Merger & Acquisition: Human Resource Due Diligence
I think you would agree with me that following the due-diligence efforts of the lawyers and accountant’s, the HR Project Lead is accountable for obtaining the necessary documents and cultural information to design a Project Plan for mapping the new organization into the existing one. To ensure a smooth transition of people and processes (thus, minimizing the loss in worker productivity), the project’s scope should allow for a minimum of 60 – 90 days to effectively address each area.
With the primary objective focused on minimizing employee “angst” that would be accompanied by a decrease in productivity and an increase in turnover, it’s essential that a thorough audit of all HR practices and systems being conducted. The conclusions and recommendations from the audit would be provided to the Executive team for consideration.
In partnership with Executive team, the HR Lead would make certain to provide clear, effective, timely and on-going communication to all employees impacted by the acquisition; and, whenever possible, communication with the employee’s should be done in-person to allow them to ask questions.
The four primary areas that would be part of the overall Merger & Acquisition project plan would include:
1. Talent Acquisition: What employee’s have already been identified as “key” contributor’s and/or “top” player’s and how can their talent be effectively leveraged in the new organization. Typically, this is accomplished by a forced ranking method to determine which employee’s require further discussion and/or information and which employee’s are either “C” player’s (with marginal performance) or, due to the obvious duplication of some roles like Accounting, won’t be necessary once the merger is completed.
This would require various documents and/or conversations regarding staff competencies (and the review of personnel records/ files), job descriptions, the current organizational chart and reporting relationships, as well as disclosure of any/all grievances, claims of unfair labor practices and/or employment related lawsuits.- Where does the “new” organization have redundancy and people performing the same or similar position? Determining which staff members will remain and which one’s will be laid off is a decision that should be made as quickly as possible so that the integration of systems and processes can be achieved in a timely and efficient manner.
- In partnership with the CFO, the HR Lead will need to research and recommend the terms of severance agreements including the establishment of a budget, dates of notices, roles/account-abilities, pay, employee benefits and outplacement services.
- For those employee’s in both organizations that have been identified as “key” stakeholders whose role is critically important to maintaining a productive work environment (i.e. IT staff), a retention bonus program is customarily offered to ensure that none of these individuals leave their current role before all merger and acquisition activities have been completed.
- While the org chart will be somewhat of a moving target for the first few months of any merger or acquisition, it’s essential that the employee’s are updated on any/all changes when they occur in order to minimize misinformation; this will also serve to reinforce the leadership teams commitment to clear and frequent communication, thus, enhancing managements credibility with new and existing employee populations.
2. Review and analysis of the total compensation and health care benefits packages, as well as any/all vendors each company is contractually obligated to, the level of overall customer satisfaction and a detailed cost/benefit analysis.
- Since it will require a considerable amount of time and analysis, the HR lead should seek counsel and partner with an executive compensation expert on how to integrate/modify base salary structures, job families, incentive and variable pay awards, as well as whether one or both companies offer employee stock options.
- Identify those benefits that the two companies provides differently, or don’t provide at all, such as 401k, educational reimbursements, variable pay (bonus) plans, salary structure and pay rates, paid time off practices etc.,
- ESOP’s (Employee Stock Options Plan) will be driven by the General Counsel of the new organization.
- The analysis should conclude with recommendations on which vendors and providers the new organization will continue to use and which one’s should be discontinued and when.
- ESOP’s (Employee Stock Options Plan) will be driven by the General Counsel of the new organization.
3. Audit and analysis of all HR processes and systems including: HRIS, recruiting & Hiring, Offer letters (including any special or atypical “arrangements” such as bonus awards, car allowances, memberships etc.,), EEO1 Reporting, Employee Handbook etc.,
- After obtaining all of the necessary information, the HR lead should identify those areas that are different, or possibly in conflict, and recommend a plan to remedy those differences in a timely and efficient manner.
4. Cultural Assimilation: differences, similarities and areas to be looked at including: Corporate Mission, Vision and Values; Recognition & Rewards Programs; Corporate Communications; Environment – such as Dress Code, Office Hours, Performance Expectations and Cultural Norms.
Having been involved in a number of mergers and acquisitions (as an employee, HR Manager, HR Lead and transition coordinator), this Consultant and Author can emphatically state that these issues are too often overlooked or considered an afterthought; however, cultural assimilation is “the most important issue” for the management team to understand and acknowledge.- As an HR Manager with McCaw Cellular when it was acquired by AT&T to form the subsidiary of AT&T Wireless, this Author witnessed first hand the monumental differences culture played in staff retention, employee communication, job satisfaction and the ultimate demise of AT&T Wireless.
- For a stogy 100 year old wall street/executive privilege organization to acquire a high growth West Coast high tech entrepreneurial flat organization like McCaw Cellular was extraordinarily detrimental to the long term success of the new company.
Here’s the Deal!
During the tenure with AT&T Wireless, this Consultant and Author served on the M&A team during a two-year period of time when they acquired more than a dozen local and regional cellular companies increasing their headcount from 7,500 to 30,000+.
While we established detailed project plans and were excellent at cultural assimilation issues, those accountable for the infrastructure (i.e. payroll systems) were (for all practical purposes) asleep at the switch. In fact, each payday became an employee relations nightmare for anyone in a management or HR role because there were always a number of new employees who had not yet been processed into the database, thus, no paycheck would be issued.
Therefore, while every attempt was made to map these new teams into the existing organization in an efficient manner, the fact is that many people chose to leave the company after they experienced difficulties with getting paid correctly and on time. Suffice it to say when an employee cannot be assured that they will be paid, all good will that’s been created throughout the M&A process will evaporate quickly. However, in spite of the obstacles encountered, the tenure with AT&T Wireless was a valuable work experience that this Consultant and Author in no way regrets.
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Mike Russell is a seasoned professional with three decades of experience in the fields of HR and OD. In addition to having a career trajectory of HR Generalist to a VP within ten years, Mike also has a long and successful background as a Consultant/Business Partner to CEO’s, Presidents and Executive Directors in both the private and non-profit communities across a wide spectrum of industries.
As the sole-proprietor and owner of Organizational Development Solutions (ODS), Mike partners with business leaders committed to insulating their organization(s) from potential liability, increasing organizational effectiveness and adding shareholder value.
