7
Human Resource Management in the Context of Mergers and Acquisitions
Introduction
Since the mid-1980s, mergers and acquisitions (M&As) have been a popular strategy for organizations to survive, expand and gain competitive advantage in an increasingly complex business environment. However, M&As often fail to achieve the anticipated organizational outcome, not because of financial or strategic reasons but because of the poor management of people-related issues (e.g. Schuler and Jackson 2001; Waring 2005; Stahl et al. 2013). This chapter examines a number of specific human resource management (HRM) problems and challenges encountered in domestic and cross-border M&As. It draws on empirical examples of extant studies on M&As in different organizational, industrial, national and international contexts to illustrate the complexity and difficulties M&A partners may experience. It also outlines some of the key HR activities throughout the M&A process. In doing so, the chapter reveals the dynamics of political, institutional, cultural and psychological factors at play in post-M&A integration.
The terms ‘mergers’ and ‘acquisitions’ are often used interchangeably in the literature. However, in this chapter, a ‘merger’ is used for the combination of two entities into a new organization, whereas an ‘acquisition’ is ‘the takeover of a target organization by a lead entity’ (Marks and Mirvis 2011: 874–875). We use the term ‘merger’ or ‘acquisition’ when discussing specific cases, and the term ‘M&A’ for more general discussion. A merger has been likened to an entity that consists of two animals, whereas an acquisition may take place in either a friendly or a hostile manner. This indicates the daunting task of post-M&A integration. Cross-border acquisition is a popular form of foreign direct investment (United Nations Conference on Trade and Development 2013). This enables the acquiring firm to access various resources and fulfil its strategic goals in the host country (e.g. Lin et al. 2009). However, cross-border acquisitions tend to be politically sensitive, particularly when they involve key industries with natural resources and national security implications, as was demonstrated in several failed attempts by Chinese firms to acquire business stakes in various parts of the world (e.g. White 2005; Garnaut 2009). Even when acquisition deals have gone through, post-acquisition integration may present insurmountable challenges, as discussed below.
This chapter consists of three main sections. The first identifies the political and socio-psychological dimensions of M&As and how organizational and national traditions may be affected following an M&A. The second section highlights a number of M&A-related challenges to HRM which may have a knock-on effect on post-M&A integration and organizational performance. In particular, we focus on organizational identity and employee commitment, and the integration of organizational culture and cross-cultural management issues. In the third section, we provide insights into the strategic and operational role of the HR function, what factors may impact on its role, as well as some of the HR activities in M&As.
The political and socio-psychological dimensions of M&As
While M&As often take place for business reasons to enhance shareholders’ value, such as creating or strengthening corporate competitive advantage through the acquisition/synergy of resources, accessing new markets and/or products, lowering cost and so forth, M&As ‘are inevitably also a political process’ (Olcott 2008: 1570) that is ‘best understood as a manifestation of the struggle for corporate control rather than merely the search for immediate profits’ (Walter 1985: 302). Very few M&As are conducted on an equal footing in reality. And staff within the ‘weaker’ partner, especially the acquired business, are often expected to adopt the procedures and practices of the dominant entity in the new set-up. Even when new rules are developed in the new set-up, the acquired staff may feel that their voices are less heard. Such a perceived power imbalance not only affects the socio-psychological wellbeing of the staff, but also influences their workplace behaviour in the post-M&A integration. As Olcott (2008: 1570) argued, ‘political arrangements play an important part in explaining the organizational outcome’ of M&As.
For example, Marmenout’s (2011: 803) experimental study of collective rumination, ‘defined as repetitively and passively discussing organizational problems and their negative consequences with a group of peers’, found that such workplace behaviour could lead to employees’ dysfunctional reactions to mergers. Such reactions often derive from employees’ experience of fear of uncertainty, perception of lack of control, and anxiety of job losses or deterioration of employment terms and conditions. These feelings are common in major organizational changes, particularly when information that is relevant to the affected employees is limited and perceived to be untrustworthy.
