Emmanuel Newton University of Pittsburgh The Human Resource Issues in the Mergers and Acquisitions Open Statement In an ideal merger, the newly created entity pools the best features of the two merging organizations. A well planned process built on the foundations of an open, honest and consistent communication strategy can pave the way. Statement of Case The Role Played by the Human Resources Department in the merger of Buchanan, Ingersoll law firm and Klett, Rooney, Lieber and Shoreling law firm into Buchanan, Ingersoll, Rooney law firm. The people element is the most important, yet the most neglected, during mergers and acquisitions.
Most companies focus their attention on talks about the millions and billions, forgetting that it is not possible to rack in those millions and billions if they lose most of their most-skilled employees during a merger or acquisition. This project is to bring to bare some of the personnel related problems in a merger or acquisitions and how to manage or solve those problems for an easy and successful transition. Introduction On July 6, 2006, Klett, Rooney, Lieber and Shoreling PC and Buchanan, Ingersoll PC merged to be come one of the largest law firms in the country.
Our case study is about the role of the human resources department in managing personnel during these critical times. Literature Review The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and merging of different companies. Mergers and acquisitions have become a common phenomenon in recent times. Although the merging entities give a great deal of importance to financial matters and the outcomes, Human resources (HR) issues are the most neglected ones.
Ironically studies show that most of the mergers fail to bring out the desired outcomes due to people related issues. The uncertainty brought out by poorly managed HR issues in mergers and acquisitions have been the major reason for these failures. The human resource issues in the can be classified in two phases the pre-merger phase and the post merger phase. Literature provides ample evidence of difference in between the human resource activities in the two stages: the pre-acquisition and post acquisition period.
Due diligence is important in the first phase while integration issues take the front seat in the later. The pre-acquisition period involves an assessment of the cultural and organizational differences, which will include the organizational cultures, role of leaders in the organization, life cycle of the organization, and the management styles. The mergers often prove to be traumatic for the employees of acquired firms; the impact can range from anger to depression. The usual impact is high turnover, decrease in the morale, motivation, productivity leading to merger failure.
The other issues in the M&A activity are the changes in the HR policies, downsizing, layoffs, survivor syndromes, stress on the workers, information system issues etc. The human resource system issues that become important in M&A activity are human resource planning, compensation selection and turnover, performance appraisal system, employee development and employee relations. M&A activity presents a different set of challenge for the human resource managers in both acquiring and acquired organizations. The M&A activity is found to have serious impact on the performance of the employees during the period of transition.
The M&A leads to stress on the employee, which is caused by the differences in human resource practices, uncertainty in the environment, cultural differences, and differences in organizational structure and changes in the managerial styles. The organizational culture plays an important role during mergers and acquisitions as the organizational practices, managerial styles and structures to a large extent are determined by the organizational culture. Each organization has a different set of beliefs and value systems, which may clash owing to the M&A activity.
The exposure to a new culture during the M&A leads to a psychological state called culture shock. The employees not only need to abandon their own culture, values and belief but also have to accept an entirely different culture. This exposure challenges the old organizational value system and practices leading to stress among the employees. Research has found that dissimilar cultures can produce feeling of hostility and significant discomfort which can lower the commitment and cooperation on the part of the employees.
In case of cultural clash, the dominant culture may get preference in the organization causing frustration and feelings of loss for the other set of employees. The employees of the non-dominating culture may also get feelings of loss of identity associated with the acquired firm. In certain cases like acquisition of a lesser known or less profitable organization by a better one can lead to feelings of superiority complex among the employees of the acquiring organization. In case of hostility in the environment the employees of two organizations may develop “us” versus “them” attitude which may be detrimental to the organizational growth.
The uncertainty during the M&A activity divert the focus of employees from productive work to issues like job security, changes in designation, career path, working in new departments and fear of working with new teams. The M&A activity leads to duplication of certain departments, hence the excess manpower at times needs to be downsized hence the first set of thoughts that occur in the minds of employees are related to security of their jobs. The M&A activity also causes changes in their well defined career paths and future opportunities in the organization.
Some employees also have to be relocated or assigned new jobs; hence the employees find themselves in a completely different situation with changes in job profiles and work teams. This may have an impact on the performance of the employees. Research has found that at least two hours of productive work per employee per man day is lost during the M&A activity in the organizations. The increased political processes that may be underway in the organizations to sustain the importance of the various individuals and departments will add to the confusion.
