The People Problem in a Merger: Issues You Will Face With Your Employees

If key employees don't feel that they have been kept in the loop after a merger, they will probably start honing their resumes. The announcement of a merger sends a strong message to the market: you are trying to move the business forward; you are looking for expansion and rationalization opportunities; you are responding to the increasing pressures of globalization and technological change. Unfortunately, such an announcement also sends just as strong a message to your competitors and to the recruiting firms that serve them: your employees are ripe for the picking. Competitors understand that your employees don't know whether they have a job or, if they do, where it will be located, where they fit into the new company's structure, how much pay they will receive, or how their performance will be measured. Key employees usually receive inquiries within five days of a merger announcement--precisely when uncertainty is at its highest. And no organizational level is exempt.

Plenty of attention is paid to the legal, financial, and operational elements of mergers and acquisitions. But executives who have been through the merger process now recognize that in today's economy, the management of the human side of change is the real key to maximizing the value of a deal. Indeed, a recent survey determined that more than three-quarters of top executives at 190 companies in Brazil, China, Hong Kong, the Philippines, Singapore, South Korea, and the United States believe that retaining key talent is a "critical" ingredient of M&A integration.

Thus, people problems are a major cause of failed mergers, and you must ensure that most if not all of the people you want are still in place at the end of the integration period. This is best achieved by carrying out an employee selection process whose pace and substance match the kind of merger involved. In M&A, there are basically four choices: operational independence, a takeover of one company by another, a merger of equals, and what might be called a transformational approach, in which the two merging companies change into something much stronger than either of them had been before. When companies decide on operational independence, there are few choices to make. Since most people will stay in place, the imperative is to clarify the roles of only the most senior executives.

In conclusion, whatever form a merger takes, it is tempting to move the process along as rapidly as possible to reassure the market and employees. But doing so could divert managers from working simultaneously to improve the business at a time when it is highly susceptible to change. In any merger, the strongest opportunities for capturing value must drive integration activities.

References: 1998-99 Watson Wyatt survey of top executives from 190 companies in Brazil, China, Hong Kong, the Philippines, Singapore, South Korea, and the United States.