To help minimise any problems it is vital for HR to identify potential differences in cultures and make decisions as to what values the new organisation will hold, which companies processes and systems will be implemented, and how it will all interlink. It may be considered prudent for HR to develop a cultural audit tool, along with detailed checklists to guide the organisations through the merger process. Clemente (1999) believes that success from this type of audit usually results when HR uses ‘discreet, measurable and quantifiable analysis that can be combined with the proverbial ‘gut’ feel.’ (Greengard, 1999) This will allow the organisation to evaluate things that are most important, including what senior management’s vision is for the combined organisation, how leadership styles differ, how executives interpret terms such as ‘customer satisfaction,’ and the types of general policies each company has in place. For example, does one company train and develop its employees from
within and encourage upward mobility, whereas the targeted company outsources its training and tends to “buy in” from the external labour market. ‘This type of cultural
audit tool was produced by a Toronto-based paper manufacturer, dubbed the Merging Cultures Evaluation Index (MCEI) where questionnaires were sent to potential suitors. The results were tabulated and rankings generated for various organisations.’(Greengard, 1999) This meant that a solid ‘cultural fit’ could be
found. This is not always easy work for HR, but the process not only anticipates and helps to avoid clashes, resentment and unhappy employees, but allows the merging organisations to capitalise on each other’s strengths to create the highest synergy for the new firm. However, it must be acknowledged that developing a cultural audit tool is only one way that an organisation may tackle cultural deficiencies and should not be categorised as a ‘universal approach.’ For example when BASF-Knoll acquired
Boots Pharmaceuticals (1995), instead of creating a ‘cultural audit tool,’ they designed and organised a series of cross-cultural seminars and workshops for senior managers to help increase their understanding of their own cultural paradigm and to raise awareness of areas susceptible to cultural differences. Whichever strategy is adopted, cultural compatibility is only usually assessed at the implementation stage. Surely this should take place at the due diligence stage? It would be of value to the organisation if they identified cultural areas of dissonance prior to implementation. Comparisons of similarities and differences can be based on direct experience, rumour, second-hand reporting and implicit theories and inference. This will allow management to dispel misconceptions and begin creating a culture that’s right for the new organisation.
It may be argued that the problems HR face when dealing with cultural differences are somewhat reduced during a take-over as opposed to a merger, as the dominant organisation will usually impose its culture on the subordinate organisation. However, even a so-called “merger of equals” usually produces an assertive organisation that appears to run the show, and imposes its culture on the other. Surely successful organisations would make concessions and combine the strengths of both companies to develop a new organisation? Whether it be a merger or take-over HR will invariably be involved with the bumps and grinds of culture assimilation. HR cannot prevent it, they cannot erase it; they just have to manage it.
One way of avoiding or reducing potential problems and issues for HR during a merger or acquisition is to communicate. It is recognised by Kanter, Stein and Jick, (1992) that communication is the key tool within any change process. It is critical to let people know what is going on, what will happen and how. It is vital that employees feel as if they are an involved, valued part of the process. This is one situation where the cliché ‘no news is good news’ does not apply. Employees become concerned, as they sense something is going on and that some sort of change is imminent. Managers must try and alleviate a ‘them and us attitude’ by ensuring that employees are well informed, as without specific information, imaginations go into overdrive, rumours swirl and anxieties mount. After all, usually jobs are at stake.
Even for those who may not be directly threatened with redundancy, the idea of enduring a change in job title, supervisor and the benefits they receive is usually enough to create a disruption of epic proportions. To reduce or alleviate these types of problems HR must get involved from the outset and place heavy emphasis on quality employee communication, so that everyone is involved. It gives people a sense of empowerment and control in the merger process, minimising resistance to change.
Newsletters, email, voicemail, teleconferences and Intranets all offer efficient ways to
feed important information to employees, but this blitz of communication is often a one way process. Employees are over loaded with information that can only be described as irrelevant and confusing. Surely a merger isn’t a time for employees to listen to speeches and view video updates every week? Senior executives and HR
managers must spend time discussing the proposed changes and how they will impact the workforce face to face. Communication must be a two way process and thus venting sessions and forums should be conducted. This will give employees the opportunity to air their views, ask questions and get straight answers, which should help to alleviate most of the anxiety.
