Major HR implications of international mergers


Human Resources refer to people working in an organisation. According to Child, Faulkner & Pitkethly (2001) HRM (Human Resource Management) is defined as 'The range of policies and practices used to facilitate integration, commitment, flexibility and the quality of working life, as well as meeting broader business goals such as changing organizational values, structure, productivity and delivery mechanisms.'

Mergers and Acquisitions (abbreviated as M&A) refers to 'the aspect of buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity' (wikipedia,2009).

Mergers and Acquisitions (M&A) have received increasing importance in recent years due to the complexities involved in managing it. Studies have shown that two out of every three merger deals have failed (Piekkari, Vaara, Tienari & Santti, 2005). And one of the reasons for failure of M&A is the poor handling of human resource (HR) and employment - related issues (Rees & Edwards, 2009).

HR Implication

Until recently, HRM was not given its due importance, especially in the early stages of M&A (Aguilera & Dencker 2004). While much thought was given on financial and strategic issues in the early stages of the merger process, HRM was only considered at the integration stage after the merger was implemented.

In Mergers and Acquisitions, HR usually involves a wide range of planning issues such as talent management, retention initiatives, determining transition strategies to move people to new roles; provide training and re-skilling, outplacement processes and policies, determining the new management team, the direction for the new organisational culture, the leadership style for the new organisation, designing the communication strategy for staff, appointment criteria for new positions, development of the contract terms of employment for the new entity and determining work environment and work location issues(Ajoy Mukherjee, 2008).

The Human Resource issues that become more significant in Mergers and Acquisitions are recruitment and staffing including termination, training and career development, personnel appraisal and compensation and reward policies including promotion (Child, et al., 2001).

In order to make sense of HRM challenges in M&A Aguilera & Dencker (2004) depend on three conceptual tools. They are:

  1. Resources
  2. Processes
  3. Values

Resources include tangible assets like money and people and intangible assets like brands and relationships. Decisions regarding resources involve staffing and retention issues as well as termination decisions. Processes refer to activities that firms use to convert the resources into valuable goods and services. For example, training and development programmes as well as appraisal and rewards systems. Finally, values are the way in which employees think about what they do and why they do it. Values shape employees' priorities and decision making (Aguilera & Dencker, 2004).

Mergers and acquisitions present a whole new set of problems in front of Human Resource managers. A survey in 2002 revealed that HR managers in most companies were not competent enough to support their company in an event of merger (Personnel Today, 2002). There can be a clash of interests while combining the set of 'beliefs' and 'values' of the two merging companies. However, Cisco Systems Inc. is one of the very few companies who were able to address these issues in a right manner and become successful (Child, et al., 2001). Cisco appointed a team to study every aspect of the acquired company (Cerent) and tried to integrate it with Cisco's culture. As soon as Cisco took control of Cerent, it gave every member of Cerent a title, bonus plan, health plan, job guarantee for a year and telephone numbers and e-mail addresses of Cisco executives. Cisco also gave a good price for Cerent stock held by Cerent's employees. This is how Cisco motivated and retained its employees in the new merged firm.

It is clearly evident from research that the nationalities and cultures of the two merging companies have a huge impact on the outcome of the new (post-merger) company (Edwards & Rees, 2003).

According to (Hall and Soskice, 2001 & Gospel and Pendleton, 2003 in Aguilera & Dencker 2004) nations can be divided into two market systems. They are:

  • Liberal market economies (LME)
  • Co-ordinated market economies (CME)

Liberal market economies depend on market conditions like demand and supply forces whereas Co-ordinated market economies depend on the relationship between employees, suppliers, customers and financial institutions. This basic difference between two market economies poses a huge challenge for companies planning to merge, especially if they are from each of the market economies mentioned above.

There are cases where the two companies in the same industry follow different HR staffing policies (Richard Donkin, 2003). Even being in the same industry, merging of companies with different HR staffing policies is a very complex issue.

Common corporate language has an important HR implication in cross-border mergers. Decision on the common corporate language in the new merged company should be taken carefully otherwise it is likely to have disastrous effects. The case of the Nordic merger between the Finnish Merita Bank and the Swedish Nordbanken clearly demonstrates the disastrous effects (Piekkari, et al., 2005). They decided to have Swedish as the common corporate language. This led to 'us' and 'them' culture. Finnish speaking employees were placed in a disadvantageous position as they could not express their views in the meeting and this had a great impact on the performance appraisal. This case also demonstrates how career paths and promotion opportunities were prone to be dependent on language. Many talented Finnish-speaking employees left the organisation as they couldn't cope with language change. Even the language skills of Finns who were fluent in Swedish were often not appreciated by the Swedish colleagues. This case shows how the common corporate language unintentionally hindered the integration process of the merging firms.

