Employee Communication During Mergers and Acquisitions

Jenny Davenport, Simon Barrow

• Publisher: Routledge
• Year: 2017
• Topic: Business
• eBook ISBN:
  9781317144274
• Subtopic: Business General
• Index: Business

Communication is the key to organisational success and nowhere is this truism more apparent than in the influence of internal communication during a transformational process as dramatic as a merger or acquisition. During the complex process of bringing the two sets of employees together, continuous effort is crucial for keeping in touch with how people feel; communicating information clearly across both bidder and target; and beginning the process of creating a new culture for the merged company. Communication is vital, but information on what to do when and how to overcome, or at least minimise, the practical problems inherent in trying to communicate at a time when there is often little news, and when so much must remain confidential is essential. Employee Communication During Mergers and Acquisitions provides a blueprint for your internal communication during a merger or acquisition, it contains checklists, examples and tables to help busy communication and integration teams by providing them with practical guidance and examples of what they should consider. The authors start with the genesis of your strategy and the statutory framework before the partner company has been identified, then move on to each of the stages of negotiation, merger announcement, pre-merger preparation, and in the critical first 100 days, following the merger. The book includes chapters exploring the process of developing the employer brand for the new entity as well as of measuring and building on the success of your strategy and is illustrated throughout by a range of case studies.

1 Stage One: The Strategic Need – Before a Partner is Identified

In this chapter we introduce the rationale and emotional background to the deal, so you as the communicator can understand top management’s processes in the early stages before a partner has been found. Next we look specifically at the communication challenges at this stage: your work with the top team; communication of long-term strategy; and ensuring that your communication channels are up-to-date and functional. The chapter will end with sections on key players, what employees are thinking and saying, the sorts of listening you need to do at this stage and the cost of getting it wrong.

THE EMOTIONAL BACKGROUND TO A DEAL

One of the ways that emotions underpin mergers and acquisitions is in the often unacknowledged importance of the chemistry at the top. In Hunt’s 1987 study for London Business School 31 per cent of his sample admitted that the major motivation for a merger or acquisition was personal or political rather than strategic. At some stage at the beginning of the process senior people meet, however informally, to start discussing the possibility of the deal. It seems that personal regard for, or a perceived ability to work with, the other party is often central to the deal going forward. In one case we know of, a target was identified quite early on and rejected after an intense, early due diligence process. The deal was, however, subsequently signed following a game of golf between the target owner and the bidder’s chairman.

Once a target is identified there is also a momentum which builds up from the advisers, which makes it psychologically hard to retreat. Many of the advisers during a merger or acquisition will earn more if the deal goes through. For others it is better for their CV to record their work on a deal than went through than on an abortive one. In other words, for most of your advisers it will be in their interest to see the deal through; they are unlikely to advise against it unless the case for pulling out is very strong. Once you have engaged advisers it can be hard to pull back. It is therefore essential that before a potential partner is identified, the acquisition team is clear about what are the required and desirable features of the potential target and what contra-indications would deter them.

Psychologically for the top team, too, it can be hard to draw back. For the target, especially if top management have publicly supported the deal, there is a danger that it can seem that the organisation is “in play” and that the current management team does not have the appetite to continue to run the company itself. For the bidder there may be a sense of having been thwarted in the execution of its strategy, itself a potential threat to the reputation of the current management. For both sides there will be a feeling that much time and energy, which could have been devoted to other activities, has been expended on a fruitless venture. Avoiding the pain of this waste can sometimes drive people to continue with deals even while part of them knows it is not the right thing for the organisation, and the deal goes ahead. All the more reason, then, to be absolutely clear about why you are looking for an acquisition rather than organic growth. The communicator can have a role in helping the top team think through the implications, in communication and reputation terms, of going for an acquisition strategy which falls through.

POSSIBLE REASONS FOR ACQUISITIONS

It is not the purpose of this book to cover strategy. However, in order to provide some context for the decisions about the deal, we list here the main strategic reasons why organisations embark on a strategy of acquisition. It is useful for the communicator to be able to convey these alternative reasons as part of the general education of the workforce in advance of the sighting of a specific target.

Typical reasons for an acquisition:

• To strengthen the organisation’s competitive position by building new capabilities or adding resources to existing businesses. This may be by moving into similar businesses in new areas geographically or by moving into a new technology, sometimes eliminating reliance on another party in the supply chain.

• To increase sales volume.

• To capitalise on opportunities by reducing costs through adding technology, eliminating overlaps and/or achieving economies of scale.

