Employee engagement challenges with mergers & acquisitions

It's no secret that mergers tend to fail. According to a KPMG study, the rate of failure is 83%, in fact. Historically, roughly two thirds lose value on the stock market. The motivation that drives mergers can be flawed and, in many cases, the problems associated with trying to make merged companies work are all too concrete.

Mergers are often driven for the wrong reason: Fear. Globalization, the arrival of new technological developments or a fast changing economic landscape all impact the executives decisions to merge or acquire other companies. When a company is acquired or when companies merge, the decision is typically based on a product or market fit, but employee differences are often ignored. It's a mistake to assume that employee issues are easy to overcome and CEOs that fail to recognise them, may end up regretting it.

Communication challenges

In 2010, PWC conducted a survey on companies that had completed mergers and acquisitions. Communication challenges came out as one of the top factors that caused company synergies to fail. Communicating with employees, empowering them and creating a culture for them to thrive are all fundamental parts to integration. When mergers and acquisitions occur, employees and management are generally left in the dark. Fear and lack of answers deter top management from providing the information that employees need to redirect their actions in the merged company. Rumors fill mystery and vacuums, and employees are left asking questions like: “Why is the organisation merging?”; “How will the merger affect my work?”; and “What support will I receive during the merging process?” This lack of communication creates distrust and uncertainty in the workplace, leading to lower employee engagement levels. Communicating is a skill that should come naturally, however it can be the hardest skill to learn. When managing any key project, such as mergers and acquisitions, it’s important to keep the employees from both parties informed at all times. Inform the employees of the progress of the integration through different communication channels (emails, intranet, etc). Being aware of the questions, concerns and fears that employees might have, and, proactively communicating answers, will build transparency and trust, and lead to a successful merger.

BenQ announced a merger with Siemens without warning in 2005. The products the new merged company were supposed to produce would be a perfect amalgamation of Asian perceptual design and German rational craft. However, the obstacles of communications and cultural differences between West and East, proved to be a failure, as the company ended up losing 800 million euros.

BenQ had no experience in the field of mobile business and simply not competent enough to handle business internationally. Handing over Siemans to such an enterprise made the employees of both companies disappointed. The merger was deemed an economic disaster (according to the annual shareholders’ meeting of Siemens, 2007). Employees at the newly merged company had a feeling of betrayal and they felt that they could never inculcate trust in their minds for one another.

Had employees known about such a decision well in advance, they would have been able to mentally prepare for such a situation. BenQ should have established an effective communication plan before the deal had been concluded, keeping in mind the differences between the two corporate cultures.

From the beginning, there were reportedly conflicts between German management and the Taipei Headquarters on the process of development of a new products. During the post acquisition stage, BenQ implemented a series of strategic changes, and expected their German counterparts to automatically understand. They assumed that the employees would cooperate with the new implementations, but with big disruptions going on resulted in confusion and created misunderstanding and mass distrust. As soon as BenQ board felt their German counterparts were not adhering to their orders, they would subsequently take financial support from Siemens. This was was considered harsh and insensitive in Germany, but In Taiwan, however, this would have been considered a rational decision.

This BenQ study, shows that if an effective communication plan had been implemented well in advance, keeping in mind the difference in the corporate cultures, the acquisition would have probably gone a lot smoother. Lacking such a plan leads to employees feeling betrayed, unappreciated and unmotivated to work. Eventually this resulted in a high rate of employee turnover.

Employee retention challenges

During mergers and acquisitions, employee retention can be a challenge, as many believe it can be a threat. Inherently, many mergers and acquisitions (M&As) deals have retention issues, which result from negative attitudes felt by employees. This can include uncertainty about the future of the organization's direction, job security, perceptions of lack of leadership credibility and feelings of confusion due to lack of communication. In essence, employees often lose trust in their organisation and feel betrayed by their leadership. During this delicate process, it's essential to keep employee turnover low because business continuity is key to realizing the benefits of the merger. there can be also large financial implications from the cost of hiring new employees. What's more, employee turnover can result in loss of knowledge and customer relationships.

