Mergers & acquisitions

The human aspect has always taken a backseat during mergers and acquisitions. It is ironical because companies, brands and finances exist primarily because people have created them. When two firms come together to join forces, they often over-exaggerated benefits and synergies, have high expectations, downplay firm politics, ignore culture distances, and almost always, disregard the human element. This may explain why 65-70% of mergers fail (Pucik et al, 2011).

The problem lies in the fact that the Human Resource Management is often seen as not ‘hard’ enough and as a localized function (Williams, 2013). The Human Resource Department can make an impact to mitigate issues such as cultural, institutional, political, communication aspects, strategic planning, etc. However, in this report we shall focus on cultural and communicational issues as they are areas in which HR has not been involved consistently throughout the process. But they happen to be areas in which the increased role of HR can significantly change success rates of mergers.

HRM policies are often ignored during M&As. They should be given strategic importance as they will be able to subtly make the transition in culture to accommodate both companies’ values by creating a unique culture and create training systems that reduce the ineffectiveness and costs of turnover in the new environment (Faulkner et al, 2002) One of the most important issues to be dealt with among transition team members is the new culture and how to find common ground (Appelbaum, 2000A).

This common ground will be the basis for the transition team’s objectives. Daimler Chrysler merger’s failure was based purely on the fact that no common ground was established culture-wise. We can see how the acquisition of Edeling by Royal Biscuit is doomed to fail due to their stark contrasts based on German and Anglo systems of practices with no foreseeable compromise on either side.

Technically-specific Germans do not want to give in to the management based British outlook and neither found a common ground to base Royal Edeling’s culture on. (Reimus, 2004) Royal Edeling could have clearly avoided the clash of egos, starting right at the top with senior transition managers, Brighton and Wallach and at lower levels that were anonymously published in the press.

An increased role of HR would have facilitated a forum for both managers to express themselves and their stereotypical views to come to a compromise where the power of technicality and detail that the Edeling employees focus on with excellent management skills of Royal Biscuit employees to merge them to yield maximum success. The merge of cultures in form of practices would have had a top down effect, and with the help of efficient communication and training, in no time, the whole organization would have been aware and functioning smoothly.

This method was successful for the HP-Apollo merger in 1989. When there was a clash in attitudes leading to stereotypical behaviour from both sides, Mary Bow, HP's workstation group human resource manager bought together both teams from the systems conversion team and got them to state expectations, perceptions and views on the other party without the use of self-inflicted defence mechanisms. (Lagare, 1998)

‘Even wars can be stopped with words’. One must remember that there is no such thing as information overload throughout a merger process. The lack of communication from the top downwards to keep everyone informed starts rumors which then results in all employees getting worried about themselves and their future at the company rather than the ton load of work at hand. This is known as ‘Merger Stress’. It can be seen underlying the infamous Daimler Chrysler’s merger failure in 1997 apart from the obvious culture clash (Finkelstein, 2002).

It started at the very top where the reason for merger was wrongly communicated and/or withheld by Daimler-Benz as merger of equals instead of pure acquisition which led to Chrysler division, losing cash, direction and market entry into Europe. Employees were not kept in the loop of information and thus vented out their insecurities arising from merger stress in the media and due to this lack of communication and control over information, talented engineers even left the company. Ignoring loss as an aftermath of changes in the organization will be the downfall of the merger as executives need to now tackle “survivor syndrome” after the merger syndrome passes. (Davy et al, 1989)

Daimler Chrysler could have still redeem itself if CEOs Eaton and Jurgen made the effort to communicate and put past differences behind them starting with finding ways to negotiate culture differences, financial aspects and most importantly, the nature of power flow in the organization. An increased HR role would have facilitated the line managers of any merger firm to remember that the way those who lose their jobs are treated speaks volumes to those that remain. (DeGeorgio, 2003, Part 2)

Lying, hiding information and laying-off people without being sensitive are the worst possible course of actions during mergers. Comprehensive, credible and timely information available in a variety of sources is crucial (Davy et al., 1989). Had the senior and line managers of Daimler-Chrysler acknowledged the deficit of information to the employees, and helped them deal with merger stress along with culture clashes, they would have been able to retain talent that was the core competency of the new company.

During the Pre-merger period, HR is required by the legal departments to produce ‘hard’ HR policies such as pensions etc but that is not enough as these do not actually align with the organization’s strategy and decision making. Merger period starts when transactions are announced. Both companies must express and discuss how their HR works and come to a compromise. Post merger period is generally hard to define as it sort of just emerges from the integration period over time.

The success lies in consistency and financial performance within the given time frame. (Antila, 2006) We can see how, that by including HR in the Merger and Pre-Merger stage rather than just expecting them to implement HR policies for which they had no say in during formulation, can make or break a merger. An increased role for HR in the process is not costly and does not delay decision making, it only paves a safer and successful path for mergers.

An Executive from AstraZeneca aptly described the merger process as volcanic eruption where everything turns to fluid lava that can be shaped and molded in infinite ways but eventually it will solidify. There lies an immense opportunity when the lava is molten and firms just make advantage of that to do things differently and better. (Killing, 2004: 43)

REFERENCES 1. Antila, E.M., (2006), The role of human resource managers in international mergers and acquisitions: a multiple case study, International Journal of Human Resource Management, vol.17, issue 6. pp.999-1020

2. Appelbaum, S.H., J. Gandell, H. Yortis, S. Proper, F. Jobin, (2000A), Anatomy of a merger: behaviour of organizational factors and processes throughout the pre- during-post-stages (Part 1), Management Decision 38:9, pp.649-662.

3. Davy, J.A., Kinicki, A., Scheck, C. and Kilroy, J. (1989), ``Acquisitions make employees worry: companies ease the pain through effective communication'', Personnel Administrator, pp. 84-90

4. DiGeorgio, R.M., ‘Making mergers and acquisitions work: What we know and don’t know’, Part 2 (2003, vol.3, no.3, p.259-274) in the Journal of Change Management

5. Faulkner, D. et al., (2002), International mergers and acquisitions in the UK 1985-1994: a comparison of national HRM practices, International Journal of Human Resource Management, vol.13, issue 1, pp.106-122

6. Killing, P. (2004) ‘Merger of equals: the case of AstraZeneca’, in P. Morosini and U. Steger (Eds), Managing Complex Mergers. London: Financial Times Prentice Hall.

7. Legare, T. (1998), The human side of mergers and acquisitions, Human Resource Planning vol.21, 1, pp.32-41 8. Pucik, V., et al, (2011), ‘HRM in cross border mergers and acquisitions’, Chapter 4 in Harzing, A-W. & A.H. Pinnington, International HRM, pp.119-152. 9. Reimus, B., (2004), Oil and Wasser, Harvard Business Review May, pp.33-44 10.

Tuck School of Business, (2002), Case study on the problems of the DaimlerChrysler merger. Find this at: http://mba.tuck.dartmouth.edu/pdf/2002-1-0071.pdf - 53.9KB 11. Williams, K., (2013), HRM challenges of international mergers and acquisitions, Lecture notes, School of Business, Swansea University, UK