Succeeding at M&As (HR Leaders Talk)

5 HR leaders discuss how to thrive during tough transitions

Editor's Note: Undergoing a merger and acquisition is no easy task for employers, let alone human resources. So we talked to five HR leaders from across the country to hear their thoughts — including tips, anecdotes and advice — on how to thrive during these tough transitions.

Joanne Brown, executive vice-president of HR at High Liner Foods
The Halifax-based company has about 1,500 employees

Joanne Brown has gone through five mergers and acquisitions (M&As) at High Liner Foods, some big, some small. And probably the biggest learning is fully understanding the cultural piece, which definitely should be considered during due diligence, says the executive vice-president of HR at the 1,500-employee company.

“It’s really about being prepared to handle the differences. It’s part of your prep and being prepared because it can start to happen very quickly. The impression you leave that first day after the acquisition happens is very meaningful and what you do that day should reflect any cultural differences that you’re aware of.”

Brown says she has been lucky in that she’s been involved at the early stages of M&As — but she knows that’s often not the case.
“The reason I think that happens is because… the early stages tend to have a huge financial and business opportunity focus, so (it’s about) the financial aspects and the increased revenue, versus on the people,” she says. 

“It makes sense for HR to be involved as early as possible in the due diligence because there’s serious HR issues around talent and those things can start to happen quite early if you’re not careful, if you’re not keeping an eye on what’s happening from a leadership and talent point of view. And cultural issues have huge implications later so it’s best to understand those early on as well.”

If HR wants to get involved sooner, it’s about helping the CEO and CFO understand the impact employee-related issues and cultural issues can have if they’re not addressed and considered early on, says Brown, “and to talk like a business person, to make sure they’re seeing you as a business person as part of that due diligence team.”

So why is cultural compatibility often not considered at this point? It’s possible people don’t appreciate its impact, she says.

“It’s very easy to get wrapped up in all of the other things that have to happen. There’s just so much that goes in those due diligence phases that’s around the numbers and understanding numbers and making sure you’re making a good decision that often these kinds of things get pushed to the side until, all of a sudden, it’s day one.”

To ensure that compatibility, it’s about communications, at the early stages, and possibly doing an engagement survey to understand where people are at, says Brown. HR can play a key role in getting into the organization as early as possible and having an ear to the ground to pick up on cultural pieces that may not be noticed otherwise.

“You have to, at a very early stage, understand what the differences are and then really look at ‘Is there a best practice that either company has in place that we want to keep?’ and then decide where you want to land,” she says.

Sometimes, it’s about aligning policies somewhere in the middle, or going with one of the company’s policies because it’s more forward-thinking. 

“We do a grid with all of the differences and lay it out and look at any costs associated, if there is, and then we make a decision as to whether we’re staying with what we do versus what the other company does,” says Brown.

Having gone through several acquisitions, and having seen a lot of best practices, High Liner will probably lean towards its own way of doing things, she says. But, at the same time, it’s good for the organization coming in to see that the acquiring company has at least considered other options. 

Other HR issues that should be considered during an M&A include identification of talent in the organization, in terms of what they’re bringing and how they’re going to be retained, and understanding what it means to the business if they leave. 
And then, of course, the costs associated with retention and bringing together policies, benefits plans and pension plans, says Brown.
“The other thing that can happen, especially if you’re combining private companies with public companies, are differences in salary structures and policies that can have huge cost implications if they’re not handled properly.”

Right now, HR is often involved on the synergy side, looking at the people synergies and running all the numbers for that. But HR can be doing more, she says.

“We can step up in terms of providing metrics around what we think our turnover should be, all the HR analytics. I think we can do even revenue per employee, all those kinds of things… in some cases, HR staff has just not been considered to be financially astute, I think that’s a misconception in many cases; but I think that’s one of the reasons HR has been pushed aside on the finance piece. But there’s real implications, there’s real dollars in the HR… things like retention agreements, change of control agreements, some of those are huge, so HR needs to be involved.”

HR can also help senior leaders through the transition in providing a read on what’s going on, going a little deeper to help them understand what’s appropriate when it comes to communicating with different employee groups, such as town halls, plant floor visits or shaking hands in the cafeteria. HR can also help in coaching managers because their operational decisions will lead to personnel decisions, says Brown.

“HR can get involved as change management experts at this stage; the communications piece, obviously; and then this is where cultural differences will often really start to show up as well, and I think helping managers to understand and be aware of those.”
From the first day, it’s about making a good impression, in introducing the senior leaders and HR, she says.

“That’s key because it helps create a bit of a comfort for those people, that it’s not some cold company that’s bought them: ‘There’s people here, we’ve met them, they’ve made the effort to come in and talk to us.’”

