Address the needs of employees before, during, and after the change.
Despite the steadily increasing number of mergers and acquisitions (M&A), talent development executives, investors, and organizations continue to struggle with the best process for managing change throughout the transition cycle that invariably accompanies a merger or acquisition between companies. In a profit-driven environment where return on investment is the top priority, it can be challenging for talent development executives to justify allocating time, energy, and resources to employee transition on a financial statement.
Part of that challenge is that research shows M&A will result in failure 70-90 percent of the time, which means there is tremendous pressure to focus on the easily quantifiable financial and operational aspects of the transaction to determine the viability. Of that 70-90 percent, KPMG has found that 80 percent of those failures are due to improper handling of change management.
For example, in most M&A transactions, key drivers include cost savings, enhancing core capabilities, geographic diversification, industry consolidation, product/service line diversification, or scalable efficiencies. Unfortunately, it often are the qualitative aspects related to human resources that are overlooked but drive the success, or failure, of the organization after the deal closes. Typical qualitative aspects of managing to-be-merged/acquired employees include consideration of communication pathways, culture shifts, job insecurity, organizational restructuring, morale, redundancies, resistance to change, and stress management.
To help maximize the potential success of M&A, the prospective "new" organization must carefully examine the respective cultures, leadership characteristics, and employer-employee communication channels, to ensure organizational needs align with employee needs, and reconcile any discrepancies in expectations as early in the process as possible. Most important, there should be a focus on employee training and development to facilitate integration and adaptation in the merged system, along with demonstrating a clear commitment to address issues related to compensation, benefits, incentives, and promotion.
Relevance to talent development executives
The level of employee adjustment expected in M&A can be overwhelming, especially for long-time employees and managers of the acquired company. The reality is that M&A can be traumatic for both the acquirer/merger and the acquisition/mergee, resulting in employees getting stressed out, angry, and eventually leaving.
Towers Watson's 2014 Global M&A Retention Survey found that more than half of M&A transactions are losing at least two out of 10 of their top talent. That means retention can be considered one the biggest factors influencing the success of an M&A transaction. Fortunately, retention rates can be increased significantly when management clearly conveys expectations and facilitates open communication throughout the process.
My doctoral research on the emotional intelligence of key executives leading companies at various stages on the venture capital continuum, in addition to being a corporate attorney for 20 years, may provide some insight on how talent development executives can identify M&A change management challenges and mitigate the risk of losing top talent and decreased productivity.
Challenges
Five key challenges emerged that resonated with talent development executives working to facilitate M&A transitions in their organizations: communication pathways, employee benefits, redundancy concerns, training and development, and company culture.
Communication pathways. Arguably, the biggest challenge is how to address concerns about who is in charge and how to connect with the chain of command. Inherent in that challenge is the fact that the new leadership structure may not be determined until the transaction is almost closed, which significantly increases the time for anxiety to grow between announcement of M&A discussions and what will happen to employees.
Complicating that logistical challenge is that some executives choose to ignore how employees feel and engage an employee communication plan that parses out information as directives and mandates after making unilateral decisions that greatly affect the employee's work life. Issuing directives does not acknowledge the fear and uncertainty employees are likely experiencing and does not reflect the culture of trust and engagement between employer and employee.
Employee benefits. The uncertainty of potential reduced income and how to budget for other employer-subsidized expenses, such as healthcare, life insurance, disability insurance, and retirement plans, usually is the top concern of employees as they ponder the impact of the transition on their lives. Potential changes to employee benefits is another item that may not be resolved until many months into the transaction or just before closing. Whether or not employees articulate their concerns, talent development executives must be prepared to address them.
Redundancy concerns. Closely related to employees' anxiety about their compensation and benefits are their concerns about potential layoffs and shifting job duties. There often is redundancy in M&A, where there is a single job role, but there are now two or more employees on the payroll to perform that single role.
A challenge for talent development executives is negotiating with current and new management regarding which employees are retained and which no longer will have a job. Compounding that is the fact that the decision to cut ties with an employee may not be based on merit, experience, or past performance, but simply because the new management prefers their own team.
Training and development. What often becomes evident after the transaction has closed is integrating and adapting ongoing training programs and professional development without duplication, while maintaining consistency of quality and method of delivery. For example, one company may only conduct face-to-face programs off-site at a resort over a weekend, whereas the other company uses learning management software to deliver all training virtually over a period of weeks or months.
Factors such as cost are an obvious concern, but less obvious are concerns over divergent learning styles of the new employees, quality of prior training received, and how to transition learners to a new form of delivery with minimal anxiety.