By contrast, Melkonian et al.’s (2011: 830) study of the Air France–KLM merger found that perceived distributive justice ‘has had a significant and lasting influence on Air France–KLM employees’ willingness to cooperate’, although it was more than a year before ‘perceived procedural justice progressively emerged as another powerful predictor of employees’ willingness to cooperate’. The same study revealed that commitment from the top management (CEOs) to open communication and positive management behaviour are instrumental in shaping employees’ willingness to ‘cooperate with each other in a respectful, fair, and trustful manner’ (Melkonian et al. 2011: 830). Melkonian et al.’s (2011) findings underline the importance of managing employees’ distributive justice perceptions through the adequate distribution of justice-relevant information related to M&As and management behaviour, especially during the early stages of an M&A.
In an international acquisition context, post-acquisition changes may weaken the institutionalized national employment system embedded in the acquired firms. For example, Olcott’s (2008) case study of Japanese firms that have been taken over by Western firms found that the new management did not favour two distinct Japanese corporate norms: commitment to lifelong employment and seniority-based rewards. While the new management did not openly challenge the traditional system, their attitude ‘led to a general erosion of the legitimacy of institutionalized practices’ (Olcott 2008: 1582).
M&As and key challenges to HRM
While M&As continue to be an important corporate activity in the twenty-first century, the ability to create and harvest value from them is largely contingent upon the ability to retain and mobilize the human resources of the entities involved (Kiessling et al. 2012). M&As are major organizational changes, and, as such, inevitably present HRM challenges. In this section, we will discuss a number of key HR issues, drawing on empirical studies from various national and industrial contexts. We focus on issues related to organizational identity and employee commitment. We also highlight problems that stem from cultural differences. For clarity, some of the challenges to HR practices will be discussed in the next section, which covers HR activities.
Organizational identity and employee commitment
Existing research evidence suggests that employees’ reactions to M&As tend to vary, underpinned, amongst other things, by the employees’ perceptions of the extent to which their pre-M&A organizational identity has been eroded (van Dick et al. 2006). Employees may find themselves confronted by the question ‘Who are we?’, particularly when two rival organizations with very different histories, cultures and practices merge (Clark et al. 2010). ‘Identity ambiguity’ may trigger a cognitive process amongst employees in an attempt to change identity; it may also give rise to counterproductive socio-political forces in the organization (Clark et al. 2010). Equally, frustrated organizational identification and poor adjustment to the new identity may lead to distorted workplace behaviour and work attitude, particularly amongst lower-level employees in the acquired or the weaker merger organization (Makri 2012).
For example, Maguire and Phillips’ (2008) study of two large insurance companies in Citigroup revealed that the ambiguity of the new organization’s identity undermined institutional trust. Meanwhile, Wickramasinghe and Karunaratne’s (2009: 708) study of bank mergers in Sri Lanka found that, although employees did not feel ‘as if they had been given false promises, the merger encouraged them to look for employment opportunities elsewhere’ in part because of a loss of organizational identity. Cho et al.’s (2014) study of 222 employees in a merged Korean company also showed that employees who feel disadvantaged in organizational resource allocation (e.g. pay, promotion and job transfer) as a result of post-M&A integration may exhibit dysfunctional behaviour, such as withdrawing job effort and expressing an intention to quit. By contrast, van Dick et al.’s (2006: 77) study of the merger of two hospitals in Germany suggests that post-merger identification is positively related to employee attitudes and behaviour in that employees who have a strong identification with the new entity ‘are more satisfied, less likely to withdraw and more willing to put in extra effort’. The authors conclude that ensuring a sense of belonging among the workforce and providing a positive basis for employees’ social identity are key to the success of a merger (van Dick et al. 2006: 77).
