Mergers are an unavoidable part of modern corporate life. If you have not already been through the process, the chances of you managing to avoid it much longer are slim. But what exactly is the role of human resources (HR) in a merger? It is a simple question with a complex answer.
While some HR managers offer one-to-one counselling for every clerk and post boy, others want to be in the boardroom calling the shots even before the ink is put to paper on any deal. PricewaterhouseCoopers' global HR practice of professional services estimates that internationally the number of mergers that fail to meet their business objectives is 75 per cent. Of these failures, the precise number that fail due to poor HR management is hard to pin down. But Eversheds partner David Beswick says: “At present, only in about a third of all deals do the HR teams get as involved as they should.”
One of the biggest sticking points is exactly when HR should get involved. As one senior HR director puts it: “In an ideal world, I'd love to be involved in the initial decision. It would make life a lot easier if we merged with companies where there was a good cultural fit.”
But the emphasis here is very much on the ideal. David Fowler, personnel director at Denton Wilde Sapte -created from the merger between Denton Hall and Wilde Sapte in February 2000 – says he sees his role as a facilitator. “It's down to me to make whatever is going to happen, happen successfully.”
Beswick feels that this is simply too late. “Most M&A activity is dictated by operational or strategic need. HR gets involved too late. HR's role in a merger is absolutely fundamental,” he says. But he does agree that the major role for HR comes once an announcement has been made. “All mergers and acquisitions either work or don't work depending on how well the follow through with people is managed,” he says.
But for others, the issue of when HR gets involved is often irrelevant. Hammond Suddards Edge's personnel director Patricia Walsh says that how the process is dealt with is more important. “There was only six weeks between the announcement of the deal between Hammond Suddards and Edge Ellison and the deal going through,” she says. In this situation, there was no time to worry about whether the HR team should have been involved earlier. In any case, Walsh feels it is “only realistic for HR to get involved once it is a done deal”.
But regardless of when they get involved, the main issues facing HR at the time of a merger, acquisition or takeover, fall into three distinct but closely-linked areas – compensation, culture and communication. How well each of these areas is dealt with will, to a greater or lesser degree, have an impact on how successful the merger is.
When it comes to compensation there are, of course, fairly fundamental legal reasons for why HR people need to be involved at an early stage. The Transfer of Undertakings (Protection of Employment) Regulations (Tupe) make it imperative that no employee is worse off as a result of the compensation on offer under the merged organisations' terms and conditions. New, tougher Tupe standards are due to be implemented in the next parliamentary session and for the first time pensions will be covered, along with all other aspects of remuneration.
In cross-European mergers the law also dictates that appropriate time is given for the consultation procedures. Beswick says: “You have to make sure that what is going to happen allows time for the people issues to be done correctly. In European mergers, you need consultation and the involvement of overseas works councils.”
And although there is a legal prerogative to protect employee rights, Walsh explains that very often employers act out of a desire to keep up staff morale. She says that mergers are a time of uncertainty and acting decisively can help erode some of these concerns.
It is also important that the HR team focuses its energies on those staying with the new firm, people Beswick describes as “the survivors”. Walsh says: “The priority should be securing the headcount at both firms and making them feel comfortable. Removing uncertainty is central to this comfort.”
She adds that Hammond Suddards Edge adopted common terms and conditions quickly, “partly because we wanted to sell the merger in a positive way and the new terms and conditions helped us present it in a very good way”.
For Walsh and her team the process was complicated by the very different approaches to reward that the two firms took. Hammonds had recently adopted a flexible benefits approach, while Edge Ellison offered a more traditional, one-size-fits-all package.
Employees were offered the choice of moving to a new package or retaining what they already had. Walsh says that support for the flexible approach was confirmed when 87 per cent of employees from Edge Ellison opted to change.
It is tempting to look at the Hammond Suddards Edge example as proof that the importance of so-called cultural fit between organisations is overblown. After all, if two firms with such radically different approaches to rewards could sort it out in six weeks, what is all the fuss about? But Walsh doesn't see it the same way. “The one thing we did underestimate was the importance of the cultural differences and how significant they were,” she says. Walsh points to things as diverse as working practices and different social attitudes.
Denton Wilde Sapte's Fowler says: “The one thing I promoted at the time of the merger was to have a third party come in and do a cultural values survey.” The idea was to establish an interim period, post announcement but pre-merger, which Fowler describes as “an adjustment period”. During this time they concentrated on how employees saw the two firms, both then and in the future. This information was built into the way that reward and training practices, as well as internal and external marketing, were designed.
