WHAT'S TRENDING. Mergers and the Art of Workplace Integration

It’s been a season of mega-mergers. In the hospitality business, Marriott has just finished its acquisition of Starwood, creating a force with 30 brands, 1.1 million rooms and $20 billion in annual revenue. But the merger has led to some rude check-outs: 163 Starwood employees based in Stamford will lose their jobs on December 31. The ripples are being felt in India, too.

In the cement business, the LafargeHolcim integration has created a behemoth with a market value of over $50 billion. But it has led to a reorganisation of some corporate functions, with 250 job cuts announced.

Mergers may make great business sense, add scale and speed up growth, but they come with high costs – especially human costs. This is why HR departments play such an important role during mergers.

During the merger process, key executives leave if they are unable to take the ambiguities and uncertainties. Rajeev Bhardwaj, VP-HR, Sun Life Financial Asia Service Centre, who has been involved in more than 15 mergers for both FMCG and tech-based companies (including 12 during his stint at Coca-Cola India), says: “Typically, good, performing employees find jobs faster and start leaving if their concerns are not addressed immediately — or if the ambiguity is left to linger as one management takes over from another.”

Others, especially at the top level, are offered severance packages since mergers lead to duplication of jobs, and there isn’t plenty of room at the top.

Clash of cultures Difficult as it is, talent retention is still a small challenge. The biggest HR challenge is meshing two different cultures. When consulting company Bain analysed why mergers went wrong, it found that the top reason was ‘culture clash’.

Bhardwaj agrees.“Typically, two merging organisations have different cultures, and integrating them in a way that is as seamless as possible is the foremost challenge,” he adds.

But Steve Correa, EVP and Head, Human Resources of United Spirited Limited — in which Diageo has acquired a majority stake — says: “Contrary to what people think, people readily embrace change if they sign up for a shared purpose, shared values and recognise how the change will impact them.”

The USL–Diageo integration is a case study of a cross-cultural marriage. One was a hierarchical, family-run enterprise where top executives got perks like privilege parking. The other was an open, non-hierarchical workplace.

To knit both the organisations together, USL had to embark on a major transformation journey. The outcome of this exercise, says Correa, has been “a less hierarchical organisation with richer roles for people, improved spans and reduced layers.”

Part of the transformation exercise involved remodelling workspaces at the offices in Bengaluru, Mumbai and Delhi. Says Correa, “At USL-Diageo, we have moved to an open, dynamic workplace that enhances productivity and promotes collaborative and cross-functional working.”

Compensation conundrums For HR, another major challenge is when the compensation packages at the two merging entities don’t match. According to sources, top Starwood employees in many geographies, including India, are being let go as their pay-scales are higher than at Marriott.

But there are innovative ways to overcome this. Says Bhardwaj, “One interesting case of M&A had us integrate two organisations that had a compensation difference. We were able to address the gap by offering staggered increments to employees (of the acquiree firm) over 18 months to bring pay-scales on a par with those of the larger organisation.”

At USL, Correa says they tackled this by introducing something called a Basket of Allowances. “BOA empowers employees with the flexibility to customise their compensation structure based on their expense patterns, lifestyle choices and tax optimisation plans,” he explains. Benefits such as a company car lease or a home lease are now not grade-based, and are open to all.

There are layers and layers of complexity attached to mergers. But Bhardwaj and Correa list 5 best practices to ease the pain.

b Culture Map and Integration. This has to be a part of the due diligence prior to M&A.

b Clear Business Objective for Merger and a Defined HR Plan. There has to be clarity on the objectives of the merger, which then need to be translated into an HR Plan.

b Communication. You can never overcommunicate. Articulate strategy and direction clearly, seize the opportunity to improve, and allow everyone to understand the journey.

b Managing Change and Workforce Respectfully. Make sure that the change management process and the management of workforce are respectful and fair. Separations should be handled gracefully.

b Put Support Systems in Place. Initiatives like offering employees counselling, outplacement, re-skilling and helping impacted employees (not just those who are leaving, but also those who are staying on) cope with the change.

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