Canadian HR Reporter

Successfully uniting two organizations is complex and, unfortunately, many mergers and acquisitions fail. According to a KPMG study, 83% of mergers do not realize the expected returns to their shareholders. Why is this? The answer is as complex as the merger itself; however, when you consider the melting pot of people challenges that need to be properly managed, it's not surprising that many mergers and acquisitions (M&A) are unsuccessful. What are the biggest challenges to a successful merger or acquisition? It's the people, not the finances, that make M&A complex and challenging. Successful transactions pay attention to organizational culture and HR issues, in addition to the strategic and financial considerations. Uniting two organizations is a melting pot of cultures, values and behaviours creating a number of HR challenges, which need to be managed before, during and after a merger or acquisition. Engaging HR professionals early in the planning process may ultimately become one of the most strategic decisions executives can make, as we realize that without proper management of your people throughout the process, the chances of success are significantly lower. Assimilation of people from different organizations with diversity in cultures, values and management styles becomes the melting pot. Effective people management is critical to mitigate risk and support a successful integration. Each merger or acquisition is unique, however there are consistent human resource considerations that are important and should be a focus for all executives strategizing on how to effectively unite organizations. We will focus on the following: • Identifying the cultural gap between the acquiring and acquired organization and then defining the new culture • Effectively communicating prior, during and after a merger or acquisition • Successfully managing talent and the emotions that employees will experience during the change • Identifying any risk associated with acquiring human capital The Cultural Gap All too often when organizations unite there is a power struggle and conflict that needs managing. Unfortunately, when M&A occurs there is typically a perceived "winner" and "loser", and these emotions are further amplified if there is a cultural difference between the organizations. Competition between management and employee groups can prevail creating a "we" vs "them" environment, which will negatively impact performance and potentially result in the loss of good talent. What is it then that executives need to do to mitigate this risk? An audit of the culture within both the acquiring and acquired organizations would be a best practice to clearly understand behaviours and values that form the fabric of each organization. This audit will help executives understand how big of a gap they are dealing with when they unite the organizations and this awareness will help them better manage the conflict that will inevitably exist. The audit will also allow executives to understand the degree of alignment in values between the organizations and will form the foundation for a discussion around the new values and culture of the joint organization. Successful M&A will take the approach of melding the best of each culture (values and behavior's) to form the new entity. From a business perspective, as well as culturally, you don't want a power struggle and you want leaders in the new organization that are aligned with the new values. Therefore, it makes sense that once your cultural audit is complete and you have made decisions on the values of the new organization that you do an assessment of the leaders in the acquired and acquiring organization to best determine which leaders are aligned with the new culture. Decisions as to who will take the leadership roles in the new company will be determined by skill, competency and the alignment of values. Effective and Timely Communication Water cooler talk about potential mergers and acquisitions when change is occurring in an organization can be very damaging and can actually be one of the reasons that transactions fail. The rumor mill creates chaos; employees lose focus on important projects; performance slips; morale drops as people worry about job security; and some employees decide to leave and take others with them as they are uncertain about their future. In the case of M&A, executives are often behind closed doors and do not communicate unless they are certain about the facts and the future. Furthermore, confidentiality and non-disclosures are always a consideration and need to be managed. Although there is definitely logic and wisdom in this thinking, it can be considered too risk averse. If you don't communicate something to your employees, they will make assumptions and you will have potentially lost an opportunity to engage and empower the key and critical talent that you need for a successful merger or acquisition. What does this mean then? It means that you need to get in-front of the rumours and share as much as you possibly can with your employees and as early as possible. Executives need to strike an M&A Task Force and engage them in relaying whatever information they can through different communication channels - written, verbal, electronic and visual. Hold regular meetings with staff to update them and keep them abreast of any information that will help alleviate anxiety. If you know the transaction will result in job loss, be honest with employees and make decisions quickly; explain timelines for the cuts and do them all at once if possible. Whenever possible have senior leaders speak to the changes and make certain that employees are provided an opportunity to ask lots of questions. The M&A Task Force and all of management should be provided with key communication messages to reinforce and repeat following an update by senior leaders. Consistency and regular updates are critical during and after the merger or acquisition. Talent Management Deciding on the team for the new organization is important and critical. Leadership Assessments of both the acquired and acquiring organization will be an important process when determining who will have what management roles in the new organization. Subsequent to a merger or acquisition, employees, and in particular top managers, will be displaced; some will leave but others may be offered positons in the new company. A golden rule that executives should remember when making decisions on leadership roles is that functional counterparts (i.e. CFO's of both organizations) should not be placed in subordinate or supervisory relations to each other, as it is not fair or realistic to believe that they will work well together when both have previously been in the lead position. High turnover is typical of M&A, and as such, it is critical to conduct a Talent Management Audit early in the process to ensure that you have a strategy and plan for successfully retaining the required talent in the new organization. Determine the skills, abilities, competencies and attitude important for success; identify those people who present with these qualities in both the acquired and acquiring organization and then work with executives and the M&A Task Force to put together the plan to retain them. Ensure that everyone (executives, Task Force and management) work together to ensure that the plan is fully executed and measure the success of retaining the talent, because we all know that what gets measured gets done! Mergers and acquisitions are stressful; ensuring a Change Management Plan that includes effectively measuring and addressing stress levels of employees during and after the transaction is important. Ensure that your Change Management Plan includes resources for your employees to access counselling during the change to help them manage their stress levels. Also, ensure that executives, members of the M&A Task Force and management in general keep an "open door" policy to encourage employees to discuss and talk about their emotions as they deal with the change. This will require that executives equip the management team and the Task Force with the proper training and information to effectively answer questions and support their employees. All managers and Mergers & Acquisitions A melting pot of HR challenges

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