Mergers and acquisitions are not all about numbers — they’re just as much about people. Integration of employees and proper blending of company cultures are critical to success, and outstanding communication is the key. Without it, mergers can fall apart.
Advertising conglomerates Omnicon, based in the US, and Publicis, based in France, tossed out a $35 billion merger because of internal culture clashes and power struggles. Omnicon lost $1.5 billion of business in a single month as it struggled to deal with the problems. Daimler and Chrysler ended up undoing a $36 billion merger after enduring several painful years of culture clash.
To successfully merge cultures, the acquiring company must communicate frequently and effectively with employees at the target company before, during and after the merger.
Legal Consultation Requirements
Engaging in effective employee communications is not just a matter of business success. Many countries have legally-mandated employee consultation procedures, which may also require bilingual documentation. Failure to follow these rules can result in fines or even delays to the planned merger.
Timing of the consultations and specifics of who must be involved are dictated by local laws and collective bargaining agreements (CBAs), if applicable. Each country has its own regulations. Here are just a few examples.
- In France, the seller must consult with the employee works council prior to the transition. A works council, common in Europe, represents employees but is separate from a trade union. After a merger, employers can only terminate workers with cause, which is also true anywhere outside the US. In France, you must provide each employee with a written employment contract.
- Across Europe, if conversations about future restructuring or redundancies have been brought up as part of any planning, consultation deadlines may be affected. Employment protection principles applicable in automatic employee transfers typically dictate that redundancies are unlawful if correct procedures aren’t followed.
- In Germany, affected employees must be notified at least four weeks in advance of a transfer. Failure to provide them with the correct information can result in their remaining with the previous company. Collective bargaining agreements are strong in Germany, as they are throughout Europe, and define the parameters of wages, hours, benefits and termination requirements, which are vastly different from those in the US.
- In Japan, companies traditionally provide “lifetime employment.” Some aspects of job security are mandated by law. Transfers require employee consent.
HR requirements during and after a transfer vary considerably, even within Europe. It’s important to study local laws well in advance of a merger to gain an understanding of the environment you’ll be operating in, not only to avoid penalties and fines, but to make sure you are comfortable enough to proceed.
Communicating About Benefits
Severance and pension requirements are governed by local legislation. Benefits are often required to be effectively identical, but sometimes employee packages do change as a result of a merger or acquisition. Reasonably ensuring employee acceptance of any changes is critical to the transfer process. Changes can have a strong impact on your projected costs and on future labor relations.
Pay close attention to employment numbers before and after the transfer, and talk to insurance companies to get a handle on costs. Existing employees may be part of an organization larger than the new entity. A smaller workforce means a smaller pool, which entails greater risk for insurers. That means higher premium prices for you, and possibly for your workers. Not getting a handle on these costs in advance may result in serious financial difficulties later, not to mention employee ill will.
It should be added that it is not a quick task to obtain accurate benefits quotes, in part because insurance companies often demand answers to myriad questions. One way to facilitate the process is to identify existing benefits terms and conditions that must be replicated as soon as possible.
You should communicate with employees before the merger about benefits changes. Explain how the insurance cost structure works to avoid sowing seeds of resentment before you even get started.
Advise employees that benefits other than health insurance may not be immediately available. Car leases and other perks can only be provided if you have a local corporate bank account, which can take months to establish because of money laundering controls.
Well in advance of the merger, you should familiarize yourself with the transfer company’s HR policy, employee handbooks, sales and management practices, and bonus plans. And be sure to document any cases of impending employment litigation.
You should also visit the other company’s offices and try to get a feel for the culture. Is it top-down, or do mid-level managers and employees play a role in making decisions? Do managers communicate with workers through email, or are in-person meetings the norm? Does the company innovate rapidly and accept failures as a part of progress, or is it risk-averse and bureaucratic?
To find out, do employee surveys and hold focus groups. Have as many in-person meetings as possible to establish rapport.
In a cross-border merger, what may feel like communications overkill will prove invaluable once the deal goes through. You won’t be aware of all the differences in laws, language and culture until months or even years down the line, but demonstrating respect for them creates an atmosphere of good will and cooperation that will help to resolve inevitable problems as they arise.
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