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HR’s Role in Mergers & Acquisitions

Article · January 2014

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 HR’s Role in Mergers & Acquisitions
Ritu Dixit*, Trilok Kumar Jain**
It’s about the people.
The Exxon-Mobil merger was well known. But
the merger has to overcome many critical
problems. Although the merger involved
American companies, unlike the Daimler-
Chrysler merger, considerable differences in
culture and work style had to be dealt with.
Exxon was known for its conservative culture,
whereas Mobil was known for its bold and
robust culture. This difference in culture was
reflected in their corporate symbols. Exxon’s
symbol was a stalking tiger whereas Mobil’s
symbol was a flying horse. The tiger
represented Exxon’s conservative approach
whereas the flying horse represented Mobil’s
open and transparent culture. At Exxon even
the smallest thing was planned and executed
carefully, whereas at Mobil new ideas and
risk taking were always encouraged. Exxon
took a lot of time to take decisions, because
of bureaucratic structure, whereas at Mobil
even risky decisions were taken quickly.
The above example clearly states that if
mergers & acquisitions (M/A) are not planned
rightly, they may lead to disastrous results.
An unplanned M/A may not only affect its
market position financially but may also
result into huge manpower loss of the
organization.
The HR department has a very important role
to play in case of a merger, but is most
ignored. Most of times the HR professionals
*
Faculty, ISBM, Gyan Vihar Universe, Jaipur-302025.
**
Research Supervisor & Dean, ISBM, Director Distance Education, Principal, Academic Staff College, Suresh
Gyan Vihar University, Jaipur.
Correspondence to: Ms. Ritu Dixit, Faculty, ISBM, Gyan Vihar Universe, Jaipur-302025.
E-mail Id: mrsritu_dixit@yahoo.com
© ADR Journals 2016. All Rights Reserved.
are either not involved or are involved at a
very late stage in the merger process. This
may lead to failure of achieving the objective.
The merger on human grounds may also fail
due to lack of insight on part of HR
professionals in managing mergers.
The success of any merger depends not
merely on the financial or technological
aspects but to make a merger successful, the
HR department of the concerned companies
should undertake the following activities –
• Strategy Designing: While designing the
strategy, the HR department, should be
actively involved into it. The levels need
to be identified where proper
communication or training is required.
• Team building: Creating teams that
include members from both the
companies should be done before the
mergers. These teams should be trained
to develop negotiation and interpersonal
skills and implement change
management successfully.
• Creating Structure: HR departments
should create a new organizational
structure in line with the merged entity’s
new strategy.
• Developing a Communication Plan: HR
Departments should prepare a
communication plan so that information
is collected and delivered to the right
people at the right time.
J. Adv. Res. HR Organ. Mqmt. 2016; 3(4)
• Creating a transition system: HR
Departments should prepare a blueprint
of the new HR Systems, like
compensation and performance appraisal
system to avoid confusion in after the
merger.
Preparation of Due Diligence Report
A thorough audit of the human resources is
required before starting the merger process.
The issues related to recruitment, training,
performance appraisal, compensation, labor
relations and legal compliance, should be
discussed beforehand. The basic objective
behind any such discussion is to develop
better understanding and to deal with
problems in much better way that may arise
during the and after the merger process.
The key areas of HR due diligence includes-
• Culture
• Employee demographics and competency
analysis
• Key talent analysis
• Benefit and compensation structure and
how it compares with that of the parent
company
• Any legal issues relating to outstanding
employee litigation, workers’
compensation and union contracts and
related issues
Communication
Once the decision to merge or acquire has
been taken, the companies concerned must
communicate their decisions to their
employees. It may happen, that the
employees object to mergers or acquisitions.
In such a case, the proper communication of
29
Dixit R et al.
the companies’ plans, strategies, and
objectives will clear the employees’
resistance to merger/acquisition. It will also
help them to prepare themselves for the
changes occurring due to the process. The
non-communication may lead to unnecessary
doubts about the goals, role conflicts or
operational process, which can be avoided.
Cultural integration
This is the most difficult part of any
merger/acquisition process. The Exxon-Mobil
merger has suffered due to lack of proper
culture integration. When two companies
merge, their employees, their systems, their
process, everything merges and comes
together. The organizational culture is a
pattern of basic assumptions that are
considered valid and are taught to new
members as the way to perceive, think and
feel in the organization. Political, social and
technological changes necessitate a change is
in the organizational culture. A merger also
necessitates such a change.
If the organizational culture of both the
companies merged differ vastly, but they
both are open to the change process, they
may react positively. But if the organizations
are the closed systems, they may also react
negatively to the whole process resulting in
the failure of the merger.
Here the HR department plays a vital role in
helping people understand each other’s
culture and develop one of their own. For
this, the policy can be to adopt the best
cultural aspects of both the companies. The
HR manager can also use a culture change
plan for the same purpose as proposed by
Kosseck and Block.
ISSN: 2454-3268
Dixit R et al. J. Adv. Res. HR Organ. Mqmt. 2016; 3(4)