There are many such lists in the literature, with the various rational reasons for a deal. Marion Devine (2002) lists some of the less public or respectable reasons why companies really go for mergers or acquisitions. As the communicator, you need to be aware of which, if any, of these factors have influenced the top teams in your deal, so you can be prepared if they are rumbled by some of your canny internal audience. Devine’s list:

1. quest for bigness;

2. saving face (promised turnover of a certain amount by a certain date);

3. short-term pressure;

4. boredom;

5. fear of being left on the shelf;

6. copying other people in the sector;

7. CEO hubris (Columbia University found a correlation between CEO ego and low value extracted from acquisitions they made).

Sometimes acquisitions are driven by more negative forces: a need to acquire an organisation in order to prevent competitors from buying it and reaping competitive advantages, or the need to buy to make your organisation too big for a bigger predator to snatch up.

Clarity of Vision about the Purpose of the Merger or Acquisition

Many of the problems of losing value in integration can be put down to lack of clarity or variety of views about the purpose of the deal. As with any other major strategic development there is always a danger that there is no real agreement behind a form or words to which all can adhere. Employer brand consultancy People in Business is often called in when an organisation is experiencing problems with integration. Our work usually includes individual interviews with the key players and sometimes reveals that there was no real common understanding of the strategic imperatives behind the acquisition. Too often there are, in fact, quite different aspirations for the deal, which each imply a different way of running the new organisation.

The problem often arises at the level of language. People use the same words but mean different things. As the language adviser, the communication specialist needs to ensure that there is some common meaning under the common words. The best time to have these conversations is before an actual target has been identified so that emotions have not yet clouded judgement to quite the extent that they may do once personalities are involved.

The communicator has three roles before a merger partner, potential buyer or acquisition target has been announced:

1. attempting to ensure that the top team really are thinking along the same lines;

2. ensuring that there is managed communication rather than rumour or contradictory stories about the strategic situation;

3. ensuring that your communication channels are up-to-date and functional.

We will look at each of these in turn.

ENSURING THERE IS REAL COMMON UNDERSTANDING AMONG THE TOP TEAM

• Ask each member of the board or key acquisition team individually to write down the three top reasons for the acquisition and what they see the new organisation or two organisations looking like in a year’s time.

• Ask them to give examples of what they mean in real terms, such as relations with suppliers or customers, when they lapse into management jargon.

• Ask them to talk through moments of truth where value is created in the organisation.

• Present the findings back to the teams and make sure that the disagreements are fully thrashed out.

Once There is a Potential Target

There is usually some due diligence conducted even before approaching the target or entering full negotiations. Obviously, much of the work at this stage is on the commercial elements of the deal. There are three main concerns for the communicator. If a high degree of integration is sought the acquirer will need to be confident that:

• the culture of the target is not so far from that of the bidder that integration will be long and expensive;

• communication structures are in place which are credible and efficacious so that the early communication of the deal, which will be in the hands of the target’s management, does not poison people against the deal or cause so much worry that key employees choose to look elsewhere for work;

• there is a readiness for change in both parties.

The acquirer also needs to consider to what extent previous mergers, acquisitions or other major structural changes have been digested. This can be a problem in either the target or the bidder. Not only will this influence the amount of ongoing work needed in projects and so on, with all the attendant potential disruption for customers, but it will dictate the soundtrack that is playing in people’s heads before a word is communicated about a new prospective deal. If it went badly, would it be possible to distinguish a new deal sufficiently for it not to be tarred with the same brush? If, therefore, either party to the potential deal has recently been through a merger it is worth checking how the deal is thought of within the company and to what extent there are still integration projects continuing.

In advance of seeking a potential partner it can also be helpful to benchmark key aspects of the operation so that the due diligence team knows what sort of standards they should be looking for.

See Chapter 2: Stage Two for more information about due diligence.

Explaining the Future Silence

There are some very practical things that need communicating now, especially to senior people. In particular you should explain that the process of making a deal will have to be shrouded in secrecy as soon as a target is in sight. Only those who absolutely need to know will do so, so people are likely to feel out of the loop as others disappear to hotels or advisers’ venues. They need to understand that this is not a personal slight. Others in the organisation need to know that things will go very quiet once a deal is in sight, and that the first they will know of it is when there is an announcement of a statement of intent. This is not a failure of communication or lack of respect to the workforce; it is simply how this sort of deal is done.

