10 billion – a staggeringly high price that chased away other potentially more 'synergistic' buyers 1. The high hopes of synergizing European capital management with the markets of the American South never paid off – this year, finally, BBVA sold their American acquisition to PNC at a net loss 2.

We talk about 'unlocking' synergies, implying that with just the right twist of the wrist, a particular corporate combination turns into a light-drenched future of growing dividends, but that is merely the vision sold to the shareholder. Most proposed synergies fail because the parties involved are too aggressive in their budgeting. Executive-level decisions may be hyper-focused on cost-cutting and lay-offs, while failing to account for the greater costs associated with dragged-out disruption. Malicious synergy damages company morale and hurts real people while inviting conflict from the management level down to the lowest-paid employees.

Smarter synergies take multiple factors into account, such as customer relations, user experience, and employee satisfaction. Counterproductive synergies occur when the shareholder’s impatience outweighs insider knowledge and experience. Any half-decent accountant can show prospective gains in a fixed time period, but how much harder is it to account for an employee’s sense of purpose, or to admit that in the long run, two entities might be better off apart.

Killing the Golden Goose With Synergy

Back in 2015, 21st Century Fox acquired National Geographic for just USD 725 million 3. The deal was cast as an 'expanded joint venture' (implying synergy), but entailed Fox cutting nearly a tenth of National Geographic’s workforce and splitting the smaller non-profit organization from the broader business ventures (the newly formed 'National Geographic Partners'). Subsequent rounds of layoffs and constant restructuring led to a growing atmosphere of uncertainty and decreased confidence towards executive leadership. The once-celebrated culture of teamwork (based on a shared mission) broke down rapidly as employees competed against one another for fewer and more-stressful jobs. Distrust, anxiety and petty competition replaced the values of creative cooperation that had built National Geographic into a trusted global media brand, dissolving a century’s worth of social capital. After four chaotic years, a hollowed-out shell of the original National Geographic was 'synergized' with Disney as part of the media megalith’s USD 71.3 billion acquisition of 21st Century Fox 4. For most customers today, National Geographic is no longer a magazine, but a yellow rectangle on the streaming service of Disney+ 5.

How often is 'synergy' used as a cover-up for the acquire/strip/flip model, and where does that leave the one-down partner? When the case for synergy is made using primarily monetary metrics (i.e., share price, quarterly cost reduction or financial streamlining), it overlooks the other valuable assets of the lesser partner in an asymmetrical merger (e.g., innovation, institutional memory, loyalty and brand resilience). If a proposed synergy is truly not malicious, then all parties should be able to answer the question, 'How will we maintain cultural integrity in the long term?' In other words, 'How does synergy protect the thing that makes us special?'.

Any corporate veteran can share their war stories when a deal looked great on paper but turned ugly with new management and the significant structural changes that followed. Reluctant non-compliance takes over; shop-floor know-how fails to trickle back up to management; morale drops as the number of all-hands meetings increases. More and more employees begin asking themselves if they are better off now – and then top talent begins to flee, often to a competitor.

Oscar Wilde’s poetic warning that 'Each man kills the thing he loves' is a fitting motto for malicious synergy, and in that regard, Big Tech seems to outdo itself in murdering its young. Some of the biggest power players (i.e., Amazon, Google, Apple, Facebook) are self-congratulatory in synergizing a buzzing hive of start-ups, but hindsight perspective often reveals a race toward consolidating monopoly.

Breaking Things vs. Breaking People

Back in its glory days, Facebook swaggered around Silicon Valley with the aggressive corporate motto, 'Move fast and break things' 6. As the tech giant began to acquire new apps, platforms and fully-fledged companies, Facebook expanded future business development and secured its place in the market. In a bid to compete against Twitter and Google, Facebook rushed through a USD 1 billion acquisition of Instagram, a popular photo-sharing app with a broad global user base. Whatever case was made for synergy, it soon became apparent that CEO Mark Zuckerberg used Instagram to inflate his own net worth by boosting Facebook stock right before its first IPO.

Like the plot of George Orwell’s Animal Farm, the revolutionaries will challenge the status quo until the status quo buys them out. The rise and demise of start-ups is a common tragedy of the tech world, but for Instagram and its family of just 13 employees (mostly artists and photographers), the story of synergy quickly turned into Facebook’s fiddling and changing (and changing the values behind) Instagram until it became almost indistinguishable from Facebook 7. Yes, Zuckerberg had successfully swallowed up a competing social media threat, but to what end? The unique photography app had been zombified into a clunky app of ads and self-promotion. In 2018, the original co-founders of Instagram resigned from Facebook in a very public vote of no confidence towards the parent company. Most of the original Instagram employees have since deleted their accounts, rejecting the changed legacy of their innovation 8.

