Companies go through mergers and acquisitions for different reasons, and each one is unique. Before doing anything, it’s important to know and understand the objective of the transaction.
Is it to grow into a different market, capture a capability, or gain market share?
Sometimes the deals are asset-based only and do not involve people. An example of this would be when one company wants to purchase intellectual property and patents or physical assets such as land, equipment, or the customer's book of business.
Sometimes, though, mergers and acquisitions involve a company's most valuable asset – people.
Why Good Employees Leave
Anytime a company goes through a significant transition, it can be uncomfortable for employees. They may wonder about their future fate and how the merger or acquisition will affect their individual roles. This is why transparent communication and emphasis on company culture are critical even before a major change occurs. If there is any level of ambiguity, people will start drawing their own conclusions and think the worst, which inevitably can lead to a mass exodus.
The proof is in the numbers. According to a recent article in Society for Human Resources Management (SHRM), it's estimated that nearly 70 to 90 percent of mergers and acquisitions don't meet their anticipated strategic and financial objectives. SHRM goes on to report that this is primarily due to several human resources factors, including mismatched cultures, varying management styles, not retaining key talent, lack of communication, and disintegration of trust in the C-Suite. Additionally, Ernst & Young reports that almost 50% of people exit a company within one year of a merger or acquisition and that nearly 80 percent leave within three years. This can be very costly for employers, as there is a cost to hire and train new people—not to mention the cost of losing valuable institutional knowledge.
It takes people to move an organization towards its objectives. It goes without saying that companies are productive because of their people. When you have good people, you need to hold onto them. In today's competitive environment, you can't afford to lose them and face the prospect of continuously recruiting, onboarding, and training new folks. It’s exhausting and expensive. Additionally, there is a risk of losing employees left behind who must expend their limited resources on backfill work.
Keys to Retaining Employees
So, what are some ways to retain top talent if you are entering a merger or acquisition? First, it's imperative that leaders clearly define the "whys" for their teams. Employees have an inherent need to understand why something is happening and what purpose it serves. The first order of business when it is legally feasible and allowable is to communicate what the corporate transactions are and why they are needed.
Ideally, before the merger or acquisition takes place, it is critical for HR to have a seat at the table to review the current talent strategy and determine the retention strategy. HR should work to identify differences in company culture and compensation programs and then work on aligning them. At the end of the day, any and all HR and compensation programs need to reflect the company's mission, vision, culture, and core values. When employees see this happening early on, it may help to instill their confidence in the process, and they may be more apt to stay.
In addition to making sure that culture, values, and mission align, you may also want to create some incentives, such as a retention bonus. This should be part of the overall integration budget. Suppose you decide to institute a retention bonus, you will need to set aside those budget dollars early on, so they don't become an afterthought further down the road, and you are left figuring out how to fund them. The most salient consideration for retention bonuses is determining who is needed during the transition period and beyond, as to not disrupt business operations.
How to Best Navigate a Merger or Acquisition
If you're an HR leader unfamiliar with merger and acquisition territory, don't be afraid to ask for help. Mergers and acquisitions are complicated transactions. They leave lots of room for error and omissions. A best practice is to create a template or a checklist to ensure you're "crossing your t's and dotting your i's.” Engage with other departments, including legal, accounting, and corporate communications. Mergers and acquisitions are heavy lifts and require cross-functional collaboration to be successful.
If you're looking for an outside perspective who will examine your impending merger or acquisition through a different lens, plenty of resources are available. A consultant can provide invaluable insight and help you avoid unnecessary pitfalls as you strive to retain your best people through a merger or acquisition scenario. Finally, consider engaging outside expertise, as mergers and acquisitions are often additional projects to one’s regular, full-time job.
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Continue the Conversation with Tam Nguyen
Tam Nguyen is international business management & human resources leader possessing expertise and technical knowledge in the areas of strategic human capital management and execution, including business strategy, global compensation & benefits, human capital and measurement, employment law, global mobility, and HR information systems integration and deployment to stabilization. Connect with Tam on LinkedIn.