Canadian HR Reporter

CANADIAN HR REPORTER November 2, 2015 HR LEADERS 13 Karen McKay vice-president of human resources at Eli Lilly Canada The 600-employee pharmaceutical company is based in Toronto W hile there's a stage where HR's involvement in an M&A is critical, it's not at the fi rst part, according to Karen McKay, vice-president of HR at Eli Lilly Canada in Toronto. "At the earlier stages, when the businesses are trying to establish what the rationale is, those conversations would be occurring at the top layers of the organization, and typically with business development. So when you think about some of the compo- nents that go into evaluating a business deal, business strategy, fi nance, operations, due diligence likely trump cultural fi t at these very early stages because, frankly, if the business logic doesn't work, then it isn't worth pursuing in the fi rst place," she says. "Business leaders certainly are mindful of the need for cultural compatibility but that occurs later on in the transition." e acquiring company would also look at the employer brand, says McKay. " ey would certainly want to look at rep- utation in the market as it relates to unions, labour issues, ethical conduct. ey would be looking at workforce planning, they'll be looking at the crossover in capabilities be- tween two organizations, is there an over- lap or redundancy? And then, depending on what phase it is, they'll be looking at ap- proaches to governance and decision-making and their view on talent." When it comes to fi nancial involvement, HR is somewhat limited, says McKay. " e important work that HR would do is the calculation of any severance packages, setting aside the appro- priate accruals, ensuring that we're establishing new transition services and engaging in those contracts as we would need to, so those are more on the operational side; but ensuring that the pricing continues… and that we're engaging and tracking integration costs appropriately as the business requires," she says. " ere does need to be a level of fi nancial acumen that goes into it certainly but we're not doing the calculations to say, 'Is this a good deal?'" One area where HR may not be playing to its strength is advocating for the needs of the new entity within the larger organization, says McKay, citing a recent merger. "We had to make sure that it wasn't standalone business per se more than it needed to be but integrated both locally and internationally, and played a role in helping to create the new structure. And we helped guide the leadership in some of the staffi ng decisions, and because of this advocacy and setting the structure up and getting the people in place and guiding management on doing it, it really set the foundation for role clarity, governance and effi ciency." When it comes to infl uencing the eff ectiveness of senior leaders, HR can play a bigger role, says McKay. "HR has a special relationship with the leadership team, especially if they're involved earlier on, and the rapport that gets built between the HR leader and the new leader- ship team is really important. I think it sets the foundation for trust and credibility as a business partner and it sets the stage for conversations around the particular leader's improvement in communication, personal coaching and leadership impact. And these are all very hard and soft sides of the new leadership over this merged organization, and I think people look to them to ensure that they've got a clear vision, they're com- municating with frequency and consistency and they have credibility," she says. "HR's in that place where, if they have access and visibility to the employees, they can actually be a sounding board and give some credible and relevant information back to the leader and help them improve and give them some feedback, and that just becomes a cycle of sensing the environment, picking up the cues from the employees, feeding that back to the leader so they can course-correct as they might need to." When it comes to leadership retention during an M&A, leadership decisions are made even before the merger, says McKay. " ere's a great deal of thought put into these choices because we know that it can have a big impact on speed, effi ciency, alignment, buy-in and engagement. Leaders set the tone and so those choices lay the foundation, so retaining them is obviously very important for integration success; it inspires confi dence that the future is intact and that leaders are aligned and committed to that future, and losing them early on can cause them to question their own commitment." Stephen Scanlan acting director of human resources at Dentons Canada in Toronto The law rm has more than 1,300 employees in Canada H aving gone through three major M&As "in a previous life," Stephen Scanlan says HR should defi nitely be involved early in the process. " e ones where HR is at the table and you're engaging around people is- sues upfront, they have a much bigger chance of being successful," says Scanlan, acting director of HR at Dentons Canada in Toronto. " ese deals are hatched by business- people and fi nance people and lawyers and HR often isn't at the table when this sort of business strategy gets hatched, so to get at the table, you need to be invited and you need to be pounding the table a little bit that this strategizing around the people issues is actually a success factor and can actually make it go more smoothly." Human resources can be looking at everything from problem employee fi les, as- sessing the culture, learning about the leaders coming in, and looking at what the new structure might look like, he says. " at's all intelligence that can be done in advance, and when you're courting a partner, the other organization is usually quite open to having you poke around a little bit. But if HR is brought in later, they don't have that intelligence, they can't add value, it's just more reactive, they get told, 'Oh, we've got this deal, you've got to onboard all these people and you've got to teach them our values and blah blah blah' — the reactive doesn't work nearly as well," says Scanlan. "HR needs to come to the table with a plan and a point of view around why it's im- portant be looking at things like culture and who will the future leaders be." Many of the failures are because cultures just don't mix, he says. " ey don't get along or leaders don't get along or the new leadership rules are not carved out intelligently, so there's a fl ight of talent. So if you're not thinking carefully through who the leaders would be, who's going to potentially be annoyed by this, you can actually lose the talent you want to retain. So there are a number of issues where HR can play a strategic role and help the business help themselves in getting through that transition." On the cultural compatibility side, HR's concerns won't stop a deal going through "but can they play a role in terms of mitigating damage and being able to raise things and saying, ' is culture wears blue jeans everyday and this one's suit and tie, how are we going to actually make that work?'" says Scanlan. ere are often assumptions made by businesspeople that a merger will allow for staff reductions, and that kind of move is rewarded with a rise in stock price. But re- search shows layoff s can actually lead to failed mergers. "So (you want) to have that HR person at the table to say, 'Hey, maybe we shouldn't assume we're going to get all these redundancies, maybe we should let the new orga- nization fl ow a little bit before we make quick decisions about cutting cost and cutting people,'" he says. " ere's probably good reason to not be so hasty in trying to get those cost savings and actually kind of work through in a more methodical way to say, 'How can we make this successful?'" e fi rst reaction people have to a merger is "What's in it for me?" and it's important to think all that through, says Scanlan, citing one senior business leader who spent 90 per cent of his time with the new leaders fi guring out retention packages. "(It's about) having someone to fi gure out what are those roles, what can we realisti- cally off er these people and how do we keep these people through that critical fi rst six months while we fi nd our way?" he says. "Along the way, he had to partner with HR who's crafting the employment agreements and the contracts and working through that and mak- ing sure that the people you most want to keep are kept whole through the process, so a big role for HR." On the fi nance side, HR could be smarter around metrics, says Scanlan. "Why wouldn't HR be a little sharper around things like, post-merger, what's our percentage of retaining people that we re- ally want to retain… (or) measuring the quality of the loss, a qualitative assessment of the people that you're turning over — are they ones that you want to turn over because they're redundant or are you losing talent you want to keep? at's a metric that can really help leadership early on to steer the boat and to intervene quicker when they see that they're losing talent they want to keep."

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