Angelica Marshall, human resources director at Impark in Vancouver
The parking management provider has about 2,500 employees in Canada 

For Angelica Marshall, HR director at Impark in Vancouver, HR is definitely a key stakeholder when it comes to mergers and acquisitions (M&As).

“We start with due diligence all the way through the integration,” she says. 

Early in the process, people can get caught up in the finances but there’s a place for HR there, says Marshall.

“Part of that is ensuring that C-level employees — from our top-level employees and the executive team — that HR is sitting at table as being part of that. I think also being able to demonstrate that we can provide costing to support whether that number that the owner has given us make sense. I think that that’s a key way for us to start to get in the door because initially the people and the culture and all that stuff is important but the key thing is ensuring: Does that number make sense? And HR can definitely play a part in that,” she says.

HR’s role in due diligence includes reviewing collective agreements and looking at the terms and conditions and future costs that may be coming out of that. It’s also about reviewing benefits.

“One of the things that we really look at is what are their benefits programs, how can we align them to ours and what (are) the costs going forward?” says Marshall.

Due diligence also is about the payroll systems, in terms of how a company is paying people, whether it’s in compliance, whether there are any large litigation claims or trend factors that have happened for claims over the past five years, and what is that projected cost going forward, says Marshall.

It’s also about looking at key employees and determining if that should be part of the purchase agreement. 

“That could mean listing them, what their roles are, how do we retain them, because there’s a lot of intellectual capital in those individuals,” she says.

Cultural compatibility is also a big part of the process. So as part of integration, step one is doing orientation with staff to walk them through the cultural values, she says.

“They provide support during transition and we need to them to be onboard so that the staff can migrate over to what our culture is but not have it be a humongous shift for them. I think that puts strain on employees and causes us to have a lot unnecessary turnover so it is a factor when we’re looking at acquisitions.”

It’s important for HR and senior leaders to be as transparent as possible with all the items they’ve predetermined are going to happen, says Marshall.

“HR can also give support to the senior leader that’s going to be speaking because it’s very easy to get caught up in the finances and running 100 miles ahead as to what the integration’s going to look like... but there’s a lot of pieces to get there. And the number one thing is to make sure that the staff feel excited and confident and are embracing that change of being purchased because that’s a hard place to be,” she says.

“HR plays a key role in making sure that that first 90 days is calm and that we’ve don’t have a lot of attrition. Because it’s easy to get that turnover, people get fearful.”

HR can also help when it comes to retention of key leaders during an M&A, and that includes documentation,  coming in with a letter of continued employment letting them know next steps, says Marshall.

“(It’s about) transparency, taking away that anxious feeling from them, that ‘I’m going to lose my job, all this stuff’s going to happen.’ Letting them know if there’s going to be title change or reporting change on day one; being able to provide a document to them as opposed to just a conversation if at all possible, I think, puts people at ease.”

Retention bonuses can be very useful tools in these types of situations — as does giving people your time, she says.

“The first couple of days that you’re there on the ground tends to be swallowed up in a lot of those types of meetings, but ensuring that we have enough time and we make the time, the person doesn’t feel rushed so they can really come back and ask questions if they have them — it just settles the water a little bit.”

But it’s important the original employees and leaders aren’t forgotten, says Marshall.

“It’s HR’s responsibility to also watch those key leaders and make sure that they’re getting the support they need as well because it’s very easy in these types of situations… to see that burnout in that management group, so I think HR needs to also keep a pulse on their own employees, not just the purchasing employees... It’s very easy to get stuck in that acquisition mode and forget that there’s still people doing their regular jobs on top of it.”

Stephanie Hollingshead, vice-president of HR at Sierra Systems
The 700-employee IT services and management consulting firm is based in Vancouver 

Until a deal is actually being implemented, HR’s role has been seen as fairly peripheral, according to Stephanie Hollingshead, vice-president of HR at Sierra Systems in Vancouver.

“It has really been seen as a finance and legal activity, looking at the valuation, the negotiation of price and… HR is brought in, but it’s often almost a done deal at that point.”

That should change, she says, especially when considering cultural compatibility. 

“The company’s competitive advantage is really what shapes its culture and so you want to look at the two cultures and if you’re going to merge two very non-compatible cultures through an M&A, you’re really risking losing that competitive advantage.” 

At a previous employer, Hollingshead says she watched one company purchase a bigger competitor and the two couldn’t have had more opposing cultures. 

“The merger was a disaster, the company lost money for several years after that.”

By getting involved earlier in the process, an HR person can look more at those culture pieces, and ask good questions around it, including the ROI — not just from a finance perspective but “What will we need from the acquired people or our own people even to get the desired ROI that we’re looking for?” she says, such as skills and knowledge retention or development.

