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Merger most torrid

first_imgMerger most torridOn 1 Jun 2001 in Personnel Today Comments are closed. Related posts:No related photos. HRchiefs have a major role to play in any successful merger. As Tom Lester findsout, it is up to them to mould the prospects of the amalgamated organisation bycherry picking the best talent from both companies  HarassedHR directors may see some welcome relief in the current decline in the volumeof mergers and acquisitions. Nothing is more disruptive and stressful than amessy takeover, with the HR staff left to pick up the pieces. But the long-termtrend in M&A activity remains relentlessly upward, and the ability to makethe contribution that a sizable merger demands has to be part of the HRtoolkit. Inthe past, M&A was regarded as a peculiarity of the Anglo-Saxon way ofbusiness, with its emphasis on short-term performance and the rights ofshareholders over those of employees. These issues remain open, but in recentyears, many industries, from pharmaceuticals to the automotive industry, haveconsolidated and are then faced with the challenge of radical restructuring andtechnological change. GlaxoSmithKline and DaimlerChrysler are two cases inpoint. But an increasing number of industries now favour achieving global scalein a few products as their strategic goal, rather than national scale in many. Eachbig M&A move has a kind of ripple effect, as the logic, once workedthrough, points to further disposals and amalgamations. When the UK’s Vodafonetook over Mannesman, it wanted only the fast-growing mobile phone network thatthe company had built up in Germany. It had no interest in Mannesman’straditional steel and engineering interests, so these were sold on. Evenwithout these secondary deals, the number of large cross-border M&As inEurope alone (as the table on page 12 shows) has climbed almost exponentiallyin the past decade from just two to 109. The first quarter of this year showeda 30% decline compared to quarter one last year, but no one doubts that thereare more deals in the offing. The banking industry for one, in spite of thestring of amalgamations over the past few years, is still regarded as ripe forfurther rationalisation. HR directors cannot therefore afford to be caughtunprepared. Itis widely seen as a paradox that in spite of the growth, according to KPMG,anything up to 70% of acquisitions fail to create value, and around halfactually destroy it. As in the disastrous BMW-Rover merger, mismanagement ofthe human side and the underlying cultural differences are usual reasons forthe poor record. However, the fallacy in the figures comes from assuming that”creating value”, however measured, is the board’s principalobjective. Building a dominant position in a chosen world market, such as Ciscoand its 70 acquisitions has done in electronic network equipment, is oftennearer the mark. Creating value from the acquisitions can come later. Perhapsquite a bit later in Cisco’s case.WhetherHR directors can help improve the M&A success rate, or bring forward thepoint at which additional value is created, therefore depends on how close theyare to the strategic direction of the company. The starting point has to be”What is the purpose and logic of the bid, and how best can it beachieved?” The situation is different, of course, if those directors areon the receiving end of a bid, but they may still be called upon to help bringthe two parties together – and are more likely to keep their job if theirexpertise is seen to be crucial to success.Notall HR chiefs, whatever their title, are close enough to the group strategy,nor expert enough on the capacity of senior managers, to fulfil it. Even ifthey are, the secrecy and speed that often surrounds the bid negotiationscondemn them to a secondary role from the outset. So HR should be on both ends ofthe bid and should therefore make preparations. The quality and culture of theexisting managers is probably the critical factor. The time taken to assimilatea purchase, and their prospects if it is their company that is being bought,will depend on their competences. Onegroup HR director who saw the future in these terms is Scottish Power’s PaulPagliari. In 1999, he was able to convince the executive committee that itsstrategic plans depended heavily on the quality of the senior managers of thisformerly state-owned utility. An acquisition in particular would require a newrange of skills. So a Management Asset Valuation was carried out with the helpof consultants Whitehead Mann GKR, assessing its top 20 managers andbenchmarking them against the consultants’ database. Pagliariwas very satisfied with the result, “We liked the process, which wecouldn’t have done ourselves. We used it not as a selection tool, but as anincentive. It showed that we have strong management assets, but there were someareas we needed to address.” Within a matter of months, Scottish Power hadpurchased Pacificorp, an Oregon-based power company, effectively doubling thesize of the group. Pacificorp’s top echelon retired or moved on as part of thedeal, so Scottish Power had to be able to manage it from day one, and urgentlyneeded to know which of its