Integration of organizational culture and cross-cultural management
Integration is a key aspect of post-M&A activities that may have a profound impact on individuals’ lives and organizational performance. Pucik et al. (2015: 257) pointed out that ‘the concept of “integration” has different meanings depending on the strategic logic’ that underpins the M&A. For example, they differentiate acquisitions into five categories: preservation acquisitions; absorption acquisitions; reverse mergers; best of both; and transformation. According to Pucik et al. (2015: 257), while true integration involves the capture of ‘hidden synergies by sharing and leveraging capabilities’, many post-M&A integration processes are in fact ‘assimilations’.
In recent years, research into the success and failure of M&As has moved from the traditional focus on financial and strategic factors to the role of socio-cultural and HR issues in the post-M&A integration (Björkman and Lu 2001; Cartwright and Price 2003; Marks and Mirvis 2011; Stahl et al. 2013). Cultural clashes and a failure to create a new corporate culture following the M&A have often been cited as the main reasons for the failure of domestic and international M&A deals (e.g. Teerikangas and Véry 2006; Weber and Tarba 2012; Stahl et al. 2013). This is because cultural mismatch undermines the development of trust and commitment, the alignment of strategic goals, and knowledge sharing/transfer (e.g. Drori et al. 2011). In unequal mergers and acquisitions, ‘the dominant culture may be perceived as threatening and thus be rejected by the less dominant culture’ (Drori et al. 2011: 628).
In domestic M&As, studies have largely focused on the (in)compatibility of organizational culture – for example, norms and values shared within the organizations engaging in the M&As (Stahl et al. 2013). Cultural differences between M&A partners have been found to result in reduced top management commitment and cooperation (Weber et al. 1996). It should be noted that not all domestic M&As are initiated by corporate leaders. In the 1990s and 2000s, many governments (at both national and local levels) have taken the initiative to merge public sector organizations, such as schools, universities and hospitals, in a bid to improve efficiency, accountability and service provision. In such mergers, organizational leaders often have very little influence over the process of merger and post-merger integration. As Kavanagh and Ashkanasy’s (2006: S81) study of the mergers between three large multi-site public sector organizations in Australia revealed, ‘in many cases the change that occurs as a result of a merger is imposed on the leaders themselves, and it is often the pace of change that inhibits the successful re-engineering of the culture’.
In cross-border M&As, studies of cultural difference tend to focus on the national level, highlighting cultural distance and incompatibility as key factors for post-M&A integration difficulties or M&A failure (e.g. Cartwright and Cooper 1993; Björkman et al. 2007; Drori et al. 2011; Stahl et al. 2013). For example, Dameron and Joffre’s (2007: 2053) study of the integration team that was created to manage the post-merger integration of France Telecom Mobile and Orange UK found that the coexistence of the French and English cultures was ‘never seen as an opportunity, a differentiation and a source of creativity’. Rather, ‘cultural diversity was always experienced by the members of the integration team as a difficulty to overcome’.
In reality, cultural mismatch in international M&As is compounded by organizational as well as national cultures, even for ostensible mergers of equals. The Daimler–Chrysler merger is an often-cited example that illustrates how the operational and managerial differences between the German and the American companies led to the dominance of the German approach, which consequently led to Chrysler employees’ disillusionment and undermined ‘employees’ shared understanding of every aspect of the organization, from strategy to employment practices’ (Drori et al. 2011: 626).
Difficulties created by socio-cultural differences may be exacerbated by language barriers. As Teerikangas and Irrmann (2013) observed, the absence of a shared native language slows down cooperation, causes misunderstandings, and inhibits the development of a trust relationship. Here, the language barrier is not just linguistic but also cognitive and socio-cultural. This is particularly the case when a large number of expatriates from headquarters are sent to work in the acquired business units overseas. For instance, a Japanese energy (gas and oil) corporation acquired (part of) an Australian firm (an A$40 billion project). The new business unit consists of nearly 100 Japanese expatriates (all male), 500 (mostly Australians) employees and another 600 contingency workers. Japan is a relatively homogeneous nation, whereas Australia, being an immigrant country, is a multicultural society. It was reported that the Japanese managers lacked cultural sensitivity when dealing with the multicultural workforce. Other reported cultural differences included: the Japanese consensus approach versus the Australians’ direct approach; and the Japanese slow meeting style versus the Australian quick and direct style. The Japanese expatriates tended to be deficient in English and received little prior training to prepare them for the Australian corporate world. Similarly, the Australian managers and key professional staff did not receive cross-cultural training after the acquisition to enable them to work effectively with their expatriate colleagues (author’s interview with Australian HR manager 2014).
