Effective People Management in Africa

A. Newenham-Kahindi, K. Kamoche, A. Chizema, A. Newenham-Kahindi, K. Kamoche, A. Chizema

• Publisher: Palgrave Macmillan
• Year: 2013
• Print ISBN: 9781349346714, 9780230354913
• eBook ISBN: 9781137337177
• Topic: Business
• Subtopic: Business General
• Index: Business

Highlights new realities, challenges and opportunities facing organizations and businesses in managing people in contemporary Africa and attempts to propose alternative sustainable strategies and models that address critical issues ranging from managing knowledge and technology appropriation in organizations to social issues of poverty and ecology.

Part I

People Management in African Countries

1

HRM Issues and Outcomes in Domestic Mergers and Acquisitions: A Study of the Nigerian Banking Sector

Emanuel Gomes, Duncan Angwin, Emmanuel Peter and Kamel Mellahi

Introduction

Considering how corporate mergers and acquisition (M&As) are becoming an important component of the African business landscape, with significant activity recently reported for South Africa (360 deals valued at $21.98 bn), Egypt (117 deals valued at $6.84 bn) and Nigeria (24 deals valued at $0.713 bn) (Zephyr, 2010), and with countries which have previously prohibited M&A, such as Libya, now beginning to embrace it, African M&A has not received much attention from academic researchers. The growing research on M&As has largely been limited to western developed countries (c. f. Larsson and Finkelstein, 1999; Weber and Camerer, 2003) and more recently fast-growing emerging economies, with China (c. f. Dong and Hu, 1995; Cooke, 2006; Lin et al., 2009); and India (c. f. Kumar and Bansal, 2008; Budhwar et al., 2009) receiving special attention. Consequently, there is scanty knowledge about the challenges from M&As among African firms. Even within the M&A process itself, there has been a ground swell of research signifying the relevance of the human aspect in successful organizational integration (c. f. Stahl and Mendenhall, 2005). Specifically, recent articles in this journal have emphasized the role which human resource management (‘HRM’) in particular may play in a successful M&A process (c. f. Antila, 2006). This chapter takes up these two themes by exploring issues in HRM practices throughout the M&A process in recent domestic African M&A. Based on semi-structured theme interviews with corporate-level managers involved in the recent waves of M&As in the Nigerian banking sector, this chapter seeks to identify HRM practices deployed during M&As and explore their association with M&A outcomes.

This study is important for two reasons. First, to the best of our knowledge, this is the first study on HRM practices during the M&A process in an African country. Previous work on M&As in Africa has looked at other aspects of M&A, including corporate governance in the Nigerian banking industry (Akintoye and Somoye, 2008), and financial performance of M&A in the Kenyan banking sector (Kithinji and Waweru, 2007). To date, no study in a refereed journal has specifically addressed HRM practices during the M&A process within African countries.

Second, this chapter impacts on the broader literature on HRM during M&As by studying these practices in the pre-merger alongside the post-merger phase. Although the study of HRM practices during the post-merger process has received attention in previous studies (Bastien, 1987; Buono and Bowditch, 1989; Schweiger and DeNisi, 1991; Chatterjee et al., 1992; Krug and Hegarty, 2001; Schuler, 2001; Schuler and Jackson, 2001; Faulkner et al., 2002; Aguilera and Denker, 2004; Papadakis, 2005; Antila, 2006), the existing body of knowledge on HRM during the pre-merger stage remains limited, with scholars continuing to call for more research into these important aspects (Schuler, 2001; Aguilera and Dencker, 2004; Budhwar et al., 2009). This is because HRM in the pre-deal stage of M&A may influence subsequent post-acquisition management of people (Aguilera and Dencker, 2004). HRM issues such as cultural due diligence, pre-merger communication, management and employee due diligence, future remuneration, and other key people management issues could play an important role in the M&A process and affect overall outcome.

The choice of the Nigerian banking industry was basically because the sector has been at the peak of the biggest M&A boom in its entire history. The 2005 wave of M&As in this sector was prompted by government regulation, as banks were asked to raise a minimum capital base within an 18-month period. This enforced industry consolidation was to improve the overall solvency and integrity of the banking system as a whole and had huge national implications for the strength and integrity of the country’s economic system. The consolidation also had significant social impact, with an initial loss of 45,000 banking jobs in an already saturated labour market (Fanimo, 2006). Further monitoring of the banks by the Central Bank of Nigeria (CBN) has resulted in clearly defined outcomes, as the CBN test performed at the end of 2009 was to determine which banks were sound and which would go down or be nationalized. From this data, survival can be readily assessed.

