Role of Human Resource in Mergers & Acquisitions
"The last article closed with the unveiling of the human factor
in Mergers and Acquisitions. Neglected human resource issues and activities
had, to an extent, a grievous claim to the number of failures amongst
the firms that were involved in a merger and acquisition process."
… P.Raj Kumar (Head, Strategies and Operations, CnetG Asia
Sdn Bhd)
"It takes only 60 days for a company to match its competition
in pricing, 90 days in marketing and three years in distribution.
BUT it takes seven long years to create a competitive corporate culture
and build a top team".
… Harvard Business School Study
"75% of Mergers and Acquisitions are disappointing or outright
failures. 50% experience a decline in productivity in the first four
to eight months. 47% of senior executives in acquired firms leave
in their first year, 75% in the first 3 years."
… CEO Magazine, Business Week, Fortune
An across the board overview of three various studies conducted by renowned consulting firms such as Watson Wyatt, A.T. Kearney and Clemente, Greenspan & Co. revealed the following:
76% of the 200 companies agreed that retention of key talent is a critical area to be considered in an integration plan.
71% vouch that clear communication of the integration plan which includes future direction of the company, culture assimilation, harmonization of compensation and benefits packages, career growth prospects and other human resource aspects is equally important.
Retention of key managers is another challenging task that demanded attention. About 67% of these companies agreed that during an integration plan, there is a risk of competent managers gawking over for better career prospects in fear of displacement or losing their superiority.
Amazingly, only 51% acknowledged that integration of culture is a critical area in the integration plan. Working culture does not confine only to the various races but also the values, beliefs, and other elements that portray the company.
Only 24% of these companies agreed that aligning compensation and benefits offered to the employees, is critical. From the business point of view, this beats the objective of the entire exercise that is to be competitive and focused. From human resource point of view, there will be a degree of resentment or dissatisfaction from a segment of the company's employees, discovering disparity in compensation, as compared to their colleagues.
The statistics show that many organization still do not view human resources as critical to their M&A strategy, particularly in the early stage. This is especially ironic, since more often than not cultural incompatibility, poor communication and loss of key employees are cited as the biggest stumbling blocks to a successful M&A transition.
A successful M&A strategy needs to take account of certain factors:
Pre-acquisition Due Diligence Audit
Prior to any acquisition, the potential suitor should undertake a
comprehensive assessment of the human resource issues within the company.
Each facet of human resources should be explored including recruitment
and manpower planning; employee relations; labor relations; government
compliance; compensation and benefits programs; human resource information
systems; training and development; and safety and environmental issues.
The audit should address areas of potential exposure with recommended action plans once the deal closes. This is an often ignored area during an acquisition, but human resource issues can create huge areas of exposure. If employees' compensation costs are out of control, or if there are pending employment lawsuits, the "deal" may not be as great as it first appears.
Acquisition Manpower Plan
Should the suitor decide to proceed with the merger, a new organizational
structure must be created considering the following: business objectives;
elimination of redundancy; parallel systems vs. merged system; geographic
locations; commitment to the former organization; and market/PR considerations.
Once the boxes are drawn on the chart a complete talent assessment
is essential, paying attention to every detail of talent retention.
Candidates for each position should be identified using an objective
assessment of limit liability. Selections should be made and offers
extended recognizing that not all will be accepted.
Keeping key managers in place through supporting negotiations: During negotiations, it is vital to ensure that key executives of the target company remain in place. The suitor must learn what key team members require to stay with the new organization.
Retention/Outplacement Strategy
Once the organizational chart is in place, there will be holes to
fill, either because people have not accepted a position or because
there is no internal candidate qualified for the position. The company
must create a severance plan and retention-bonus program to manage
through the transitional period. The plans can vary depending on whether
the employees are transitional or long-term. These plans should be
fair, equitable and rich enough to do what they are designed to do
- retain employees. Likewise, the outplacement strategy should take
into account the types of employees impacted by the sale and how long
it may take them to find a suitable position.
Communication
Once the structure is in place, communication is key in any successful
acquisition. It is the first step in assimilating employees into a
new organization and represents the best chance to make them feel
good about the company. Both individual and group meetings are appropriate
to communicate individual employment status as well as the impact
on the overall organization. There should also be extensive planning
around logistics for those exiting the organization on the day of
the deal.
Post-Acquisition Merging HR Functions
The new company must emerge with a unified process regarding human
resource issues. Policies should be reviewed, created, implemented
and communicated company wide to ensure understanding. Compensation
and benefits packages must be reviewed, merged and communicated. During
this exercise, the compensation and benefits packages could also be
benchmarked against similar players in the market, in order to ensure
competitiveness. Staffing and manpower planning must be completed
for current and future openings; training and development programs
must be merged and communicated; employee relations programs must
be communicated and implemented.
Cultural Integration
In spite of everyone's assurances nothing will change, they will.
It is important to recognize that each company has its own values,
history and way of doing business. Combining two different corporate
cultures usually leads to a "we vs. they" syndrome with
employees looking down upon the other companies' business practices,
while simultaneously defending their own methods of doing business.
There should be a clear strategy for communicating changes every step of the way and managing through it to recruit and retain the work force. No easy task, but critical in order to ensure success.
Process integration
As important as the first two steps are, this step is the most important
for the long-term viability of the new firm. Each human resource activity
will be transformed into something else -- compensation structure,
performance-management systems, incentive plans and other key processes.
They should be reviewed to determine the best of both worlds with
something that may be a piece of each of the former processes. Again,
communication about the changes is key for implementation.
