And the winner is.. :)

Blogger of October’ 2009

After 30 days and 25 blogs from different B-Schools , we finally have our Blogger of the Month.. Its been an an exciting month this, with numerous entries from all over the country… The degree of enthusiasm showed by all our participants has been outstanding..

We would like to thank all our participants for their comprehensive discussion on The Role of HR in Mergers and Acquisitions.. We are sure you would have loved this experience as well..

As far as our results go, we have decided on the blog which has stood up to the true spirit of being a blog, candid and short and at the same time conveyed a lot to our readers…

Blogger of the Month is Abhishek Prasad from NMIMS, Mumbai .

Congratulations!!! The winner gets a cash prize of Rs.3,000 and a certificate.

Team SAPPHIRE

And here is the link to the post : http://xlrisapphire.wordpress.com/2009/10/26/role-of-hr-in-ma-learning-through-reality/

The Role of HR in Merger and acquisitions

Mergers and Acquisitions are increasingly being seen as a means to achieve growth across geographies, growth in terms of technical expertise, acquire newer markets, gain newer practices etc. Despite a large number of M&A failures, there has been a consistent rise in M&A activity across the world.

A large number of synergies are required to ensure a successful M&A. As per a number of surveys, HR synergies are often the neglected ones, or are analyzed post merger. The areas where HR can take proactive steps to ensure a smooth functioning of the new entity are discussed.

An important factor which drives the role of HR is the level of integration to be achieved, or the extent to which merger has to be attained; the kind of power equations to be present in the new entity and the strategic intent of the merger/acquisition.

Integration – Organizations usually spend a lot of time tackling organizational issues, like new job descriptions etc. Who gets what position, are the ones which can lead to the feeling of being ‘acquired’, or the ‘conquerer’ mindsets, which can have drastic implications. It is the imperative of HR to help resolve this initial phase of uncertainty quickly to ensure business process integration.

Communication – This holds the key to a smooth post merger success. Keeping all the concerned employees informed about the future actions reduces the inhibitions employees might have about their future. Employees in a merger / acquisition could deal with situation and keep performing with minimum loss of productivity if the expectations are clearly communicated. Even if there are redundancies in the post merger situation, timely and proper communication would only help manage redundancies better.

Culture – Among various due diligence processes, cultural due diligence is the one which affects the nature of working of the new entity post merger/acquisition. Lack of Cultural synergy is one of the most common reasons of post merger friction. Investing in cultural matching and due diligence can prove extremely beneficial, as culture is an aspect which affects most other aspects of the post merger situation.

Among other important aspects, HR support for merger and acquisition factors which have a strong impact are: Getting involved early, identifying key players, aligning processes with strategies and initiativing activating to support a smooth post merger/acquisition operation.

References:

1. How to lend HR expertise to mergers – by Cheri Henry
2. Emerging giants are rewriting the rules of M&A – HBR, by Nirmalya Kumar
3. http://www.trainingbydesign.com/HR_%20Merger.htm
4. http://www.icmrindia.org/free%20resources/Articles/mergerissues3.htm

Saloni Gupta

PGD PMIR (Batch of 2010), XLRI School of Business and Human Resources

THE ROLE OF HR IN MERGERS & ACQUISITIONS

Crossfire is not only a great product, executed in record time, creating lots of

excitement and a very satisfying bottom line, but it stands for the almost

unlimited opportunity we have from the merger of Daimler-Benz and Chrysler.

Crossfire never could have come to fruition without the merger. The merger

enables us to do this product in a very unique form – we never did anything like

it before – and this will show the world that Chrysler is a very different

company.

Dieter Zetsche

CEO Chrysler Group, March 27, 2002

Although the merger between Daimler-Benz and Chrysler has struggled over cross-cultural differences, it appears that the relationship is beginning to pay off. This merger highlighted the human resource management (HRM) challenges that can be a part of international mergers and acquisitions. Like many other executives who have lived through a merger, DaimlerChrysler executives now understand that it is not enough to manage the legal, financial, and operational elements of mergers and acquisitions. Maximizing the value of a deal requires that the human side of

organizational change must also be managed well (Kay and Shelton, 2000). Nevertheless, managing the human side of IM&A activity appears to receive less of the top management’s attention than is necessary to ensure success (Child et al., 2001; Evans et al., 2002). According to David Kidd, a partner at Egon Zehnder International in Chicago,

Many mergers do not create the shareholder value expected of them. The combination of cultural differences and an ill-conceived human resource integration strategy is one of the most common reasons for that failure. Given the well-publicized war for talent, I am constantly surprised by how little attention is paid to the matter of human capital during mergers.

So if people issues are so critical, why are they neglected? Possible reasons include:

• Executives believe that they are too “soft” and, therefore, too hard to manage.

• Social costs and benefits are regarded as secondary.

• There is a lack of awareness or consensus that people issues are critical.

• There is no spokesperson to articulate these issues.

• There is no model or framework that can serve as a tool for us systematically to

understand and manage the people issues.

• Therefore, the focus of attention in IM&A activity is on other business aspects

such as finance, accounting, strategy, and manufacturing.