Literature review and research framework

In this section, a framework is developed to guide our data collection and analysis. In line with past studies, we examine HRM issues at different stages of the M&A process. ‘Analysing HRM issues throughout the M&A process, not just the outcomes, is essential since attention to the rationale behind the decision to merge or acquire, to integration planning and to due diligence takes place before integration and forms the basis of a successful deal’ (Antila, 2006, p. 1000). Another reason for this study is the fact that management faces diverse challenges at different stages, and therefore HRM should not be studied in isolation (Charman, 1999; Habeck et al., 1999; Appelbaum et al., 2000; Schuler and Jackson, 2001).

Identifying M&A phases: The existing literature is not specific in terms of defining the phases of the M&A process. Some advocate seven phases (Buono and Bowditch, 1989), others four (Graves, 1981; Haspeslagh and Jemison, 1991), while others have categorized the process into three phases (Howell, 1970; Appelbaum et al., 2000; Bower, 2001; Schuler and Jackson, 2001; Aguilera and Denker, 2004; Antila, 2006; Budhwar et al., 2009). One major difficulty is defining each phase, and even those researchers who agree on the number of phases disagree on what those phases might be. Others also criticize the stage model, as some stages may run in parallel with others and the order of stages may, in some circumstances, be reversed (Mintzberg et al., 1976). However, there is one concrete moment in the M&A process which breaks the flow of the process and is not movable. The ‘closing date’ is the moment enshrined in legal procedure when ownership of the acquired company is formally transferred to the new owner, and at that point the owner has control over the acquired firm. In management language, the new owner can now make changes directly to the new subsidiary. The closing date bifurcates the M&A process into pre and post-acquisition phases of decision-making and implementation. This two-stage approach is adopted in this chapter.

Pre-M&A phase: While the origins of the pre-merger stage are difficult to discern, rather like night shading into day, the beginning of this phase can be predicted by when the deal is announced publicly (the ‘announcement date’) and the end is when the deal is closed (the ‘closing date’). As Aguilera and Dencker (2004) explain, ‘the premerger stage occurs between the announcement of the merger and its closing date’.

Although some seeds of success or failure of the M&A are planted in the pre-merger stage (Schuler and Jackson, 2001), and recent literature has begun to recognize the value of merger announcements increasing employee uncertainty (Hubbard, 2001; Risberg, 2001), ‘the M&A literature has focused primarily on financial due diligence and strategic issues in the pre-merger process, with HRM being an afterthought that becomes relevant only in the integration stage of an M&A when the merger is implemented’ (Aguilera and Dencker, 2004, p. 1356). Kidd, a partner at Egon Zehnder International, states that ‘Many mergers do not create the shareholder value expected of them. The combination of cultural differences and an ill-conceived human resource integration strategy is one of the most common reasons for that failure’ (Light et al., 2001).

The scanty research on HRM aspects of the pre-M&A stage (Schweiger and Webber, 1989; Mirvis and Marks, 1992; Schweiger et al., 1993; Appelbaum et al., 2000; Schuler and Jackson, 2001; Aguilera and Dencker, 2004) highlights these issues as important: methods of selecting, approaching and communicating with potential partners; ensuring legal compliance and equal opportunity (Mirvis and Marks, 1992); potential redundancies; retention agreements; reward and promotion procedures; leader selection; HRM due diligence; planning to coordinate the implementation through ‘communicating expected roles in the newly formed entity’ (Aguilera and Dencker, 2004); alignment of expectations and objectives (Barret, 1973; Schweiger and Weber, 1989; Weber et al., 1996; Angwin, 2001; Light et al., 2001; Vermeulen and Barkema, 2001; Peterhoff, 2004; McDonald et al., 2005; Papadakis, 2005; Mitleton-Kelly, 2006); setting expectations (Hubbard, 2001); and cultural assessments, that is, ‘describing and evaluating the two companies’ philosophies and values regarding such issues as: leadership styles; time horizons; relative value of stakeholders; risk tolerance; and the value of teamwork versus individual performance and recognition’ (Schuler and Jackson, 2001, p. 244).

