The Human Impact of Mergers and Acquisitions

The Human Impact of Mergers and Acquisitions

"It takes only 60 days for a company to match its competition in pricing, 90 days in marketing and three years in distribution. But it takes seven long years to create a competitive corporate culture and build a top team". (Harvard Business School Study)

Mergers and acquisitions are commonplace today as businesses restructure to compete in a global marketplace. Despite the economic logic behind them, research indicates that most mergers fail to achieve the synergistic results expected. Furthermore, studies repeatedly demonstrate that at best, only half of all mergers and acquisitions meet initial financial expectations. Employee management is necessary because most people are averse to change that wasn't their idea, especially when they think their livelihoods are at stake. Fear of job loss and changes in corporate culture are just two reasons why employees may feel compelled to make rash decisions, like turning in their letters of resignation. You can expect to lose a few employees, but it's not acceptable to lose top performers as a result of M&A activity.

Human resource (HR) activities are increasingly being held responsible for merger and acquisition failure. The HR weaknesses commonly found in a typical merger process can be grouped as follows:

1. Neglect of psychological issues. The psychological effects of change on people are not given adequate consideration when companies are integrated.

2. Inadequate communication throughout the merger process. Employees are not kept informed during the integration process. Although people fear that their jobs are at stake, they typically have very little reliable information on which to base decisions.

3. Culture clashes between the two organizations. Employees with different values and work styles are frequently required to work together with no structure for resolving differences.

4. Ambiguous company direction and unclear roles and responsibilities. Senior management is typically slow in articulating the vision and mission of the new merged organization. After downsizing, staff is left to deal with more work and have little sense of direction from which to determine priorities.

The Merger Syndrome

“Mergers and acquisitions … represent a significant and potentially emotional and stressful life event” (Cartwright and Cooper 1992), because they can change an individual’s working life significantly but fail to provide the individual with any control over the event. Some common merger stressors include uncertainty, insecurity, and fears concerning job loss, job changes, compensation changes, and changes in power, status, and prestige. Employees may experience job/career/life dissatisfaction, lower self-esteem, depression, and anxiety. The result may be higher turnover and absenteeism and substandard performance levels.

Both individuals and organizations have relatively consistent patterns of reaction to a merger. Individuals typically become preoccupied with their own survival, and organizations tend to withdraw into crisis management, which often involves secrecy and centralized decision making: in most cases this organizational response exacerbates the negative impact of the merger on employees. Executives may be optimistic about the merger, because they have more control over the situation and better access to information. The majority of staff, on the other hand, is typically pessimistic or angry about the change.

Hunsaker and Coombs (1988) have provided a nine-stage sequential model of employees’ emotional reactions during a merger or acquisition, which describes what has come to be known as the �merger syndrome’:

1. Denial. At first employees feel that the merger will not really happen or that it will not change their work or their organization.

2. Fear. As plans for the merger begin to unfold, employees begin to fear the unknown and to imagine the worst. Workers become preoccupied with job loss as rumors of mass layoffs and terminations circulate throughout the company. This typically leads to substandard performance and a decline in productivity.

3. Anger. Once employees feel that they have no control over the situation and that the merger is inevitable, they begin to express anger towards those responsible for the deal. They may feel that they have been sold out after providing the company with many years of quality service.

4. Sadness. Employees begin to grieve the loss of their corporate identity; they focus on the differences in the way the two companies operate and are managed and adopt a �we’ versus �they’ mindset.

5. Acceptance. After a sufficient mourning period has