Yet experienced managers readily acknowledge that merger and acquisition success is not possible unless HR issues are dealt with effectively. Among the most important HR issues are

(a) retention of key technical talent

(b) communications

(c) retention of key managers

(d) integration of corporate cultures

In addition, as part of the process of integrating firms, the entire human resource

system in each company may be subject to evaluation, revision, or replacement. While these human resource issues are important for M&As throughout the world, their importance varies according to the type of IM&A combination. For example, if the portfolio approach is used to manage the acquired firm, there may be less need to evaluate, select,and replace employees than there is in acquisitions that result in complete integration of the two companies. If one firm is to be assimilated into the other, one HR system may be dismantled completely, while the other remains intact. In addition to the HR issues that arise in the integration stage of IM&A activity, there are several other HR issues that become evident in the stages of precombination and solidification

Managing HR issues during Stage 1 (pre-combination) of M&As

Guideline: Determine whether or not a key objective is developing the organization’s M&A capabilities. If yes, adopt HR practices to support organizational learning.

Building upon the learning theory perspective, it becomes apparent that HR issues will be particularly important for firms that want to build their M&A capabilities. Used singly, but increasingly in bundles, HRM practices such as recruiting, work systems design, or training and development can help the new alliance be more competitive (Pfeffer, 1996). If learning about the M&A process is among the objectives that managers have articulated, the role of managing human resources is more likely to be recognized as central to a successful M&A process. Firms with little M&A experience that anticipate using M&As as a long-term strategy may recognize that their early M&A activities will be learning experiences, but this does not guarantee that managers will make learning a key objective against which their success will be evaluated.

Guideline: Make retention of key talent a top priority.

According to the human capital and resource dependence theories, having capable senior management in place for M&As is as important as it is for IJVs. Effective leadership increases the possibilities of a successful international merger and acquisition. The successful combinations of Ciba and Sandoz or SKB and Glaxo or Nestlé and Purina reflect the priorities and competencies of senior management. In the best firms, HR policies and practices that support the development of

excellent leaders will already be in place long before Stage 1 of a particular M&A deal. When strong leadership talent is already available, effective retention practices can help ensure that qualified existing managers remain after the merger or acquisition is completed

Guideline: Identify employees who will serve as team leaders in Stage 2 (integration) and involve them in as many Stage 1 activities as possible.

Guideline: The due diligence process should include an analysis of the cultures of the partners, the HR policies and practices of the two firms, the financial liabilities associated with HR policies and practices, and the financial risk associated with potential loss of key talent.

When two firms are seriously interested in pursuing an M&A, they typically sign an agreement that outlines the information that each party will be allowed to gain access to prior to the deal’s close and provides a time frame for completing the review. Experienced firms realize the importance of gaining access to information about a wide variety of HR issues during this review process. Conducting a thorough due diligence process in the M&A requires a complete assessment of the HR environment of the partner firms.

The term “soft due diligence” is sometimes used to refer to assessment of the HR issues associated with M&As, and perhaps this is why HR issues often receive too little attention during the due diligence process. Receiving more attention in due diligence are such functions as strategic business development, finance, operations, marketing, and sales (Watson Wyatt, 2000). According to Mitchell Lee Marks, a San Francisco-based management consultant who has worked on more than sixty

mergers over the past fifteen years, “Many CEOs gloss over softer HR issues, including potential cultural problems, only to realize later that they’ve made a huge mistake” (Greengard, 2000).

Although widely used, the term ‘‘soft due diligence” is misleading. Assessing the cultures of the two firms is the softest element of a complete HR due diligence process, but appropriate analyses of the many other HR issues that are important to IM&A success are anything but “soft.” To capture the importance of both hard and soft due diligence, Johnson & Johnson executives prefer to use a single

concept that incorporates both terms: discovery process (Bobier, 2000).

Deepti Negi

School of Inspired Leadership

Year: 2009-2010

THE ROLE OF HR IN MERGERS & ACQUISITIONS

In any merger or acquisition all the aspect like the profitability (Finance issues), the resources optimization (operational issue), market study (marketing issue), technological issues (IT issues) can be known and tackle in advance.  The above mention issues are addressed prima facie with the help of most sophisticated and latest tools and techniques (existing and validated frameworks). The Human related issued are consider as something which will happen and settle with time itself. The most important role of HR is to let the organization and the decision maker aware about issues related to Human, The People (the most vital assets of any organization).

 

The main problem which organization face with HR issues is they are resolved as they come not in advance because of lack of seriousness about people issues but can profitability be achieved without coordination among employee, can resources be utilize without motivated employee, market share could be achieved without creativity and innovativeness of employees, what would artificial intelligence do with human intelligence. Any organization which needs to succeed and reap the sweet fruits of merger & acquisition needs to have a simple and logical step wise approach. The model which is proposed here is based on the need analysis of organization but in hand in hand with employees need.

Physiological Need

In business context of physiological need of organization can referred as the minimum output the organization need to have in term of money which could make the business sustain in long run. For employee the physiological need refer as the minimum salary which could help them in meeting their essential daily needs. To satisfy the physiological need of both the organization must make sure that no major layoff happens at the time of M&A because that may lead to dissatisfaction among others also. Where as employee should make sure that they don’t ask for unreasonable compensation and benefit in case of M&A. A proper balance among both will lead to proper M&A.

