HR integration in mergers and acquisitions: a study of the process and its determinants

Abstract

Huge amount of capital involved in mergers and acquisition activity has raised the stakes of all the stakeholders involved. From the shareholders, senior management, employees and customers of merging, acquiring and acquired companies to investment banks and other parties involved, everyone anticipates substantial monetary/non monetary returns. Post- merger analysis reports, though, have not been very optimistic about results. Both- academicians and practitioners claim that more than fifty percent of deals fail to create value for their shareholders. Such high percentage of failure, considering the amounts involved, results in losses tantamounting to billions of dollars. Reasons for failure that have been identified range from economic/strategic factors like paying more than intrinsic value of the acquirer or overestimation of synergies to organizational behaviour/HR related factors like cultural incompatibility, insufficient communication, unnecessary changes in the acquired and non or inadequate involvement of leaders. It is probably dissatisfaction of employees that leads to value erosion in the wealth of shareholders. Many authors like Allred, Boal and Holstein (2005), Marks and Mirvis (1998), Galosy (1990), Schweiger, Ivancevich and Power (1987), and Jemison and Sitkin (1986) identified factors like loss of hierarchical status, clash of cultures, arrogance of the acquiring firm, obsolescence of knowledge of parent firm, parting with trusted subordinates and colleagues, loss of compensation, change in job definition and career plans and relocation or transfer and loss of job for being major reasons for employees discontent after a merger or acquisition. Due to presence of employee related issues and stress, role of human resource department becomes critical. Schweiger and DeNisi (1991), Pablo (1994), Hanson (2001) and Galpin and Herndon (2000) suggest early involvement of HR leaders in the merger process and interventions like timely communication, early establishment of new organization structure and removal of role and job related ambiguities. Despite all these suggestions and inputs, integration process is not known to be similar for any two mergers or acquisitions, and organizations vary in the importance they pay to suggested HR interventions.