Dr. Ian Kessler (Fellow at Green Templeton college and Reader at Said Business School, University of Oxford) explains to Keshia Sirohi how one can deal with the challenges in the arena of M&A
MA and PhD in Industrial Relations from Warwick University, Dr. Ian Kessler is currently a Steering Committee member, Point of Care Programme, King’s Fund. He has researched extensively on major funded research programmes, including ‘Strategic Choice and the Development of New Forms of Employment Relations in the Public Service Sector’, ‘Employee Communication and Consultation in Transnational Companies’, ‘The Recruitment and Retention of Senior Managers in Local Government’ and ‘Assistant Roles and Changing Job Boundaries in the Public Services’.
Q. What are the factors that influence the decision-making when a company opts for a merger or an acquisition?
A. M&As are typically driven by two considerations: synergies and complementarities. Synergies arise where companies in similar product markets or delivering similar services feel that a merger will provide shared benefits as a consequence. And, complementarities are mergers between organisations producing very different goods or services, and where a company might wish to diversify and enter new service
product markets.
Q. Once the decision is made, which stakeholders are involved from day one? What role is each expected to play?
A. This will vary hugely among companies and indeed countries where governance structures vary considerably, affecting whether employee representatives are involved or kept informed about a merger. It is very unlikely that the finance director would not be involved from day one. The involvement of HR directors for the outset is more uncertain. If issues of branding are crucial to a merger, marketing directors might also be involved early on.
Q. When is the right time to communicate the decision to the employees? And, what is the best way to communicate it?
A. The timing of communication to employees is crucial. Organisations do not want to let employees know before merger plans have a solid basis and raising the merger too early with employees is likely to generate uncertainty, confusion and worry. At the same time, organisations do not want to let employees know too late, ruling out the possibility of getting some feedback. One way to address this dilemma is to let employees’ representatives know quite early on about the possibility, but ensuring that these representatives are discrete and given this information in confidence.
Q. During a merger, how is the ‘psychological contract’ with employees impacted?
A. The psychological contract relates to employee expectations, and it is crucial that organisations manage their employees’ expectations from the merger. Often employee expectation derive not from whether the impact on them is ‘positive’ or ‘negative’ per se, but from whether the consequences are aligned with what they expected. So. if the merger results in considerable upheaval, the impact on the employees’ attitudes and behaviours is likely to be more measured and less negative if employees expected these upheavals. Therefore, it becomes crucial for organisations to shape employee expectations about the outcome of the merger and guard against making promises they might not be able to meet. This in turn requires it to look for systems, such as communication channels, which shape employee expectations, and search for ‘contract makers’, like line managers and employee representatives, who are opinion leaders. Indeed, briefing these contract makers and opinion leaders about the mergers and its consequences is likely to be crucial in shaping the employees’ psychological contract.
Q. According to you, how can we create a synergy between the pay and reward structure of the organisations involved in the M&A?
A. Companies need to treat pay systems following a merger with care. They are faced with a dilemma: a new pay system is a very powerful way of developing a new culture following a merger; at the same time employees are sensitive about changes to pay systems, with any sudden and unexplained changes likely to generate considerable employee worry and discontent. This suggests that changes to pay systems following a merger should not be rushed and any changes finally implemented need to be well thought and clearly communicated. It also suggests the importance of providing guarantees that any changes to the old pay system will not have detrimental consequences for any employee.
