ROLE OF HR IN MERGER & ACQUISITIONS

Introduction

he M&A activities are becoming the one of the most important activities in the life of an organization. There has been a paradigm shift in the role and kind of M&A taking place over years. The M&As throughout the 1960s were mainly due to unions between conglomerates, the 1980s and 1990s has witnessed an increase in M&As between firms of different sizes and different industry types.

The primary purpose of merging and acquiring new firms is to improve overall performance by achieving synergy. Synergy is defined as utilizing the combined resources of two firms more effectively than the utilization levels achieved by the firms individually.

The role of HR in managing and ensuring the success of any M&A activity can’t be ignored. The process involves various stages that matures along with the various stages in M&A activity. The process can be broadly represented as:

 Pre-merger stage

During an M&A activity we have to define what should be the approach towards the M&A. There can be many approaches with emphasis on different things like:

• Using one or the other culture

• Creating a culture that incorporates the strongest aspects of either culture
• Creating a completely new culture that does not use either culture as its base

The M&A can lead to four decisions that may require proper handling of the situation. These are:

1. Integration: It occurs when members of the acquired firm want to retain their independence & cultural identity. It leads to structural assimilation of two cultures, but little cultural and behavioural assimilation
2. Assimilation: In this process one group willingly adopts the identity and culture of the other. Thus the firm that adopts the culture of the other firm lose its independent identity.
3. Separation: This approach calls for minimum cultural exchanges between the two groups, and each will function independently. Both the firms retain theri identity and culture.
4. Deculturation: It occurs when the culture of both the firms are lost during the process.

The four options can be shown in the four quadrant, representing the value attached by the acquired firm to its culture?

Under these situations the role of HR can be represented as:

• Help to identify issues/planning using due diligence 
• Plan due diligence for people/organization cultural fit  
• Help to educate the “deal” team 
• Help to develop acquisition guidelines 
• Estimate people-related transaction and ongoing costs 
• Identify/assess cultural differences 
• Estimate people-related savings 
• Recommend HR policies and programs 
• Validate intangible assets 
• Assess costs of integrating hr systems 

During the merger stage

During merger employees should be provided training for smooth transition to cope up with the concept of constant change, to develop new relationships, and to engender the support of new managers.

The problems faced during this stage can take any of the following forms:

• Culture, image and identity are at stake in a cultural integration
• Employees will feel a great sense of loss
• Their pride and confidence may be shattered.

This may lead to mass exodus of the employees post merger from the company. The people affected by a merger or change of ownership become detached and cynical. Those who lose something in the cultural game tend to protect their situation and resist, trying to maintain the status quo while ensuring they are dispensable to the new organization.

It is not what is done, but rather how it is done that really matters. People crave to be treated with respect, to be identified with the new organization, to be accepted as members of the new team and to keep their status and prestige within the new organization. The most important way to execute a merger and change a culture successfully is to be open and honest with the employees. Thus the role of HR becomes to:

• Develop strategies for employee communications
• Design programs to retain key talent
• Plan and lead the integration effort 
• Develop total rewards strategy for new entity 
• Help new organization cope with change 
• Define organization blueprint and staffing plan 
• Monitor employee attitudes and engagement 
• Manage selection and placement process 
• Advise on productivity/workforce synergies 

Post-merger stage

In case the executives of organization consider themselves to lose in the process of merger, they may tend to go through a process called grieving. The process has the following stages:

1. Denial: In this stage executives might not accept that the merger could take place and expect that the offer will be withdrawn somehow.
2. Anger: In this stage the executives might feel angry with the acquiring firm or even at their fellow executives for allowing this.
3. Bargaining: At this stage executives might expect to develop propositions that their status quo will be maintained.
4. Acceptance: This is the stage of submission in which executives might think of accepting the changes taking place.

The post merger mindsets can be classified into three different categories:

• Ready: These are those employees who are excited and zealous regardless of the fact that there will be employees who will resent this positive outlook.
• Wanting: These are the employees who do not get the job they wanted and are now trying to figure out their course of action.
• Wrung Out: These are the extremely pessimistic employees. They always consider that the change is towards the worst. Conducting one-on-one interviews with them is one way to find out how each employee feels about the situation and perhaps to find ways to work through the situation.

The role of HR in this stage will be to:

• Align HR policies, programs, and practices with business practices
• Monitor progress of people-related synergies and
• Ensure workforce momentum is sustained
• Ensure incentive programs are designed to reward executives and key employees

HR should also encourage the new company’s leaders to do the following: 

• Recognize and reward behaviors that support the new culture 
• Consider cultural behaviors that support the new culture
• Align culture with the vision and business strategy of the combined organization
• Identify the desired culture and gain agreement from senior management and opinion leaders of both organizations 

This article was originally written by me for my college magazine. The original article can be found on: http://xlrisapphire.wordpress.com/2009/10/29/role-of-hr-in-merger-acquisitions/

References

Appelbaum, S. H. (2000). Anatomy of a merger: behavior of organizational factors and processes throughout the pre- during- post-stages (part 1).Management Decision , pp: 649-662.

Ivancevich, J. M. (1987). Executive Actions for Managing Human Resources before and after Acquisition. 0Academy of Management EXECUTIVE , pp.127-138.

Larsson, R. (1999). Integrating Strategic, Organizational and Human Resource perspective on Merger and Acquisition: A case survey of synergy realization.Organization Science, Vol. 10, No. 1 , pp. 1-26.