Cultural due diligence: what it is and how it's done

Cultural due diligence is the part of a deal where you work out how the two companies actually run: who makes which decisions, how work gets done day to day, how fast people move, how much risk they accept and what they are paid to do. You do it to find the differences that will slow the integration or push good people out, and to plan for them before Day 1. Before signing you work mostly from the outside and from management; after close you can ask the employees themselves.

What is cultural due diligence in M&A?

Financial and legal due diligence ask whether the business is what the seller says it is. Cultural due diligence asks whether the two organisations can work as one, and what it will cost to get there. It looks at behaviour more than values statements. Two companies can both say they are “customer first” and mean completely different things by it.

Deloitte describes culture as the shared values, beliefs and behaviours that shape how work gets done, and in a 2021 piece on culture and M&A it gives the example of a Swiss private bank where front-office and back-office teams struggled to work together because their objectives and incentives did not line up. Nothing about that showed up in the accounts. The article also cites Deloitte’s 2020 CFO survey, in which 31% of Swiss CFOs rated cultural change as highly important to executing a deal.

SHRM’s toolkit on the people side of M&A puts leadership stability and cultural fit inside workforce due diligence, alongside turnover trends and signs of employee satisfaction in both companies. It also makes a point worth keeping in mind through the whole exercise: “Cultural gaps do not need open conflict to create problems.”

How do I assess culture fit between two companies in a merger?

Pick a small number of things that will matter for this particular deal and look at how each company behaves on them. Five areas cover most integrations.

Decision rights

Who can approve a hire, a price change, a capital request or a new supplier? In some companies a site manager signs off on a forklift; in others it goes to group finance. If the acquirer centralises and the target delegates, the target’s managers will feel the change in their first week, long before any strategy is announced.

How work actually gets done

Process maps describe the official version. Ask instead how a customer complaint really travels, who people call when a system fails, and which meetings matter. A finance team that closes the month through one experienced controller’s spreadsheets works very differently from one running a documented close in an ERP, even if the org charts look alike.

Pace

Some organisations decide in a meeting and fix things later. Others want a business case, a pilot and three sign-offs. Neither is wrong, but when a fast team reports into a slow one, frustration builds quickly, and the reverse produces errors.

Risk appetite

Look at what happens when something goes wrong. Is the person who raised a problem thanked or blamed? Are there written limits, or does everyone know them informally? In regulated settings, such as a lab or a bank, a gap in risk appetite is a compliance issue as well as a cultural one.

Incentives

Pay plans and targets tell you what people will actually do when two goals conflict. Compare bonus structures, sales commission rules and what gets someone promoted. As the Deloitte bank example shows, misaligned incentives can keep two teams apart long after the reporting lines are merged.

What can you find out about culture before the deal closes?

Less than you would like. Before signing, the buyer rarely gets to talk to employees below the top team, and the seller controls what goes into the data room. Competition law also limits what commercially sensitive information can pass between the parties before close, which is why deals often use clean teams: a small group, sometimes outside advisers, who see restricted data and report only aggregated findings to the buyer. Take advice from your deal lawyers on what applies to your transaction.

Within those limits, there is still a lot to work with:

• Documents in the data room: delegation of authority policies, organisation charts, bonus plans, employee handbooks, past engagement survey results and exit interview summaries if the seller has them.
• Turnover by team and tenure, which often says more than any survey score.
• Management presentations and site visits. Watch how leaders talk about each other and who answers which questions.
• Outside-in sources: public employee reviews, job adverts (what they ask for and how they describe the work), press coverage and former employees, used with care.
• Structured conversations with the target’s leadership team about specific decisions, such as the last major investment or the last time a project was stopped.

The aim before close is a set of hypotheses about where the two companies differ and how much it matters, with a clear note of what you could not test.

What changes after close?

After close you can finally hear from the people who do the work, and you should do so early. The first weeks are when employees decide whether to stay, and when the gap between what leaders think is happening and what is happening on the ground is widest. Test your pre-close hypotheses directly: ask people in both companies how decisions get made, what they expect to change and what they are worried about losing.

This is also the moment to measure the acquirer’s own culture with the same questions. Many buyers assume they know their own culture and only assess the target, then discover that their own sales team and engineering team behave like two different companies.

For a ready-made set of questions and a timing plan for this stage, see our guide to the post-merger integration survey for the first 100 days.

Should you use interviews or surveys for a culture assessment?

Both have a place, and they answer different questions.

A survey gives you a comparable number across both companies and is quick to run. It works well for questions with a clear scale, such as how confident people are that they understand the deal. Its weakness in culture work is that culture lives in specifics. A score of 3.2 on “decisions are made quickly” does not tell you which decisions, made by whom, or why people find them slow.

Interviews get at the specifics. When a warehouse supervisor says “we used to just fix it ourselves,” a good follow-up question finds out what “it” was and who now has to approve the fix. That is the level of detail an integration team can act on. The traditional drawback is cost: consultants interview a few dozen managers, and the frontline is left out.

Spradley is built for this gap. It runs one-on-one AI interviews by text or voice, with everyone you invite by email or Slack. People answer on their own phone or computer in their own time, the interviewer asks follow-up questions on each answer, and the report groups what people said into themes with the quotes behind them, so you can compare the acquired company with the acquirer, or one department with another. Numbers and ratings are never shown for fewer than five people, and a privacy judge checks each written finding. Our merger integration page shows how teams use it in the first 100 days, and private equity firms use the same approach on bolt-on acquisitions, described on our private equity page.

What do you do with what you find?

Turn each difference into a decision. If the target’s site managers have far more spending authority than yours, decide before Day 1 whether that stays, changes now or changes later, and tell them. If incentives pull two sales teams in opposite directions, fix the plan before you ask them to cooperate. Some differences are worth keeping, because they are part of why the business was worth buying.

Then go back and ask again. Culture shifts slowly, and the first round of interviews will tell you where people stand when they know least about the deal. A second round around Day 90 shows whether your decisions landed the way you meant them to.

Frequently asked questions

Key terms

cultural due diligence

The assessment of how two companies in a deal actually work: who decides, how work gets done, pace, risk appetite and incentives. Its aim is to find differences that will affect the integration.

decision rights

Who in an organisation can approve which decisions, such as a hire, a price change, a capital request or a new supplier.

risk appetite

How much risk an organisation is willing to accept, visible in its written limits and in what happens to people who raise problems.

clean team

A small group, sometimes outside advisers, allowed to see commercially sensitive data before a deal closes. It reports only aggregated findings to the buyer.

Day 1

The first day the companies operate under the new ownership, once a deal has closed.

theme with quotes

A pattern found across many answers, reported together with the quotes it came from so readers can check how it was drawn.