Mergers & Acquisition - Managing the HR Issues

View the merger from the HRM Angle

People issue is one of the most sensitive but often ignored issues in a mergers & acquisitions scenario. When a decision is taken to merge or acquire, a company analyses the feasibility on the business, financial and legal fronts, but fails to recognize the importance attached to the human resources of the firms involved. Organizations fail to realize that people have the capability to make or break the alliance. Therefore, it is important for organizations on the verge of integration to analyze the feasibility of the integration on the human resources front.

            Organizational culture and the national culture become two important factors in determining the feasibility of integration. For example, the organizational culture of company A might be very open and transparent with free flow of communication in all directions. People enjoy their freedom of working in an informal and friendly atmosphere. On the other hand, company B might be known for its stringent privacy system and strict rules and regulations with marked hierarchical roles. People in this company are used to work in a bound and regulated environment. A blind eye to these differences would render a merger between these two companies, disastrous. 

                             Similarly, when it comes to cross-border mergers and acquisitions, care should be taken to see that the national cultures of the two companies are not drastically different. Hofstadter identified a set of cultural attributes that define and differentiate cultures. They can be studied under Uncertainty Avoidance, Power Distance, Individualism Vs Collectivism, Future Orientation and Gender Differentiation. For example, a country like Sweden, which is ranked high on uncertainty avoidance, would prefer a structured and orderly work environment.                              On the other hand, a country like Russia, which is ranked low on the same attribute, would thrive under uncertainty. If a company from Sweden, characterized by orderliness merges with a company from Russia characterized by uncertainty, it can lead to chaos and confusion. Therefore, a complete feasibility study on the human resources front is important while going for a merger or acquisition.

Develop the 'HR' Project Plan

A project plan is a critical document that directs and supports the whole process of integration and should be continuously updated to include the latest developments. The project plan should define the tasks to be performed in order of their priority. The owner for each task has to be identified and the responsibilities assigned. It is also important to note that the owner enjoys the authority to carry out the task successfully. Each task has to be given a due date of completion and the owner should keep track of the developments and record them. There should be common forum for exchange of information among the different task owners. In all probability, these tasks would be interrelated and the success of the project depends on effective coordination among all the task owners. Project plan is designed for any merger or acquisition. But, how many HR departments take the pains of designing a project plan exclusively for the HR activities planning. The project plan should also take into consideration some unavoidable hurdles that may arise and provide for contingencies.

It is also important to note that the support of other departments like the Finance and the Legal departments is essential for the successful implementation of the integration plan. Therefore, the inputs from these departments should be taken into consideration while working on the plan.

Conduct the 'HR' Due Diligence Review

A due diligence review helps the merging companies identify the presence of any hidden liabilities for the integrated business. This review would help the companies have a re-look at their decision and recheck its feasibility. It would also help the companies identify those critical areas which need immediate attention if the deal is to be carried out successfully. The common belief is that HR does not have any role to play during the due diligence review. But is it true?

It happened in some of the mergers that the companies failed to take note of the resentment brewing in the employees and by the time they realized it after the merger came through, more than half the workforce had left the integrated organization. HR due diligence review is one of the concepts that has come of age in the recent times. Some organizations are even looking at specific issues like "culture due diligence review". Some of the components for the HR due diligence review are:

• Organizational culture and structure

• Employee compensation & benefits

• Industrial relations

• Pending employee litigations

• HR policies and procedures

• Key talent analysis

An example of Acquisition….

In June 1999, Shaw's Supermarkets acquired Star Markets for roughly $500 million. Shaw's at that time had 126 stores and about $3 billion in volume; Star had 54 stores and $1 billion in sales. That acquisition was Shaw's largest to date, growing revenue by roughly 50 percent and increasing its workforce from 20,000 to 32,000. It took eight months from signing the agreement to Federal Trade Commission approval. Completion of the acquisition and integration--operationally and culturally--of the two companies required human resources to play a major role. The key HR initiatives included: • Development of preliminary organizational designs and identification of the top three levels of management • Assessment of critical players and deployment of appropriate resources in the new company • Retention of key people and separation of redundant staff • Development of a total rewards strategy for the combined companies • Communications strategy development and implementation

• Integration of payroll benefits and HR-IS

• An ability to do all of the above with speed.

Compare and develop the strategy to integrate

The next step is of course to compare the structures and systems, and policies and procedures of the two merging organizations. Standardized systems and structures and policies and procedures have to be developed to suit the changed needs of a merged organization. The management has to take an unbiased view while choosing the best suitable systems and procedures. The interest of the organization, which would presumably be bigger in size, with an expanded business, has to be the main consideration for any decision. No ego hassles should prevent the management from taking the most desirable decision for the organization.

The most common issues for comparison and integration would be employee compensation administration, benefits and incentives, employee performance management and rewards system, training and development policy, career advancement prospects, organizational reporting channels and decision-making levels. The acquiring company might feel that its policies and systems should be continued with. It might feel that it is the same company, but larger in size with a change in the size and nature of business. The acquired company might feel that its strengths are crucial for the new merged entity to thrive. They believe that they have been acquired for their strengths. So, a balance between the expectations and demands of the two merging entities is required. The guiding factor would be organizational interest.

On The Employee Front...

Organizations need to employ a little tact when it comes to handling human resources. There are two important steps to be taken by the management of both the companies. Identifying the key resources in both the organizations is the first step. Key resources do not necessarily mean the top people in the management cadres, but those, who have a following in the company as knowledgeable and trustworthy colleagues. They can manage a hold on at least some groups of employees in the organization. It is important to recognize them, take them into confidence and groom them as the change leaders. They should be given the responsibility of informally preparing the employees for the merger. Communication plays a very critical role at the time of a merger. Communicating with the employees of both the companies is very important as they should not feel that they have been kept in the dark. It should be remembered that they are one of the most important assets of an organization and also major stakeholders. Communication channels should be open in all directions once the decision is taken on a merger / acquisition.

Employees should be informed of the decision and the reason behind taking the decision through a proper channel. The implications of the decision for the employees and the company should also be conveyed to them. Any queries or apprehensions of the employees should be taken seriously and properly responded to.

Retaining and motivating employees is another major challenge for the HR department of the organization. One important point to note here is that it is the most talented resources of the organization that leave it first. Therefore, prompt and timely action (and not reaction) is essential on part of the HR department. A wait and watch attitude can only spell doom as the employees wouldn't think on similar lines. They have their career at stake and they wouldn't want to take any risks on that front. The minute they get the information of their company going in for a merger or an acquisition, they start looking out for opportunities. Speed, alacrity and discretion on part of the HR department therefore become very critical.

Points to Remember..

 

This is what an employee of an acquired IT company had to say:

• Treat even the 'acquired employees' with dignity and respect. Give them a reason to believe that they are valued in the company.

• Keep your communication channels open in all directions. Let the employees know what's in store for them. Clear all employee apprehensions.

• If downsizing is part of the integration plan, convey the same to the employees, well in advance. Show your concern for the laid-off employees by providing employment assistance.

• Concentrate on retaining and motivating the key talent. Key resources would be the first people to leave organizations as they have the best opportunities outside.

• Respect the allegiance of the employees to their former employer. In this case, the acquiring company, which failed to follow these basics, lost nearly 70% of the workforce and struggled to win the confidence and trust of the rest. 

All these initiatives should ensure a company involved in a merger or an acquisition, a successful integration, from the HR angle.