While there are many reasons why mergers and acquisitions fail, the most common causes include a lack of profitability and weak leadership. In a traditional M&A, CEOs, attorneys, and board members are heavily involved in the process, and HR rarely plays a role in the planning stages. This may come as a surprise to some considering that HR has such an integral role in recruiting, training, and retaining talent, and it often results in positive relationships with employees who be virtually invisible to those in upper management.
According to estimates, between 70 and 90 percent of mergers and acquisitions do not meet intended financial targets. Common reasons for failure include poor projections, reduced company morale, and a loss of top talent.
Many companies are beginning to realize just how vital HR departments are to a successful M&A process and are developing methodologies to address the challenges faced by many HR departments when it occurs. During the merger and acquisition process, it’s essential to facilitate effective communication between organizations, to gather and analyze data, and efficiently integrate two corporate cultures that may be quite different. In the following, we’ll explore each of these methods.
Main HR Challenges Associated with M&As
Each individual and department within a company will undoubtedly be impacted by an impending merger or acquisition. However, HR departments are uniquely positioned and often feel these effects more deeply than other business units. Some of the main challenges faced by HR departments during M&As include, but are not limited to, communicating with upper management, being shut out of the planning process, and dealing with legal issues that may arise as a result of the M&A.
In terms of communicating with management, HR is charged with meeting with both companies’ staffs and gathering data that will make the M&A process run more smoothly. This is often challenging because companies have different policies, and the one that is being acquired may have employees who aren’t particularly receptive to change. Thus, in addition to finding out how the other company operates, HR departments may also have to deal with hurt feelings and uncooperative employees. While this may be tough, it can only be solved through direct communication. If the HR department finds that it’s not making progress in discussions with management, it may be wise to bring in a consultant to facilitate the process.
HR Professionals Can Provide Valuable Input
Another issue faced by HR departments during M&As is being left out of the planning process or having a limited role. While C-level executives and upper management may believe that their opinions and expertise are all that matter, this is not necessarily true. HR professionals specialize in dealing with individuals from all walks of life, varying backgrounds, and different types of personalities, so their insights could prove invaluable in this type of transition. Since HR departments are also privy to training and employee development, they can provide input on what is most likely to be effective for the employees of both companies moving forward.
When it comes to dealing with the legalities surrounding mergers and acquisitions, human resources professionals can be valuable. Human resources management is generally guided by employment law, so even though these professionals are not usually attorneys, they are often well versed in employment law. Knowing what’s legal in terms of dealing with employees during M&As can save a company time and money by planning around generally accepted employment practices and established statutes.
How to Adequately Prepare Your HR Department
So how do companies get HR departments prepared for the challenges associated with mergers and acquisitions? First, the earlier that HR is involved, the better. Research shows that when companies waittoo long to involve HR, their influence is diminished, and the M&A is ultimately less successful. HR’s main role in M&As should be in more of a consulting role that focuses on how the financials will affect employees. HR should also be able to shed light on how benefits will be affected by the M&A.
Another reason for getting HR involved early on is to help the companies perform due diligence. What this means is that HR can help to gather relevant information about both companies’ cultures, as well as assess the level of employee expertise. The data is typically collected via assessments of each company’s policies, litigation histories, employee contracts, and more. The legal aspect is particularly important because it opens up an opportunity to correct policies that would otherwise put either company at a legal disadvantage if left as-is.
With a global economy that is growing all the time, mergers and acquisitions are becoming more common. As a result, HR professionals have more opportunities to not only participate in the process, but also to refine critical skills. In some cases, HR departments will not be intuitively included in the M&A process, so they must still take a proactive approach for the greater good of both companies.
Mergers and acquisitions often result in structural changes, reductions in the workforce, and a transformation in the corporate culture. Since HR departments usually feel the brunt of these changes, it’s important to employ HR professionals who thoroughly understand the M&A process and are equipped to handle the shifts that come with it.