Today’s transformational mergers and acquisitions make HR’s role in the process more critical than ever
By Melissa Campeau
For HR, few endeavours are as high risk, high reward as mergers and acquisitions (M&A). Organizations head into M&A transactions with their sights set on some kind of gain. In building a new organization, there’s tremendous opportunity for HR to help craft new policies, shift culture and find new ways of developing and retaining talent.
But between the moment of the merger announcement and its completion, the organizations involved are in flux and unstable, with key business drivers like engagement, productivity and retention potentially hanging in the balance.
The nature of M&As in recent years makes things even more complex. In the past, they were often a relatively simple process of tucking a smaller company into a larger one and borrowing the norms of the mother ship. Now, a good number are downright transformational.
In fact, PwC’s 2017 M&A Integration Survey Report found more than half of Fortune 1,000 survey respondents described the largest transaction they completed in the last three years as transformational (defined as deals that involve acquiring new markets, channels, products or operations in a way that is transformative to the fully integrated organization).
This kind of M&A upends an organization’s way of doing things.
“In a truly transformational acquisition or merger, you’re creating something new, something that didn’t exist in the past,” said Cheryl Fullerton, EVP of people and communications at Corus Entertainment. “You have to rethink everything, all the way from your operating model, to structure, to policies, to systems. And you’re doing it in a world where there’s a much greater pace of change and less predictability in the competitive landscape.”
In some cases, transformational M&A are driven by the desire to acquire tech and establish new, more efficient ways of doing things.
“Some businesses find they need to ‘buy’ talent and capabilities to compete, but that may mean integrating a completely different type of organization, with capabilities outside the acquirer’s core,” said Lawrena Colombo, deals partner with PwC.
Most organizations include people with a mix of perspectives and experiences. That’s good for business, but challenging for M&A transactions.
“People of the Baby Boom generation, for example, may have a history with a certain type of M&A,” said Fullerton. “Although, I think it’s less about being different ages and more about having different histories to bring to the table.”
For an HR professional, that’s one more thing to take into consideration.
“If you’re trying to create change management and communication strategies, you have to understand what those different populations will bring with them, in terms of experience and expectation,” said Fullerton.
Lynn Langrock, vice president of human relations and corporate affairs with Canada Bread Company, recalls her experience, not long ago, when her company was in the process of being acquired by Grupo Bimbo.
“In our case, many of our longer-term associates had been ‘acquired’ before and with this came some nervousness about what it would mean this time,” said Langrock. “It was important for us to be able to share a story of an early discussion where senior leaders from Grupo Bimbo told a group of senior leaders at Canada Bread that they were home; they would never be acquired again as we were now part of the biggest baking company in the world.”
“You’ve got to challenge your assumptions, keep your ears open and be humble enough to realize that even if you thought you were communicating enough, if people aren’t understanding what’s going on, then you weren’t.” – Cheryl Fullerton
All in the timing
With all the complexity at hand, HR needs to be in the M&A mix as early as possible, even before the deal is made.
“According to our survey, 32 per cent of companies brought their integration team into the M&A process during deal screening, prior to due diligence,” said Colombo. “HR professionals should start thinking about the people integration right away, beginning with understanding cultural differences to inform integration planning.”
Most organizations will immediately think of the more transactional HR responsibilities when considering a merger.
“It’s probably typical that someone from HR is brought in pretty early in most M&A transactions because they need information about pensions, benefits and cost-saving opportunities really early in the due diligence process,” said Fullerton. “Not all M&A projects would necessarily ask the HR person to go beyond that and start to do culture assessment, analyze any leadership gaps or start to think about change management and communication planning. But [HR is] accountable for those things. When we’re brought in, it doesn’t matter if it’s for a pension analysis, we start to put things on the table and listen keenly to what’s going on because every process change, every tech change, every operating model change, we have a role to play in making sure we can get everything done and that we have the people to do it.”
Set strategy for success
Having a solid grasp on the organization’s business structure, going forward, is critical.
“All the decisions the HR leader and team will be asked to shape and deliver on are going to be to tied to supporting the new strategy and operating plan coming out of the merger or acquisition,” said Fullerton.
It’s a feat that involves making something concrete out of the abstract.
“Everything you’re doing and everything you’re thinking about – whether it’s rewards, leadership or staffing decisions – it’s not about right now, it’s projecting out into the future,” she said. “What are you going to need to prepare to win? You have to have a very solid understanding of that strategic business path.”
Changes in work practices, decision-making styles, reporting relationships, organization structure and operating models all impact how employees will perform in the combined company.
“People are at the forefront of deal success or failure, and the HR function plays a central role in driving the people agenda throughout the integration process,” said Colombo. “People want to know what is expected of them, what they are accountable for, what decisions they own and what decisions they share.”
HR’s role in the establishment of the new organization can help avoid business interruption, talent defection, declining sales and market confusion over where the company is going.
Support leadership
When it comes to leaders, the big decisions need to be made right away.
“People follow leaders,” said Colombo. “Swift selection of key management positions early in the transition is critical to clarifying authority, assigning accountability and mitigating the crippling effects of uncertainty.”
Once they’re in place, HR needs to help them fully understand – and then model – the culture of the new organization.
“Leaders need to be able to set the tone and vision for their teams, and they need the education, tools and support to accomplish this,” said Langrock.
Along the way, HR has to be there for support.
“You have to quickly assess – and always be assessing – the leadership capabilities of senior staff,” said Fullerton. “What are you seeing and what will help the organization get from here to there? Leaders need to develop the trust of the workforce. Not a trust that everyone will be taken care of, but a trust that decision-makers are balancing options and making decisions in support of the greatest good. To the extent that people know the leaders and they have a reputation, you can use that. If there are leaders from the other organization, do anything you can to put a face on them and humanize them, so you can meet that goal of trust.”