ENSURING THERE IS EFFECTIVE COMMUNICATION ABOUT THE STRATEGIC SITUATION

Typically the first and main audiences for the strategic plans of the organisation are the City, your bankers and analysts. Investor relations communication specialists may be leading this communication. However, it is also important that you consider the internal audience and the audience of potential employees at this stage, too. If the organisation is a plc, it is likely that at least some of your employees are shareholders and read the annual report carefully for any hints about future strategic direction. Articles in the financial press will also be pored over in kitchens and over cups of coffee around the organisation; people will be talking about possible mergers, with varying degrees of ignorance and worry. There are two key tasks for the internal communicator at this time: to offer a coherent story about how the organisation sees its future and to explain to people the silence that will come about if ever a specific deal is in the frame.

Even if there is no deal envisaged, there is much to be said for internal clarity about the strategy the organisation is seeking to follow. In particular it can be helpful if you can enlist employees in the organisation’s noble purpose, such as the value of the goods and services. In the pharmaceutical industry, for example, organisations can stress the value of their products in curing illnesses and helping people to lead pain-free lives. GlaxoSmithKline’s mission, which features prominently on its sites and in its literature, is “Do more, feel better, live longer”. It helps people justify their working lives, and the often uncomfortable hours they may have to work, if they can feel that there is good resulting from it. This justification may be important both to themselves and to their friends and family.

Every organisation has some sort of story about the positive impact it makes on the world, even if it is only on the employees and the organisation’s suppliers. Usually there is more, as the organisation helps some group of people with some aspect of their lives. It is part of the communicator’s job to identify this higher aim. Even in its absence employees prefer to engage with an enterprise than merely to do their jobs. Bill Quirke (2000) cites the fact that 84 per cent of employees who understand what makes their business successful want to help create that success, whereas only 46 per cent of those who do not understand share that feeling.

How to Communicate Strategy to Employees

Communicating strategy is a quite different challenge from the more usual process of communicating an event or a decision. There is not the same time pressure, so it is possible to communicate in a more leisurely and engaging way. However, it is not easy to communicate, as employees’ previous knowledge or preconceptions vary and hence their understanding of any messages you send out will also be varied. The evidence suggests that communication of strategy is often unsuccessful. In a survey of Fortune 50 companies, 82 per cent of the executives believed that the corporate strategy was understood by all who needed to, while Bill Quirke quotes a Louis Harris survey which found fewer than a third of employees agreeing that “management provides clear goals and direction”.

There are two important elements in the successful communication of strategy:

1. The need to tell a convincing story. People think in stories and remember stories. Stories rather than lists of facts or reasons are how our minds work. We naturally try to select and organise facts in order to make a story. If the company does not tell a story itself, employees will make up their own versions.

2. The need to engage people in thinking through the strategy for themselves.

The Elements of a Good Story

There are a number of elements that make up a convincing story:

• Context: “Once upon a time … ”, the traditional beginning of a story, tells you where and when the story is to take place. Make sure the context setting is not missing from internal communication. Do not assume that employees have the same version of factors facing the company as the leaders of the enterprise. The best house newspapers now carry as much information about the industry and issues facing it as they do about the company’s own activities. While employees themselves naturally have sources about the industry and economy, from their reading of general and specific media, they are unlikely to have come to the same conclusions. The company needs to have its own version of what is happening, which should cover:

− The history of the company, what its mistakes were and to what it owes its success. This is an important part of a shared view of what the company is. One version or another will be in the heads of everyone in the organisation, learned from colleagues or from a formal induction. It is the context into which people will hear future plans and changes.

− The regulatory environment and what direction this is moving in.

− Changes in technology or other inventions or discoveries affecting and likely to affect the organisation.

− Changes in the marketplace caused by changes in society or by changes in customer buying patterns.

− Likely moves of competitors or suppliers and the implications for the company.

It is important not to be overtly party political if possible, as that naturally generates opposing views among those who do not share the leaders’ political views:

• Choice: In order to have an element of drama, there need to be moments of truth in the story where the hero (or the company) has to make a choice about which way to go forward. This is both a part of understanding the history and a way of understanding the current strategy. If p...

Table of contents

• Cover Page
• Dedication
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• Acknowledgements
• Foreword by Simon Robertson
• Introduction
• 1 Stage One: The Strategic Need – Before a Partner is Identified
• 2 Stage Two: Due Diligence
• 3 Stage Three: The Initial Announcement
• 4 Stage Four: From the Announcement to Day One
• 5 Stage Five: The First 100 Days
• 6 Stage Six: Establishing an Employer Brand for the Merged Organisation
• Bibliography
• Index