However, we must remember that while most employees will welcome information about the larger issues involved in the transaction, most will be interested in learning how the transaction affects them personally. In particular, employees will want to know what changes they can expect once the deal is finalised and as the integration proceeds, about impending changes to their departments, and how their jobs will change. It is imperative that any information passed from executive’s too senior managers, to managers, to supervisors and finally to employees is standardised so that
everyone has access to the same details. The worst-case scenario would be for one supervisor to advise his/her employees during a consultation, that only ten employees
would be made redundant and then for his/her equivalent to say that fifteen employees may face redundancy. If management hasn’t yet made firm decisions on matters that may affect employees’ jobs, then tell them so, and, whenever possible, advise them of
the date when more information will be provided.
It is also essential that internal communications are co-ordinated and consistent with external communications to the press, customers and suppliers. Of course this is good
in ‘rhetoric,’ but often the ‘reality’ is somewhat different. In the summer of 1994
Leeds Permanent Building Society in its pursuit for a compatible merger partner opened discussions with Halifax Building Society. On 25th November 1994 the
merger was disclosed in The Independent. The announcement was precipitated by a leak to the press by a ‘reliable source’ and was somewhat premature, for the senior
management team had plans in place to make a formal announcement on 12th December. This was an unfortunate start, and as a result over half the staff learnt of
the merger by means other than official company channels. (Cartwright & Cooper, 2000)
HR is faced with another problem relating to job insecurity and redundancies. M&As will invariably lead to job losses and redeployment as a result of rationalisation and role duplication. M&As make everyone uneasy about their job security and thus adversely affect morale and motivation levels. ‘According to Maslow (1971) the basic lower-order, physiological and safety needs of employees are activated and predominate over any higher-order growth needs such as challenge and autonomy. Until these ‘basic’ needs have been satisfactorily resolved, motivation and satisfaction levels are unlikely to increase.’(Cartwright and Cooper, 2000) The role for HR is to take the appropriate steps to help alleviate some of the anxiety associated with an uncertain job future by ensuring that the re-selection and redundancy procedures are handled both sensitively and fairly. ACAS prefer the points rating method as a way of deciding whom to select, where redundancies are determined using appropriate criteria such as measurable skills rather than age, sex or race. This will also reduce
potential claims of unfair dismissal. However, it is inevitable that job losses will arise, but it is the way in which HR deals with these job losses that can reduce the
problems they encounter. In a perfect world head count savings would be achieved through natural wastage i.e. early retirement schemes, a freeze on recruitment, transfers, job-shares / part-time work. This strategy was adopted in the merger of
Halifax and Leeds Permanent Building Society in 1994, which sent a powerful message to merged employees that they were valued by the new organisation and that
their future was secure. However this is not always the case and redundancy programmes are sometimes the only option. After the merger, it is important that
redundancy decisions are made quickly so that employees know where they stand and so that productivity is not too adversely affected.
Those who survive redundancy programmes may still be contemplating their resignation, during this turbulent time. Not only does HR have the problem of
deciding whom to release from the organisation; they also have the problem of trying
to retain ‘key’ members of staff. This doesn’t necessarily mean top executives. It
may include other employees who are equally important to the workings of the enterprise i.e. technological experts. The fear of the unknown is a time when employees feel extremely vulnerable and thus some individuals may seek alternative employment in order to regain personal control of their circumstances. Personal survival becomes an obsession and employee anxieties centre around the issues of “Will I have a job?” “Will I have to relocate?” “Is my current lifestyle in jeopardy?” Whether desired or not, turnover of top people is a fact of life, often exacerbated during a merger. Peter Drucker (2000) cautions:
“It is an elementary fallacy to believe one can ‘buy’
management. The buyer has to be prepared to lose
the top incumbents in companies that are bought.
Top people are used to being bosses; they don’t
want to be division managers.”
It is imperative that HR interviews employees to help establish any fears and expectations they may have regarding their continued future with the new
organisation. This way HR can align their retention strategy around what motivates these employees. It maybe that an employee is motivated by ‘status’ and thus HR
may choose to reassign his or her job title. However, it may be that only ‘monetary incentives’ will help retain talent during times of uncertainty. If this is the case, HR may have no other alternative but to offer ‘stay bonuses.’ For instance, if it were
important to ensure an executive remained with the company for the first year of the merger, a ‘stay bonus’ would be paid out at the end of that year. What this does, is
send out an important message to these people – that they are valued and have an integral role in the new organisation.