Nevertheless, not all cultural differences are detrimental to M&A successes. Cultural differences, rather than similarities, may form the basis for M&A partners to learn from each other to create synergy, expand the corporate knowledge base, and complement each other. In their study of corporate capability transfer, Björkman et al. (2007) found that a moderate level of cultural distance may create space for mutual learning and synergy realization, as long as the cognitive and normative gaps between the partners are bridgeable. It is also important to note that in post-M&A integration, cultural distance may evolve over time, although ‘the measures of cultural change require development’, as Stahl et al. (2013: 337) observed.
Given the significant role of culture in underpinning the success or otherwise of M&As – often measured by the post-M&A performance of the new entity – researchers of M&As have proposed a number of (new) research angles to pursue. For example, Teerikangas and Véry (2006: 2053) propose, ‘instead of studying the simple performance impact of cultural differences in M&A’, we should consider ‘how cultural differences impact on the M&A process and its outcome’. They further argue that it is important to examine, from different intellectual perspectives, the coexistence and dynamics of sub-cultures at various levels as well as the interconnections and interactions between levels of cultures in order to develop a more nuanced understanding of the organizational culture reality in the M&A context.
Similarly, Drori et al. (2011: 629) suggest that the notions of cultural pluralism and cultural ambiguity may be seen as ‘the hallmark of cultures’ in the post-M&A integration context when the new cultures constructed by the M&As are contested, negotiated, and made sense of in ‘an unsettled organizational period’. On a more optimistic note, based on their study of a merger of equals in the high-tech sector, Drori et al. (2011: 625) argue that social actors entering the merger may ‘enact a culture of equality’ by developing ‘new aspirations and patterns of appreciation’ and initiating ‘practices and strategies that construct equality as an integral part of the merger’. This action ‘transforms the meaning of “a merger of equals” to a more practical, pragmatic, and integrative equality, which takes into account the interests and the needs of the merged firm’.
Role of the HR function and HR activities in M&As
Given the centrality of HR issues in the success or otherwise of post-M&A integration, the role of HR is both strategically and operationally critical (e.g. Faulkner et al. 2002; Schroeder 2012). However, existing research has highlighted the fact that the HR department is often not (or at least insufficiently) involved in the strategic planning of the M&A, and the HR professionals often lack competence in handling HR issues related to the M&A (e.g. Jeris et al. 2002; Björkman and Søderberg 2003; Antila and Kakkonen 2008; Wickramasinghe and Karunaratne 2009; Barratt-Pugh et al. 2013).1 A number of authors have proposed HR frameworks and guidelines that cover different stages throughout the M&A process (e.g. Schuler and Jackson 2001; Marks and Vansteenkiste 2008; Schroeder 2012; Teerikangas et al. 2015). For example, Teerikangas et al. (2015) divide the HR function into two categories: strategic and transactional. For the strategic role, the HR function needs to participate from the outset in ‘strategic decision making and transformational leadership’ (Teerikangas et al. 2015: 446). For the transactional role, the HR function involves facilitating the post-M&A integration of HR policies and practices, such as payroll, benefits, rewards and pensions (Teerikangas et al. 2015). In this section, we discuss the strategic and operational role of the HR function as well as some of the HR activities that the in-house HR team may carry out as part of the post-M&A transition and integration.