Company culture. Inherent in any merger or acquisition is how to get both new and old employees to proactively engage and collaborate with each other to achieve productivity goals. Central to that challenge is that one company has been doing things a certain way that is comfortable for it, whereas the other company has been doing things a different way that is comfortable for it, and those divergent ways have few overlapping attributes.
Further, the merging companies might be from different countries, where management styles or language and customs may be different between the companies. As a result, the talent development function must be concerned about potential culture shifts and adapting to diversity changes.
The good news is that each of the five challenges has solutions that can be addressed by taking proactive steps toward integration of employees into the process as early as possible and facilitating the adaptation of both old and new employees to a culture with a shared mission and values, based on clear communication of expectations and trust.
Integration strategy
There are several ways that management can ease employees of the acquired company into the new company, while minimizing resentment. For example, emotional intelligence (EI) is a diverse assortment of connected abilities that enable us to proactively cope with demands on our time. Talent development executives can leverage EI principles to create a communication strategy, such as emphasizing EI attributes of flexibility (for example, explaining to employees how to adapt emotions, thoughts, and behaviors to an uncertain future by considering potential outcomes) and empathy (articulating your understanding of an employee's perspective and behaving in a way that respects their feelings).
A practical way to facilitate communication between the old and new employees early in the process is by hosting a social event. The objective is to show that the companies are not evil competitors and to help employees share common ground—ideally, allowing new friendships to blossom because employees are less likely to leave a company where a friend works. As soon as possible post-closing, host inter-company collaborations that add value to productivity (for example, joint projects where the teams have complementary skill sets).
In addition, talent development executives must address employee benefit concerns. A few ways to do so are to announce bonuses to be awarded upon closing, if viable. The 2014 Global M&A Retention Survey found that cash bonuses were successfully used to retain 75 percent of senior leaders and 81 percent of regular employees. Essentially, the goal is to demonstrate how employees can financially benefit from the transition.
Adaptation strategy
Adapting to a new company process and culture is daunting, but leveraging your training and development program can be a cost-effective and expeditious way to overcome several challenges. The first step is to take an inventory of curriculum from both companies; identify overlaps and delivery alignments. For geographically dispersed companies, it can be cost-effective to convert all curriculum for online delivery and use an open-source (free) online learning platform to deliver the curriculum to learners asynchronously, anywhere in the world. Key to that decision are the learning styles of the employees and their technical competency. If they align with the employees of the other company, then the cost savings of an online training process could make investors and the new management quite happy.
To help employees adapt to a new culture throughout the transition, the talent development function can ease employees from the acquired firm into the new culture and operational process by infusing training programs with cultural competency principles (such as facilitating understanding and acceptance of diversity), and EI principles of stress tolerance (such as training on how to manage or influence situations in a positive manner), optimism (such as training on how to remain hopeful and resilient despite occasional setbacks), and proactive problem solving (such as training on how to regulate emotions in decision making).
In other words, training and development can be used to help all employees adapt, providing them skills to adjust, as well as substantive information about the new company and operational tasks. In addition, the training process can be used to train employees for new roles, which can help reduce redundancy.
Establishing a game plan to manage change
There are several essential steps to take before, during, and after a merger or acquisition.
Pre-merger:
- Ask yourself what the most negative person in your organization will say to this change and how he will react.
- Start garnering trust with employees by developing a communication plan that addresses the needs of those who will be most uncomfortable with the change.
- Meet with leaders of both companies to clearly understand their articulation of objectives related to employees during and after the transaction closes.
During the merger:
- Identify, publish, and regularly use a clear communication pathway that you have established between employees and their current and future employer. Try to reduce anxiety by anticipating concerns and having company leaders directly and officially address them.
- Evaluate the likelihood of changes to compensation and benefits and try to provide company leaders with an equitable compromise that aligns employee concerns with management objectives.
- Consider that employees may be in shock or denial about the news, and may not articulate their concerns. So, budget permitting, proactively make psychological and emotional support available to employees to de-escalate potential problems that can reduce retention.
Post-merger:
- Proactively engage leaders from both companies to develop and agree on a shared vision of the company culture
going forward.
- Evaluate and adapt the training and development curriculum to incorporate and facilitate the new company culture.
- Proactively encourage collaboration between old and new employees, preferably involving families at social events, in addition to inter-departmental teams. That can help foster a sense of community and inclusion, which can offset concerns about change.
Know that employees at all levels of the organization will have angst about the transition and what may happen to them. By developing a communication plan early in the process, proactively seeking to find alignment between organizational objectives and employee concern, and facilitating open and honest dialogue regarding expectations of performance and compensation, the talent development function can mitigate employee turnover. More important, by integrating specific strategies designed to align the companies' respective cultures—through workforce development training, social engagement, and inter-departmental collaboration—the new company is more likely to thrive and retain the top talent from both companies.
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