The post-M&A phase: This phase is triggered by the initiatives carried out at the pre-M&A stage. Schuler and Jackson (2001, p. 245) reported that ‘lack of integration planning (in the first stage) is found in 80 per cent of the M&A’s that underperform’. Research on the post-M&A stage have concentrated on the day-to-day management of the integration process (Birkinshaw et al., 2000); speed of integration (Ashkenas and Francis, 2000; Angwin, 2004; Homburg and Bucerius, 2006); allocation of resources to activities that help achieve the anticipated synergistic benefits (Birkinshaw et al., 2000; Schuler and Jackson, 2001; Vaara, 2003); and knowledge transfer between, and ability to learn from, the integrated companies (Buono and Bowditch, 1989; Haspeslagh and Jemison, 1991; Ingham et al., 1992; Gertsen et al., 1998; Birkinshaw et al., 2000; Schuler and Jackson, 2001; Vaara, 2003; Aguilera and Dencker, 2004).

During the post-M&A stage, researchers highlighted the importance of communication to support organizational realignment and help overcome resistance to changing the ‘old way of doing things’ (Schweiger and Weber, 1989; Weber et al., 1996; Angwin, 2001; Vermeulen and Barkema, 2001; Adebayo, 2005; McDonald et al., 2005; Mitleton-Kelly, 2006). Research evidence shows that, once the M&A is completed, integrating different organizational structures, management styles, processes and cultures poses immense challenges for managers of the new company, with the degree of persistence of old ways of doing things directly related to communication and integration strategies pursued by the new management team (Kitching, 1967; Ferracone, 1987; Vermeulen and Barkema, 2001; Budhwar et al., 2009; Gomes, 2009; Gomes et al., 2010).

Post-acquisition integration approach

The M&A process is believed to be influenced by pre- and post-M&A HRM practices. These are themselves strongly affected by different approaches to integration (Howell, 1970; Schweiger and Weber, 1989; Haspeslagh and Jemison, 1991; Weber and Schweiger, 1992; Schweiger et al., 1993). In order to capture the scope of integration approaches for the merging banks, this study uses Schweiger et al.’s (1993) framework to analyse the different integration strategy approaches. Their three integration categories are: (1) assimilation: when one of the combined firms decides to adopt (voluntarily or otherwise) the identity (e.g. HR, culture or management practices) of the other. When this is enforced, culture clash and resistance to change may occur; (2) novation: when combined units develop new working practices and culture, resulting in the creation of a new identity; (3) structural integration: when combined units retain their own identities, thus requiring less change.

Schweiger et al. (2003) argue that managers should be careful in chosing a particular integration approach, as this will require a higher or lower degree of change in working processes and procedure, such as reward policy, hours of employment, vacation policies and terminations. Each form of integration will require change decisions in terms of the distribution of decision-making power between the two firms. In order to examine HRM issues in the pre and post-M&A phases in Nigerian banks, we collected and analysed data using the above framework to answer the following questions: what pre and post-M&A HRM practices were employed by these banks? To what extent might these practices influence outcome?

Research method

An inductive multiple-case study involving the 19 merged banks was adopted. This approach enables a replication logic through systematic analysis of the various merger cases, each serving to confirm or disconfirm inferences drawn from the others (Eisenhardt, 1989; Graebner and Eisenhardt, 2004; Eisenhardt and Graebner, 2007; Yin, 2008). This generates better-grounded results than single case studies (Graebner and Eisenhardt, 2004). Given our research aim to analyse the HRM practices and their associations with merger outcomes during the 2005 merger activities in the Nigerian banking industry, a cross-sectional approach was followed and data were collected from newly merged bank employees.

This merger activity in the Nigerian banking was distinct and unusual compared with most previous M&A research studies. The CBN recognized that size had become critical for banks to be able to withstand the challenges of an increasingly globalized financial sector. They decreed that global banking groups should be created and that M&A was an appropriate method (Soludo, 2006). Before then, the Nigerian banking industry was composed of 89 banks, with 90 per cent classified as unhealthy and unsound, small in size and weak in terms of capital base (Nwosu, 2005). It was in the light of the above factors that the CBN, under the leadership of Prof. Charles Soludo, directed all banks in the country to raise their capital base from t...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Tables and Figures
• Preface
• Acknowledgements
• Notes on Contributors
• List of Abbreviations
• Introduction: New Directions in the Management of Human Resources in Africa
• Part I: People Management in African Countries
• Part II: Multinationals and People Management in Africa
• Index