Employee Relations in Mergers and Acquisitions
| DOI | https://doi.org/10.1108/01425459310043324 |
| Pages | 47-64 |
| Published date | 01 April 1993 |
| Date | 01 April 1993 |
| Author | Gerald Vinten |
| Subject Matter | HR & organizational behaviour |
Mergers
and
Acquisitions
47
Employee Relations in
Mergers and Acquisitions
Gerald Vinten
University of Luton, UK
If
Max
[Beaverbrook] gets to Heaven he won't last
long.
He
will be chucked out for trying to
pull
off a merger
between
Heaven and
Hell ....
after
having
secured
a
controlling interest
in key
subsidiary companies in both
places,
of
course
(quoted in
AJP
Taylor,
Beaverbrook).
Although mergers and acquisitions activity in the
UK
has not been as feverish
of late as in the mid to late 1980s, elsewhere in Europe the process has been
speeding
up.
Mergers and acquisitions
are
considered
to be
an important aspect
of strategic financial
management.
Viewing
markets
from
a
dynamic perspective
it is argued that an efficient market for corporate control encourages firms to
redraw
their boundaries in
a
search for the best configuration of
assets.
Acquisition
and subsequent divestment are
not,
therefore
to
be seen as necessarily a sign
of
failure or
greed.
The threat of
takeover,
whether
it
materializes or
not,
is
regarded
as a vital discipline on management
[1].
At the same time mergers and acquisitions raise issues of public policy and
engender strong emotion. There are side effects that should not be ignored
[2].
Doubts
are
expressed
as
to whether the frothy and almost hysterical merger boom
such as has been witnessed is entirely healthy, especially when the cost is
considered,
which ultimately
is a loss to
the shareholder
[3].
There are few advanced
economies in which there is not regulation, whether compulsory, voluntary or,
as in
the
UK,
a
mixture.
The
language of takeovers suggests innate conflict, with
talk of attack and
survival,
greenmail, various defences, and golden parachutes
[4],
as
well
as poison
pills,
flip-in
pills,
proxy fights, street
sweeps,
and squeeze-
out mergers.
The human aspects of mergers and acquisitions are less well publicized but
can be devastating. They are ignored at one's peril
[5],
but are only likely to be
considered by
people
or organizations with
a
clear philosophy of business which
combines profitability, growth, care for people and the development of a decent
society
[6].
A conservative estimate is that
10
per cent of
the US
workforce may
currently
be
involved,
which
could mean
12
million people affected, with another
36
million in
close
proximity to those experiencing tension and trauma
[7].
The
effect on the consumer also needs to be reviewed, but this is not without its
difficulties, as
is
seen
in
a study of
the claims
of
the
Campaign for
Real Ale
about
the impact of mergers on the brewing industry, and the problem of sustaining
some
of the key arguments
[8].
We
examine
here the
relatively neglected human
aspects,
including employee
relations,
as
well
as whether the behavioural problems may be avoided or minimized Employee Relations,
Vol.
15
No.
4,
1993,
pp.
47-64.
©
MCB
University
Press 0142-5455
Employee
Relations
15,4
48
by adopting alternative strategies to merger and acquisition, which may attain
similar strategic objectives.
The Human Dimension
The human aspects of mergers and acquisitions are those most keenly felt and
anecdotally reported on, but least frequently reflected in the research, which
pursues quantification as if the whole business can be reduced to numerology,
the
business schools
having played a
role in
encouraging
this
one-sided emphasis.
It is to the credit of Rosemary Stewart and collaborators that they gave early
treatment
to this topic in
their in-depth study of four
case
histories,
showing that
there is a need for the parent company to do what it can to reduce uncertainty
and unnecessary fears
[9].
This
point
has been
more recently propounded by two
experts on organizational behaviour who assert that successful integration is
achieved through trust, rather than through prolonged anxiety or fear
[10].
This lack of emphasis is all the
more
amazing in view of
the
research finding
that an estimated one-third
to
a half of mergers fail because of human resources
problems.
Specific anxieties
include
diminished
job
security,
reductions
in benefits,
and reduced opportunities for promotion
[11].
Following
the
merger,
this readily
turns into increased turnover, especially among senior management
[12].
In the
heightened sensitivities in this period, rumours run riot, adding fuel to the fire.
The only way to avoid this is to ensure
open,
two-way communication with the
employees
of both
firms,
so
that they
do
not feel isolated from
the
merger process
[13].
It has been suggested that there are four approaches
to
measuring
the
success
or otherwise of
a
merger,
acquisition or divestment, and these use different methods
and represent different disciplines, which adds to the confusion of undertaking
the
evaluation
[14].
The accounting approach
seeks
to
assess
post-takeover return
on investment. The second, the economic approach, concentrates on measuring
efficiency gains, mainly through profitability. Both have produced generally
negative findings, although both are beset by methodological problems.
The
third,
the financial
approach,
which
is by far the most
common,
investigates
share price
changes.
The finding
tends to be
that the acquired firm's shareholders
gain considerably, but
when
it
comes to the
acquirers'
share
prices,
it
seems
that
there is almost an even split between those outperforming and those underperforming
the stock
market.
Again there are sufficient technical matters
to raise to keep
the
pundits fully
employed,
but
a
fundamental question is
the
extent
to
which share
prices can provide an adequate indication of performance. The fourth category,
the managerial, recognizes the poor outcome of many takeovers, and wishes to
identify factors which tend to lead to success or failure. Findings here are far
from conclusive, but centre on the notions of relatedness and synergy.
It can
be seen
that the human aspect
is
only one aspect of one of
the
less popular
categories, and
one
searches in vain in some texts to find any reference at all to
the issue. Researchers on mergers and acquisitions have paid some, limited
attention to the human relations implications of
the
activity
[15-18],
even in one
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