Cultural Change Plan

Cultural Supporting Conflicting Action Person Completion

Element Features Required Responsible Date
Rules & Flextime Dress code Focus HR manager
policies group
Goals & Quality plan Parts out the Task force Operations
measures door manager
Training Individual Voluntary and Task force HR manager
development not tracked
plan
Reward and Quality day No consistent Design HR Manager
recognition system systems
Physical Rural Isolated Focus Operations
environment group manager
Ceremonies & Annual picnic Task force HR manager
events and family day -----------
st
Source: Kossek and Block, managing Human Resources in the 21 Century (South-Western Publications)

This cultural change plan is a tool for
evaluating the cultural, functional and
organizational aspects of companies. It helps
HR managers anticipate and deal with
cultural problems that often arise after a
merger has taken place. For example, if in
one company, mistakes are promoted to
encourage innovation, but the other
emphasized the following of traditional and
routine processes, the cultural problems may
arise after integration.
HR Integration
After a merger or acquisition, conflict could
occur between the HR systems, policies and
practices of the two companies. A number of
changes are necessary to integrate the
systems, policies and practices of the two
companies. The compensation system,
feedback system, HR policies, Industrial
Relations Policies, labor- management issues
are need to be thorough investigated and
redesigned, so that the employees of both
the companies are satisfied.
The main problem that occurs after the M/A
have taken place is the issues related to the
major HR policies in the existing company.
Both the employees have enjoyed different
benefits and have also suffered from
different drawbacks, so it is to be noted that
after the merger or acquisition has taken
place, it may not have turned vice-versa. That
is the benefits converting into drawbacks,
and drawbacks into benefits, both the
conditions will leave the employees
dissatisfied.
Key Talent Analysis
In case of the mergers/acquisition, the
retention rate of the companies can sharply
and suddenly increase due to the fear of the
unknown. To prevent this retention,
companies should try to come out with
appropriate retention strategies. Normally,
the talented employees plan to leave the
company first as soon as the
merger/acquisition news hit them. This will
ultimately create a loss for the companies, as

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J. Adv. Res. HR Organ. Mqmt. 2016; 3(4)
they will be loosing their most talented and
productive employees. So, to prevent them
from doing so, companies may come out with
some good plans, incentives, bonus, and
schemes, which may lure such employees to
stay back. Such schemes should not be
limited to the top employees only, but should
be spread out properly at the middle and the
lower levels as well, as the executive staff is
situated at these levels only.
This analysis is a very thorough analysis.
Every key person should be analysed in the
process, so that his/her importance can be
judged and accordingly the plans should be
custom-made. E.g., if a person wants the job
security or recognition, and we are increasing
the compensation, it may lead to failure in
luring the person to stay.
The Compensation Structure
A very crucial step to be taken into account. It
may happen that both the companies differ
widely in their compensation and benefits
structure. In such a case it is advisable to
follow the compensation structure of the
parent company. In case, this is not
acceptable the structure should be
reconstructed as per the industrial and
compatible standards.
Role of HR Department and HR
Professionals in Mergers
The HR department plays an imperative role
during a merger. The integration process
cannot be completed without the presence of
the HR professionals around. The major
reason for the failure of any
merger/acquisition is due to the negligence
of the importance of the HR department.
They are either not involved in the process or
31
Dixit R et al.
are involved at a very late stage when the
harm is already been done.
The role of the HR department actually starts
with the talk of the merger. The formulation
of the strategy cannot be completed without
the presence of the HR professional on the
board table. The strategy for executing the
merger should be formulated while keeping
in mind all the issues concerned, technical,
mechanical, and human issues.
The next step that comes after is creating the
teams. The self-managed teams can be
created, taking members from both the
companies. These teams should focus upon
bringing in change in the company,
communicating and negotiating with the
employees. The self-management teams can
also be involved for providing training,
developing the leaders for the merged
company.
A fresh organizational structure should be
created to prevent form any role conflicts
and ambiguity. As once the companies will be
merging together, employees of same profile
and roles are also coming together, in such a
case the role ambiguity may arise which may
subsequently lead to role conflict. To save the
company from such situation, its better to
discuss such issues beforehand. Creating a
fresh organizational structure, will redefine
the roles of the employees, without creating
the conflicts.
The organizational structure will also detail
the communication flow in the organization.
A proper communication of the processes,
objectives, and functions will further save the
company from unnecessary delays, and also
avoid the conflicts, thus leading to the
smooth functioning of the company post
merger.
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 Dixit R et al. J. Adv. Res. HR Organ. Mqmt. 2016; 3(4)

It is to be noted here that the HR manager Copenhagen: Copenhagen Business

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