Doing a Merger? It’s Going to Hurt—a Lot!

September 20, 2016

Doing a Merger? It’s Going to Hurt—a Lot!

(But Perhaps You Can Reduce the Pain a Little)

Mergers and acquisitions are in style again. Last year was, according to The Wall Street Journal, “the Biggest M&A Year Ever.”

Anheuser-Busch InBev is buying SABMiller. Charter Communications acquired Time Warner Cable. Dow Chemical is trying to merge with DuPont. Dell bought EMC. Heinz merged with Kraft. Anthem and Cigna are trying to merge, as are Humana and Aetna.

The jury’s still out on whether 2016 will beat 2015, but the list of mergers just keeps getting longer.

When one of these colossal collisions is announced, human resources executives struggle to find ways to maintain employee engagement during the creation of the new, larger firm.

They can’t.

Maintaining morale during so much disruption is a practical near-impossibility. Mergers leave marks on the people involved, sometimes permanent ones. The best way to face the challenge of navigating through a merger is not to underestimate the forces, emotions, and consequences involved.

There are actions that can be taken to reduce the damage and improve the odds of a successful merger, but the question in these cases is always how much of a hit the employees are going to take, not whether they can escape it.

A merger or acquisition is a combination of two businesses intended to make the combined firm worth more than the component companies. It’s the result of a comparison of benefits and costs, both measured in dollars.

Employee engagement is never monetized in these deals, however much it should be. If it were, it would be one of the “costs” the dealmakers were willing to incur to gain the benefits. One of these “benefits” in nearly every merger or acquisition is the savings to the combined firm through the elimination of jobs wherever the two firms’ capabilities are redundant. “After mergers, always come layoffs,” NYU Stern School of Business professor Robert Salomon told Time magazine in March.

Dow announced in June it would lay off 2,500 people and close some facilities before the merger goes through. Kraft Heinz laid off a similar number of people and closed seven plants. Anheuser-Busch InBev is targeting 5,500 jobs after it acquires SABMiller. You get the idea.

Trying to maintain engagement during a merger is largely an attempt to have the company avoid the natural consequence of the ownership’s decision. For those sent packing, there is no more employee engagement because each is, by definition, no longer an employee. For those who survive (and the research indicates their brains will process it as a form of survival), the effects can be dramatic.

That said, there are those who experience these upheavals as negative events that nonetheless pass and others whose trust of and commitment to the organization will never recover. With enough latitude, there are several actions HR professionals can take to reduce the damage.

Clarity. These deals are almost always reached in secrecy and announced before all the implications are fully understood. The first question that hits employees when they hear the news is, “How does this affect me?” The sooner employees know who their manager will be, what their new duties will be, and where their new office will be, the sooner the anxiety decreases.

Transparency. Human nature fears an ambush, whether by a bear or by a press release. The more information employees have about the coming changes, as soon as possible, the less catastrophic they will perceive the event. When a company is legally barred from making announcements or the decisions have not been made, executives can still, most often, discuss the possibilities, talk about how any decisions will be announced, and talk about the factors upon which the decisions will be made.

Empathy. Many employees know there’s little HR or their managers can do to change what’s happening. They nonetheless appreciate leaders acknowledging the pain. Sometimes small, symbolic acts have an out-sized effect on people’s heart rates. One airline that acquired a competitor told its newest pilots they could no longer wear the leather flight jackets that had been a source of pride at their old company. The decision saved no money and simply irked the pilots. It lacked empathy. It hurt engagement.

The firms who broker these deals make massive commissions. The executives with stock options usually do well also. The stockholders of the acquired firm usually make out well. In most cases, it’s only fair that some of that employees who were, through no fault of their own, displaced to create a more valuable company and who are, through no choice of their own, taking the hardest hit to make it so, get a generous financial cushion.

Some firms will calculate that given they have no need for these former workers, they have no incentive to pay generous severances. Yet all the “survivors” know how their former colleagues were treated on the way out. Firms that cut people loose with minimal help during the transition send a strong signal to those who remain to leave soon on their own terms.

For all the urgency with which these mergers and acquisitions are done, all the business reasons employees are told the deals make sense, they fail about half the time, depending on how they’re scored. The trail is littered with the likes of AOL Time Warner, Daimler-Chrysler, Kmart + Sears, Sprint + Nextel, eBay + Skype, and dozens of other “ideal combinations” that turned out to be less so in practice.

In many cases, the merger failed because it was a better idea in concept than in practice. In other cases, the chaos created by how the company treated both those it terminated and those it hoped to keep was so great that too small a proportion of people cared whether the combined firm succeeded. They were all too busy looking out for themselves.

Mergers that succeed do so because the combination both makes sense on paper and is handled with the utmost consideration for what the employees are experiencing—with clarity, transparency, and empathy.

The Authors: 

Rodd Wagner is a Forbes contributor and New York Times bestselling author. His most recent book is Widgets: The 12 New Rules for Managing Your Employees As If They’re Real People. He is vice president of employee engagement strategy at BI WORLDWIDE. Connect with Rodd on Twitter @Rodd_Wagner or on LinkedIn https://www.linkedin.com/in/roddwagner.