This feature is part of a series focused exclusively on employee engagement. To view other posts in the series, check out the spotlight page.
When companies announce a merger or acquisition, news outlets send out waves of speculation about the cost of the deal, why it was made and what the acquiring company’s stock will be worth. But the real work begins after M&As are finalized.
Employees caught up in the organizational change must keep making the product or providing the service, often while grappling with their own uncertainties about their jobs. HR must step in to help them survive the transition.
M&As often generate distrust, ambiguity and even anger among workers. That’s why daily, honest communication with employees before the acquisition or merger is signed and sealed is critical to post-M&A success.
In Mergers and Acquisitions: Managing Culture and Human Resources (Stanford University Press, 2005), author Mark E. Mendenhall writes that the HR, cultural and psychological sides of M&A are often overshadowed by the financial side. He recommends that HR develop an integration transition plan to create one organization out of two independent entities in an orderly, efficient process. The purpose is threefold:
- Capture and use the combined entities’ critical knowledge.
- Make sure that the more competitive entity emerges.
- Ensure that essential employees are retained and motivated.
Mendenhall also recommends communicating difficult and complex change to employees through face-to-face town hall-type meetings with supervisors or managers.
Mary Cianni, Ph.D., global leader of M&A Services at Willis Towers Watson, spoke with HR Dive about effectively communicating change with employees, helping them make the cultural transition and avoiding missteps that can put post-A&M onboarding at risk.
HR Dive: What are the most difficult problems HR has in managing employees’ integration into an acquiring or merging company?
Cianni: Being unclear about the transaction itself and the language used. If [the transaction] is an acquisition, call it that, versus using terms like merger or combination. The less ambiguity about the integration approach, the clearer the messaging to employees and the greater sense of trust in what is communicated.
Culture is always a challenge. By its very nature, it is how work gets done in an organization, and is based on legacy practices and other ways of doing things. While it is important to acknowledge and understand the culture of the target company, the acquiring company should also be clear about the norms and behaviors it expects. Having a strong change-management focus to the integration helps to not only engage the acquired talent, but address potential risks in a proactive way.
HR Dive: Is employee backlash over the change a major problem? If so, should HR handle backlash (lower productivity, uncooperativeness, increased absenteeism or tardiness, etc.) like any other employment problem? Or should HR view it as a temporary reaction to change that will subside over time?
Cianni: Change always comes with a range of reactions from employees, and in an M&A, there tend to be more changes happening at the same time. There is also less sense of control among employees of target companies. Our research shows that target employees are more likely to say they will leave within two years than the acquired employees.
Companies embarking on an M&A need to be proactive about building a strong change-management approach and anticipate the changes most likely to garner negative reactions. Then HR should have a risk mitigation plan in place.
HR Dive: How long should a change process take?
Cianni: The length of time that it takes to work through the change process depends on individual change readiness, the impact of the change and the time over which change occurs. Companies that have a history of dealing effectively with organizational change are also more likely to be prepared for changes brought about by M&A.
HR Dive: What are the biggest mistakes HR and other organizational leaders make in merging employees into one entity?
Cianci: The biggest mistakes are:
- Committing to timelines that may not be reasonable. For example, saying that people will know whether they have a job by a certain date and then not meeting that date;
- Saying “nothing is going to change,” regardless of whether there is limited integration or full integration, things will change. Maybe not at first, but overtime changes occur from having a new owner;
- Saying merger when, in fact, the transaction is an acquisition;
- Not realizing that integration happens on an individual basis. Different levels, different functions, different locations may experience the integration differently. For example, in one part of the world, the acquired company may in fact be larger than the buyer. This may lead to a very different experience than in locations where the buyer is dominant;
- Refraining from communicating when nothing may be new. Even saying “nothing is new” may help foster unfounded rumors. Employees will fill in the silent period with their own interpretation of what they think is happening;
- Not taking the time to get to know how things get done at the target company. Its success is based on its culture and ways of doing things. Don’t destroy what made the target company great in the first place by quickly changing everything about how it operates.
HR Dive: What are key considerations in getting employee cooperation?
Cianni: Here are important considerations:
- Listening is key. Some companies engage in activities such as peer-to-peer conversations so employees get a chance to share the way they do things and get to know one another.
- Trust and transparency are paramount. Having credible senior leaders who are authentic in their messages builds trust. Our research shows that senior leaders’ behavior is critical to overall M&A success and to employee retention.
- Building a sense of common purpose is essential. For example, focusing all employees on the customer experience can show what they have in common, regardless of their original company’s legacy.
HR Dive: What problems does the downsizing aspect of M&A present?
Cianni: Having to reach an aggressive synergy target via downsizing puts pressure on the company to move quickly. In one aspect, this is useful because employees are not kept waiting to find out their futures. On the other hand, moving quickly may cause top performers to leave.
HR Dive: How should the acquiring employer retain top performers?
Cianni: Starting early in the due diligence phase to identify the top performers can help to avoid unintended departures. We find that financial rewards will keep talent through the retention period but are less effective once that period ends. That’s when senior leaders and other managers can try to capture the hearts and minds of top performers they want to retain.
HR Dive: Are employees in some industries and organizational types (healthcare, manufacturing, for-profit, nonprofit, etc.) more difficult to integrate than others?
Cianni: Where there are significant differences in operating models and cultures, there will be greater difficulty. For example, merging a non-profit with a for-profit organization often brings differences in transparency, because there are greater limits on information sharing in public companies.
HR Dive: Is there cross-collaboration between the HR departments of both entities, even though one chief HR person will likely remain?
Cianni: It is important for collaboration to take place regardless of who will be the on-going CHRO. The acquired company’s head of HR can help to explain what the employee value proposition was in the past and the key drivers of engagement among its employees. Knowing what matters (e.g., vacation, career development, specific benefits) helps the HR department determine what, how and when to change key elements of people programs.
HR Dive: Are HR leaders proactively heading up M&A onboarding as true C-suite members or are they largely playing a reactionary role?
Cianni: If the head of HR has a “seat at the table” in “business as usual” times, then they are more likely to be engaged early in the deal phases of M&A. In companies where HR leaders are viewed as strategic partners, they operate as a C-suite business leader. As companies increasingly recognize that people and culture matter in a successful integration, HR is more likely to play a proactive role.