Factors influencing the role of the HR function
Extant research has revealed several elements that have constrained the role of the HR function in the M&A process. First is top management’s lack of awareness of the strategic importance of HR involvement, and therefore their low expectations of the strategic contribution of the HR function (e.g. Teerikangas et al. 2015). Instead, the HR function is expected to deal with specific HR matters arising from the M&A (e.g. Björkman and Søderberg 2003). For example, Tanure and Gonzalez-Duarte’s (2007: 381) case study of bank acquisitions in the Brizilian context showed that:
the top management, in particular its CEO, played a critical role in guaranteeing a consistency between discourse and practice concerning the relevance of people in both deals and, in consequence, opening the possibility for HR managers to play a more strategic role.
Second, the role of the HR function and specific HR issues are contingent upon the strategic intent of the M&A (e.g. Aguilera and Dencker 2004; Gomes et al. 2012). Third, the expectations of the role of the HR function amongst other members of the organization and how these expectations are met may affect the role of the HR team (e.g. Aguilera and Dencker 2004). Fourth, the strategic role of the in-house HR team may be hampered by the deployment of external business/HR consultants to facilitate the M&A management for various reasons (e.g. Antila and Kakkonen 2008). Fifth, if the M&A is small in scale and affects few people, or if the two entities remain separate both geographically and in their business orientations, with limited interactions between the two partners, then the HR function in the M&A may be limited (Antila and Kakkonen 2008). Finally, the speed of the M&A may affect the role of the HR function, as well as that of other functional teams, in the pre-M&A analysis (Antila and Kakkonen 2008).
Nevertheless, Antila and Kakkonen’s (2008: 293) case study of the international M&A of three Finnish companies found that, while ‘top management support has an impact on the role of HR managers in an organisation it does not determine the role of HR managers in the IM&A process’. Instead, the ‘most important factor affecting the roles of HR managers was the ability of HR managers to show the importance of HR-related issues in the IM&A process’. This capability, as the authors observed, needs to be demonstrated in the HR team’s competence in their day-to-day work and in their ability to provide HR guidelines and frameworks in the M&A situation and communicate these throughout the organization. Similarly, Barratt-Pugh et al.’s (2013: 761) study of the merger of two Australian state departments with very different cultures concluded that the HR department should ‘focus on a strategic approach and not use all resources and energy on selection, grievance and out-placement activity. The emphasis should be on visibly leading the change, not on mopping up the casualties.’ More broadly, Correia et al.’s (2013: 330) study, which draws on the 2005 Cranet survey containing data on HR policies and practices in private and public sector organizations in thirty-two (mainly European) countries, shows that in the case of bidder acquisitions, ‘HRM strategic involvement and a shift of responsibility from line managers to HRM managers boost organizational performance’.
Gomes et al.’s (2012) study of nineteen merged banks in Nigeria at the peak of banking sector mergers in the country in the mid-2000s echoes some of the above findings, as they found that ‘HRM issues are important during both pre- and post-merger phases’. According to these authors, while post-merger ‘integration approaches appear to vary significantly between merging banks’, for mergers involving fewer banks that succeeded (many more complex and larger mergers failed), ‘certain HRM themes emerge as being of particular importance to overall outcome’. These included: ‘(1) the quality of HRM due diligence, (2) the existence and handling of regional cultural differences, (3) the extent and quality of communications, and (4) the use of integration advisors to facilitate the process’ (Gomes et al. 2012: 2891).
HR activities
Strategic alignment
Of all the HR activities related to M&As, strategic alignment of the HR strategy with the business strategy is perhaps the most important to enhance the likelihood of M&A success (Aguilera and Dencker 2004). This includes the analysis of what types and level of human resources are needed, where they can be sourced, how their performance is evaluated and rewarded, what attitudes are required from the management and workforce, what type of organizational culture is to be promoted, and so forth. In the international M&A context, strategic HR alignment also includes whether, and if so how, the corporate HR strategy may be rolled out to – or adapted by – the overseas subsidiaries. In addition, given the cultural differences between the M&A partners and national settings, as discussed earlier, the alignment of the HR strategy and business strategy and the promotion of the corporate HR strategy in subsidiaries need to take into account the institutional, cultural and structural fit between the business units/partners.