The human resource systems vary across organizations owing to the differences in the organizational culture, sectoral differences and national cultural differences. For example if the compensation in the acquired firm is lesser compared to the acquiring firm, the acquisition will raise employee expectations (for the employees of acquired firm) of a possible hike in compensation which may not be realistic. On the other hand if the compensation level of employees in acquiring firm is lower the employees may press to have equal compensation across all the divisions of the firm.
The pay differential can act as a de-motivator for the employees of acquiring firm and may have long term consequences. The compensation issues may also involve legal angle. Interview with Gene (our contact at the firm) in the case involving Buchanan, Ingersoll and Klett, Rooney, Lieber and Shorling As part of our case study, we had an interview with Gene O’Hare who was the head of HR for Klett, Rooney, Lieber, and Shorling, and is now the assistant HR manager for Buchanan, Ingersoll, and Rooney (product of the merger). She wanted us to be brief since she was extremely busy.
As a result we limited ourselves to only eight questions. Below are the questions presented, followed by Gene’s responses and our comments: 1. How did you prepare personnel for the merger? We carried out frequent and consistent communication about merger activities that impact the firm in general, each department and all employees. People are naturally concerned about how the merger will impact them personally and how it will affect their job. Once the merger decision was made, we planned and scheduled firm-wide meetings with all personnel to provide them with updates and to answer questions.
The meeting agenda included discussions on physical location of the merged firm’s offices, telephones, computer systems and processes, financial systems and processes, employee benefits, etc. Our comment: It should be highly noted that clearly defined communication strategy during M plays an important role in removing the employee fears and kill rumors floating around in the organization. The organizations need to reach their employees before the press as the employees will have feelings of getting cheated. Studies show that communication strategy that involves senior managers of the acquired organizations work well. 2.
What were some of the personnel concerns and how did you address them? The biggest concern from the employees was how the merger would impact them, some were more fearful than others and we tried to make the transition as smooth as possible, minimizing the “bumps in the road”. They were reluctant at first to accept the news of the merger and did not want to make changes. There was concern over the different cultures and size of the firm (going from a mid sized firm to large firm). Again, communication was the key and we continued to hold meetings to address these issues along with setting up training sessions on the new systems.
We also planned and held “meet and greet” opportunities for attorneys and staff of both organizations which helped a great deal in bringing the two firms together. Our comment: Having employees meeting in small groups so as to discuss their concerns, fears and positive feelings will also helps to lessen the stress on employees of acquired firm. The group meetings seem to help because many-a-times employees are reluctant to come out and speak their concerns, whereas in groups where everyone shares same set of feelings to an extent, it becomes easier to come out with the common set of concerns and fears.
This also provides confidence to employees that the new management is willing to listen to their concerns and feelings, building an atmosphere of mutual trust. In case of lengthy transition period the employee stress increases, the best strategy in this period is to convince the employees that they are part of new organization and their concerns will be taken care of. The transition period can also be used to improve communication with the employees of acquired firm. Improved communication will help to better understand each other’s cultures and practices. 3.
How did you merge the two HRs, since we know the two firms have different cultures? HR at our mid-sized firm was basically myself and my assistant and we were responsible for firm-wide HR and benefits. At the larger firm, the HR department consists of separate functional specialists for benefits, training, payroll, staffing, and performance management. We reviewed best practices in both organizations and adopted some from each firm. The combined HR department at the new firm remains as the larger firm’s structure with separate departments for each functional area. Our comment:
Even though best practices were reviewed and some were adopted from each firm, we believe that this may not bring equity to all. We also think that there might be a practical problem relating to differences in the grading or organizational structures in the systems. Since the organizational structures are different designations for the employees are used, during the integration of acquired organization the acquiring organizations need to develop a mechanism to remove the differences in the grading systems bring them at equal level, as many-a-times the compensation is related to the grade of employee in the organization.
Hence the differences in compensation structure and performance appraisal systems also need to be rectified so as to bring equity in the human resource systems and to treat employees at the equal level. 4. What were some of the post merger issues? Post merger issues become less as time passes and employees adapt. Some are having a more difficult time than others adjusting to the size of the firm, the many processes they have to learn and also being part of such a large organization there is a sense of losing one’s identity.
