Marriage of minds: HR’s role in M&A

Not all M&As are a match-made in heaven. The nine-year corporate marriage between media giants Time Warner and America Online – one of the biggest mergers in corporate history, was dissolved in 2009 after it failed to reach business goals. Poor people management was one of the factors that contributed to its failure.

A merger or acquisition marks a period of change and uncertainty for employees. During an M&A, one of the key concerns employees face is retrenchment, says Miranda Lee, Director, KPMG Advisory Services. “Even if they have not been identified in an initial list, they may continue to worry if there may be further redundancies made when the amalgamated organisation achieves new synergies and efficiencies.” Employees who remain also face uncertainties relating to job redeployment, new roles, new superiors and a new corporate culture.

Pre-merger preparation

HR’s early involvement in an M&A can help smooth potential bumps in the road ahead. Before the acquisition, it needs to carry out due diligence in areas such as employee demographics, work contracts as well as local labour legislation.

A key benefit of HR due diligence is that it allows the potential buyer to assess and limit the risks of liability by examining the other party’s HR records, says Lee. HR can look out for evidence of ongoing litigation, charges of unfair labour practices or grievances and other complaints. “HR due diligence allows the potential buyer to negotiate the structure for a better deal,” Lee says.

Staff retention is an important part of the M&A process. HR needs to identify key talent who will be critical in the new or integrated organisation. “To stem the potential loss of important talent and ensure a smooth transition, contracts drawn up for such senior executives often include a retention bonus which can range between 12 to 36 months,” Lee says.

Compensation and benefits is another area of concern for employees. When Chinese PC maker Lenovo acquired IBM’s PC division, it decided to adopt IBM’s benefits policy for transferring employees. This helped reassure them that they would fit into the new structure, says Tan Ai Sim, Director, HR, ASEAN, Lenovo.

Many multinational corporations also acquire businesses in new geographies, and tax laws vary from place to place. Remuneration reporting is one area that is often overlooked by HR, says Lee. “The employer’s tax reporting review is important, as there may be heavy potential penalties associated for not complying with the relevant tax reporting requirements.”

Open communication

M&As are marked by a period of transition often coupled with speculation and uncertainty, and as such, management needs to constantly engage employees and keep them in the loop about the latest developments.

A lack of communication is often the root of fears and uncertainties in any corporate environment, Maranda Barnes, Director of Business Development and Communications, TWG Tea, tells HRM. When the company sold a 35% stake to massage-chair maker Osim in April, it made sure that its employees were kept in the loop about changes. “We made it a point to speak with our staff regarding the reasoning behind this partnership and how it is a step towards expansion and the greater success of the company. Since there will be no impact on their jobs, we witnessed more excitement than uncertainty regarding the joint venture amongst our staff,” Barnes says.

Open communication also helped Lenovo and IBM employees integrate successfully. Lenovo conducted employee engagement surveys, skip-level meetings and closed-door sharing sessions between employees and HR, says Tan. “It helped to allay the apprehensions of the affected employees. Any doubts were clarified instantly and that helped to stop rumours or ’water-cooler talks’.”

Lee says that important messages must be delivered by the CEO, and reinforced regularly with updates by line managers. “Face-to-face communication is the best approach, especially immediately before and after the date of acquisition or merger,” she says.

It also helps to for HR to secure the buy-in of employees coming into the fold. Commodities giant Olam believes in selling itself to employees in the company that it is about to acquire. “The last we thing we need is redundancy. We tell them that their ambitions and greater aspirations will be unharmed. Most of the businesses we acquire focus on a single region, so joining us allows them to expand their horizons,” says Shankar Athreya, Head, Strategic Investments (M&A), Olam International. Employees from acquired companies who show potential are also given leadership opportunities throughout the organisation.

Bridging cultures

A KPMG study released in 2008 found that cultural complexities remain one of the biggest post- deal challenges in M&As. According to Lee, a clash of culture and styles can impede the smooth integration of the workforce and also has the potential t01 o create a barrier to change.

HR needs to review the target organisation’s culture and leadership style during the due diligence process. Olam for example, looks out for cultural traits that are reflective of its own values, like the spirit of entrepreneurship, says Athreya. As an organisation that is constantly expanding, Olam also seeks out companies that share its passion for growth. While finding a good match is important, Olam does not believe in too much change. “It is important that the company keeps it culture as it has a value proposition towards its customers. We don’t want to affect that,” he says.

Lenovo made special arrangements to ensure a smooth integration. IBM staff were concerned about fitting in with Lenovo’s existing culture and colleagues, since it is a Chinese company, says Tan. To help them, Lenovo arranged Mandarin classes for non-Mandarin speaking employees to work better with their counterparts in China. It also ran a programme called “Managing Across Cultures” which focused on an ‘East meets West’ management approach, and employees learnt strategies for incorporating the diverse talents and insights of team members.