Leadership/management development
Good leadership at all levels is crucial to successful post-M&A integration. For instance, Marmenout (2011) argues that while managers cannot prevent employees from discussing what may happen regarding the M&A amongst themselves (i.e. collective rumination), the managers can influence the way in which they discuss it through active involvement, distraction and positive leadership and therefore potentially reduce the collective rumination. For instance, they can encourage employees to ‘engage in problem solving by working on a suitable solution for a particular integration issue’; distract employees’ attention with pleasant or neutral activities; and provide positive leadership by creating an optimistic climate and developing trust relationships through open communication and timely diffusion of information (Marmenout 2011: 803). Similarly, Barratt-Pugh et al.’s (2013: 761) study of the Australian state department merger revealed the need for the HR department ‘to focus resources on how managers operationalised the project, by orchestrating supportive development activity that builds leadership capability. Such actions generated change agency that made the change happen.’ Schroeder (2012) also highlights the role of leadership training so that organizational leaders become champions of cultural change in post-M&A integration. Therefore, a key HR activity in M&A is to facilitate leadership development. In addition, international M&A as a form of expansion may trigger the need for a large group of expatriate senior managers and technical personnel with managerial responsibilities, as was the case in the Japanese–Australian energy case discussed earlier. This staffing arrangement creates training needs both ways: cross-cultural awareness and management for local staff and expatriate managers.
Communication
Open, timely and genuine communication is considered a must in change management to reduce uncertainty, mitigate negative attitudes amongst employees, develop shared understanding, perceived fairness and trust, and bridge cultural differences (e.g. van Dick et al. 2006). As Gomes et al. (2012: 2894) found, communication has helped develop inter-organizational linkages and mitigate the potential disruption of regional cultural differences in the Nigerian bank mergers in the process of enculturation – ‘the creation and maintenance of organizational cultures and the assimilation of members into the organization’.
Managing cultural change
The importance of managing culture in the post-M&A integration phase was highlighted earlier. As Marks and Mirvis (2011: 863) pointed out, the ‘message to HR professionals is to be proactive in putting culture on the agenda’, though their ability to do so is contingent upon the way the HR function is deployed in the M&A situation.2 According to Weber and Tarba (2012: 300), corporate culture analysis is ‘an important and influential milestone in the international business environment exploration’. In the cross-border M&A context, this involves ‘cultural difference assessment during all stages of the M&A, including screening, planning and negotiation and enhanc[ing] the effectiveness of interventions carried out during post-merger integration process’ (Weber and Tarba 2012: 300). Sarala et al. (2014) further argued that socio-cultural inter-firm linkages (e.g. complementary employee skills, trust, collective teaching, and cultural integration) between the merging firms influence the level of knowledge transfer in M&As, and that HR flexibility (e.g. flexibility in employee skills, flexibility in employee behaviour, and flexibility in HR practices) is vital for the development of socio-cultural inter-firm linkages in M&As. These views are echoed by Teerikangas et al. (2015: 442), who believe that the effectiveness of post-M&A integration in the cross-border context depends upon ‘the extent to which differences in institutions, national cultures and language are recognized’. And recognizing and accommodating these differences requires relevant HR interventions.
Training and counselling
M&A as a major organizational change may trigger a high degree of anxiety amongst the workforce due to the turbulence and uncertainty the event is likely to cause, as discussed earlier. Motivation, commitment and organizational identification amongst the employees may be negatively affected. This requires a range of HR interventions, including training and counselling, to help individuals overcome these feelings and adapt to the change. Such training and counselling need to be tailored to the specific needs of the employees and may be provided by external professionals who are specialized in dealing with post-M&A integration (see, e.g., Schroeder 2012).
