Making takeovers easier to swallow

An emergency general meeting last week brought the fate of battle-scarred mortgage bank Northern Rock closer to a conclusion. Whether it ends up in private or state hands, for the 6,000 staff left facing yet more weeks of uncertainty over their future, the eventual deal may well look more like a sell-out than a buyout.

Despite estimates that between 50% and 80% of all mergers and acquisitions fail because of cultural incompatibility, mergers and acquisitions activity – M&A in City parlance – has reached fever pitch, says Scott Moeller, chief executive and director of executive education at the Cass Business School. He believes that job losses of between 5% and 15% are now the norm after such deals.

Uncertainty principle

From the ongoing acquisition of ABN Amro by Royal Bank of Scotland and the recent swallowing of My Travel by Thomas Cook, to the repeated predatory assaults on household names such as Sainsbury’s or Marks & Spencer, there can be few employees untouched by the fashion for mergers.

At software company Oracle, whose acquisition of arch-rival PeopleSoft in 2005 led to more than 5,000 job losses, vice-president of HR EMEA (Europe, the Middle East and Africa) Vance Kearney says: “Uncertainty is the biggest killer of morale and motivation, and speed is the single most important action in any merger or acquisition. The sooner people know where they stand and what their role in the combined entity is, the sooner they can direct their energy into serving customers, rather than worrying about the future.

“Sadly, laws designed for retaining and retraining unskilled factory workers are unsuitable for skilled staff whose interests may be better served by a generous severance payment and a quick exit,” he adds.

In high-profile ‘rescue’ missions such as Northern Rock, it is not always possible to keep staff informed of progress with potential suitors. Not only are negotiations conducted in utmost secrecy, but there are strict City rules on what can be disclosed, Kearney explains.

“In Western Europe, extensive consultation obligations unnecessarily prolong the period of uncertainty for staff effectively preventing employers from informing them about their employment status for many weeks,” he says.

“Other laws governing redundancies can mean that employees who have lost their jobs continue to work for many months after being notified.

“Ironically, the very regulations that are intended to help employees can prolong the misery and damage morale, both of those staying with the organisation and those being shipped out.”

But despite the difficulties, Steve Daniels, director of HR, corporate markets, at Royal Bank of Scotland – whose 2000 takeover of the far larger NatWest Group is, in financial terms at least, seen as a textbook case study – believes it is possible to strike secret deals without losing the trust of top talent.

“As custodians and culture carriers, HR should be given a pivotal role in M&A activity and should be given access to the top tier of decision-makers,” he says.

“It is our job to ensure that directors are reminded of how it feels to be an employee and how anxious they may be feeling about their job. If you disenfranchise your employees – the very people who have made your organisation strong – then you will find yourself in deep trouble,” he adds.

Now close to formalising a £49bn consortium deal to buy the Dutch bank ABN Amro – Europe’s biggest ever banking takeover – Daniels says HR’s prior experience with NatWest staff is being put to good use.

“From day one of the deal being struck, HR has worked closely with the communications team to ensure that we are relaying a consistent message to both our workforce and to ABN Amro staff. We believe that as with the NatWest deal, we have been successful at allaying fears and winning hearts and minds.”

Exclusion zone

“Our communications strategy has been to focus on our shared vision and values, the key strategic importance of the deal, and our prospects of growth for the future. Why would anyone want to leave?” Daniels asks.

While RBS group HR director Neil Roden is one of the most influential figures in HR and naturally has what Daniels calls “a voice at the very top of this organisation”, there always comes a point where only a few people are privy to the very fine details of an acquisition. Yet if the groundwork has already been done, HR’s sudden exclusion from the final stages of negotiation need not be a problem.

“Early on, we sold the story about bringing the two organisations together and we’ve always been honest about the possibility of job losses once we actually get in to ABN Amro and see how things look from there,” says Daniels.

“While we never lose sight of the fact that for both sets of staff, the big question is whether or not jobs will still be there, the complexity of the deal means we can’t answer those questions as quickly as we might like this time around.”

In November, when Richard Branson’s company Virgin Money had its eyes on buying Northern Rock, the entrepreneur took out full-page ads in national daily newspapers to showcase his £200m takeover bid. Although ostensibly aimed at Northern Rock customers, the move was interpreted as a ‘charm offensive’ aimed at both the government and existing staff.

Yet to Chris Bones, the principal of Henley Management College, who has been intimately involved in a number of big-money deals such as the £24bn Grand Metropolitan/Guinness merger, which formed Diageo a decade ago, national press ads are “a highly ineffective way” of getting an M&A message across.

Premature speculation

Bones says: “If Branson’s real target was the government, I don’t think it worked. If it was staff, then it was wholly premature, as predators have no right to talk to other companies’ employees until a deal has actually been struck.

“Any firm with sense will involve HR in a takeover from day one simply because it is a proven way to get a better change outcome.

“Staff will always want to know what you know, and even if you aren’t able to tell them everything because of confidentiality, or perhaps don’t even know all the finer points yourself, they prefer information with gaps in it to no information at all,” he says.

“Tell people the principles you will be applying when it comes to allocating jobs and give them a likely time-frame. In my experience, saying nothing can create a very dangerous vacuum,” he adds.

Even if a firm involved in M&A activity has an established HR team in-house, it may make sense to look outside for external expertise, says Bones.

“Get the best HR help you can and don’t assume that the current HR team can do the job for you,” he says.

“HR has a pivotal role to play in lessening the grief cycle and making things as painless as possible for the individuals losing their jobs.”

Bones concludes that – just like the rest of the staff – if the HR team hasn’t been through a merger situation before, it’s unlikely to be able to manage the process without expert help. Sending out the right messages, at the right time, will make the process less painful for everyone concerned. Then it’s on to integration – and that’s where the real work begins.

Dealing with the media

It is the financial media’s job to speculate on likely M&A activity, but until a deal has been accepted by shareholders, a predator or ‘victim’ firm can only refuse to confirm or deny. Outright denials of deals that turn out to be incorrect may imply that a firm is untrustworthy in general.

Most employment contracts forbid staff from speaking to the press without permission, but in all takeover situations, there will be ‘informed sources’ from within the ranks of the staff who will always be more than willing to tell journalists what they know.

Witch-hunts to find the ‘mole’ will be unhelpful if staff are already feeling unsettled.

If you reinforce the fact that staff and shareholders will be first in line for concrete information, journalists will usually respect this. They too understand there is a clear pecking order.

Never let internal and external messages deviate from each other. Contradictory communications are the best way to raise more media interest.

Surviving a high-profile turnover

Institute for Employment Studies associate director Valerie Garrow offers the following tips to staff facing mergers or takeovers:

  • Update your CV and highlight your skills and competencies useful if you find yourself redundant but also if you have to reapply for your own job against internal competition.
  • Consider whether you really want to stay – an M&A is a good opportunity to leave without too much explaining to future employers.
  • Remember that survivors can find themselves on the losing end as they see colleagues get better jobs elsewhere while they themselves struggle with an ever-increasing workload.
  • M&A’s can provide lots of opportunities for career progression people who remain positive and support new managers are an asset in difficult times.
  • Instigate a discussion around the new psychological contract with your line manager – establishing expectations and obligations and being clear about what you want to achieve.
  • Ensure that you have some external support among family and friends. Takeovers are stressful times and it is important they understand what you are going through at work.
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