Groupthink and Mergers

I recently had an article published in the May issue of the Oil & Gas Financial Journal entitled, “More Clarity, Less Bias – Better Mergers.” (http://www.ogfj.com/articles/print/volume-12/issue-5/features/more-clarity-less-bias-better-mergers.html). One phenomenon that can cause confused and biased thinking when a merger is under consideration is groupthink. I mention it in the article, but I’d like to elaborate on it a bit further here.

According to Irving L. Janis, who popularized the term in his seminal article, ““Groupthink,” which first appeared in Psychology Today Magazine in November 1971, “… ‘groupthink’ [is] the mode of thinking that persons engage in when concurrence-seeking becomes so dominant in a cohesive ingroup that it tends to override realistic appraisal of alternative courses of action.” In other words, people in the group become far more concerned with maintaining a sense of unity and camaraderie than they are with finding a good, well-thought-out solution to their problem. I suspect that groupthink is very common during mergers and acquisitions, but it also influences decision-making by all kinds of teams across the business, political, and personal spectrums.

Janis became curious about groupthink in the wake of the disastrous Bay of Pigs invasion in 1961 during the Kennedy administration. The American administrations under Eisenhower and Kennedy were not at all pleased with the fact that the communist Fidel Castro had come to power in Cuba in a coup, and they decided to back a group of Cuban exiles who planned to invade the island and remove Castro from power. The result was, from an American perspective, an unmitigated disaster. America did not provide air support, the exiles were routed, and the U.S. lost a huge amount of credibility in Latin America and around the world.

What makes this an especially interesting case is the fact that by all accounts, President Kennedy had assembled one of the greatest teams of brilliant thinkers in history. Janis was fascinated by the question of how a team of such eminent experts and thought leaders could make such terrible decisions. From his research grew our modern understanding of groupthink.

Teams in groupthink display a number of symptoms:

An illusion of invulnerability. Momentum inside a team in groupthink becomes a powerful force, drawing team members into the delusion that their strategy is not only a good one, it is absolutely brilliant. The notion that things might go wrong becomes ludicrous, a completely unacceptable thought.

Warnings and negative feedback are rationalized away. Human beings naturally tend to seek out and preferentially believe evidence that supports what they already believe. Groupthink amplifies this tendency enormously. As a result, data, intelligence, research, etc. that indicate potential problems with the group’s plans are ignored or dismissed as erroneous or flawed.

Unquestioning belief in the inherent morality of the ingroup. Janis uses the term, “ingroup,” to designate those team members who actively reinforce the team’s momentumgroupthink.jpg and self-deception, as opposed to team members who might actually express doubts (more on this later). Groupthink-infected teams come to believe that not only is their strategy brilliant, the team that came up with it is morally superior to anyone who opposes it, be they opponents, competitors, or doubters within their own team. One common result is that the team ends up ignoring the ethical consequences of their decisions. “We’re the good guys; it’s okay if we bend (or even break) the rules because our goals are noble.”

Enemies are viewed as stereotypes. If we are the high-minded guardians of all that is true and virtuous, then our opponents must be pure, unadulterated evil (or at the very least, stupid). They are irrational; they cannot be reasoned with. Their motives are extremely suspect. This type of thinking carries many risks, not the least of which is the tendency to underestimate one’s opponents. De-humanizing the enemy to some extent can also serve as justification for bending or ignoring one’s own code of ethics.

Pressure is applied to individuals who express doubt. Teams in groupthink develop an almost cult-like atmosphere. Cults do not appreciate skeptics, regardless of how well grounded the skeptic’s doubts might be. Team members or outside experts who express doubts find themselves ostracized, mocked and belittled.

Self-censorship. At least in part because of this pressure, team members stop expressing doubts and concerns. The human desire to be accepted as part of the group – especially a group of preeminent authorities and respected intellects – is very strong. No one wants to be ostracized.

An illusion of unanimity. Silence is interpreted as agreement. This reinforces the self-censorship; if no one else is expressing concerns, if I’m the only one, I must be mistaken. One of the most common regrets Janis heard when he interviewed those involved in the Bay of Pigs was, “I wish I would have spoken up. I was worried about X, but everyone else seemed to think it was okay so I didn’t say anything.”

Members of the ingroup act as mindguards to protect each other – and especially the leader – from information that might break their complacency. “Mindguard” is another word coined by Janis. It refers to someone who actively shields others on the team from any information or perspective that calls into question the team’s beliefs and plans. On a team in groupthink, even considering such information is seen as a sign of disloyalty. Many people go one step further and filter the information they pass on to their teammates. As a result, the team becomes ever more isolated and ignorant of information that might cause them to open their minds to alternative strategies.

One doesn’t have to think very hard to come up with geopolitical decisions much more recent than the Bay of Pigs that were probably affected by groupthink. I’ll leave it up to you to choose your favorite, most disastrous example.

Mergers.jpgWhen it comes to business mergers and acquisitions, I admit I do not have hard evidence supporting my assertion that many of those decisions are affected by groupthink, but I firmly believe they are. A merger is such a high-profile action, often apparently driven by egos; I sometimes think one might find it difficult to come up with one that was not affected by groupthink. AOL/Time Warner, HP/Compaq, Daimler-Benz/Chrysler – the list of disappointing mergers is a long one. I can’t help but wonder if some of these might have turned out differently if someone in a position of authority had insisted on a rigorous consideration of the full range of possible outcomes associated with the proposed merger, as well as the consideration of a broad range of alternatives to the merger. I suspect that even successful mergers and acquisitions usually suffer from some aspects of groupthink, at least in the sense that skepticism about the wisdom of moving forward is probably not welcome past a certain point in the due diligence process.

It is hard to remain objective when planning something as momentous as a merger of two companies. However, corporate leaders owe it to their investors and employees to do what they can to ensure that they don’t get swept up in the emotional momentum of the transaction. Alternatives need to be seriously considered, and the team needs to openly discuss how things could go wrong.

Having an external facilitator for the decision process can help the team to do these things and avoid the pitfalls of groupthink. An internal facilitator can play that role, too, but he or she must be careful not to get swept up by the team’s momentum and fall into the same traps as the team members themselves.