 

Safety Need

The very basic need of any employee is the proper working condition for them to work. The organization must make sure that the work place is suitable for working and safe enough that employee doesn’t have to risk their life’s. With increased workforces organization must make sure the working place size is also increased according to the increased requirement. The role of the employees is to let the organization know about the requirement but not in away that it become unfeasible for the organization.

Social Need

Social needs are the most important which needs to be taken into the consideration in case of any M&A. It’s very difficult for any human being to adjust with new situation and environment suddenly. The organization must give employee proper time to get comfortable with environment and other people. The role of employee is that they should not make prestige issue in such case and they must be flexible for the mutual benefit.

 

Esteem Need

The esteem need needs to be tackle very carefully for that organization structure and culture needs to be studied and understood very well. Every organization have different structure and some specific culture sop these cultures need to be merge in such a way that both the organization can adjust and in long run can be benefited. The role of HR from both the organization becomes very vital in this case. The employee must also understand the organization need and act accordingly.

Self Actualization Need

For any M&A the organization must give its existing and new employee full scope for creativity and innovation in their work as well as they should be allowed to take their hobbies and interests so that they could be more relaxed and adjust with M&A easily. The employee must work in a way that organization can reach to the top of the apex.

 

 

 

By using the above mention framework and taking a proactive approach (most important) any organization and have a successful M&A with help of the HR department which has to act as bridge of information between management and employees.

 

Ankur Jain

MBA 2008-10

Fore School Of Management,Delhi

 

THE ROLE OF HR IN MERGERS & ACQUISITIONS

Most of us are already aware of the theory behind Mergers & Acquisitions and the issues that are generally faced by the HR department in these situations. So for this article, I decided to interview HR executives from two prominent companies in the IT sector (TCS and Satyam) to get an insight into the issues they face during Mergers and Acquisitions. This is a summary of what they had to say.

 

The TCS – Tata Infotech Merger

 

This is a relatively recent merger that involved the employees of Tata Infotech becoming a part of TCS. Although the merger was successful and the entire process was carried out smoothly, some issues were faced by the HR department –

 

Consideration of prior experience

TCS had to decide how they would consider the experience of employees of Tata Infotech – should all their prior experience be considered relevant to TCS as well? As the two companies are not that dissimilar, they finally decided to retain the experience of the merged employees.

 

Designation, Fitment and Payscales

They had to ensure that the grades/designations of the merged employees were appropriately mapped to the grades/designations in TCS based on their experience. A senior employee of Tata Infotech would definitely not be happy reporting to a junior person from TCS. Their payscales also had to be appropriately modified to adhere to the TCS salary structure.

 

Joining dates

The HR department had to decide how they would consider the joining dates of the merged employees. They finally recorded two joining dates for the merged employees in their IT systems (the date they joined Tata Infotech and the date they joined TCS).

 

Legal Issues, Promotions and Policies

Employees are entitled to gratuity after 5 yrs in the company. So the IT systems should be capable of carrying forward the duration they served in Tata Infotech to TCS. Also, certain policies require an employee to have served in a previous grade for a specified duration to be eligible for promotion, which would not be possible for the merged employees. So such exceptional cases must be considered.

 

Induction and Project Allocation

The merged employees had to be inducted into the processes of TCS and had to be allocated to projects based on their education and prior experience in the previous company.

 

 

The Satyam Acquisition by Tech Mahindra

 

The acquisition of Satyam by Tech Mahindra is of particular significance in the sense that it not common to see a smaller company acquiring a larger company! Tech Mahindra, a company of around 23,000 employees, whose business was mostly centered around the Telecom sector (British Telecom being one of their major clients) acquired Satyam, a much larger organization of around 45,000 employees, whose business was much more diversified and global.

 

As we all know, the entire acquisition process was not a very pleasant experience for the employees of Satyam. The company underwent a major change in its organization structure to align itself with that of Tech Mahindra for ease of integration. A lot of downsizing/right-sizing had to be done in the process as there were many redundant positions in both companies.

 

The HR department was faced with the challenge of retaining employees and their clients, and restoring their faith in the company. The following are some of the initiatives that were undertaken to address these issues –

 

Sales Reboot Campaign

The senior management conducted a 3 day programme for its sales force and gave them some much needed motivation to pursue new clients.

 

Special Induction Programmes

As we all know, the Satyam scandal tarnished the image of the company. Employees quit the company in large numbers, and it was almost impossible to recruit new employees to fill up the vacant positions. So Satyam advertised for these vacant positions within the organization. The members who were willing to join were given an intensive 2-week induction programme in Sales and other functions so that they could be quickly be made productive and posted in regions abroad.

 

Recognition and Reward Schemes

As the company initiated a variable pay cut for all employees, the senior management had to devise new strategies to motivate and retain their employees. They decided to identify Star Performers and ‘Excel-lerators’ within each division and give them special recognition for their efforts.

 

Communication Channel

Since there was a lot of anxiety and uncertainity in the minds of the employees, the HR department created a communication channel between them and the top management of both Satyam and Tech Mahindra. This was done via many forums such as Blogs, “Direct from the Board” Webcasts and several Open House sessions in an informal environment.