Communication especially with the employees is another important HR implication of Mergers & Acquisitions. Effective employee communication is a long-term and ongoing requirement which is never easy, especially with an international audience (Edwards and Rees, 2003). It is a traumatic situation for the employees of the acquired company and most often, employees learn about the Merger or Acquisition in the press or on television rather than hearing the message from the company (Edwards and Rees, 2003). The usual impact is high turnover, decrease in the morale, decrease in motivation, productivity leading to merger failure. Therefore, there should be a two - way communication and all the available media - electronic, paper, face to face should be used to ensure that message is communicated to all the employees at all stages.

Role of HR

HR Function plays a significant role in the success of a merger, only if it is given adequate attention at all stages of the merger process - the initial planning stage, including due diligence, the closing of the deal, and the post-merger integration stage(Stahl, Pucik, Evans & Medenhall, 2004).

There are several issues that need to be considered in the merger process which comes under the purview of HR function (Evans, et al., 2002, in Stahl, et al., 2004). They are:

Assessing culture:

The organisations should have an in-depth understanding of the cultures prevailing in both the organisations (merging organisations). This will help them chalk out future cultural dynamics and address issues as two organisations merge.

Undertaking a human capital audit and selecting the management team:

Comparing the compensation policies, benefits and labour contracts of both organisations and deciding on which practice would prevail in the post-merger organisation will help reduce future conflicts. This includes selecting the post-merger management team as well.

Effective communication:

During the period of merger, there is often stress and anxiety among employees regarding their future (Janet Murray, 2004). In order to avoid this, the organisations should train employees to cope up with stress and anxiety. Information should be transparent and should be communicated to employees either by lunch gatherings, company intra-nets, e-mails, etc. A positive assurance about the employee's future from top executive will be beneficial.

Retaining talent:

Retaining talent is one of the challenging issues HR function faces in event of mergers. Talented employees tend to leave the organisation anticipating that there will be pay cuts. Without effective and open communication, one-to-one relationship with high-potential employees and financial incentives like bonus, stock options it is difficult to retain talented employees who are essential for the success of merged entities.

Creating the new culture:

The cultivation of the new culture in the merged company should be carried out in a systematic way. First and foremost new roles and responsibilities should be established. The second step is to focus on coaching and training so that employees can develop the desired competencies. The third step should focus on recruitment, succession planning, and rewards. Last but not the least, the organisation should fine - tune the merged companies into a coherent whole.

Managing the transition:

The post-merger period is the most delicate process. At this stage it is recommended to have an Integration Manager supported by a few transition teams who can guide the integration process and make sure if the key decisions are taken at the right time. The main objective is to communicate the new shared vision of the merged companies among its employees and establish practices which are in compliance with the vision. New Jersey-based Cognizant decided to have a dedicated HR person to support its M&A activity as it realized the importance of HR in its merger process (Workforce Management, 2008).

Learning atmosphere:

Time should be taken out to understand and engage with the two merging firm's employee practices and structures should be created where knowledge from one firm could be transferred to another firm in the merger process. This will help the merged firm gain employee's co-operation (Edwards, 2008). Post-transition employee satisfaction surveys should be carried out and the feedback can help address specific concerns and ensure smooth functioning (Ajoy Mukherjee, 2008).

Managing Change:

Change is a natural result when two firms merge. There are stages through which employees normally go. First, the employees don't like to adapt to changes and they go in a denial mode. This is followed by a period of self-justification, when employees present their reasons for rejecting change. The next step is exploration where employees start to realize that there is a possibility of improvement and start to have a new approach to challenges. Finally, the employees are ready to move out of their comfort zone, to face the bigger challenge (Janet Murray, 2004). During this phase, adequate training should be given to employees so that their run through this phase is smooth.


The very essence of the existence of an organisation is its people i.e. its employees. Managing them effectively will generate shot-term and long-term benefits (Edwards & Rees, 2003). For a long time, Human Resource was a neglected part, especially in Mergers and Acquisitions. But now, senior executives have realized how significant Human Resource Management is in the success of Mergers and Acquisitions and have started regarding it as a valuable asset. They have realized that integration is not complete and successful until employees are satisfied. Last but not the least, it should be kept in mind that no two deals in Mergers and Acquisitions are similar. Though experiences and learnings can be borrowed, absence of careful planning and execution involving all the stakeholders can turn out to be a deadlock (Ajoy Mukherjee, 2008).


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  • Financial Times (2003) 'Trouble with the HR pieces that fail to fit: Many mergers run into problems because managers and employees on each side have markedly different ways of doing things, says a new survey Richard Donkin'11th December: 7.
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