Mitigating People Risk in Major Transactions (Part 1) – A Guest Blog by Paul Pittman

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Organizational culture – its importance can be overlooked, especially when other organizational matters are perceived to be more critical.  The following is a two part blog by Paul Pittman, centering around a situation where the cultural integration of two organizations was only considered late in the game, and how one individual mitigated the people risk of this major transaction.

We hope you enjoy the first part of the blog as much as we did, and stay tuned for part two.

Mitigating People Risk in Major Transactions

By: Paul Pittman

Gerald was head of HR for an international company and had worked his way up from an almost entry level position. He was good at what he did; he knew the company and the industry. He was trusted as a provider of sound advice and he considered, as much as any HR person could be, that he was “at the table”.

Consequently he knew he should have seen it coming; there were too many closed door meetings between the CEO and strangers; the CFO and VP Business Development taking mystery trips. He’d been distracted with executive compensation reviews and a union issue at one of the overseas operations. He hadn’t put it all together, he hadn’t anticipated and had missed the chance to counsel his colleagues.

That morning he had been “brought over the wall” and on a need to know basis had been informed along with a select handful of other senior managers, that his company had agreed to purchase a significant competitor. He was at first pleased, this was great progress and a deal that had been envisioned for some time, but why hadn’t he been included at the outset? Now it was too late, the opportunity to identify people related liabilities that may have affected the purchase price had passed and it was late in the process to plan important post completion tasks. He was disappointed. He clearly hadn’t after all, done enough to be truly at the table and his contribution wasn’t considered valuable enough to be considered at an earlier stage.

He metaphorically wiped his bloody nose; “it wasn’t too late, I can still help mitigate some of the risks and work to ensure a successful integration”. But what if we discover people issues that suggest we just shouldn’t have bought this company?

Unless you are a company that buys and sells companies regularly, assessing and integrating organizations is not something that the average executive does every day or even every year. Executives are out of their comfort zone in major transactions and it is recognised that they will want to consult with the investment bankers, business appraisers and the synergy experts. But typically HR not considered as important. When they do become involved it is often late in the process, the issues not considered significant enough (or perhaps understood well enough) to be a matter for due diligence and preplanning. Usually it is without the availability of an expert budget putting more pressure on the HR lead than other colleagues, to undertake important tasks with which they may have had little if any prior experience.

Gerald was smart enough to know what he didn’t know. He didn’t integrate companies or assess hard liabilities every day. He was good at identifying threats to culture but not “expert” and for a transaction like this with so much value at risk he needed “expert” insight. He needed an objective guide who had worked on many similar transactions, who was going to identify risks, threats and opportunities that he could fold into the master integration plan. What he didn’t want was the sort of help that tried to convince you that the sky was falling with the aim of generating higher consulting fees. He had heard the stories about fees having no limit when a deal just had to get done! He also wanted a one stop shop; a group of experts that weren’t phased at the timing of their involvement, had stood in his shoes, understood all of the inter related aspects of a merger (liability calculation, risk assessment, talent retention and cultural integration). He knew enough to be able to identify high level challenges but did not possess the expertise or the resources to address them quickly.  

At this stage there are three significant missteps that Gerald’s company has made in preparing for this transaction:

  1. Not using all available resources – They assumed that HR had nothing to contribute until the deal was virtually done
  2. Damage to Engagement – They omitted to include an important contributor and that ever so slightly, has lessened his engagement and loyalty
  3. Ineffective Due Diligence – They may have exposed their company to liabilities and performance risks that could have been anticipated and avoided

Many acquisitions do not deliver the expectations made to stakeholders regarding synergy with many being out and out failures. Most of the causes are people related.  So why are M&A teams so reluctant to bring HR colleagues into the process at an early stage? Here are two reasons:

  • People issues are so fundamental that top leaders believe that they are at the core of what they do and therefore need little help in this area
  • HR has nothing to add and that it is not strategic – they manage people processes and not the big business issues

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