 

 

The above two cases illustrate the significant role that the HR department plays during a Merger/Acquisition. It is quite unfortunate that in many cases, their work goes unnoticed when the entire process goes off smoothly, and when the process fails, they are the ones that end up taking the blame. The irony is that their real value to an organization can be felt only by their absence; just as we can appreciate light only when we have experienced its absence – darkness.

 

 

Varun Abhirama Krishna

PGDM 2009-11

K J Somaiya Institute of Management Studies and Research, Mumbai

THE ROLE OF HR IN MERGERS AND ACQUISITIONS

Mergers present opportunities and hazards for both the company and the HR manager. A KPMG study showed that 83% of mergers and acquisitions failed to produce any benefits – and over half actually ended up reducing the value of the companies involved.

Although the merging entities give a great deal of importance to financial matters and the outcomes, HR issues are the most neglected ones. Ironically studies show that most of the mergers fail to bring out the desired outcomes due to people related issues. The uncertainty brought out by poorly managed HR issues in mergers and acquisitions have been the major reason for these failures.

The HR manager, on the other hand, has an opportunity to influence events so that each company comes out ahead — but, to do that, the HR manager must preserve their own position! Before, during, and after the merger, HR may be responsible for assuring that cultural issues do not derail integration; for increasing innovation; for keeping communication going in all directions (upwards, downwards, across departments, across organizations); and for lessening the impact on those who are “reduced” and on the survivors.

Even at the highest level of the company, HR can have a role. The new leadership team will need to work together on a daily basis, despite cultural and personality differences, power issues, and other barriers. HR can act as a facilitator, and also as a coach to individual executives. Personal and team assessments can be helpful in enabling team members to work together constructively.

The HR manager may need to raise the issue of culture – how people work, how they think, what they value, and, of some importance, how they view the other organization. If the acquired (or acquiring) organization is viewed with disdain, these issues must be addressed up front. Likewise, severe cultural differences must be addressed. They can be overcome with attention and work

The mergers often prove to be traumatic for the employees of acquired firms; the impact can range from anger to depression. The usual impact is high turnover, decrease in the morale, motivation, productivity leading to merger failure. The other issues in the M&A activity are the changes in the HR policies, downsizing, layoffs, survivor syndromes, stress on the workers, information system

 

 

HR as an internal consulting group

HR is often one of a few units which can work as an internal consulting group during a merger or takeover, along with quality or process engineering teams.

In this light, HR managers may be able to use management coaching skills to help managers and executives to communicate effectively and completely, to address power issues, and to deal with cultural issues. In some cases, HR may take a more active role; in others, HR should act as a coach

HR takes control

• Train managers on the nature of change

• Technical retraining

• Family assistance programs

• Stress reduction program

• Meeting between the counter parts

• Orientation programs

• Explaining new roles

• Helping people who lost jobs

• Post merger team building

• Anonymous feedback helpline for employees

 

The communication aspect being very important should be handled carefully by the human resource department. The communication should provide precise information to the employees, providing any piece of information which is unreal can lead to rumors and counteract. The communication should be sufficient enough to answer the queries and worries of the employees. The first set of information should be related to their future jobs, this will help to lessen their worries related to job security. The communication shouldn’t involve false promises which may counteract later. The communication can be through trusted and credible employees of the acquired company and trade unions can be involved in the process too.

 

 

Wrapping it up

By knowing what makes mergers succeed, keeping an eye on the human issues as well as the financials, and using appropriate tools, companies can make mergers work.

Your job as an HR manager is to quickly develop a strategy for helping the company to achieve the synergies it needs — and develop HR’s game plan for leading the process. It helps to have achievable goals, with stretch targets, and concrete milestones (supported by good, valid measures) for implementation.

 

Heena Harjani

MBA 2009-11

IBS HYDERABAD

 

THE ROLE OF HR IN MERGERS & ACQUISITIONS

HR – An orchestrator in Mergers and Acquisitions

“The correct spelling of M&A begins with HR” – that’s what Jeffrey A. Schmidt had to say about the role of HR in mergers and acquisitions. How important is HR while considering and carrying out M&A opportunities? Unfortunately, we are still not in era of the Matrix or Skynet 1.0 (The Terminator fame) where the companies can be run by intelligent systems. Until then we will have to bank upon human capital to carry out various operations . This makes the HR an indispensable part of company’s activities and M&A cannot be an exception here. In fact, given the amount of change involved in M&A activities, HR becomes the most critical aspect. All those who say that HR’s role in mergers and acquisitions begins when the deal is inked, surely need some introspection. The earlier HR is involved in the process, higher are the chances of the M&A being a success. If the HR aspect is not handled properly, no matter how precise the M&A agents are in their calculations, the deal can never prove to be a success. Yeah!!! this may not sound logical but then a 4 minute-mile was also not logical till Roger Bannister floored all the theories or Edmund Hillary scaled the Mt. Everest. Learned men may still not second the idea, I suggest them to have a look at the causal analysis of the failure trends of the M&A deals in Europe over the past two years. It has been found that of the 40 European companies involved in such deals in the last 2 years, 83% failed to meet their key transition goals and the majority cited ‘human capital challenges’ as the most formidable challenge. The findings of Hay Group suggest that just 9% of deals are fully successful in achieving their objectives. ( http://www.jsbonline.com/public-events/conference/69/the-role-of-hr-in-mergers-and-acquisitions/introduction/ : Date Accessed:29-Oct-09)

Hence, it is amply clear as to what is amiss in all the M&A deals that fail – the role of HR, what else!! So, here’s how HR can don different hats in different stages of M&A and contribute to the making of a successful M&A deal

DOMINANT FUNCTION: Organizing and planning

A question the HR needs to proactively ask is “Where do people fit in this deal?” An acquisition or a merger is enough to throw all the benefits issues into a maelstrom of change. The employees are left grappling with these questions:

Who will be the employer after the transaction?