He says: “We found that there was a certain fear that being part of a larger organisation would limit the scope for initiative and entrepreneurialism. But there was also a desire for openness and for a sense of shared values that belonging to a larger entity could bring.”
But the big boost for Fowler was that the two organisations were shown to be a remarkably good cultural match. He admits that they too found significant differences in working practice, but says that these differences are often confused with values.
One interesting thing that Denton Wilde Sapte's survey revealed was the gaps between what the employees saw as the important values going forward and the strategic reasoning behind the merger.
“Pride in being one of the top 10 law firms, or the hope of better international opportunities, didn't register,” Fowler says. “So we knew we would have to work hard at communicating these issues to staff, while at the same time not ignoring the values they had highlighted.”
There is little question that the most crucial aspect of HR involvement in any merger, takeover or acquisition is to communicate the “good news” to all employees. It is a role which is often described as internal marketing, a phrase that begins to do justice to the complexity of communication channels available to HR managers, from traditional one-to-one meetings to the intranet and email. And Beswick says that just like all marketing, the key issue is to focus on getting the right message to the right people at the right time (see box, page 30).
But despite a rousing call from the likes of Beswick for the HR profession to get more involved, the fact is that the sheer amount of merger activity is diminishing the role played by the central HR team, rather than increasing it. More companies are employing crack squads of “integration specialists” whose sole purpose is to ensure a smooth transition following a merger or acquisition and that includes dealing with those difficult people issues. If there is some consolation for HR directors, it lies in the fact that even these crack teams require the assistance of the local HR team to get the job done well. n
There is a transformation taking place within the world of human resources. Besides the sideshow of what to call itself (HR? Personnel? Human capital? or something wacky such as “the people people”?), the HR profession is at pains to underline its strategic importance. A seat at the right hand of whoever is in power is the least that any self-respecting senior HR manager expects these days, and maybe they have a point. HR issues have certainly been given a leg up the corporate agenda, courtesy of a labour market in which the sorts of technical and professional skills that firms need to survive (let alone thrive) are in desperate shortage. With near full employment, getting and keeping hold of good people will play a big part in many boardroom discussions in the coming years. But while people issues will be debated, will HR have as much input into these discussions as they imagine?
There is a spectre looming over many HR and other managers (both general and specialist) – the management consultant. The problem for HR managers is the often misguided assumption that what's needed at a time of crisis is a fresh pair of eyes, an independent outsider's view. And while there are undoubtedly occasions where this might be the case, it is not always so in the HR arena.
Of course, part of the reason for this growth in consultants is that the whole world of HR has become more complex. Forget the arguments about employment legislation and red tape, in a desperate bid to become “the employer of choice”, employers and especially HR departments have introduced unimagined levels of complexity into straightforward issues such as rewarding employees. Rather than offering a fixed compensation package, the current crop of HR managers have given in to greater demands for employee choice.
While some of this gets back to the need to keep up with the competition in terms of attracting the right number of high-calibre employees, a lot more has to do with the burgeoning HR conference circuit. Implementing a fascinating new flexible benefits system and following it up with a staff survey that shows how great employees think it is, makes for a great lecture to colleagues at the next networking cheese and wine bash. And yet does it really make that big a difference when it comes to being the “employer of choice”? When was the last time you heard employees talk at length about the benefits they receive? The point is that what really gets employees, and potential employees, excited is the prospect of doing enjoyable work for interesting clients in a pleasant environment, where colleagues are fun and most important of all, where managers treat staff well.
So is it any surprise that, faced with a complex reward and compensation structure, at a time of difficulty in recruiting staff, boards turn to someone else to get a fresh look on how to deal with things? The problem is that these so-called independent experts fit into one of two categories – extremely expensive and/or extremely rubbish. The worst cases fit into both. Many of them are the living embodiment of the 21st century maxim that those who can, do, while those who can't, but couldn't possibly live on a teacher's salary, become consultants. There are exceptions, but they tend to know they are good, stick to the big consultancies and have price tags attached to their reports that will make even the toughest managing partner weep.
The time is ripe for HR managers to live up to those plenary-session exhortations about the strategic role of HR. Fail to respond now and not only will someone else have picked your fruit for you, they will have sold it back to you, packaged in a PowerPoint presentation.