Much has been said and written about the objectives and success rate of mergers and acquisitions.

A 2000 KPMG study showed that, across industries, no less than 83% of M&A’s failed to produce any benefit for the shareholders (let alone employees) and over half actually destroyed value. I didn’t find any specific numbers for pharma M&A’s. The overwhelming causes for failure are the people and the cultural differences. Unfortunately, there is no reason to believe that the situation has improved much since.

In most M&A’s, one of the companies has the upper hand and is able to set the agenda. True mergers of equals are the exception rather than the rule. That means that the culture of the more dominant firm will prevail and that employees of the less dominant firm are likely to be confronted with a whole new set of rules and values.This is further compounded when many different nationalities and cultures are involved as is almost invariably the case in the pharma and medical technology industries.

Although top management will go out of their way to emphasize the importance and value of the employees of the company that is taken over, their primary preoccupation is on the financial side, i.e. shareholder value.

It is here that HR of both the acquiring and the acquired company can and have to play a pivotal role to guide all employees through the difficult process that starts with the announcement and ends with the implementation of integration. And top management should charge HR, right from the beginning, with the task to devise strategies and a clear road map to tackle all issues that can be expected along the route. In fact, top management should seek HR’s opinion about the human issues of a merger or acquisition before decisions are being made.

Every merger or acquisition causes tremendous upheaval and unrest, even at the highest level and also in staff departments. So, HR itself is not immune for the consequences either. Yet, it is their task to ensure, throughout the process, that the interests of the employees and, thereby, of the companies are being addressed and taken care of proactively. It is rare that there are no lay-offs. At the other end of the spectrum are acquisitions with the unique goal of acquiring products and market share leading to the lay-off of virtually all people of the acquired company. Most M&A’s are in between these extremes. So, the overriding preoccupation of what will happen to an individual will have a great impact on his/her behaviour the moment an acquisition is announced. Productivity may plummet and people will start looking for alternative employment opportunities. The most talented people may leave sooner than the less fortunate ones.

Before anything is announced, the HR leadership of both companies has to devise a clear strategy and scenario of what they envisage will happen and will have to happen. This should be as detailed as possible, leaving room for the many unexpected issues that will invariably occur. If HR leadership does not feel comfortable or does not have the skills doing this independently, there are management consultant firms that have experience with these situations and can help. After all, financial and legal consultants (investment banks) are hired as well.

One of the most important elements of the scenario is communication. And communicate clearly, honestly and openly. Incomplete, delayed and, above all, untrue communication is the worst of all and will kill employees’ motivation and support. Showing respect for all employees throughout the process is also essential. Be aware that the style of communicating may differ between the two companies. So, it is important that people understand what is being communicated. And don’t forget the most important group: your customers!

Power and conflict are other important elements. If the dominant firm’s employees will more or less automatically end up in the driver’s seats this will not foster good relationships between the two groups of people. The best people should be given the leadership roles. The conflicts that are bound to be associated with the division of power have to be anticipated and dealt with professionally. Once again, you don’t want to lose your best people.

The same applies to operations and processes. The acquiring firm’s processes and procedures are not by definition the better ones. A careful, clear and transparent analysis of both sets of systems and procedures should lead to the selection of the most appropriate ones. This will have a tremendous impact on people’s confidence in the sincerity and honesty of the new management. It will, therefore, be an important contributing factor to the success of the integration.

As indicated earlier on, one cannot foresee or plan for every possible event. In certain countries disgruntled employees may have a higher tendency to go on strike or is the power of the unions an unpredictable factor.

In addition to what HR leadership can do itself to plan and prepare, whether or not they will be successful depends also on the mandate they have in the organisation. In more and more companies, HR forms an integral part of the organisation’s top management (CHRO position). It is therefore in a position to not only “be involved” but also take the lead early on in ensuring the broader HR issues are covered before, during and after an M&A process. Since the people and culture have been shown to be major causes of M&A failure, the role and impact of HR cannot be underestimated and are of pivotal importance.

Dr Theo de Roij is a Senior Consultant at RSA.

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