New Mercer anthology explores human capital side of M&A Mercer’s new anthology, Reflections on M&A: The human capital dimension, is a collection of articles that explores important human capital issues and challenges found in every business transaction. Written by Mercer M&A and Human Capital consultants around the globe, the new publication tackles issues ranging from culture and M&A communication to the people side of joint ventures and human capital issues in emerging markets.   Download a complimentary copy of the new anthology as well as individual articles from the publication Mercer presents M&A Ready™ workshops Mercer M&A Ready™ is a workshop for HR and other professionals responsible for identifying and managing the people issues vital to a successful M&A transaction. This workshop is designed to prepare HR professionals for the challenges an M&A presents by providing them with strategic focus, proven processes and valuable tools. By being better prepared, HR can make a critical contribution to helping the organization realize the full value of a merger, acquisition, joint venture, divestiture or other major business transaction.   Learn more and view a full schedule of M&A Ready™ workshops to be held in locations around the world in 2007     Main Human Capital Perspective page   For more information    Robert Bundy   +1 704 805 7488      Hiro Nishiguchi   +81 3 5354 1471      Bart Hermans   +1 704 805 7488

Q: Organizations frequently struggle to manage the people side of mergers, acquisitions or similar transactions. Why do they find it so difficult and why haven’t they mastered it yet?

Robert Bundy: Many organizations find the people side of transactions difficult because their focus up to closing is elsewhere. If you think about transactions – such as mergers, acquisitions, divestitures, spin-offs and IPOs – for the most part, they aren’t about people; they’re about financials. Sometimes these transactions are undertaken to acquire or enhance talent, but usually the motivation is related to improving financials and driving growth – and people are a secondary consideration or, at best, taken for granted.

Also, most transactions involve hugely complicated legal, finance, debt and tax structures and complex negotiations that usually get compressed into a tight time frame. So consideration of people issues often is pushed off until much later in the process.

The problem, though, is that once the deal has closed, the people side becomes the determining factor between success and failure. Organizations have begun to realize that paying attention to people after the close is too late. Some are starting to include people issues in the due diligence process, and some are even beginning to address the people component before the deal is announced.

Q: What specific people issues do organizations find most challenging today regarding mergers and acquisitions?

RB: While organizations involved in M&A transactions face a number of human capital challenges – including redesign of compensation and benefit programs and leadership assessment and selection – the biggest barrier to the productive management of people has to do with culture. By “culture” I mean what people in the workforce do – their behaviors – which then determines how the work gets done.

Logic would say that if two organizations are being joined, the intent is to produce something different from what would have existed had the organizations remained separate. But for the new enterprise to produce something different, people have to do something differently. Changing behaviors in organizations has proved to be the most challenging. I don’t walk into a meeting with an organization today without its leaders wanting to discuss “culture” in some form.

Q: Are there any aspects of culture that seem to be particularly vexing?

RB: Most organizations are still simply trying to define culture and figure out what it means for them. Many tend to focus on something narrow, such as conducting employee surveys, or they see culture strictly as a communication, change management or organizational psychology issue, rather than as the holistic organizational system that determines how the work gets done.

We’ve also found that most organizations think of culture as being determined by one thing and don’t recognize that individual behavior is driven by multiple factors, some internal and some external to the organization. Because of this complexity, cross-border transactions – which are dramatically on the rise – pose particular challenges for organizations. We’ve found that a buyer will often try to impose its own culture – its way of doing things – on the company it is acquiring, without thinking about which behaviors are driven by factors internal to the organization, such as policies and programs, and which are driven by social factors external to the organization, such as local customs and religion. Organizations are destined for failure if they think they can change behaviors that are a result of social drivers.

Another aspect of cultural change that causes difficulty for organizations is the emphasis on leadership. We frequently hear from organizations that culture is a function of leadership and that if leaders have articulated the vision and mission, then everyone in the organization will understand. I can’t tell you how many times senior leaders have said to me, “I’ve told them over and over again. Why don’t they get it?” While establishing cultural norms at the leadership level is critically important, those norms have to be modeled right down to the supervisory level where people actually work. Even when employees have read the vision statement, it is what they see a colleague or a manager doing that will determine what they do. So the modeling of behavior is necessary to embed a culture.

Q: What else do companies need to do differently if they want to be more successful in creating cultural change to support a business transaction?

RB: First, they have to understand that cultural change comes about through a holistic process – not a mandate or a one-time meeting – and that there is a series of things that must take place as part of this process. Second, they need to recognize that they are most likely to achieve sustainable change when people understand the rationale for what they are being asked to do. So, key to creating cultural change is to clearly identify and communicate the business rationale that underpins the desired change in behavior. Third, while organizations need to understand that it takes time for culture to become ingrained – often as long as three to four years – there are also actions that can be put in place immediately to support change. For example, companies can immediately set appropriate rewards and penalties in front of people. Over the long term, however, organizations can’t be totally dependent on carrots and sticks, which again is why linking culture to business outcomes is so critical.

Q: What can happen if companies don’t pay attention to culture and other people issues?

RB: Organizations that don’t pay attention to the people side of the deal early enough bear several risks, including spreading out the timing of the transaction, losing momentum, losing key talent that is critical to deal and long-term business success, experiencing a drop in employee engagement and productivity, and losing customers. People issues once were considered “soft” issues, but organizations have learned there are hard consequences to ignoring or mismanaging people issues during a deal.

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