The earlier HR can get involved, the more assured the M&A success
In the past, human resource issues might have been an afterthought in mergers and acquisitions (M&As), with the HR department only stepping in and playing a role once the deal was done.
But there’s growing recognition HR can and should contribute right from the start. According to a 2004 Towers Perrin survey of 201 companies, only 23 per cent said HR was highly involved in pre-deal planning in deals over the previous three years. But 36 per cent said they planned to have HR highly involved in that beginning phase in the future. Likewise, 62 per cent said HR was highly involved in due diligence in deals in the previous three years but 72 per cent said HR would be highly involved in future deals.
At the Montreal-headquartered Yellow Pages Group, which employs about 2,000 people, vice-president of HR Josée Dykun said she gets involved right at the start of the process, when the company decides to purchase another business. At that due diligence stage, her work would focus on identifying potential risks and liabilities and any potential integration issues in terms of alignment of things like working conditions, benefits and pensions.
Once the deal has gone beyond the intention to purchase, Dykun’s HR team would conduct more thorough due diligence.
“This is really critical in terms of getting down to the details, because the devil’s always in the details,” said Dykun. “We’ll be doing a thorough cultural assessment, looking at the visions, the values, the ones that are unspoken as well as those that are more concrete, the work processes.”
All this takes place well before the deal closes. This is a very sensitive time, when people at the acquired company tend to be very nervous, said Dykun, so she has to conduct this investigative work carefully.
“We don’t go in there with an army of people. We try to deal with only the people at the top and keep it at the high level,” she said.
Nevertheless, Dykun said she tries at this point to set out an integration plan that’s 90-per-cent fleshed out. Then it’s just a matter of waiting for the deal to close.
Once the deal is made public, the HR team goes in with a comprehensive communication plan. This is what Dykun calls the navel-gazing phase, when people are primarily concerned with such questions as, “What’s going to happen to me?” “Who do I report to?” and “How will my work be affected?” At this point, it’s important to try to communicate, as quickly and comprehensively as her team can, what “the new day” looks like. This is where having a thorough integration plan makes a big difference.
Sandra Munteanu, director of mergers and acquisitions at Telus, also emphasized the importance of thorough work during the due diligence phase.
“We have a very comprehensive list of questions. We assess market culture, management team skills, key employees and potential cultural gaps. We collect data on everything,” said Munteanu.
At Telus, heading up the M&A work is a team comprised of people from finance, sales and marketing, IT and HR.
What human issues the team focuses on depend on the strategic rationale, said Munteanu. If Telus is acquiring a company for its customer base, then questions about the workforce competency wouldn’t be as important as if Telus was acquiring a company for its skills.
But generally HR issues are rarely prominent enough to scuttle a deal, said Munteanu. Even the discovery that a company has massive pension liabilities wouldn’t likely break a deal, but it would have an impact on the valuation and the integration budget, said Munteanu.
One HR issue to be on the lookout for is the loss of key talent, she said.
“Retention is something that we’re very strong on. The last acquisition we did, we retained 100 per cent of key employees,” said Munteanu, adding that the key to retention is a good understanding of the cultural differences. That involves assessing the culture of the acquiring company and the culture of the target, mapping out where the differences are and determining how to bridge those gaps.
Raji Ramanan, manager of organizational development for the cement division at Lafarge North America, headquartered in Washington, D.C. and employer of 22,000, said cultural issues are among the most difficult to handle in an M&A. Companies that have a sophisticated M&A strategy are usually really good at the technical part.
“But it’s when it comes to the softer elements that we have a harder time, and that’s because a one-size-fits-all approach doesn’t work. It’s more difficult to have a template,” said Ramanan, who has 18 years’ experience in M&As, many of them in Asia and North America.
The cultural issues come to the forefront most evidently in global M&As, she said.
“There are so many differences in the way people view compensation, performance culture and working environments,” said Ramanan.
For example, the safety standards that are important in Canada are nearly impossible to achieve in parts of Asia, she said. As another example, she pointed to a family-owned plant in India that Lafarge took over.
“The company tried to bring in global standards such as an organizational structure (and) a global compensation system, but these were not looked upon as motivators,” she said.
What employees really valued was the fact the plant owner, a descendant of a royal family, would especially invite people into his private chamber to hand out their incentive cheques.
“That was more important to them. That was what motivated people,” she said.
But it’s not just the M&As that span the globe that will run into cultural clashes. Ramanan was once called in to help resolve racial conflicts at a plant Lafarge acquired in the United States.
“That was the information that we had at the corporate office,” she said.
However, once she got there, she realized the racial issue was just a proxy for a performance issue. Although the workforce was markedly segregated — “99 per cent of the shop floor employees were black and at the supervisory level, 100 per cent were white” — this division was always there.
What the acquisition brought about was a new way of working. Whereas Lafarge had a very self-directed, performance-oriented culture, “the earlier company had a ‘Do what I say’ culture.” So when a new working style was brought in that required more of people’s initiative, this was labelled as a discrimination.
Correcting this perception meant a huge communication effort. Lafarge conducted diversity training and reached out to the local community for help in better understanding the locale and its people. It invested effort into making the selection process transparent.
