Chris Molloy, CEO at RSA, believes that only by placing talent acquisition at the heart of mergers and acquisitions (M&As) can the maximum value be realised.
M&As are common – 111 took place in the UK in the second quarter of 2013 alone – yet there is no one-size fits all formula to ensure smooth transitions. They are time consuming and stressful. Studies over the last 20 years showed that up to 83% of M&As fail to produce real benefit for the shareholders (let alone employees) and over half actually destroyed value. The major causes for failure were cited as people and the cultural differences. Unfortunately, there is no reason to believe that the situation has improved much since. Many have also cited lack of ‘strategic fit’ and ‘inappropriate management during integration’ as the primary reason for poor M&A performance.
The success of M&As is often damaged because a company is more than just its tangible assets. A company is its people, in ‘company’ with one another, defining a culture and a framework for doing successful things. Of course many M&As make perfect sense and if it is done with people and culture at the centre of it then it can be both agile and productive.
The people impact is often felt most immediately in sales and marketing, as customer confusion and employee confidence lead to fight or flight within days of any announcement. R&D is particularly vulnerable to M&A pain. During a merger, R&D departments are the last to combine as a company’s pipeline and patents are its most prized assets and are not revealed to competitors in case the deal falls through. It can take up to nine months for the completion of departmental merging, which is inevitably highly stressful and time consuming for management and employees. No new projects will be undertaken in this period; nor will any major hiring decisions be taken beyond existing employees of the merging firms.
A key critic of the entire process is Dr Raymond Firestone, a Scientific Fellow at Boehringer Ingelheim. Dr Firestone recently published an account of the merger between two large pharmaceutical firms: ‘Mergers have a strong negative personal impact on researchers and consequently the innovative research environment. One merger I witnessed in the late 1980s was a scene of power grabs and disintegrating morale. Positions were often decided by favouritism rather than talent. Productivity fell so low that an outside firm was hired to find out why. Of course, everyone knew what was wrong but few, if any, had the nerve to say it’.
This is a true indication of how badly mergers can go when HR is not on board from the beginning up to completion. It also reflects a time before talent acquisition existed in its current form. Yet it is an important reminder that a company’s human capital is perhaps even more crucial than its financial assets.
In almost all M&As, one ‘side’ has the upper hand and is able to set the agenda. True mergers of equals are the exception rather than the rule, resulting in the impact of culture from the more dominant firm prevailing and employees of the less dominant firm being confronted with an entire new set of rules and values. Enforcing a dominant uniculture almost always fails, not because it is a poor one, but simply because it does not reflect how humans work when they join together.
The same applies to operations and processes. Both parties have created success and have something of value to show each other. The acquiring firm’s processes and procedures are not by definition the better ones. An objective and transparent analysis of both sets of systems and procedures should lead to the selection of the most appropriate ones.
M&As cause organisational stress but this is dwarfed by the combined personal stress across employees at all levels. From the boardroom to the bench no-one is spared. It is emotional for all and therefore handling emotion is critical.
Mergers call for collaboration, but non-collaborative (fear-based) behaviour is natural when people realise they might be in direct competition with their counterparts. Scientist John L. LaMattina says that when he was working in the R&D department at a large pharmaceutical company, he was pleased to be headhunted during an M&A: ‘I was really relieved; the stress at work was incredible’. This surely is an indication of the importance of a professional HR strategy during a M&A.
While much has been written about the objectives and success rates of M&As, historically there has been a general complacency over talent acquisition (TA) and HR’s role in the process. Instead of being a deliverer of the M&A, drawing up plans for how to manage the problem, TA can and should, be part of the team that targets acquisitions. M&A scholar Peter Howson sums it up bluntly: ‘The benefits of due diligence HR is often underestimated and its findings are often not integrated with the rest of the due diligence. Do not fall into this trap’.
The HR departments of both the acquiring and the acquired company have to play a pivotal role in guiding all employees through the difficult process that starts for most with the announcement and ends well beyond integration date to devise strategies.
Communication is critical: clearly, honestly and openly. It is vital that people understand what is being communicated and being aware that the style of communicating may differ between the two companies is critical.
Although senior management will go out of their way to emphasise the importance and value of the employees from the company that is being taken over, their primary preoccupation is often on the immediate concerns of financial return, particularly of shareholder value. It is understandable – but not forgivable – solely to focus on the predicted financial bottom line rather than the softer, less predictable realm of employee satisfaction and culture integration. However, any CEO building for the long term must focus on their ‘company’ and this is often most effective when there is a tight bond between business, HR and TA leaders.