6 actions to stop human capital derailing your next M&A deal
A team is only ever as strong as its weakest link. Nowhere is that more evident than during a merger or acquisition (M&A). Research reveals up to as many as 60-70 percent of M&A deals do not realise the intended goals.
While there are likely many contributing factors, statistics abound on the importance of managing human capital effectively through a transition.
The American Management Association found that, on average, 25 percent of high-performing employees leave within 90 days of a major change event such as M&A, despite the fact they still have a job. Ernst and Young studies show 47 percent of key employees leave in the first year after a major transaction, with that number climbing to 75 percent after three years.
These percentages underline the painful loss of valuable human capital, which almost always come with devastating impact and cost.
Giving prominence to human capital before, during, and after M&A transactions gives organisations firm footing to assure deal success. Here are six invaluable considerations to effectively leading human capital through M&A:
Due diligence: do it
While there is no universal approach to managing talent during M&A, companies should plan to give the human side at least the same level of attention as other strategic considerations. The only way to identify the best leadership team to lead a harmonious, productive new organisation is to systematically do the due diligence on existing, and future, talent needs as well as redundancies.
A simultaneous focus on talent must occur across the business, including:
- C-level sponsorship of the human capital program to underscore its strategic importance.
- Defining clear guidelines to assess employee value to the combined entity.
- A commitment to transparent, regular, synchronised, and persuasive communication around talent to the business.
Ideally, HR will have early participation. HR leaders often have a limited role in deal preparations yet are integral to defining the new organisational structure and operating model. When familiar with the talent needed to drive the business strategy, good HR leaders will objectively diagnose the current state, define the future “best-fit” state and operationalise the needed talent changes.
“Leaders cannot lack the courage to make tough talent calls. Failing to act on the fact that favoured leaders from the old regime are not the best fit for the new business will be disastrous.”
The culture club
Every organisation has a unique workplace culture, reflecting the particular personality and motivations of its business and guiding employee focus on specific strategic outcomes, such as quality, innovation, or outstanding customer experiences. A healthy, productive culture with engaged employees is driven intentionally. When two organisations with different cultural values come together and are left unattended, business disruption, demoralised employees, and free-falling departures are common side effects.
Executive and HR teams must take a deliberate, intentional approach to define the values of the new culture in the future organisation. That demands understanding existing cultural mores in the two organisations, to grasp the extent of the gap between the current and future states. Once the gap is understood, detailed work is necessary to create a path for all employees to bridge to the new blended organisational culture.
“Deals fail when leaders and teams cannot, or will not, adapt to the new
organisation and its cultural values.”
Key talent identification
Key talent is generally defined as those people who add the most value to the organisation and who are difficult to replace. During M&As, key talent is the employees whose loss brings detrimental effect to the new company. Once key talent is identified, it is crucial to plan retention and re-engagement actions (see below). Equally, for employees who don’t qualify as key talent, it is important to process fast, fair, early retrenchments to reduce anxiety among teams and demonstrate high values to those chosen to remain.
Key talent retention
Ask anyone who’s lived through M&A and they’ll likely confirm it can be anxiety fuelled time. Employees know musical chairs begin when two organisations come together. Everyone worries about whether they will have a chair when the music stops. This anxiety, and corridor speculation, are a potent cocktail for fuelling flight.
Top talent is the most marketable, so are also the most likely to leave first. Top reasons cited by talented employees for leaving newly formed organisations include poor communications on the change, feelings of inferiority within the new firm, and general uncertainty about future roles.
Ironically, the continued employment of high-performing employees in key roles is usually factored into the success of the new organisation, often as part of the formal deal, so it is critical management take proactive measures to retain key people. Managers can neutralise top talent concerns with:
- Regular, transparent communication to update employees on changes and invite inputs on the change to help instil a sense of confidence, trust, and buy-in from the individuals.
- Reassure key talent of their continued status to put fears of inferiority and job loss into perspective.
- Rewards. Motivating top talent to stay with the new organisation may include offering retention bonuses, increased base compensation, or equity.
Re-engage key talent
Merely stopping key talent from leaving the newly combined company is not enough to assure long-term business growth and strategic success. Those outcomes are driven by concerted management efforts to re-engage key talent during M&As. In every business, engaged employees are proven to improve profitability, customer service, and morale and reduce absenteeism.
Engaging key talent is everyone’s job. Yes, line management shoulder the lion’s share of work in motivating teams. Yet messages from senior leaders always influence engagement by key talent. As do HR programs to nurture employees, recognise performance, and manage a separation.
“Engagement goes beyond simply retaining employees; it fosters employee interest and enthusiasm for work, so teams are inspired to bring discretionary effort, including devoting extra time and energy.”
Specific to M&As, speed is defined as “the time it takes to make changes in the buyer, seller, or both and thus integrate the firms”. Transition speed takes careful handling. Too fast and things will break. Too slow and the anxiety around the change will threaten to derail the deal and the team. When the timing is just right, employees will easily accept the new company vision, embrace the culture, and self-motivate more effectively.