Things improved within the year but, looking back, Ramanan said the problem was the failure to respect what she called the three Rs: “recognizing both cultures, respecting both cultures and reconciling both cultures.”
But there’s growing recognition HR can and should contribute right from the start. According to a 2004 Towers Perrin survey of 201 companies, only 23 per cent said HR was highly involved in pre-deal planning in deals over the previous three years. But 36 per cent said they planned to have HR highly involved in that beginning phase in the future. Likewise, 62 per cent said HR was highly involved in due diligence in deals in the previous three years but 72 per cent said HR would be highly involved in future deals.
At the Montreal-headquartered Yellow Pages Group, which employs about 2,000 people, vice-president of HR Josée Dykun said she gets involved right at the start of the process, when the company decides to purchase another business. At that due diligence stage, her work would focus on identifying potential risks and liabilities and any potential integration issues in terms of alignment of things like working conditions, benefits and pensions.
Once the deal has gone beyond the intention to purchase, Dykun’s HR team would conduct more thorough due diligence.
“This is really critical in terms of getting down to the details, because the devil’s always in the details,” said Dykun. “We’ll be doing a thorough cultural assessment, looking at the visions, the values, the ones that are unspoken as well as those that are more concrete, the work processes.”
All this takes place well before the deal closes. This is a very sensitive time, when people at the acquired company tend to be very nervous, said Dykun, so she has to conduct this investigative work carefully.
“We don’t go in there with an army of people. We try to deal with only the people at the top and keep it at the high level,” she said.
Nevertheless, Dykun said she tries at this point to set out an integration plan that’s 90-per-cent fleshed out. Then it’s just a matter of waiting for the deal to close.
Once the deal is made public, the HR team goes in with a comprehensive communication plan. This is what Dykun calls the navel-gazing phase, when people are primarily concerned with such questions as, “What’s going to happen to me?” “Who do I report to?” and “How will my work be affected?” At this point, it’s important to try to communicate, as quickly and comprehensively as her team can, what “the new day” looks like. This is where having a thorough integration plan makes a big difference.
Sandra Munteanu, director of mergers and acquisitions at Telus, also emphasized the importance of thorough work during the due diligence phase.
“We have a very comprehensive list of questions. We assess market culture, management team skills, key employees and potential cultural gaps. We collect data on everything,” said Munteanu.
At Telus, heading up the M&A work is a team comprised of people from finance, sales and marketing, IT and HR.
What human issues the team focuses on depend on the strategic rationale, said Munteanu. If Telus is acquiring a company for its customer base, then questions about the workforce competency wouldn’t be as important as if Telus was acquiring a company for its skills.
But generally HR issues are rarely prominent enough to scuttle a deal, said Munteanu. Even the discovery that a company has massive pension liabilities wouldn’t likely break a deal, but it would have an impact on the valuation and the integration budget, said Munteanu.
One HR issue to be on the lookout for is the loss of key talent, she said.
“Retention is something that we’re very strong on. The last acquisition we did, we retained 100 per cent of key employees,” said Munteanu, adding that the key to retention is a good understanding of the cultural differences. That involves assessing the culture of the acquiring company and the culture of the target, mapping out where the differences are and determining how to bridge those gaps.
Raji Ramanan, manager of organizational development for the cement division at Lafarge North America, headquartered in Washington, D.C. and employer of 22,000, said cultural issues are among the most difficult to handle in an M&A. Companies that have a sophisticated M&A strategy are usually really good at the technical part.
“But it’s when it comes to the softer elements that we have a harder time, and that’s because a one-size-fits-all approach doesn’t work. It’s more difficult to have a template,” said Ramanan, who has 18 years’ experience in M&As, many of them in Asia and North America.
The cultural issues come to the forefront most evidently in global M&As, she said.
“There are so many differences in the way people view compensation, performance culture and working environments,” said Ramanan.
For example, the safety standards that are important in Canada are nearly impossible to achieve in parts of Asia, she said. As another example, she pointed to a family-owned plant in India that Lafarge took over.
“The company tried to bring in global standards such as an organizational structure (and) a global compensation system, but these were not looked upon as motivators,” she said.
What employees really valued was the fact the plant owner, a descendant of a royal family, would especially invite people into his private chamber to hand out their incentive cheques.
“That was more important to them. That was what motivated people,” she said.
But it’s not just the M&As that span the globe that will run into cultural clashes. Ramanan was once called in to help resolve racial conflicts at a plant Lafarge acquired in the United States.
“That was the information that we had at the corporate office,” she said.
However, once she got there, she realized the racial issue was just a proxy for a performance issue. Although the workforce was markedly segregated — “99 per cent of the shop floor employees were black and at the supervisory level, 100 per cent were white” — this division was always there.
What the acquisition brought about was a new way of working. Whereas Lafarge had a very self-directed, performance-oriented culture, “the earlier company had a ‘Do what I say’ culture.” So when a new working style was brought in that required more of people’s initiative, this was labelled as a discrimination.
Correcting this perception meant a huge communication effort. Lafarge conducted diversity training and reached out to the local community for help in better understanding the locale and its people. It invested effort into making the selection process transparent.
Things improved within the year but, looking back, Ramanan said the problem was the failure to respect what she called the three Rs: “recognizing both cultures, respecting both cultures and reconciling both cultures.”