A merger of firms can be fraught with employee disruption and anxiety.
The business of employee retention and integration should really begin during the merger talks. Dealing with this important issue only during the post-merger period ignores the reality that firm culture comprises both “leadership culture” and “employee culture.” Anticipating the employee’s vision and perceived alignment of values and mission of the combined firms is a critical ingredient that should play a significant role in merger negotiations.
Too often, I believe, the prospective merger partners are concerned only with the alignment of leadership’s respective values and mission. A successful merger requires both leadership and employee commitment to a shared culture. Below are some of the discussion points that should be addressed during merger negotiations:
Timing the communication to employees
The timing of when to communicate a merger to employees is always a sensitive issue. In many cases, confidentiality is critical for client retention. Some believe that confidentiality is also critical to retain employees who may become anxious about their future. Nevertheless, I have seen mergers fail because leadership overlooked some key employee-centered issues and cultural differences. This may appear to be a disruptive approach, but I believe that certain non-partners, such as directors or senior managers, should be “brought over the wall” and made aware of the impending merger. They should participate in discussions concerning employee integration issues including complementary positions, redundancies, position titles, work styles, work ethics, operational differences and cultural fit. Directors and/or senior managers of each respective firm should also meet together and report back to their firms any areas of potential problems and recommendations for a smooth employee transition.
Communicating the vision
When the time is appropriate to communicate the merger to employees, the communication should include leadership’s vision for the future of the combined firms. Many mergers today are driven by the need for an exit strategy for partners when there is a lack of any internal succession plan in place. This rationale for the merger does not go unnoticed by employees. It is critical to define the vision of the newly configured firm in terms of growth, employee retention, employee advancement and overall benefits to the staff. If not spoken outwardly, employees demand to know how the merger will impact their success and longevity with the firm. Leadership should be prepared to discuss this issue in a comprehensive, well-thought-through address to the employees.
Employee chemistry can be just as important as partner chemistry. Clearly, for a successful merger, it is incumbent upon leadership to be comfortable working together and sharing a common vision. It is likewise critical that the employees of each firm are comfortable working together toward shared goals. Merger negotiations should include discussions that analyze whether key employees are willing to act in concert as well as an analysis that exposes potential issues. Issues may include pending promotions, salary equalization adjustments and any hierarchical structuring among senior staff.
Employee anxiety over a merger or acquisition is common and needs to be dealt with sooner rather than later. If retaining all present employees is a precondition of the merger or acquisition, the employees should be informed of this fact either immediately prior to, or immediately after, the merger. Employees talk among themselves and fear is contagious, leading to employees irrationally and prematurely jumping ship.
Acquisition vs. merger
Many acquisitions are billed as “mergers” to the outside community even though there is a definitive “acquirer” and an “acquired.” In many acquisitions, the acquired firm must adopt systems and processes of the acquirer. Employees must be counseled and given clear direction early in an acquisition that there is a definitive survivor firm and that they must adapt to new processes. Early training can help with the disruption. Waiting to adopt new systems during tax season could lead to dysfunction and anxiety.
Set employee compensation
Achieving parity in compensation of the two merger candidates can be challenging, especially where the two firms have very distinct compensation parameters and incentives. This is another valuable discussion topic during the merger negotiations. It may be advantageous for employee retention to develop new monetary incentives to signal the new firm is interested in growth. New incentives and a revamped compensation system will also signal to employees that leadership is interested in unifying the two firms under a common compensation arrangement. In situations where there is a clear acquirer, and not a merger of equals, it is incumbent upon the acquirer to fully communicate to the newly acquired employees the compensation system and ask for feedback and questions to eliminate any misunderstandings.
Develop mutual employee evaluation systems
A merger is the perfect time to revisit how the combined firms will evaluate employees. Some firms prefer informal and casual evaluation processes, while others insist upon written evaluations and formal reviews. Although employee evaluation systems may seem a minor pre-merger consideration, they can play a key role in setting employee guidelines for performance, advancement and termination early in the life of the combined firms. Many casual employee evaluation systems do not fully identify and compare employee strengths and weakness. Systems that offer more frequent evaluation points in time and that are honest will stem employee rivalries and mistrust of leadership.
Revisit position titles
The naming of position titles is important to both employees and the firm. Position titles determine who has management responsibility and who may be in line for partner. Not all position titles are uniform among firms. It is critical that prospective merger partners examine their employee rosters and accompanying titles. The combined firm then must agree on a uniform slate of positions and determine who will bear which title. Some employees may believe they have been demoted and others may believe they have been promoted. To mitigate confusion and potential hurt feelings, it will be incumbent upon the integrated firms to communicate any changes and the reasons for such change.
Realignment of work based upon employee strengths and weakness
An early discussion of the firms’ strengths, weaknesses and synergies regarding such issues as client composition, technical aspects of the work, industry specializations and synergies should result in a plan to optimize performance. Based upon this analysis, it may be necessary to realign and reassign work on an inter-firm or cross-firm basis. There are, of course, advantages to consistency of employees working on particular clients; however, during this analysis it may be evident that certain employees are better suited based upon technical competencies and personal attributes. As with other disruptive changes, good employee communication is key to smoother transitions.
Integration of multiple offices
Many mergers envision each merger partner maintaining their present physical location. Employee integration becomes more difficult in a newly reconfigured combined firm. The end-game is to have the employees understand and operate under a newly combined firm rather than two separate and independent firms working side-by-side. A definitive plan should be devised pre-merger to integrate multiple offices from both a systems/technology framework and an employee cultural framework. Bringing employees of each office together soon after the consummation of the merger should quicken the integration process. It is recommended that selected employees from each firm serve on committees for integration. Technology today can certainly aid in integrating multiple offices, but there is no substitute for in-person meetings and events. Such events could include, for example, an employee retreat. It is customary for partners to gather for annual or quarterly retreats; employee retreats would also be a valuable tool for employee integration. Combined in-house continuing professional education is another event that will bring the offices together where employees can openly share technical issues.
The suggestions above are designed to offer some ideas about addressing employee integration and retention issues during pre-merger talks. These areas should not be left for chance and “back-burnered” until after the consummation of the merger. The success of the merger or acquisition lies not only with leadership, but is also very much contingent and dependent upon the willingness and motivation of the employees to share the vision of the combined firms. Open and transparent communication to employees will help alleviate fear and anxiety, and also motivate and invigorate them towards a shared commitment to success, and thus ultimately lead to a greater retention rate. Leadership should strongly consider employee integration and retention during pre-merger talks, rather than wait for the post-merger integration period.