Staffing issues
Labour turnover, both involuntary and voluntary, is a common HR outcome following a merger or acquisition. Creating synergy and reducing cost are often strategic goals of M&As. Downsizing is inevitable. Existing research has found that over-downsizing may lead to the loss of organizational competence and create skill shortages in the workforce, as was found in a study of M&As in the Australian coal-mining industry (Waring 2005). HR due diligence is needed to identify what skills and competences are required for the business and to determine how downsizing should be managed, as the latter tends to cause workplace stress, lower morale and voluntary turnover due to employees’ sense of violation of psychological contract (e.g. Hubbard and Purcell 2001; Waring 2005; Schroeder 2012).
Harmonization and transfer of HR practices
M&As may trigger the need for greater consistency of HR practices within the organization, such as pay and grading systems, pension and other welfare schemes, working time arrangements, leave entitlements, performance management systems, and so forth (e.g. Schroeder 2012). While harmonization of terms and conditions may be necessary in domestic M&As, transfer of HR practices may be attempted in international M&As for various reasons, such as dissemination of perceived good HR practice and standardization of corporate HRM for greater consistency and control. Existing studies of the transfer of HR practices have highlighted immense challenges to the transfer of HR practices from the headquarters to subsidiaries or across subsidiaries for political, institutional, cultural and/or organizational reasons (e.g. Rubery and Grimshaw 2003; Ferner et al. 2012). These challenges may be heightened in a cross-border M&A context. As such, total transfer may prove difficult to achieve; instead, partial transfer or adaptation may be more likely. For instance, Cooke and Huang’s (2011) study of changes and continuity in the performance appraisal and reward systems of four Chinese IT firms after they were acquired by US-owned multinational corporations revealed that while the performance management and reward policies of the acquired firms have experienced changes, the structure of compensation remains largely unchanged. There was a high degree of resistance amongst the Chinese managers to the adoption of more sophisticated performance appraisal techniques and to widening the wage band to differentiate employees’ performance. As a result, the post-acquisition strategic alignment of HR practices between the corporate and the Chinese subsidiaries was not achieved (Cooke and Huang 2011). Therefore, when transferring HR practices across national boundaries, a cautious and pragmatic approach may be necessary as full transfer may be unrealistic.
Employment relations and trade union negotiation
Where firms are unionized, consultation and negotiation with the union on a range of employment relations/HR issues, especially changes to employment terms and conditions, is another top priority for the HR function. While some organizations have a separate industrial/employment relations department to handle employment relations matters, this function may be assumed by the HR department in other organizations. In acquisition cases, the acquiring firm may not have experience in dealing with unions. This will increase the HR challenges in the post-acquisition integration. In a worst-case scenario, it may lead to serious damage to the business and the corporate reputation. The Shanghai Automotive Industry Corporation’s (SAIC) acquisition of the South Korean Ssangyong Motor Company is a case in point. Fuelled by the ambition to become one of the top six global automotive firms by 2010, SAIC acquired a 51 per cent stake in Ssangyong in late 2004. In January 2009, after a record loss of over US$75.42 million, the company was placed into receivership and acquired by the Indian Mahindra and Mahindra Limited in August 2010. Disruptions in production due to a series of strikes amongst the Korean workers, organized by a union leader with over twenty years of organizing experience, was a main reason for the SAIC–Ssangyong failure. The SAIC management had no experience of dealing with trade unions or industrial relations issues and therefore had difficulty in handling the Korean union and the workers’ militancy. Amongst other issues, the Korean workers’ resentment of and resistance towards SAIC were fanned by post-acquisition redundancies, work reorganization, SAIC’s alleged failure to provide promised investment and, later, its transfer of Ssangyong’s technology to SAIC researchers (Chen 2009).
Interim HR practices
During the M&A integration, organizations may undergo a major period of uncertainty while stock-taking and attempting to create synergies. Uncertainty under- mines morale and organizational commitment and increases staff turnover (intent). In order to retain and engage key employees, interim HR practices may be introduced to help the organization negotiate this period. For example, Clark et al.’s (2010) study found that creating a transitional organizational identity helps employees cope with the initial stages of the merger process and facilitates the creation of a new shared identity. According to Schroeder (2012), a bonus programme may be introduced to encourage the retention of key staff with skills and experience that are valuable to the organization. In addition, intrinsic methods, such as involvement in the development of integration plans, may be introduced. Finally, integration- related performance measures may be included in the performance management system so that individuals have a vested interest in achieving integration goals.