What benefits would be available?

What will happen to the benefits accrued to date?

What happens if employees are laid off in connection with the transaction?

 

 

 

The HR has to quickly take control in these cases and educate managers and employees. To manage issues like stress, low morale and productivity, the focus should promptly change from change management to management of employee issues. Hence, it should facilitate transition teams that are averse to decision making based on personal agenda and politics. Development of newly formed teams, countering problems arising due to interpersonal conflicts, unclear demarcation of team boundaries as well as roles and responsibilities ought to be another thrust area of HR. A formal process to develop newly formed teams, review of the process and help in launching new teams through consultation should be the forte of HR during M&As.

HR’s key role in any M&A is the reinforcement of the new culture. It needs to assist the management in preserving the best aspects of the organization. What the HR can do is:

- Find out through surveys what cultural values are valued and which of them should be preserved

- Enlist all of them and request feedback from each management level

- Provide the management with development tools and ideas to implement the result of the surveys and feedbacks

- Finally, it can conduct a survey of all levels of management about 3 months after the deal is through in order to assess the progress towards the new culture.

This brings us to the most crucial aspect of the discussion. It is about HR’s role of MANAGING ALL INDIVIDUALS WITH DIGNITY.

HR needs to show the way here and set an example for the other units of the organization to emulate.

 

 

Here is how the HR department can achieve this:

-          Keeping all employees informed (Frequent broadcasts from CEO, HR Director) of all crucial decisions

-          Instilling a sense of security among all employees, so that the issue of dovetailing employees can be dealt with. HR has to demonstrate great sensitivity when managing people during M&As in order to refrain them from channelizing their productive energies towards issues like concerns over lay-offs, career growth with acquirer, compensation

-          Especially, in the case of acquisitions, the HR needs to ensure an equitable and fair treatment of employees

-          In case of lay-offs, offer outplacement services and just severance packages

-          Have a definitive plan with specific dates for individual communication

-          Encourage open houses or forums where employees can come together and discuss the deal and allay their fears and insecurities surrounding it

-          Acknowledge the problems as and when they arise

-          Enhance effective communication by involving line managers

-          Establish an anonymous helpline for employees

-          Advocate family assistance programs to make the employee that he/she is cared for

The issues faced by HR during M&A deals are enormous, yet it is clear that the key to the success of an M&A is the management of people. Just like an orchestrator, the role of HR is to harmonize all activities in all phases leading to the creation of a unified organization with a mission, vision, a clear purpose and values from two culturally different groups. With there being no matrix like BCG or relatedness matrix to facilitate M&As, this is no easy feat to achieve!! J But, by identifying commonalities in both challenges and solutions the true value of HR will be realized and boost the chances of a successful deal.

REFERENCES

http://ezinearticles.com/?HR-Issues-and-Activities-in-Mergers-and-Acquisitions&id=1227418: Date  Accessed:29-Oct-2009

http://www.trainingbydesign.com/HR_%20Merger.htm : Date Accessed: 28-Oct-2009

Amit Pande, Sandeep K. Krishnan. Knotted Forever… Pg.1

Sulaxmi Prasad

School of Inspired Leadership

Human Resource Leadership Program (2009-10)

THE ROLE OF HR IN MERGERS & ACQUISITIONS

Mergers and acquisitions have become an important tool for organizations the world over to acquire competencies and increase their geographical reach. Financial, operational, and technical due diligence are routine undertakings before companies consummate a merger or acquisition.

The purpose of due diligence is to improve the odds that the merger or acquisition will be successful. It is perhaps best defined as a time of intensive searching for facts, thorough analysis, and constant revaluation. A number of questions need to be asked and answered: Does the company really fit? Is it really as attractive as it appeared to be? Can we manage the company successfully and achieve the benefits we identified? Will the company’s managers support our objectives? Answering these questions only in terms of financial and legal due diligence addresses only two thirds of the problem. The remaining and most significant third, Cultural Due Diligence is typically not performed, in spite of the fact that the research shows it to account for better than 50% of the failure of mergers and acquisitions.

While culture may seem like a “small thing” when evaluating mergers, compared to product-market and resource synergies, the opposite is true because culture is pervasive. It affects how the everyday business of the firm gets done—whether there is shared understanding during meetings and in promotion policy, how priorities are set and whether they are uniformly recognized, whether promises that get made are carried out, whether the merger partners agree on how time should be spent, and so forth.

“Culture clash,” a term that now appears with almost daily frequency in the business press, is increasingly specified as why a merger or acquisition was called off at the eleventh hour, fell far short of its intended results, or resulted in serious and continuing operational problems. Unexamined and therefore unanticipated factors in the organizational culture of the two are at the heart of the problem. The costs associated with failure of a merger or acquisition are huge, and shareholders are increasingly holding corporate boards and officers accountable for a failure to examine organizational culture as rigorously as they have examined legal and financial factors.