The computer systems were a major adjustment as are the accounting procedures. The “people-factor” generally has been positive, a few specific issues erupted but those resolved. I think primarily it’s the adjustment of going from knowing everyone and everything in your firm to knowing only a few people and having to learn many new things in a larger firm. Many of those from the former mid-sized firm get together regularly for lunch, they say because it helps to keep their sense of the old firm. Many of those hardest impacted by the merger were the long-term employees.
Our comment: We believe that the merger can lead to depression and impaired performance. The dissimilarity in the cultures can produce the feelings of hostility and significant discomfort, which impact on the commitment and cooperation on the part of employees. The cultural difference can also leads to countercultural feelings where employees tend to completely reject the dominant culture of the larger organization. The reason being that acquisitions with the bigger and stronger company tries to take full control most of the time.
This will be a dangerous premise upon which the new organization should take off and for that matter, a recipe for disaster is being developed, if this allowed to go on without making sure there is enough communication with all employees. There must be some compromises so that the whole process looks like a give and take afire. This will minimize the breeding of animosity among all employees. 5. How did you manage the merger of the two different organization cultures? This was the most difficult part. Our firm being a midsize firm and hence the smaller of the two firms had to inherit a lot of the culture of Buchanan and Ingersoll.
Some of our employees actually accused us of having entered into a sellout and not a merger. The bone of contention was benefits. The employees of Klett felt they had better benefits in terms of health insurance and retirement plans than Buchanan. Some where also concerned they were going to lose some of their vacation days. To resolve this issues and concerns, the two companies had to compromise. Workers from Klett were to keep their vacation days. And with the question of Health benefits we kept the most popular one and workers with other no popular ones were edged to switch to the popular one.
Our comment: That was a very good move on the part of HR management. Such a move not only reassured the workers that you cared about them but also sent the message that management was ready for dialogue. It could also make the workers to trust management more. 6. Did the human resources play a role in merging the two human resources? And if yes, what role did you play? HR played a large part in the merger with regard to benefits and training and facilitating the transition in general for each firm.
As the HR manager for the mid-sized firm, it was my role to be the rudder for the firm, the go-to person for communication and employee information needed to merge the two groups. I also tried to maintain a comfort level for the employees through the process and work towards the positives of getting “buy-in” from employees. Our comment: Apart from playing a large role in benefits and training and communication, we strongly believe that those are necessary but not sufficient enough to get a smoother transition. The communication shouldn’t involve false promises which may counteract later.
The communication can be through trusted and credible employees of the acquired company. It is our position that HR should take control in ? Family assistance programs ? Stress reduction program ? Meeting between the counter parts ? Orientation programs ? Explaining new roles ? Helping people who lost jobs ? Post merger team building ? Anonymous feedback helpline for employees 7. How is employee moral or attitude after the merger? This is important to know if the merger was a success. I think that the merger was a shock to most everyone at the mid-sized firm.
We had a great place to work and over the years had worked effectively to have a very well-run and efficient organization. People enjoyed coming to work, they were proud to work for the firm. So, when the merger announcement was made, there was a sense of loss/sadness, a portion of which still remains to a degree. Most people have adjusted well and adapted. Not too many people from the mid-sized firm have left the new organization. I don’t know if that is by choice or if they are still waiting to see how things go for awhile before making a decision.
Employees are generally OK with how things turned out for them in the new organization but I think it will take time before everyone feels as comfortable as they did before the merger, if that is even possible. Our comment: We strongly believe that the issue of culture shock should not be underestimated at all. As stated earlier in our literature review, the exposure to a new culture during the M&A leads to a psychological state called culture shock. The employees not only need to abandon their own culture, values and belief but also have to accept an entirely different culture.
This exposure challenges the old organizational value system and practices leading to stress among the employees. Research has found that dissimilar cultures can produce feeling of hostility and significant discomfort which can lower the commitment and cooperation on the part of the employees. In case of cultural clash, one of the cultures that is dominant culture may get preference in the organization causing frustration and feelings of loss for the other set of employees. The employees of non-dominating culture may also get feelings of loss of identity associated with the acquired firm.
In certain cases like acquisition of a lesser known or less profitable organization by a better one can lead to feelings of superiority complex among the employees of the acquiring organization. In case of hostility in the environment the employees of two organizations may develop “us” versus “them” attitude which may be detrimental to the organizational growth. 8. Then comes the final question; do you think the merger was a success. Please give a little explanation as to why you think the merger was a success or failure?