To ensure HR is involved earlier on in the process, it’s about asking really good questions of the CEO to convince him to bring HR into the discussion, says Hollingshead.
“Framing them around liabilities, risks, costs — those things exist from a people perspective as well, we’ve got employment contracts, severance liabilities, any golden handcuffs for key people. Just asking key questions would help get that foot in the door.”
HR’s involvement in the whole process boils down to the people-related assets and liabilities. There are the more common ones such as employment contracts, policies, lawsuits, disability claims and human rights claims, along with compensation and benefits costs, potential future cost increases, and assets such as retention rates, key people, knowledge and competitive advantage, says Hollingshead.

HR definitely could provide more in the area of finance, she says.

“If HR can insert themselves and speak in the language of business, talking about metrics and returns and assets and liabilities, and speaking in that manner, I think they have a better shot of getting involved upfront and looking at some of those pieces that have historically (been) and continue to be tougher to measure.”

Pushing for success metrics is one way HR could better influence the effectiveness of senior leaders, she says.

“And even just metrics in general — I’m not sure I’ve seen great metrics on an acquisition anyway… really a holistic view of them, including retention/engagement of key people or key teams might be a success metric that’s important.”

Another influential tool is to use stories to illustrate the importance of issues such as retention of key people and getting them onboard quickly, says Hollingshead.

“It’s those pieces that make profitability. It’s not the widgets that you’re buying, it’s the people that will change so I think just using stories to illustrate the importance of that upfront with the C-suite would get their attention.”

HR also plays an important role when it comes to supporting managers, she says.

“Merging finances, merging products, that’s the easy part. I think merging people is where things get messy and that’s where things fail because of human behaviour. So I think a strong HR leader understands the human element and can help guide the managers, help guide the senior leaders in the area, through the integration, really look at the cultural integration, thinking beyond day one, thinking in the first six months to a year. 

“Without that oversight and view on it, those things often don’t get purposefully looked at, they just occur and I’ve seen examples of it really going sideways.”

It’s so important for HR to support the acquired employee teams, says Hollingshead.

“It’s a new environment for them (so it’s about) really helping to provide them with information, being a bit of an olive branch for them or a safe place to ask questions, and helping them connect with peers in the new organization, helping them figure out where to go to build relationships and navigate those informal rules of engagement. I think that would help bring people onboard faster — they could see the positive, they can become effective as soon as possible. I’m not sure we do a great job of that.”

Stephen Scanlan, acting director of human resources at Dentons Canada in Toronto
The law firm has more than 1,300 employees in Canada

Having gone through three major M&As “in a previous life,” Stephen Scanlan says HR should definitely be involved early in the process.

“The ones where HR is at the table and you’re engaging around people issues upfront, they have a much bigger chance of being successful,” says Scanlan, acting director of HR at Dentons Canada in Toronto. “These deals are hatched by businesspeople and finance people and lawyers and HR often isn’t at the table when this sort of business strategy gets hatched, so to get at the table, you need to be invited and you need to be pounding the table a little bit that this strategizing around the people issues is actually a success factor and can actually make it go more smoothly.”

Human resources can be looking at everything from problem employee files, assessing the culture, learning about the leaders coming in, and looking at what the new structure might look like, he says.

“That’s all intelligence that can be done in advance, and when you’re courting a partner, the other organization is usually quite open to having you poke around a little bit. But if HR is brought in later, they don’t have that intelligence, they can’t add value, it’s just more reactive, they get told, ‘Oh, we’ve got this deal, you’ve got to onboard all these people and you’ve got to teach them our values and blah blah blah’ — the reactive doesn’t work nearly as well,” says Scanlan.

“HR needs to come to the table with a plan and a point of view around why it’s important be looking at things like culture and who will the future leaders be.”

Many of the failures are because cultures just don’t mix, he says.

“They don’t get along or leaders don’t get along or the new leadership rules are not carved out intelligently, so there’s a flight of talent. So if you’re not thinking carefully through who the leaders would be, who’s going to potentially be annoyed by this, you can actually lose the talent you want to retain. So there are a number of issues where HR can play a strategic role and help the business help themselves in getting through that transition.”

On the cultural compatibility side, HR’s concerns won’t stop a deal going through “but can they play a role in terms of mitigating damage and being able to raise things and saying, ‘This culture wears blue jeans everyday and this one’s suit and tie, how are we going to actually make that work?’” says Scanlan.

There are often assumptions made by businesspeople that a merger will allow for staff reductions, and that kind of move is rewarded with a rise in stock price. But research shows layoffs can actually lead to failed mergers.