While cultural conflict often plays a large role in producing merger failure, it is often neglected when the benefits of a potential merger are examined. Success or failure of a merger, acquisition or divesture hinges on what happens after the deal is closed. Integration creates enormous challenges for those charged with combining information systems, financial controls and reporting procedures, technology and product lines .But the greatest challenge in integration is managing the people issues.

Through Cultural Due Diligence, the human side of these transactions can be given the same scrutiny that has traditionally been applied to the more quantitative assets of companies. And it is here that the HR department can play a useful role by efficiently identifying and evaluating the cultural characteristics of the organization across several dimensions of organizational culture and highlighting where significant “culture clash” will impact organizational effectiveness. With this information at hand, interventions can be designed to prevent, eliminate and/or minimize “culture clash” problems.

This will not only eliminates the incredible loss of focus and energy resulting from “culture clash”, but also enable the organizations to complete their merger/ acquisition more effectively and efficiently, and enhance the loyalty and commitment to the new organization on the part of its entire people.

Namrata Jain

PMIR 2008-10

XLRI School of Business and Human Resources

The Role of HR in Mergers and Acquisitions

Due diligence with respect to organizational as a whole leads to the fulfillment of the aspirations with which M&A takes place. Specifically, if HR function has to become truly strategic, then it has to be proactive, knowledgeable and a visionary.  Taking it the other way round, to gain strategic advantage, an organization has to bring HR to the M&A deal table. Doing this many of the seen and unforeseen turbulences can be averted.

 In many organizations, the pattern of leaving HR out until the collateral damage has been made. A competitive HR deptt. can demonstrate that it understands M & A transactions and what the business needs at various stages of the deal process.

 A full fledged cultural due diligence audit needs to be conducted as a part of a comprehensive pre-deal due diligence process. A thorough culture audit will avoid senseless mistakes by increasing sensitivity and awareness thus stimulating much faster resolution of key disagreements.

 Due diligence and Human Capital

 The most important guidelines for due diligence with respect to human capital is

“Pay attention to details”

Two facets of the HR function in due diligence -

i) Defensive – to glean information

ii) Offensive- to bring all human capital assets to the forefront and identify ways of maximizing their value

 There are basically three drivers in the due diligence process from the HR perspective:

 

 

 

 

 

 

 

 

 

 During Pre M&A Stage

• Strategic expectations of employees should be analyzed. HR must alert the due diligence team to the ways people and related organizational or cultural issues can affect the deal’s key strategic assumptions.
• Leadership commitments of the founder employees should be confirmed by carefully integrating the cultures of the two companies
• People costs (salaries, benefits, programs etc) and potential cost reductions must be validated.
• The legal compliances should be confirmed to verify the right of owners to sell the business.
• Take into account the corporate attitudes and management style differences. If one of the companies follows an autonomous style and other is conservative, but both are very successful as different entities, it will require special concern when they enter into M&A.

 During M&A Stage

• The HR policies and practices determine the condition of employee relations. Keep the trust intact by communicating effectively and appropriately timed.
• The key talent people should be interviewed and assessed to determine their individual competencies, roles and potential for advancement. Along with this, the objectives for M&A, the goals to be achieved, incentives and performance measures need to be in sync to retain the talent.
• The compatibility of reward and recognition is another vital factor. The alignment of the pay structures, incentives, stock options etc. should cater to the organization’s vision. 
• The IT platform should be made common across the whole of new organization.
• The other factors that need to be considered are retiree/ disabled employee liabilities, health plan liabilities, termination benefits etc.

 Post M&A Stage

• Integrate the workforces, culture, and HR programs of a newly merged company.
• Build the infrastructure required to support a stand-alone business that was being divested from its parent company.
• Restructure a major operating function including structure, staffing levels, roles and responsibilities, and performance metrics.
• Administer the new Total Rewards strategy and framework; design and implement new compensation, benefits, and performance management programs to support new strategy.

 Last Thoughts

• Do not consider “middle path” as the best path to integrate the two entities.
• Set clear and measurable goals
• Learn lessons from the entities that are doing well and failed as in both the cases can drive your success.

 References

• Making Mergers Work- The Strategic Importance of People

              Edited by Jeffrey A. Schmidt

• Mergers & Acquisitions

              Timothy J. Galpin.   Mark Herndon

• NASSCOM, HR Connect Issue 9, October 2008

Charu Sharma

Master of Human Resource and Organizational Development (MHROD)

Deptt. Of Commerce, University of Delhi

THE ROLE OF HR IN MERGERS & ACQUISITIONS

Introduction:

 

Mergers and acquisitions are common phenomena at present. Terms and conditions are set out, plans are put into action, and there are high hopes for a bright and successful future. However, researchers like Lubatkin, Pritchett and Cooper point out that between 50% to 66% of all M&As fail to reach their objectives, frequently with disastrous results. This may be to a number of key factors, but most of the evidence suggests that the human factor (in terms of personnel) is at the heart of the problem, and the failure to recognize this may be damaging to otherwise potentially successful ventures.

