It has become a cliché that most mergers fail to deliver value to shareholders or business owners. The most commonly acknowledged reason is that little or no account is taken of organisational culture or of the inevitable “people” aspects of what is inevitably a major business change. To paraphrase Einstein, why, therefore, do so many firms merge with apparent abandon, expecting to achieve a better result?
Leaving aside the likelihood of failure based on lack of attention to basic HR issues, why is it that company valuations are apparently so high? Could it be the lack of opportunities elsewhere for investment gains through rising share prices or reasonable dividend income?
A recent article by John Authers notes the “bondification” of investment portfolios. By that he is not pointing to the holding of bonds by asset managers but to the focus on assets such as infrastructure projects and property in the form of REITs, where there is a better flow of dividend income than that available elsewhere. Is this another way of asking “where has earnings growth gone and what will drive it in the foreseeable future?” For those looking to retire any time soon, are we in fact all doomed to work forever?
But let’s focus on the people aspects of mergers. There are both issues and opportunities. For the merging firms, it is an opportunity to look at people as potential assets and risk factors and not simply as cost items. If a firm has in place sound practices for evaluation and development of its people as well as a clear understanding of the strategy behind the merger, it will be clear almost immediately for whom there is a fit in the new world. This is uncommon in my experience.
Rather than looking to either fire everyone and start again or to find jobs for all and try to force the fit for many, a merger is an opportunity to reinvent the organisation in a form that is right for the future. That, too, rarely occurs, in my experience. That said, if the organisation is to avoid undue cost and also to avoid the distraction of potential litigation resulting from ineffective HR practices, it will be necessary to enable those who no longer fit to leave well: to leave as ambassadors rather than potential litigants.
Basic “outplacement” is perhaps not the answer to this issue. A more structured approach that allows time and space for each individual to step back and re-examine their career choices and future direction, giving themselves permission to do more than a similar job elsewhere in the same industry can be enormously liberating and help to avoid both management distraction and unplanned cost in the future. Perhaps these issues should form a part of the valuation process of any merger?