“So (you want) to have that HR person at the table to say, ‘Hey, maybe we shouldn’t assume we’re going to get all these redundancies, maybe we should let the new organization flow a little bit before we make quick decisions about cutting cost and cutting people,’” he says.

“There’s probably good reason to not be so hasty in trying to get those cost savings and actually kind of work through in a more methodical way to say, ‘How can we make this successful?’”

The first reaction people have to a merger is “What’s in it for me?” and it’s important to think all that through, says Scanlan, citing one senior business leader who spent 90 per cent of his time with the new leaders figuring out retention packages.

“(It’s about) having someone to figure out what are those roles, what can we realistically offer these people and how do we keep these people through that critical first six months while we find our way?” he says.

“Along the way, he had to partner with HR who’s crafting the employment agreements and the contracts and working through that and making sure that the people you most want to keep are kept whole through the process, so a big role for HR.”

On the finance side, HR could be smarter around metrics,  says Scanlan.

“Why wouldn’t HR be a little sharper around things like, post-merger, what’s our percentage of retaining people that we really want to retain… (or) measuring the quality of the loss, a qualitative assessment of the people that you’re turning over — are they ones that you want to turn over because they’re redundant or are you losing talent you want to keep? That’s a metric that can really help leadership early on to steer the boat and to intervene quicker when they see that they’re losing talent they want to keep.”

Karen McKay vice-president of human resources at Eli Lilly Canada
The 600-employee pharmaceutical company is based in Toronto

While there’s a stage where HR’s involvement in an M&A is critical, it’s not at the first part, according to Karen McKay, vice-president of HR at Eli Lilly Canada in Toronto.

“At the earlier stages, when the businesses are trying to establish what the rationale is, those conversations would be occurring at the top layers of the organization, and typically with business development. So when you think about some of the components that go into evaluating a business deal, business strategy, finance, operations, due diligence likely trump cultural fit at these very early stages because, frankly, if the business logic doesn’t work, then it isn’t worth pursuing in the first place,” she says. 

“Business leaders certainly are mindful of the need for cultural compatibility but that occurs later on in the transition.”

The acquiring company would also look at the employer brand, says McKay.

“They would certainly want to look at reputation in the market as it relates to unions, labour issues, ethical conduct. They would be looking at workforce planning, they’ll be looking at the crossover in capabilities between two organizations, is there an overlap or redundancy? And then, depending on what phase it is, they’ll be looking at approaches to governance and decision-making and their view on talent.”

When it comes to financial involvement, HR is somewhat limited, says McKay.

“The important work that HR would do is the calculation of any severance packages, setting aside the appropriate accruals, ensuring that we’re establishing new transition services and engaging in those contracts as we would need to, so those are more on the operational side; but ensuring that the pricing continues… and that we’re engaging and tracking integration costs appropriately as the business requires,” she says. “There does need to be a level of financial acumen that goes into it certainly but we’re not doing the calculations to say, ‘Is this a good deal?’”

One area where HR may not be playing to its strength is advocating for the needs of the new entity within the larger organization, says McKay, citing a recent merger.

“We had to make sure that it wasn’t standalone business per se more than it needed to be but integrated both locally and internationally, and played a role in helping to create the new structure. And we helped guide the leadership in some of the staffing decisions, and because of this advocacy and setting the structure up and getting the people in place and guiding management on doing it, it really set the foundation for role clarity, governance and efficiency.”

When it comes to influencing the effectiveness of senior leaders, HR can play a bigger role, says McKay.

“HR has a special relationship with the leadership team, especially if they’re involved earlier on, and the rapport that gets built between the HR leader and the new leadership team is really important. I think it sets the foundation for trust and credibility as a business partner and it sets the stage for conversations around the particular leader’s improvement in communication, personal coaching and leadership impact. And these are all very hard and soft sides of the new leadership over this merged organization, and I think people look to them to ensure that they’ve got a clear vision, they’re communicating with frequency and consistency and they have credibility,” she says.

“HR’s in that place where, if they have access and visibility to the employees, they can actually be a sounding board and give some credible and relevant information back to the leader and help them improve and give them some feedback, and that just becomes a cycle of sensing the environment, picking up the cues from the employees, feeding that back to the leader so they can course-correct as they might need to.”

When it comes to leadership retention during an M&A, leadership decisions are made even before the merger, says McKay.

“There’s a great deal of thought put into these choices because we know that it can have a big impact on speed, efficiency, alignment, buy-in and engagement. Leaders set the tone and so those choices lay the foundation, so retaining them is obviously very important for integration success; it inspires confidence that the future is intact and that leaders are aligned and committed to that future, and losing them early on can cause them to question their own commitment.”

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