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Are Mergers Good Or Bad For Employees?

Reasons to choose Wilson Browne

When two previously separate companies join together to form a single entity this is called a merger. Mergers can have a significant impact on the employees of those companies.

What is designed to make the merged company stronger and more streamlined, may mean bad news for employees in practical terms. The drive to efficiency following a merger can lead to redundancies.

But this isn’t always the story, and mergers aren’t necessarily bad news for all employees.

Some may, in fact, thrive on having new opportunities and new challenges that enable them to progress their careers in ways that would otherwise not be possible.

To make a merger work, you must consider the potential impact on employees, the possible outcomes for them, and what you can do to make change happen as smoothly as possible.

Why Do Companies Merge?

There are various motives behind mergers. One of the biggest attractions is economies of scale, enabling the merged company to complete strategic objectives easier and more cost-effectively.

These objectives can include:

  • Investing in technology
  • Specialisation
  • Building resilience
  • Driving better deals
  • Bulk-buying
  • Expanding marketing activity.

Some of these economies of scale may benefit employees. For example, investing in technology may include expanding a company’s talent base to incorporate more employees in research and development.

But employees can go missing in these strategic calculations, becoming just another asset to move around or even dispose of.

This is bad news, not just for the employees (obviously) but also for the merged business.

Why? Because one of the key factors determining the success of a merged company is its organisational culture. Incompatible cultures can cause mergers to fail.

Why are Employees a Failure Factor in Mergers?

There are various reasons why employees can be at the heart of why mergers are unsuccessful.

One of the most important is culture. If there is a culture clash between two merged companies, this can throw the merger off-balance from the very start.

A merged organisation should work hard to dissipate any initial discomfort its employees feel when the merger first takes place, but this will depend on fostering a positive culture.

Culture involves implicitly shared values, assumptions and beliefs within an organisation. These tend to be long-established. The problems arise when you’ve then got a substantial part of your new company which doesn’t share these values, assumptions and beliefs historically.

A merger can affect all employees this way – it may threaten underlying existing values a company already has, or introduce new ones to many employees who feel that their new culture is alien to them.

Sudden shifts in a company’s culture bring disruption and unease and can impact morale, motivation and productivity.

Another challenge merged companies can have is retaining employees. If organisational changes following a merger bring stress and uncertainty, employees may be more likely to jump ship. These can include key executives.

Whereas companies that merge may factor in a certain number of redundancies, they won’t welcome losing their talent through unplanned employee flight.

Losing employees affects day-to-day business activities, and these are critical to success just like long-term strategies. Many companies simply cannot afford this type of disruption.

Companies must therefore consider how to retain their talent in the long-term, as part of their merger.

Essentially, what’s bad for employees may turn out to be bad for the company too.

How Can Mergers be Good for Employees?

There may be inevitable job losses and disruption for some employees during a merger, but this makes it even more important to ensure that those employees who are not losing their jobs feel engaged with the whole process.

Mergers may stimulate investment in more human capital in the long run, for example. The result may also be a more stable company and the potential to upskill and upgrade the workforce.

Change can bring with it opportunities. Employees can find new routes to progress their careers.

The whole culture shift can itself be a positive one. In the current climate, flexible working practices are becoming a priority when it comes to employee benefits.

Companies that merge can use these kinds of changes as leverages to offer employees tangible benefits and build organisational cultures on positivity and a people-first approach.

Making the Intangibles Work in Mergers

Minimising risk in mergers means looking at various key factors and understanding the key caveat emptor principle of the law on contracts.

Due diligence is highly important in mergers, and having specialist commercial legal support is essential in ensuring as far as possible that a merger will be successful.

But when planning or considering a merger, it’s also crucial to look at the intangibles, and especially the organisational culture and its impact on employees.

Mergers can have a negative impact on how employees view their employers, but this can have wide-ranging implications for morale and productivity. It’s not something you can afford to ignore.

Throughout the merger process, make sure your communications are clear and frequent. Treat everyone equally to avoid creating an us-and-them mindset.

Retain your top talent throughout the merger process by engaging with them, taking their opinions on board and encouraging them to contribute.

Employee confidence offers more than added value to a merger. It can make the difference between the long-term success or failure of an enterprise.

For more information about the company and commercial law or how we can help you with mergers and acquisitions, please contact us.

George Iles

Posted:

George Iles

Trainee Solicitor

George is a Trainee Solicitor currently working with the Corporate & Commercial team.