Share clearly, share often
“The next goal would be to have a full plan for the communication of the integration activities that outlines for everyone the pace of change and what can be expected. Communication of the plan has to be frequent and varied,” said Langrock. Don’t assume that one mention of anything in an e-blast or at a town hall meeting is sufficient.
Any change management requires clear, planned and ongoing communication by HR, and an M&A situation is no exception.
“This runs the gamut from sharing very factual expectations to connecting with people in a more motivational, persuasive way,” said Fullerton. A big part of engagement and productivity at work is based on feeling emotionally connected or affiliated with a goal, a team or the organization.
“In an M&A situation, that affiliation is up for grabs,” said Fullerton. “When you’re creating something new, the ground has shifted for everyone. This means an HR professional needs to understand where the organization is going, how to describe it to people and what it’s going to mean to them.”
Communication can also helps address shaky workplaces – a natural result when employees face anxiety about the unknown. Colombo recommends engaging employees in the change, by way of surveys, focus groups or employee forums.
Culture crafting
“As soon as possible, get a read on the two cultures coming together,” said Colombo. “Understand from the leadership team what [the culture] needs to look like in the future.”
Using leadership coaching, communication, rewards programs, performance management – everything at your disposal – begin to establish the new normal.
The upside of the instability during a M&A is that culture can be unusually pliable. Nearly everything is knocked loose, so it can be easier to bring the pieces back down where you’d like them to be.
“An acquisition is an excellent opportunity to set a new course, both operationally and across the various support functions of the newly combined business,” said Colombo.
Keeping talent close
“Typically, between when you first make the announcement that a merger or acquisition is going to happen and when you actually close it, people don’t know whether they have a seat on the bus in the future,” said Fullerton. “If you have a high need for certainty in your life or you have certain aspirations and you don’t see a path for you with the other organization coming in, you’ll likely start looking around.”
Good people are going to have an easier time finding work elsewhere, so there’s a heightened need for HR to focus on engaging and retaining pivotal talent during change.
“HR really needs to understand who represents their best talent, then connect with individuals or groups and establish any certainty you can,” said Fullerton.
All together, now
Even if teamwork is already baked into organizational culture, that’s kicked up a notch for HR during M&A transactions. Fullerton has recent first-hand knowledge, with Corus completing a purchase of Shaw Media just over a year ago.
“We decided it was going to be a transformational merger,” said Fullerton. “It would be a blending of the two and we would create a new company. We rethought everything, including the operating model, leadership team, processes, policies – everything.”
That required integrating two HR teams, from the get-go.
“I find HR teams are very collaborative in these situations,” said Fullerton. “You have to have a high degree of personal resilience because you have to get ahead of your own emotions quickly. You’re as human as everyone else, your world is shaken up, too. But because you’re in charge of shaping the human agenda, you have to be ahead of that.”
An iterative, evolving process
That ability to stretch and flex is important when working with another team – and also throughout the entire merger.
“It’s important for the HR team to be nimble and to understand that each deal is different; what worked for one deal may not work for another,” said Colombo. “Adjust your approach based on the integration strategy.”
Fullerton agreed: “People always assume it’s a linear process, and it’s never linear; it’s always iterative. You’ve got to challenge your assumptions, keep your ears open and be humble enough to realize that even if you thought you were communicating enough, if people aren’t understanding what’s going on, then you weren’t.”
HR’s changing role in M&A
If transformational M&A deals are shifting the role of HR during change, so is technology.
“HR is increasingly using data to gain insights and inform decision-making,” said Colombo. “HR teams will look at how changes to organizational design will affect cost savings, how to right-size the organization and associated headcount synergies or hiring needs and whether compensation is appropriately aligned with performance.”
It’s one tool to help with a complex process. As entirely new organizations are formed out of pre-existing ones, HR will need to continue to design, often from scratch, the best path forward.
“Integration teams are looking for customized solutions to work through the deal and minimize disruptions to business operations,” said Colombo. “HR can – and should – be an important partner throughout the deal continuum.”
As transformed businesses become more the norm after a merger or acquisition, the role of HR becomes even more pivotal.
“After all, it’s the people in those organizations who will take all those plans and make them into reality, who will be imagining and creating and realizing that brand new business,” said Fullerton.
Seven Fundamental Tenets of Successful Integration
(from PwC’s 2017 M&A Integration Survey Report)
The original sidebar title by PwC is "Change Management in M&A Integrations: PwC's Seven Critical Drivers of a Successful Program"
Culture: Changing cultures in an integration focuses on three critical areas: 1) defining desired behaviours; 2) deploying key role models; and 3) providing meaningful incentives.
Communications: Communication is the voice of the change management program for the integration. It helps stabilize and keep people focused. HR professionals should support an open and transparent environment as employees wonder how the deal will impact them.
Leadership: People follow leaders. Swift selection of key management positions early in the transition is critical to clarifying authority, assigning accountability and mitigating the crippling effects of uncertainty.
Organization: Changing roles and complex interrelationships are not clarified with the publication of a traditional organization chart. People want to know what is expected of them, what they are accountable for, what decisions they own and what decisions they share.
Policies and procedures: Organizations enter transactions with fully functioning, self-contained processes and practices. During integration, the combined company should clearly define the go-forward policies and procedures that will enable new ways of working to achieve desired results.
Employee onboarding: A change management program would not be complete without appropriate employee onboarding and training. The integration will have many changes in policies, procedures, systems and processes that will alter the way people work. Companies should identify areas that require integration training and design effective development programs.
Incentives: Incentives play a key role in changing behaviour. During integration, it is important to recognize the contributions of people that exhibit desired behaviours.