CHAPTER 4: What “Due Diligence”Really Means : Intangible Capital and Organizational Reality

Corporations are increasingly vying for a competitive advantage, one that can translate into strong bottom-line performance and a high return on their investment (ROI). To accomplish this feat, many large-scale organizational changes are taking place, with merger and acquisition (M&A) seemingly the mode du jour. While most of these interorganizational strategies and recommendations are initially guided by the due diligence process, the dominant focus has been on historical financial performance and legal ramifications. Yet, Mercer Management Consulting found that 57 percent of merged firms “lagged behind their industries in terms of total returns to shareholders” three years following the transactions (Economist, 1997, p. 57). Similarly, PricewaterhouseCoopers partner Phillip Clements asserts that “up to 80 percent of all M&A transactions have destroyed or failed to create value” (Lajoux & Elson, 2002, p. xi). Study after study of merger and acquisition performance suggests that Mercer Management and Clements are on target with their assessments.