Once HR has established which individuals will remain with the organisation, it may be desirable to persuade some employees to relocate to another region or even another country. Those affected need support and specific information regarding local facilities, accommodation and employment opportunities for partners. HR must also consider the implications of the move on the employees children, after all most
individuals will move as family units. Grace MacArthur Head of Executive and
Management Development for ARCO, acquired by BP Amoco in 2000 reiterated this point when she said;
“Fundamentally, M&As are very negative for employees
and their families … We’ve been on an emotional roller
coaster. It’s unbelievable the stress that people have been through.”
HR should allow employees the time for family trips and site visits to help familiarise themselves with the new environment before a permanent move is made. This was highlighted when SmithKline Beecham relocated a significant number of employees based at ex-Beecham sites in Surrey to new facilities at Harlow. They organised regular visits to the new site during its construction period. During this period, site plans and details of the work in progress were prominently displayed in the Surrey offices, which helped employees come to terms with the move. Relocating overseas poses further problems for HR. It has been well documented that an exceptional
performer in a domestic situation does not guarantee, that an individual will perform as well in a different country. For example, the manager who adopts a direct,
straightforward negotiation style is likely to be admired in Australia, but regarded as naïve and possibly arrogant in Japan. To avoid these problems HR must give careful consideration to the selection process. Even so, expatriates who are rigorously
selected and well prepared for the challenge, still experience increased stress levels. HR must try and reduce stress levels by preparing a detailed programme to address
international issues relating to language differences, local management styles, transport systems, weather conditions, school/education systems, dietary and religious laws, differences in health service provision and differences in the pace of life.
Whilst touching on international mergers, I feel it appropriate to briefly acknowledge other issues of importance for HR. When an organisation acquires a foreign company, HR must acknowledge different employment laws and practices. For example, it is apparently easier and less costly to make employees redundant in the UK than it is in Germany. If you buy a company from within the EC and you operate in two countries you may also need to form a works council, again another issue which must be addressed.
Other issues, which must be considered, are the new employees pay and benefits. Bringing together employees, who were previously on different terms and conditions means that remuneration packages have to be considered. It is difficult to align employees pay from the offset, and it may take several pay reviews to eliminate pay
differentials. When Daimler-Benz and Chrysler merged, the number two man in Daimler was making less than the top 10 or 20 executives in Chrysler. That created big problems in coming up with a compensation structure for the combined entity, exacerbated by the fact that U.S. companies are usually more incentive-driven, as opposed to foreign companies who are more salary-driven. Once the merged entity has agreed on a combined benefit and compensation structure, the challenge for HR is to roll out and explain the new structure in a way that achieves the new corporate goals.
When HSBC Holding Plc acquired Midland Bank in 1992 the organisation had to adjust benefits packages over a period of time. Some were withdrawn from certain categories of staff, who were offered a cash-buyout option of similar value and some remained unaltered to honour any existing commitments, even though this would perpetuate anomalies in the future. It is important for HR to try and ensure that
everybody stands to gain, as people react badly if they feel they are not on ‘the winning team.’ So what type of benefits will HR have to consider? What about
differing bonus schemes? Profit related pay? Profit shares? If these benefits remain in the new organisation then surely these will have to be standardised so all employees receive the same? What about the employees who usually receive £100.00 of vouchers at Christmas, as a thank you for their work throughout the year? Employees become accustomed to this practice and they may be slightly aggrieved if it was taken away. Equally, it would be unfair if the new organisation chose not to give the new members of staff the vouchers. HR must also be aware of the employees on long-term sickness or maternity leave. Remember incoming staff are legally protected under the Transfer of Undertakings (protection of employment) Regulations.
What about the issue of pension schemes? New employment contracts will involve decisions regarding the transfer to a new scheme. Any information provided should be supplemented with more comprehensive information and independent pension advice. When BASF-Knoll acquired Boots Pharmaceuticals (1995), in the month following the announcement they ran a series of pension briefings and also offered independent pension advice clinics provided by external experts. They also produced a number of information leaflets for employees in disarray.
To conclude, mergers and acquisitions usually create high levels of excitement and optimism for the future of the new firm. They represent extraordinary opportunities
to define and shape the new organisation using the best practices and characteristics of each party. However, even in the best of circumstances, mergers and acquisitions bring uncertainty, anxiety and conflict. In this situation; “forewarned is forearmed.” Although there is no ‘ universal approach’ to dealing with the problems that arise out of mergers and take-overs the most effective strategy is to be proactive. HR must identify the people issues that are likely to cause concern and pinpoint ways of resolving them well in advance for optimal success. “People are our most important asset” may be trite, but it is so true. Merging companies that capitalise on this concept, not only reduce potential problems and issues they face, but exponentially increase the chance of a successful merger.
