Mergers & Acquisitions-MANAGING THE HR ISSUES

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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?

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.

Source: Ruth N. Bramson, “HR’s Role in Mergers and Acquisitions”, www.findarticles.com

Compare and develop the strategy to integrate

The next step is of course to compare the structures and systems, and polices 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 does 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.

From the horse’s mouth....

•  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.