The Important Role of HR in Mergers & Acquisitions in 2021
After a slowdown in 2020 due to the Covid-19 crisis and its impact on global economy most experts expect a strong increase of mergers & acquisitions in 2021 in many industries on national and international level.
For this reason, it is appropriate to remember how important it is to strongly involve HR in the preparation for this highly strategic topic.
Usually those “deals” are primarily driven by Top management of the concerned companies and consultants who concentrate on main merger reasons like revenues, synergies, competition, and capital. On the people side, they often limit their efforts and concentrate mainly on key people retention.
HR is often not involved enough or at least not early and deeply enough what is surprising as a huge part of M&As fail or do not achieve their objectives due to HR-related reasons such as cultural incompatibility, organizational mismatch, destructive synergy implementation, misleading integration policies, and processes or other issues causing fears, demotivation and disengagement of the most important resource of most companies: their employees (including key people despite attractive incentives which may have been offered to them).
In order to improve this impressive M&A-failure rate HR needs to show the way in a number of key areas all along the M&A process whenever the M&A strategy is to integrate the involved entities within one organization.
The role HR has to play in this complex exercise differs depending on the different stages of the M&A journey:
Role in Deal Planning
From the early beginning HR should be involved in the strategic considerations on M&A targets in order to provide a preliminary estimation on cultural compatibility and other people related issues (based on available information in the highly networked world) including expected reactions of employees and their representatives (unions, etc. where relevant).
Role in Internal Communication Process
Once the M&A-initiative is officially decided it is the role of HR to guide and control the internal communication process towards managers, employees, and employee representatives (where relevant), along the M&A-roadmap in order to prepare ideally their buy-in and at least avoid any communication mistakes (notably on the legal side in certain countries) which could be used by interested parties to torpedo the project from the beginning.
Target is to preserve trust within the organisation during a transition period of uncertainties which may last many months and even years until day1 of the new organisation starting.
Role in Due Diligence
In the frame of the active Due Diligence HR has the role to analyse all documentation which helps to understand the labour cost structure, HR policies (e.g. on performance management, etc.), social environment and how the target company is organised, how agile, fair and how digitalised it is in order to evaluate employee experience drivers, potential financial and legal risks, efforts needed for harmonisation of digital HR environment and organisational and cultural compatibility with the potential future partner.
By doing so HR can contribute a lot in order to avoid frequent underestimations of these areas in the evaluation- and integration strategy debates.
Role in Organisation Development
The development of the new organisation is a major cornerstone for success (or failure) of the future integrated company. HR, as the organisations’ architect, can pave the way to success of this process through coordination and implication of all relevant stakeholders who need to give their input and at the end feel comfortable with this future org-construction.
By taking into account todays’ fast-changing environment, volatility and disruptions M&A is as well the opportunity to review strengths and weaknesses of the organisations in place. HR, in its architect role, can open the door for new organisational approaches like the Market-Oriented-Ecosystem model suggested by Dave Ulrich (Most famous HR Professor, HR-Thinker and author of the last decades) and inspired from studies of todays’ leading Tech-firms.
In every M&A case special attention is needed hereby for the setup of the future Sales organisation and coordination of sales processes in order to optimize the probability of early wins on the market place as for all stakeholders (Shareholders, employees, the interested public, etc.) early success on the marketplace is the best argument to justify the M&A decision.
Role in Management Selection
An adequate management selection process for the new organisation is of utmost importance to win the buy-in of employees and make the new organisation successful.
HR as the Master of people development has the role to lead this selection process (which needs to be transparent, fair and communicable) starting with the agreement on selection criterions which need to concentrate on the special integration situation analysing among others how employees want and need to be led in this special integration set up (and very probably to promote in this context more women and talents with strong emotional and social competencies as this Leadership style seems to be particularly adapted to integration challenges… ) and ending with the individual preparation of selected managers for their new role.
Role in Management of the Social Chapter
It is the role of HR to lead and control the complex social chapter of the project in order to manage employee- and labour relations during the transition period and guarantee a smooth (as far as possible) transfer of all employees in the M&A perimeter towards the new organisation despite the different complex TUPE-, ARD- and other rules which may exist in the different countries where such a transfer is mandatory or necessary for the continuation of the business.
A constructive social dialogue is a strong asset in the internal and external persuasion marathon.
Role in Intercultural Preparation
Especially in an international M&A-context the intercultural preparation of the workforce for the future integrated organisation is another essential topic HR has to organise during the pre-merger integration period in order to facilitate cross-cultural teambuilding and limit misunderstandings and mistrust among future teams and colleagues from day 1 onwards.
Depending on the respective M&A context there are of course many other topics which HR has to manage in order to prepare the organisations of merging or transferring entities as much as possible for the integration challenge.
As all these topics need to be coordinated between merging entities which do not belong to the same company and due to the manifold sensitivities and competition situations between managers who do not necessarily know what their own future will be (including HR managers in charge) M&A-integration is the most complex and difficult challenge in HR Life but fully integrating these HR roles into the M&A roadmap sustainably increases the chances of improving the M&A success rate.
For all those who see an M&A project on the horizon it’s time to check if their HR departments are prepared for that challenge.
