Mergers and acquisitions are on the rise. In 2017 a new record was set, with 15,110 deals in the U.S., a 12.2 percent increase over 2016, according to the Institute for Mergers, Acquisitions and Alliances.
But many won’t succeed. According to a Harvard Business Review study, 70 to 90 percent of M&A deals fail to achieve their anticipated strategic and financial objectives, often due to HR-related factors such as poor cultural fit, lack of communication, loss of talent and low morale.
HR plays a critical role in steering a merger to success. Here are five of an HR manager’s top worries and some tips for dealing with them.
1. Maintaining Engagement
In an acquisition, positions are realigned. Role duplication, combined with the acquiring company’s spending on the merger, often means workers get laid off. Employees are anxious and stressed about their future, but are often left in the dark about plans. Feeling powerless, some lose motivation and “check out,” performing their duties robotically while they wait for the ax to fall or to be spared.
It doesn’t have to be that way. Good HR managers should establish and work with business leaders to execute a strong, forthright communication plan, giving employees plenty of opportunity for feedback. They will appreciate hearing the truth, even if the news is unfavorable in the near- to medium-term.
Some HR departments choose an M&A team leader whose sole focus is to communicate information about the merger. This person works with employees individually and in groups to answer questions and smooth out cultural differences in the transition phase.
When employees have to be laid off, treat them with dignity and respect, and if possible, set up a program to assist them in finding a new job. Other workers will notice how you handle this situation and compare it to what you claim your values to be. If they perceive your actions as humane and reflective of the values you espouse, they are more likely to remain engaged, contributing to the stability that’s so often missing after a merger.
2. Legal Liabilities
The last thing any company wants after a merger is a lawsuit, but it’s not an uncommon occurrence. HR can avoid some of these problems during due diligence.
Many claims arise from improper employee classification. Don’t take the other company’s word about their exempt and nonexempt workers – examine the documents yourself. Make sure “independent contractors” are truly independent, and thoroughly vet all temporary visas.
Review any current litigation and ask about threatened claims, documenting the answers. Lawsuits aren’t necessarily fatal. A case or two involving discrimination or a safety violation can be resolved, but what you need to keenly watch out for is a culture of systemic problems. Be sure to get written assurance from the other company about its compliance with federal and state employment laws.
3. Disappointing Benefits
Comparing benefits and creating a comprehensive new policy is an enormous undertaking that has significant process, financial and employee engagement ramifications in the post-merger period. Be sure you get involved early to avoid unpleasant surprises, such as missing benefits enrollment deadlines.
Despite your best efforts to design an attractive package that works financially, some benefits will inevitably fall off the list. Employees who can no longer bank vacation leave or pay dental bills can become resentful, disgruntled or start looking for work.
Obviously, you can’t discuss the specifics of your benefits analysis, but you can make it part of your communications strategy to talk about the development of rules governing attendance, leave, privacy, harassment and drug testing. Be as upfront as possible about changes to give employees time to adjust. Consider phasing in policies and benefits that differ significantly from previous ones. And of course try to identify benefit upgrade opportunities to offset any disappointments. Even small wins improve the story.
4. Trouble Integrating Data
It’s crucial for the information both companies share to be accurate and up to date. Sending emails back and forth creates nightmares for organization, version control and confidentiality. It’s much better to establish an online “data room” where representatives of both companies can securely view, update and share documents.
It’s also important to document the merger process itself. You need an online project management space where you can create and track the progress of assignments, tasks and due dates. You should also conduct before and after employee satisfaction surveys, analyze the results and act on feedback in a visible way.
After the merger is complete, schedule a review of the whole process, compiling feedback from business units about what went right and what didn’t. You can use this information to update and improve your procedures for future mergers.
5. Retention of Key Talent
Failure to retain key employees can spell doom for a merger, PwC says.
Employees left in the dark about plans start polishing their resumes and putting out feelers. Top talent doesn’t need to. Competitors will approach them as soon as a deal is announced, especially if they get wind of internal problems. Losing valuable employees can negatively affect employee morale and company performance – during and after the integration.
To ward off such problems, communicate with top performers as early in the process as legally possible. Make sure they have significant responsibilities under the new structure. For younger achievers and for those who will now be part of a more sophisticated business, the promise of enrollment in a leadership development program can be a strong incentive to stick around.
HR managers should listen carefully to high-performing individuals and customize incentives to suit them, whether that means a raise or arranging for more time spent with family.
With so many bases to cover and serious deadline pressures, an acquisition or merger means intense work, long hours and stress for the HR team. To give yourself the best chance of success, organize your tasks and documents, break your responsibilities into manageable chunks and communicate with employees early, often and honestly.
Access Chief People Officer Jeremy Benedict is giving a complimentary webinar May 17 on “Driving Employee Engagement During M&A and How to Measure Success.” To register, click here.