managers were capable of doing that, as well asco-ordinating the two units. Themoment such a deal is done – or, as is often the case, agreed in principle butawaiting the regulators’ approval – the senior management and HR team have togo into overdrive, well-prepared or not. The usual course of action is to setup an integration team to decide on the structure, key appointments and so on,and oversee the integration of each function. The overriding aim is to keepboth companies operating efficiently while building a new organisation capableof delivering on the CEO’s promise to the shareholders. Theloss of critical staff, key managers etc at this stage or later can destroyhopes of synergies overnight. In some cases, of course, losing the old guardmay be rated an advantage, but the success of the Daimler-Chrysler merger, forone, has been threatened by the resignation of key US managers and mutualincomprehension of management styles. Deutsche Bank, for another, had toabandon its attempt to take over Dresdner Bank and its Kleinwort Bensonoffshoot due to the strife between rival investment bankers.Identifyingthe key people early on is therefore vital – some firms manage to do thissurreptitiously before the bid – and communicating with them in particular andthe rest of the organisation in general is a vital and urgent part of the HRrole. When the pharmaceutical companies Astra in Sweden and Zeneca in the UKmerged two years ago, recalls HR vice-president Tony Bloxham, “Weidentified a long list of critical people round the world – several hundred –to whom we said ‘You’re highly regarded – hang in there, you’ll have a role.’”Bloxhamclaims it was the first pharmaceutical merger not to lose market share, and anumber of rivals have taken its success as their benchmark. Two furtherfeatures of the operation stand out. One was to apply, with Egon Zehnder’shelp, consistent management standards across the organisation, irrespective ofcultural and educational differences. The other was to communicate thesestandards via the intranet along with 60 questions to be used in the interviewsto ensure the selection was made in an open and transparent way. Manyof the so-called authorities on M&A, particularly from the US,underestimate the cross-border complications in a merger, and indeed oftenignore the obvious problem that one party cannot know how the other party’smanagers rate against its own, especially if they live in another country. Sosenior managers rely on the people they know, increasing the sense ofunfairness and uncertainty among the others, and probably losing many ablepeople in the process. Managementaudits are a valuable tool in this context (see box opposite). Using externalconsultants may be expensive, but they can provide a valuable insightrelatively quickly into how well the competences of managers on both sidescompare with each other and with global standards, and how well they are likelyto match the strategic challenge ahead.Checklist for M&As–Keep as close to the strategic thinking of the chief executive as possible. Aimto ensure the competences of the senior managers match his ambitions.–Be prepared for a merger or acquisition. Be ready with nominations for anintegration team.–Plan the new structure through the integration team with top appointments beingmade early on. –Aim for a realistic timescale.–Expose the tough decisions and obtain agreement.–Where conflicts arise, be ready to have senior managers independently assessed.–Be realistic about salary and bonus expectations, but aim for a unifiedstructure.–Assess cultural differences and implications.–Communicate with all staff as much and as early as possible. Recognise and meetworries over jobs, location, culture, pensions, bonuses, etc. ManagementauditsTheseare a European invention which are slowly gaining popularity in the US. Thepioneer is the Swiss search consultancy Egon Zehnder, closely followed byWhitehead Mann GKR. Theyclaim to offer unbiased assessment (insofar as that is possible) of individualmanagers, EZ does it by interview alone, WM by a combination of interview andpsychometric tests. The assessments, set against a common set of criteria, canbe applied globally. They have the resources to process a large number ofmanagers very quickly – around 200 is the practical maximum – and can comparethe results with their databases to give an international benchmark to each personand to the group. Even if the merger falls through, the results can be veryuseful. Companies that use them claim a success rate of 90 to 95%.Somefirms find the conclusions helpful – they believe they know the capabilities oftheir own staff better than outsiders ever could and anyway, it is the companythat is left to deal with the implications of the ratings. Also, they areexpensive – around £5,000 to £6,000 ($7,500-$9,000) per head – so even a giantlike GlaxoSmithKline (see page 18) used them in its recent merger only wherethere were several candidates for one job.Furtherinformation…–Egon Zehnder International: www.egonzehnder.com– Watson Wyatt Worldwide: www.watsonwyatt.com– KPMG: www.kpmg.com– McKinsey: www.mckinsey.com– William MMercer: www.wmmercer.com Previous Article Next Articlelast_img read more