The Human Side of Mergers and Acquisitions

Mergers and acquisitions (M&A) can fail to provide their projected value when leaders don’t make efficient and smart talent management decisions. Highly significant decisions are frequently made with inadequate information, poor communication and politics, which usually disrupt the integration process that takes place post-transaction. According to an article by SHRM , an estimated 70 to 90 percent of all mergers and acquisitions do not achieve their expected strategic and financial objectives. This rate is often linked to several human resources (HR) related factors, such as cultures, management styles, lack of motivation, low retention of key talent, poor communication, lack of trust and prevalence of uncertainty regarding long-term goals. Some of the key challenges that HR professionals face during these processes include:

• Communication with employees throughout every step of the M&A process while respecting confidentiality rules.
• Change Management whereby they are faced with the dilemma of maintaining internal status quo and attempting to effect change.
• Corporate Culture Transformation and trying to combine two cultures efficiently, effectively and with empathy for all stakeholders.
• Retention of Key Talent or finding ways to keep star performers.
• Downsizing and spending a big amount of time assessing knowledge, skills and abilities to choose who will stay.
• Performance Management throughout and post-transaction.

Communication

According to an article by McKinsey & Company, a solid communications strategy encourages business continuity by guaranteeing that the right messages are communicated in order to boost morale, retain key talent and reduce employees’ anxiety. It also delivers the organization’s strategy and vision to key stakeholders including customers, suppliers, and employees. In this manner, the communication plan establishes momentum for the M&A and corrects any misinformation and myths that might arise. The stages of the communication strategy throughout and post M&A are the following:

1. Have the right infrastructure in place; set all the basics right prior to the merger or acquisition announcement.
2. Ensure that the correct message about the vision and strategy is communicated consistently to all stakeholders.
3. Regularly communicate with employees and customers in the pre-close period. Listen to feedback and take corrective action when necessary.
4. Be transparent with employees regarding what’s changing and what’s not.
5. Post-transaction communication should be frequent. Integration communications about important decisions are crucial to secure that changes are acknowledged and accepted.

According to the best practices, the elements to be taken into consideration to produce a structured communication plan are:

• Emphasis on key objectives
• Tailored messages according to stakeholders
• Clearly defined roles with respect to who communicates what and to whom
• The culture aspect that affects communication channels
• Consistency in messages to promote trust
• Frequency of communication depending on the importance of the message and how much it needs to be reinforced
• Empathy in communication and taking the receivers’ needs and emotions into consideration
• Alignment across all leadership teams
• Transparency (when applicable with respect to confidentiality rules) throughout the process, in order to eliminate anxiety induced by uncertainty
• Regular responsiveness to inquiries and feedback

Change Management and Corporate Culture Transformation

M&A leads to a shift in organizations’ day-to-day behaviors and mind-sets in order to make changes sustainable. Culture is what an organization believes in and how the work is performed. The cultural differences between the two companies through an M&A process should be addressed and could include simple issues that can have a huge impact, such as:

• Attitudes toward the work–life balance
• Employee empowerment
• Communication channels and styles
• Feedback mechanisms
• Punctuality, work schedules, flex-time, etc.
• Management styles

Cultural problems usually arise during big changes such as M&A and so do the frustrations that accompany it. HR Professionals and top leaders should align on how to smoothly integrate the changes in management practices and work norms. The stages of incorporating culture change can include the following:

1. Defining the direction, strategic priorities and vision
2. Cascading the above across leadership teams
3. Establishing the essential capabilities needed to sustain change
4. Executing the changes through change agents and allowing top management to monitor, track, provide and receive feedback and implement adjustments along the way.

Other than culture, adapting to new operating models like processes, policies, procedures, habitual practices, etc. also causes some difficulties for employees. Proactive measures and communication are essential to ensure that employees understand the new ways of doing things and how decisions will be made. The redesign of processes should be communicated in a manner that highlights core issues, and allows employees to work effectively after the deal closes, by fully understanding all the implemented changes.

Downsizing and Retention of Key Talent

Based on this EY report, 47% of key employees leave a company within a year of an M&A transaction and 75% leave within the first three years. According to an article by Gallup, this might be because companies rarely perform an accurate analysis of key talent in the due diligence process. During M&As, the concentration is usually on getting top leadership teams in place whereas the talent you believe you’re attaining already has one foot out the door. And this comes at a great cost that conventional due diligence processes do not identify. Identifying your top performers in the first step. These key talents are highly suited for critical roles in the new enterprise. An objective and proactive analysis of performers in mission critical roles is the best tool to create a list of star players. M&As disrupt systems and processes, and create a whole new evolved and integrated organization. For that reason, a simple checklist of skills and training is not sufficient. Analyzing employees’ talents in critical roles is helpful to recognize fast learners with passion and talent who can immediately start delivering with high productivity and accuracy. According to Gallup, stay interviews are recommended in order to get to know talents, experiences and aspirations better. With respect to downsizing, most M&A deals count on organizational and financial efficiency which will lead to a reduction in the number of employees needed to run the new organization. This signifies that HR professionals should conduct necessary assessments to identify who will stay and who will go. The strategy could encompass terminations and early retirements as well as a longer-term plan to simply keep certain positions vacant. The manners in which these decisions are made will have a long term impact and are as significant as the decisions themselves. Furthermore, the way in which talent management decisions are taken will convey a lot about the organization’s values. According to this report by PWC, the organization must identify each employee’s relative position to the business during and beyond the transition. Fundamentally, the company must choose who is needed for the transition period and who is needed for long-term value provision. PWC identifies three levels of criticality that can be used to identify those needs:

• Strategically critical: employees who play a vital role in the operations of the new organization
• Integration critical: employees essential to the integration process
• Knowledge-transfer critical: Employees with specialized knowledge needed for the transfer of information and know-how

Performance Management

Managing the effect of M&As on employee performance can help leaders mitigate some inherent disadvantages. Companies should hard-wire new policies, systems, structures and processes into the combined organization, while concentrating on areas like a new appraisal and performance management systems. Poor performance management can crumble a company, regardless of the amount of new assets acquired or money saved. Employee performance can be affected by:

• Witnessing coworkers being laid off.
• Competing with employees from the other organization.
• Merging two corporate cultures.
• Feeling frustrated with new roles, colleagues and management styles.

Being proactive and transparent in communication, will help decrease the chances of low morale at work and will boost performance as a result. Additionally, the right performance management system will allow employees to be clear about their new roles, key performance indicators, appraisal systems, incentives and other aspects. Finally, it is crucial to understand that employees need time to cope and make sense of planned changes. Leaders might be preparing for change for months but, they can frequently forget that employees are merely at the beginning of the process. It is vital to champion change and to support it. For that reason, HR professionals within the organization can play a key role in linking between employees’ needs and the vision of top management prior to, during and post the M&A process.