An Interview with M&A HR Experts
Contributions by Moira Donoghue and Len Gray
Jim Jeffries, (left) is Chairman of the M&A Leadership Council; Moira Donoghue (center) is a former Senior Global M&A Advisor and Partner at Mercer; Len Gray is a former Global M&A Leader at Mercer.
How pivotal are culture, change and talent to the successful outcome of an M&A? Jim Jeffries, Chairman of the M&A Leadership Council, recently met with Moira Donoghue and Len Gray to discuss HR in mergers and acquisitions for the upcoming HR event in Dallas. Moira and Len are both former M&A business leaders and senior consultants at Mercer.
JJ: Culture is often mentioned as critical to M&A success. We also know that business model is as well. People often confuse “culture” with the “business model”…. How do these concepts affect deal outcomes?
MD: Culture and business model are not the same thing but they are related to deal success in important ways. “Business model” generally refers to “the way that a company intends to make money.” It defines the assets and resources organized to operate in a way that will produce revenue in excess of expenses. This typically includes customers, organizational design and processes, products and/or services, capital investment, working capital and, of course, employees. A well thought-out business model will also include values or behaviors to guide those employees in their work. These values and behaviors represent the “culture” component of the business model – “how work is done” by employees across all the elements of that model.
Changes to the business model are implicit in many M&As. Every element of the model – including culture – needs to be evaluated for changes critical to deal objectives. Failing to consider the cultural impact of the deal can result in employees continuing to behave in ways that are inconsistent with other changes to the business model. A business model is essentially a system for making money, and as with any system, the right changes need to be built into every element for it to generate the intended results.
JJ: So change is an important element of deal success as well?
MD: Virtually every M&A involves some amount of change in both the buyer and the target. Understanding the nature, degree and timing of the required change and then implementing that change is a fundamental element of deal success.
Change feels soft and unmanageable to many. But it can be accomplished if it is managed as a process, with objectives, actions designed to achieve those objectives and measures that provide real-time information about the effectiveness of those actions. When you step back from the M&A context to think of change broadly, you can see that it is an everyday part of every organization, and that many organizations have substantial experience with change. But two things make change in M&A different. One, the speed at which change typically needs to occur – because speed is often a critical factor in achieving the deal thesis. Two, the magnitude of change, especially in larger M&As.
JJ: What roles do HR and the HR leader play in making the right change happen?
LG: Almost without regard to the size or nature of an M&A, the change required for deal success typically touches one or both employee groups, requiring change in behaviors and the values underlying them. HR’s role is, first, to understand the deal thesis and to work with the businesses to translate that thesis into new values and behaviors. HR then should advise on specific change actions and help the businesses manage implementation and measurement. HR should also take an active role in communicating changes in ways that employees can act on them.
HR’s role may be advisory, with the businesses taking the lead, or it may be actionable, with HR taking the lead. Either way, HR needs to understand the deal thesis and how to manage change to achieve it. HR should work in partnership with others responsible for change in other parts of the business model – new approaches to customers, marketing, capital investment, production, and so forth – to assure that all of the right changes synch up to achieve the deal objectives.
MD: The HR leader needs to make sure that HR is ready for this role and has the resources, both internal and where necessary, external, to be effective. The HR leader should also lay the groundwork with the businesses to build their understanding of change and culture in M&A as well as reduce resistance to HR’s role.
JJ: Companies in transactions frequently lament the fact that many high talent employees leave during an M&A. What actions can organizations take to minimize departures on the part of employees they want to retain?
LG: While each transaction is unique, there are several things that we have found will help increase the level of engagement and retention of high potential employees:
- Communicate the deal rationale and expected outcomes continuously in order to promote understanding of all employees. It is easier for everyone to get on board when they know and understand the business strategy supporting the deal.
- Plan integration actions early and use teams that include target company staff to send employees the message that a collaborative approach will be utilized.
- Learn as much as possible about the target company workforce early in the process and avoid negative assumptions and preconceived notions. Constructive dialogue with leaders throughout the acquired entity will enable the buyer to gain the right information while engaging employees in the process. But, to be successful, leaders must listen and take action based on what they have heard or employees could feel even more disengaged from the process.
- Understand who the high performers are in the acquired entity and make sure that they are part of the communication and engagement actions. This may be done by getting input from supervisors and peers in the acquired entity.
- Determine any changes in organization structure quickly so that specific positions are identified and may be quickly filled. Having increased certainty about roles and potential specific jobs is certainly reassuring to leaders on both sides of a transaction.
- Consider financial incentives such as stay bonuses or performance-based payments to keep in place those that are most at risk as the integration is being completed. Although not the total solution, financial recognition is a useful tool in sending the right messages to employees.
Employees at every level in organizations are likely to feel threatened by a transaction. Engaging employees will be critical to retaining high performers. The actions above will give acquirers a good start in keeping the right talent for the future.
You can meet and work with Len and Moira when they present these insights and many others at “The Art of M&A for HR Leaders” seminar to be held in Dallas, Sept 24-25, 2015. Several other speakers will present perspectives on operations, legal challenges and multinational twists.
CLICK HERE for more information on “The Art of M&A for HR Leaders.”