Malicious synergy tends to undervalue the human side of any corporate success story, so that 'breaking things' often means breaking people. Breaking Instagram was just another leger in the mountain of sustained scandals that began to plague Facebook (mostly related to privacy and censorship), but the result was that working for Facebook was suddenly uncool, slowing recruitment while shedding more mobile (read talented, more capable) employees to better situations. Rather than breaking the status quo, Facebook broke its own reputation. The company eventually changed its motto to: 'Move fast with stable infrastructure' 9.

Malicious or not, the tech industry tends to treat synergy as a kind of corporate hack, in which businesses (and the workers with the intellect and skills to create new business) are cut and pasted like bits of code. Rapid cycling of synergies to see what sticks (and what doesn’t) can resemble the programmer’s path to software development. But humans are not code – the frequent changes, upgrades, patches and beta testing in the name of synergy risks a lot of disillusioned employees.

Indeed, the biggest byproduct of the tech boom may be existential crisis. Among UK-based developers in the financial tech sector, 50% of men (and 40% of women) are uncertain they’ll be working at the same company in two years 10. The same study revealed that 92% of millennial developers were unhappy in their jobs. Depression is an epidemic in Silicon Valley, with the youth suicide rate quadrupling in the last decade 11.

The personification of coding capacity (and the personality cults born out of start-up culture) indicates that for all the commercial success of synergy, a consistent percentage of tech industry employees will be dumped and defined as backwards, outdated, 'buggy' or simply irrelevant. Given the accelerated competition of the tech sector, synergy begins to resemble the daily executions in some historic reign of terror.

Wellness: A Better Metric for Synergy

Corporate disruption is cited as a leading cause of the kind of serious employee stress that leads to psychological distress and mental illness. Studies show escalating job stress correlates with a perceived loss of control amid increasing workplace demands 12.

Smarter plans for synergy consider how proposed changes may negatively impact employees. According to the National Institute of Health (NIH), these include, 'unrealistic demands, lack of internal support, unfair treatment, low decision latitude, lack of appreciation, effort–reward imbalance, conflicting roles, lack of transparency and poor communication' 13.

Greater transparency and a plan for effective two-way communication can ease synergy. Stronger informational flow helps employees feel heard and validated, while helping management stay on top of changes. A new deal, merger or structural change can occur with a single signature or click, but the intended transition will always take longer.

Planning for a prolonged adjustment period is critical. Studies show that organization changes are more widely accepted when management styles improve 14 . Acknowledging and accommodating for a period of increased stress should be part of any synergy. For example, introducing new opportunities for physical exercise, access to therapy or a better break schedule can help curtail the negative fallout. Accepting that corporate synergy can cause significant life changes or even personal crisis – and planning for it – can make all the difference. Building in extra time for planning and personal adjustment will help employees establish a new work-life balance and form new peer support groups.

Smarter synergy can improve employee wellness, which can pay unforeseen dividends that may be harder to quantify in the black, but become blatantly apparent when they fall into the red.

Avoiding an Unhappy Ending

Aside from the sad human toll of decreased wellness, the rapid cycling of synergies becomes myopic. How many wildly successful start-ups were founded by cast-offs from the larger synergized company? At which point does a single innovative employee realize the executive emperor has no clothes, and then walk away with a new direction for that one piece of unfinished code? Not only can malicious synergy annihilate loyalty, but it runs the risk of quashing innovation, almost ensuring that whatever the next best thing may be, that thing will happen elsewhere, outside the parent company.

Malicious synergy is entirely focused on reaching the better number (no matter the cost) but rarely accounts for other costly side effects: the broken trust and damaged reputation to brand, a core of disgruntled employees (and ex-employees), the overall mental health toll, the impending departure of talent, the rupture of social capital, the loss of institutional memory and the fading away of the very thing that made the original company successful. Rarely do such 'soft' considerations hold any sway in the hyped-up atmosphere of the pre-merger boardroom, but they should.

Picture of Andrew Evans

Andrew Evans

Andrew Evans is an author and travel writer. A veteran of National Geographic, he has reported live from over 100 countries and all 7 continents. He lives in the Blue Ridge mountains of Virginia.

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