Role of HR in M& A

8/6/2019 Role of HR in M& A

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It is clear that you cannot stay in

the top league if you only grow

internally. You cannot catch up justby internal growth. If you want to

stay in the top league, you must

combine.

- Daniel Vasella, CEO, Novartis

In the long run


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Arjun Deswal (156)

Anil Deokar (168)


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Flow

Introduction

The Status of GTB

Synergy Activities to be performed by HR

Pre-merger & Post-merger issues

Key Shortcomings

Mismanagement issues in the deal


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OBC GTBReactive v/s Proactive


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Global Trust Bank

GTB was struggling with Regulatory issues for

4 years, when it identified UTI Bank to merge

with.

RBI pulled the plug & imposed a 3 month

Moratorium on GTB.

OBC was identified to amalgamate with GTB.

Was OBC to gain out of it?


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A Market Extension Merger

OBCs gains

Market presence in South & East India

Wide chain of Automated Teller Machines A differentiated clientele

Technological edge

But the real question is: must a strong public sector bank

always take up the tab of rescuing a weak private sector

bank?


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Synergy

Synergy is the magic force that allows for enhanced cost efficiencies of

the new business. By merging, the companies hope to benefit from the

following:

Staff reductions - As every employee knows, mergers tend to mean job

losses. Consider all the money saved from reducing the number of staff

members from accounting, marketing and other departments. Job cuts

will also include the former CEO, who typically leaves with a

compensation package. OBC in a fix.


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Synergy

Acquiring new technology - To stay competitive, companiesneed to stay on top of technological developments and theirbusiness applications. By buying a smaller company with uniquetechnologies, a large company can maintain or develop acompetitive edge.

Improved market reach and industry visibility -Companies buy companies to reach new markets and growrevenues and earnings. A merge may expand two companies'marketing and distribution, giving them new sales opportunities. Amerger can also improve a company's standing in the investmentcommunity: bigger firms often have an easier time raising capitalthan smaller ones.


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M&A activity presents a different set of

challenge for the human resource managers inboth acquiring and acquired organizations.

Nothing was in the hands of GTB employees.


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Major activities to be performed by HR

Developing key strategies for a company's M & A

activities. Does it happen with a PSU?

Managing the soft due diligence activity. No TalentManagement.

Providing input into managing the process of change.

Advising topmanagement on the merged companys

new organizational structure.


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Human Resource issues in Mergers &

Acquisitions

The human resource issues in the mergers and

acquisitions (M&A) can be classified in two

phases they are:

Pre-merger phase

Post- merger phase


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Pre Merger Phase Issues

The pre acquisition period involves an assessment of the

cultural and organizational differences, which would include

i) organizational cultures,

ii) role of leaders in the organization,

iii) life cycle of the organization, and

iv) the management styles

The mergers often prove to be traumatic for the employees of

acquired firms; the impact can range from anger to

depression.


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The other issues in the M&A activity are the :-

i) changes in the HR policies,

ii) downsizing & layoffs,iv) survivor syndromes,

v) stress,

vi) information system issues etc.

The human resource system issues that become important inM&A activity are:-

i) human resource planning,

ii) compensation selection and turnover,

iii) performance appraisal system,

iv) employee development and

v) employee relations.


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Post Merger Phase Issues

The post acquisition is found to have serious impact on the

performance of the employees during the period of

transition.

The M&A leads to stress on the employee, which is caused bythe:-

i) differences in human resource practices,

ii) uncertainty in the environment,

iii) cultural differences,iv) differences in organizational structure and

v) changes in the managerial styles.


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The uncertainty during the M&A activity diverts the focus of

employees from productive work to issues like job security,

changes in designation, career path, working in new

departments and fear of working with new teams.

The M&A activity leads to duplication of certain departments,

hence the excess manpower at times needs to be downsized

hence the first set of thoughts that occur in the minds of

employees are related to security of their jobs. The M&A activity also causes changes in their well defined

career paths and future opportunities in the organization.

Some employees also have to be relocated or assigned new

jobs; hence the employees find themselves in a completely

different situation with changes in job profiles and work

teams.

This may have an impact on the performance of the

employees.


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Key Shortcomings

RBI appointed M P Chitale & Co. for the

purpose ofFiscal & Workforce Due-Diligence

on the day of the merger, OBC never had an

opportunity to work on its terms.

NO Retrenchment. Only such employees to

leave who had not consented to work with the

Transferee Bank.

No Pay- Cuts for a minimum period of 3 years.


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Strategic Fit between M&A and HRM

It is important to have a clear understanding of M&A

strategies to be able to specify the role that HRM should play.

In order to consider the fit between M&A and HRM strategies,

and to help make sense of HRM challenges in the differenttypes of M&As.

They are of three conceptual tools:

i)Resources

ii)Processesiii)Values


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Resources are defined as tangible assets, such as money and

people, and intangible assets, such as brands and

relationships. In the context of HRM in M&As, decisions about

resources involve staffing and retention issues, with

termination decisions being particularly important.

Processes refer to activities that firms use to convert the

resources into valuable goods and services. For example, inthis case, these would be training and development programs

as well as appraisal and rewards systems.

Values are the way in which employees think about whatthey do and why they do it. Values shape employees

priorities and decision making.


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Best Practices Check ListAREA BEST PRACTICE

Leadership Identify the leaders in both companies.

Identify who will have leadership roles in the combined organization.

Transition Team Identify who from various departments within the combined

organization is going to be a part of the transition team.

Structure Finalize the organization structure for the merged entity in context of

operation size, products, etc.

Incorporate different structures and approaches.

Focus first on the broad top line structure, with detailed structures

evolving subsequently followed by detailing of roles and responsibilities.

Policies & Processes Compare and study HR policies of both entities and identify

areas of commonality and differences.

To the extent possible ensure no or minimum loss to

employees on account of changes in policies.

Consider all cost


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AREA BEST PRACTICE

Workforce

Rationalization

Handle redundancies with sensitivity in a phased manner

unless the issue is a large one.

Job Assignment Perform a competency assessment

Involve top team and key functional head in assessing the

suitability of individuals for roles

HR or an External Consultant play the role of challenging and

facilitation in a neutral way.

JobGrading/Banding

Pay attention to organizational culture, willingness ofleadership to implement, and HR ability to drive the process.

Ensure proper communication all through the exercise.

Alleviate anxiety and apprehension among employees.

Compensation Compensation comparisons by employees in both entities

are inevitable.

Company should be clear in its approach and philosophy

It is usual to align compensation structures.

Ensure no loss to employees because of compensation

changes.

Compensation announcement timing is important.

Retention. Create a retention plan that encompasses all of the above best

practices


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Mismanagement

Expectations were unrealistic.

Hastily constructed strategy, poor planning, unskilled

execution.

Failure to unify behind a single idea.

Talent was lost or mismanaged.

Rigidity.


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Major activities that are supposed to

be performed by HR

Creating transition teams

Overseeing the communications

Managing the learning processes

Re-casting the HR department itself


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New roles for the HR leader

Partnership

Change Facilitator

Strategy Implementor

Strategy Formulator

Innovator

Collaborator


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Thank You

Documents

Role of HR in M& A