Conclusions
Mergers and acquisitions have been examined from a range of perspectives, including views from, for example, sociology, organizational behaviour, cross-cultural analysis, human resource management, and strategic management. Research studies of M&As have pointed to similar conclusions: that post-M&A integration tends to present enormous challenges to organizations and that HR issues are often obstacles to achieving M&A goals. In particular, the loss of organizational identity and cultural differences are two major challenges, especially for unequal M&A partners and cross-border M&As. M&A as a major organizational change may trigger multiple facets of emotional feelings amongst those who may be affected and result in poor individual and organizational performance. Establishing a ‘mutual understanding on the roles and responsibilities’, especially during unexpected organizational events, may help to develop psychological contracts and retain employees after the M&A (Kiessling et al. 2012: 88).
The role of the HR function in strategic planning, developing appropriate HR interventions and supporting line management is an important means to mitigate employees’ perceived organizational injustice in the M&A process, enhance their wellbeing, and secure their commitment and engagement. As such, the HR team needs to play a strategic, administrative, advisory and facilitating role throughout the various stages of the M&A. This requires the team to develop the capability to convince the top management of its strategic role and the capacity to secure organizational resources and support for the HR professionals to perform their multiple roles. However, existing research has pointed to a similar conclusion: that the in-house HR team needs to be more proactive and innovative in order to play a more strategic role and add value to the M&A. In addition, in the cross-border M&A context, developing an understanding of the institutional and cultural contexts of the M&A partners will help reduce the risk of post-M&A integration failure (Stahl et al. 2013). This is where the HR function can add value to the M&A process through due diligence.
Successful management of HR and cultural issues have profound implications not only for M&A organizations but also for research and conceptualization of the M&A process (Clark et al. 2010; Stahl et al. 2013). M&A scholars have identified a number of avenues for future research. For example, Stahl et al. (2013) suggest the following four main unresolved issues in M&A research:
- the whole process of pre- and post-merger;
- the role of cultural differences in the socio-cultural dynamics of M&As;
- the role of prior M&A experience as organizational learning in current M&As; and
- how to assess performance in financial, economic, strategic, executive and regulatory terms.
Clark et al. (2010) call for more insights into the cognitive dynamics of organizational identity in an M&A process to understand the complexity of organizational identity change during post-M&A integration. An important research question posed by Clark et al. (2010: 429) is: ‘under what conditions is organizational identity change facilitated by the emergence of a transitional identity?’ In a similar vein, Cho et al. (2014: 423) point out that more attention should be paid to examining ‘how turnover intention is formed in M&As with a more process-oriented framework that is applicable to employees of all ranks’.
Weber and Tarba (2012: 300) suggest that, instead of focusing only on post-M&A cultural integration, ‘consideration of cultural differences is also essential in making the choice of the right partner for M&A and should be assessed and measured during pre-merger planning and negotiation stages’. Teerikangas and Véry (2006: S35) also argue that research into cultural differences should take into account cultures that manifest at all levels and their dynamic interactions in order to understand how ‘diverse sources of complexity’ underpin ‘the relationship between culture and M&A performance’. They further call for research into the role of the integration strategy and the role of managerial efforts in mediating the culture–performance relationship. The knowledge of these issues is likely to be beneficial not only to the research community but also to organizations in their M&A activities.
Notes
1 See Teerikangas et al. (2015) for a more detailed discussion of the four scenarios of HR’s involvement in M&As.
2 See Marks and Mirvis (2011) for a detailed framework on how the HR function can work with business partners in managing acculturation in M&As to achieve the ‘cultural endstate’ by applying the change management model.
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