The problem derives from the fact that top managers are primarily concerned with the financial aspects of the merger, and are too preoccupied to take best care of the employees affected by the changes. Jemison and Sitkin suggest that “top executives, investment bankers and lawyers are paid to make a deal happen not to make it work“. Moreover, there is a belief that the signing of contracts is the end of the story, whereas the merger is only the start of a complex challenge to integrate the “cultures, histories, traditions, policies and practices” of the two organizations. With the increasing size and number of M&As transacted and the number of employees affected, it is essential that executives and human resource professionals pay greater attention to understanding the sequence of actions and reactions associated with the process.

 

 

 

 

 

Historical Perspective and Literature Review:

People as individuals are a less measurable organizational asset, and less easy to appreciate by a study of the balance sheet, material assets or profit and loss accounts. Poor communication, poor management and cultural gaps between the two organizations are the main reasons why mergers often fail in human terms.

There is a vast, behaviorally based literature applying to managerial aspects especially in the US and the UK. This literature takes various forms. MacDougal and Malek advise the managers on how to proceed mostly from a rational base – “clear objectives, documented plan, careful data collection” etc. Levinson attempts to explain what happens to people in the acquisition process based on practitioner experience. As he observes, “Caught up in the hoopla and glamour which have characterized the great merger sprees in recent years, business executives have been preoccupied with the strategies, tactics and techniques of acquiring, merging and selling … yet frequently the really crucial factor, people, has been superficially dealt with”. Levinson asked senior executives to examine their motives, to examine their feelings about the acquired personnel, and to open up honest discussion so a problem solving atmosphere could be created to encourage success.

In addition, taking into consideration the strategy based literature of advice; there is no shortage of behavioral, tactical advice for managers involved in acquisitions. Both the behavioral and the strategic advice are pragmatic and, most often, experience based. Much of it concentrates on what happens after the merger rather than on the whole process. Important issues are: getting people involved, spreading corporate culture, having a sense of purpose, having goals and so on. Though organizational issues (structure, interfaces), are to be given attention but commensurate attention is to be given to ‘empathy’, ‘involvement’ and ‘good communication’’. This is where the HR managers come into play.

Towers Perrin, global management and HR consultants, say that HR professionals need to take a greater leadership role in the mergers and acquisitions, procedures involving their organizations, and that the earlier they get involved, the more successful the M&A will be. In a research study of 447 senior HR executives conducted by Towers Perrin and the Society for Human Resource Management (SHRM) foundation, five factors determined the failure of an M&A, three of which relate to HR:

• Inability to sustain financial performance
• Loss of productivity (HR-related)
• Incompatible cultures (HR-related)
• Loss of key talent (HR-related)
• Clash of management styles

Another significant finding in the study was that 81 percent of the respondents said top management had confidence in their ability to help prepare a successful integration. “These findings show that HR professionals can play an important role during M&A, and they can make a difference,” says Jeffrey Schmidt, managing director for innovation and research at Towers Perrin. Schmidt says HR professionals need to recognize the importance of improving their M&A competencies to successfully take on the role of strategic partner. The competencies of HR managers include:

• Understanding overall business strategy as well as people and organization issues associated with that strategy
• Gaining knowledge about business in general and M&As in particular
• Being able to contribute to another company’s value
• Planning and leading complex M&A strategies
• Understanding and spending more time with operating managers to help support them in M&As

The Human Factor as a Reason for Failure

In most mergers and acquisitions the real gray area is that both employees and managers are unprepared to cope with the new situation. Typically a huge portion of employees of the acquired firm find difficulty in coping psychologically with the trauma of mergers involving their companies. More specifically: A bulk of them does not anticipate the effects on their positions or careers. On the other hand, a few just panic. These managers feel that their careers under the new structure are threatened. They begin to look for new jobs. A miniscule percentage of people actually review their situation calmly, and make thoughtful decisions about their future.

All these relates to the absence of personal care. To the employees of the acquired companies the new management is in some way aliens. Furthermore they do not enjoy the advantages of previous good relationships with clients. Management motivation and employee output are things which need to be addressed by HR personnel. Another reason is that a change in status can lead to personal feelings being hurt. Executives and managers who previously held responsibilities and enjoyed a degree of control now face the prospect of finding themselves in a minority in important matters of policy; and when outvoted, bad feelings may occur. All these point to the tremendous role that HR professionals have to play in order to get the transition smooth.

 

Seven issues during M&As which can be handled by HR managers are:

1. Underestimation of the difficulties of merging two cultures.

2. Underestimation of the problems of skill transfer.

3. De-motivation of employees of acquired company.

4. Departure of key people in acquired company.

5. Too much energy devoted to ‘doing the deal’, not enough to post-acquisition planning and   integration.

6. Decision-making delayed by unclear responsibilities and post-acquisition conflicts.

7. Neglecting employee welfares of existing business due to the amount of attention going into the acquired company.

 

The Impact of M & As on Employees

The Nine stage sequential model of emotional responses among employees clearly point out the turbulence that goes inside employees of acquired firm during mergers.