Having never been through a merger before (and hopefully not again) I can say that many people on both sides have entered into the merger with best intentions and wanting to make a better, stronger organization. I think human nature plays a large part in how those efforts will ultimately be perceived. I don’t think it was a failure but I think that although best intentions were there, the human factor in it all was not perceived as being as important as the financial factor. Many employees feel that they are not as valued in the new organization as they were in the former mid-sized organization.
So, I am not sure yet whether I can say the merger was a total success. Only time will tell if it will be a financial success and as to whether the people will eventually totally adapt and also remain to be seen. The planning, preparation, communication and actual implementation of a merger of this size were all in place. The execution of it all was well-intended and completed given the time frame we were given. Whether all of that is or will be perceived as successful by the employees will depend on taking ownership of the new firm and having the desire to make it successful. Our comment:
Since many employees feel that they are not as valued in the new organization as they were in the former mid-sized organization this is a bad omen because as stated in the literature review section, most merging entities give a great deal of importance to financial matters and the outcomes, HR issues are the most neglected ones. Ironically studies show that most of the mergers fail to bring out the desired outcomes due to people related issues. The uncertainty brought out by poorly managed HR issues in mergers and acquisitions have been the major reason for these failures. Recommendation:
For any Merger/ Acquisition to be successful, there must be; ? Planning. The key to cultural integration, effective communication, sound strategy, and responsible finance, is planning. So begin the planning process well ahead of time, and plan for every possible variable. Create separate plans for existing employees and new employees. The planning face should be divided into three stages, pre-merger stage, merger stage, and post-merger stage ? Personnel. The people factor must be considered and taken seriously. Most institutions just focus on their bottom-line (financial matters) to the detriment of personnel.
This practice has to be given a very serious look as it could instigate fear and uncertainty in personnel. Every necessary step must be taken to address Personnel concern. ? Communicate. Recognize the link between culture and communication, and use open communications to minimize the impact of cultural clashes. Communicate with all stakeholders about the changes, including board members, consultants, and staff, and be especially transparent with those stakeholders whose work lives will be upset the most by the change (ie, employees of the company being acquired). Transparency helps minimize fear, uncertainty, and doubt.
There must be an open and honest communication between management and HR on one side and employees on the other. This should continue regularly through out merger or acquisition process. Thus pre-merger, merger and post-merger. To do this, it is recommended that, a committee be formed, and assigned the sole responsibility of managing personnel matters until the merger is over, and to continue for a short period of time following the merger or acquisition. This committee could also play an important role in helping personnel from both firms to adjust easily into the new firm. If the merger/acquisition requires employee lay off, it should not be done in a reckless manner as this will send wrong signals to the other workers. Assimilation of the two cultures should be well planned to reduce substantial employee turnover. Conclusion: In conclusion, we believe that a well planned process built on the foundations of an open, honest and consistent communication strategy as well as pooling the best features of the two merging organizations can pave the way for thriving and successful new organization. References: Gene O’Hare, Assistant Human resource Manager Buchanan, Ingersoll and Rooney. ? Wikipedia, the free Encyclopedia. Mergers and Acquisitions. Retrieved March, 10, 2007, from http://en. wikipedia. org/wiki/Mergers_and_acquisitions ? Arthur Lazarus, M. D. , M. B. A. (January, 2000). The Human Factor in Mergers and Acquisitions: A Personal Story. Psychiatric Services, 51:19-29. Retrieved March, 10, 2007, From http://www. psychservices. psychiatryonline. org/cgi/content/full/51/1/19 ? Royston Greenwood, C. R.
Hinings, John Brown. (March 28, 2007). Merging Professional Service Firms. STOR, p. 239 of 239-257. Retrieved March 29,2007, from http://www. jstor. org/view/10477039/di013152/01p0165c/0 ? Blackwell Synergy, (2006) Mergers and Acquisitions: Managing Culture and Human Resources, Personnel Psychology 59 (2), 480–484. doi:10. 1111/j. 1744-6570. 2006. 00043_8. x. Retrieved April 2, 2007, from http://www. blackwell-synergy. com/doi/abs/10. 1111/j. 1744-6570. 2006. 00043_8. x