Wharton@Work

November 2012 | Leadership

Leading Change When Cultures Clash

It’s no secret: about two-thirds of all change initiatives fail. For those charged with leading change, that number represents a daunting challenge. Many place the blame on organizational culture, insisting the answer lies with widespread change. But, says, Wharton Management professor Sigal Barsade, “While we identify culture as a critical factor in the success rate for change initiatives, there is a narrow focus on cognitive culture alone, which doesn’t encompass the complexity of the problem.”

Barsade recently told executives in Wharton’s Leading Organizational Change program, “Of course when there’s a clash in terms of cognitive culture — the cognitive norms and values of an organization, such as team-orientation or competitiveness — you’re going to have problems. But not enough attention is paid to emotional culture, which has to do with norms and values about which emotions are valued, expressed and encouraged, and which are actively suppressed. A clash of emotional cultures can be a serious impediment to change, and if you don’t recognize it, you can’t address it. Ignore it, and you’re working with one hand tied behind your back.”

Barsade, together with her co-author Constantinos Coutifaris, has written a new case study that details the clash of cultures in the 2008 merger of Bear Stearns and JPMorgan. In it they examine the difficulties that arose specifically from emotional as well as cognitive culture differences. Structurally, Bear Stearns had a lean decision-making process and a hands-off approach toward its senior people that provided them with the unique opportunity to shape the business activities of the firm. It was known for its entrepreneurial style and an expectation that opinions would be expressed irrespective of rank within the organization. Its emotional culture also had a high tolerance for expressions of negative emotions such as anger and fear.

Bear Stearns was known for recruiting and retention practices that were distinct among Wall Street firms. Rather than looking for Ivy League undergraduate and MBA degrees, former CEO Alan Greenberg described the firm’s ideal candidate as Poor and Smart with a Desire to be rich. “We are really looking for people with PSD degrees,” he said.

JPMorgan was in almost every respect divergent. A product of the combination of many other companies, its culture had been in constant flux throughout its history. An important element of JPMorgan’s success was its ability to successfully and efficiently integrate acquired employees, whose Ivy-league pedigrees were a matter of pride, into its culture of emotional positivity, respect, and professionalism. JPMorgan actively suppressed emotions that were inconsistent with the firm’s values, such as anger and negativity, to ensure that its employees would get along. Being positive was considered an important value at JPMorgan and represented the very foundation of the firm’s emotional culture.

When Bear Stearns was acquired by JPMorgan in May of 2008, the ensuing culture clash was inevitable. A former Bear Stearns associate explained, “You need to know a lot of people, be friendly, and be very cognizant of your teammates. JPMorgan is much more of a political animal than Bear was. You need to have a lot of EQ to do well at JPMorgan. At Bear Stearns, grinding it out and being smart as hell was enough. However, at JPMorgan, you need to be a people person in order to succeed.”

To manage those differences, Barsade says you must observe and understand your organization’s culture as it is now, and create a vision of the ideal future culture — one that will support the new mindsets, behaviors, and processes necessary to achieve your strategic objectives. For JPMorgan, that future culture was not much different than its present one. The firm expected to maintain its overarching vision of positivity with a strong command and control structure and for the Bear Stearns executives to make necessary adjustments to assimilate. While the Bear Stearns executives may have been more clear about some of the cognitive culture differences, such as a less entrepreneurial culture, they may have been less prepared to take seriously the differences in emotional culture, which as the case describes, led to the firing of a legacy Bear Stearns managing director who “roasted” a junior colleague in a performance review.

Barsade explains that the dramatic problems created by the merger are not unlike those faced frequently by managers leading internal change initiatives. In fact, she says, the lessons from JPMorgan and Bear Stearns can help guide them. She notes, “Culture clashes aren’t confined to external integration. When you lead internal change, you are altering familiar cultural patterns. Being attuned to differences in emotional culture, and managing them when they clash, will improve your success rate.”

“Driving cultural change requires active and intentional leadership. Whether you are changing the culture of a team, a division, or an entire enterprise, start with a clear vision of the current culture as well as the desired culture that successfully meets the demands of the external environment. And that also involves managing the emotional environment and employees’ responses. Pay attention to and read others’ emotions, and help to regulate those emotions. As a leader of change, you need to strategize as much about the emotional message as the cognitive one.”