Stage	Characteristic Response
Denial	Not accepting that the merger will take place
Fear	Afraid with regard to future prospects
Anger	Resentment towards those considered responsible
Sadness	Mourning and grieving for what’s past
Acceptance	Recognition of futility – a positive approach starts to develop
Relief	Recognition that the situation is actually better than expected
Interest	Increasing feeling of security
Liking	Recognition of new opportunities
Enjoyment	Satisfaction that the merger is working out well

The strength of response is considered likely to be related to the length of service of the employees and the degree of their attachment and commitment to their former organization. Although the merger or acquisition event itself is often most shocking to those who have been with the organization for some time, feelings run so high in the early stages, that initial reactions are not helpful in predicting attitudes and longer term responses, but HR managers can help in alleviating employees problems through the following ways:

 

Actions from HR	Psychological and Cultural Impact on employees
Communication : Management cascades/road shows/discussion forums	Raises questions amongst employees (What is happening?)
Business strategy: Loose coupling or tight integration	Employees question the rational (Why is it happening?)
Organizational structure: Integrating/rationalizing operations Managerial de-layering	Employees question their short-term futures (Where will I be in six months?)
Appointments and exits: Redundancy/relocations/new roles/ new appointments	Employees question their long-term prospects (Will I have a job?)
Terms and conditions: Pensions/salaries/benefits	Doubts raised about financial benefits (Will I lose out?)
Managing performance: Immediate targets and deliverables longer term objectives	Questions about management expectations of personnel (What is expected of me?)
Training and development	Further questioning the future (Do I have a future?)

 

 

More specific HR functions during Mergers and Acquisitions

 

The involvement of the HRM function is a matter of a humanitarian concern for absorbing grief among those people who were acquired. There are compelling financial reasons for assisting in the integration process and transferring the acquired peoples’ commitment to the firms new owners but as it turns out that without their (HRs) commitment it is difficult to achieve the operational and strategic objectives. Once the acquisition team has focused on the seller firm, the HRM function may become involved in data search for detail. Possible activities are: Human audit (numbers, level, locations, pay levels, union affiliations); human costs (obstacles to rationalization such as merger and employment law); people quality (key players, corporate culture, age profile, skills inventory); personnel policies (pensions, employment contracts, medical provision etc); employee relations and the organizational structure. The importance of HRM involvement in this stage is not only to provide data but also to prevent the acquiring firm’s management from surprises (e.g. complex financial arrangements in pension funds; over-generous employment contracts etc.). Hunt and Dowing in their study of forty acquisitions in the UK found that every case of failure was characterized by subsequent surprises about at least one major HRM issue.

Negotiating

The existing practice applied by most acquisition teams to exclude the personnel professional from the negotiating team creates advantages and disadvantages. First, it excludes the professional who should have skills in negotiating. Conversely, it keeps the team small. However, the advice of an HRM specialist should not be ignored since he/she can participate effectively into the process. Merger documents involve question about the staff and advice on post acquisition, areas in which HRs can be really instrumental.

Implementation

The first three months are ‘the crucial period’ of success or failure of a merge. The HR manager has to be come to conclusions about personnel matters and to implement them effectively. He or she has to communicate rapidly to show the acquired company where it stands on personnel policy and general terms and conditions of employment.

Some of the more important tasks that must be carried out by HRM in most post-merger situations are:

Effecting the merger by completing legal arrangements, negotiating with employees’ union, preparing necessary public relation releases.

Maintaining momentum immediately after the merger by clarifying reporting relationships and by ensuring the continuity of credit facilities and insurance.

Bringing the new organization into the corporate structure by reviewing compensation, by analyzing personnel policies of the acquired company and by developing a new audit program and eliminating activities not appropriate to the new company.

Realizing short-term profit improvement potential by eliminating redundant executive positions and unproductive personnel, and by closing down unnecessary facilities and consolidating the headquarters’ staff.

Realizing long-term improvement potential by integrating operations and transferring technologies and methods.

Finally……

Undoubtedly, the concept of acquiring “human capital” is paramount. Although top executives may not make their objectives explicit, many deals are driven by a desire to obtain certain intellectual and emotional assets such as know-how, creativity and innovation. The majority of the senior managers admit that they hoped to achieve some sort of cultural synergy through their merger. Mergers and acquisitions are highly individualistic, not to say idiosyncratic, events, yet many are characterized by a shared cluster of human issues and responses. Although complex and intangible, the human dimension of M & As can be managed. To do so it requires senior managers to approach these deals as human based transactions, not solely financial or strategic entities. Managers must anticipate and manage employees’ reactions and feelings from the very moment they begin to prepare for a deal, not just when they announce their plans.

 

“A One of the best things you can do as a manager is stand in front of staff and have a discussion. Our technology really helped, but these ‘coffee talks’ led to open discourse because the employees want to look at the company leaders in the eye.”

Vice-president, HR  Hewlett-Packard, Hugo Bague on successful merger with Compaq

References:

1. McCann J. – R. Gilkey 1988, “Creating and Managing Successful Mergers and Acquisitions”, Prentice Hall, 1988.
2. McCarthy G., “Mergers and the Performance of the Acquiring Firm”, Academy of Management Review, Vol. 8, part 2, (1961): 218-225
3. MacDougal G. and F. Malek “Masterplan for Merger Negotiations”, Harvard Business Review, Jan-Feb, (1970): 72-82

 

Saikat Mondal

PGDM (2^nd Year)

IIM-Lucknow