Generally, employees can have several reactions regarding the M&A. A merger brings several organisational changes, which can either lead to stress, anxiety, role conflict or to the feeling of not being treated fairly. These feelings often have implications for the employees and their future at the organisation. Companies must proactively work to maintain or regain employee trust to keep them and the intellectual talent they represent. Reduction and replacement strategies play a crucial role for the integration of a M&A. Its up to management to continuously communicate with employees to create transparency and address any concerns they may have.

PepsiCo acquired Kentucky Fried Chicken in the late 1980s. The pressure the acquisition put on KFC’s management, filtered down the ranks to the rest of employees. Managers and employees alike were anxious about the future and their prospects for advancement under the new ownership. According to Harvard Business Review, most KFC managers thought the the new holding company, PepsiCo regarded them as dispensable. A large portion of KFC’s top management ended up leaving soon after the acquisition and the remainder felt a sense of unease as the company culture shifted.

The loss of employees during the acquisition process will inevitably affects daily business activities. This has a knock on effect down the hierarchical line and further demoralizes a already compromised workforce. Companies contemplating an acquisition should focus on retaining key executives for the long haul. Failing to keep a critical mass of the old guard may set off a domino effect the organization will be feeling for many years to come.

Cultural Challenges

Mergers and acquisitions usually occur because financial and business rationale add up, but fail to realise the cultural implications that may occur. Various studies conducted on the outcome of M&A’s show that 30% of them fail within three years, the majority due to the disparities in organizational culture. During the process, it's easy to treat a prospective transaction as purely mechanical and scientific process. However, the people aspect of any deal is always critical. Culture fits can provide the assurance that combining two companies makes sense.

Culture is the long standing implicitly shared values, beliefs and assumptions that influence the behaviour, attitudes and meaning in an organisation. It’s difficult for a merged company to carry the culture of the previous organisations, because employees seldom replace their underlying values and beliefs in the long run. Generally, when mergers and acquisitions occur, they bring shifts in management practices and strategies, which can have negative implications on the people at the organisation. A sudden shift in these practices, brings disruption and unease to a company.

Pre merger due diligence will weed out all the measurable processes within an organisation, however it’s vital to conduct culture surveys to determine the norms within both organisations. Cultural influences have the potential to be broad and far reaching. For example decision making at one company can be polar opposites to another, the leadership style could be dictatorial or consultative and the way people work could be formal or based on informal relationships.

When Daimler announced that it would be merging with Chrysler it was called a merger of equals, as both operated in the same industry and effectively produced the same product. However, Daimler had a culture of conservatism, efficiencies and playing it ‘safe’. Chrysler was daring, diverse and creative. Months following the merger, it was deemed a fiasco. Different company cultures had both Daimler and Chrysler at war. Both companies were fundamentally different on every level, including formality, philosophies and operating styles. German culture took over the once laid back culture at Chrysler. Employee satisfaction dropped to all time lows and by 2000 the company was making major losses.

Apart from the differences in corporate cultures, there were also the issues of trust. Employees on both sides felt reluctant to work with each other. Following the merger, huge bulks of Chrysler’s key executives either resigned or were replaced by their German counterparts. These two factors resulted in conflicting orders and goals in different departments. American and German managers had different values, which drove and directed their work. The newly merged company was heading in opposing directions from the beginning. Daimler imposed a hierarchical approach, on which the new company should work. Such a situation did not inspire chrysler employees and raised some serious communication concerns.

The company, facing major setbacks, moved to replace the American CEO, James P Holden, with Dieter Zetsche from Germany. Shortly after Zetsche's appointment, he began laying off employees, in order to mitigate company wide loses. By the end of 2000, Daimlerchrysler made a third quarter loss of 512 million dollars and its shared value slipped below $40 dollar a share (from a high of $108 in early 1999). The synergies that were expected, never came to fruition, and the merger simply drove both companies into chaos. By 2007, Daimler sold Chrysler for 6 billion dollars.


For whatever reason mergers and acquisitions occur, it's vital that the decision makers take the intangible factors into account. It’s difficult to quantify the human side to mergers, and they are often overlooked. Typically, CEOs would overlook this aspect because of the notion of being able to rehire employees and managers. However, in the long term this is detrimental to the outcome of the merged organisation.

In order for CEOs, executives and managers to fully understand the extent to which the merger will affect the culture, they must develop a culture strategy. Impraise helps you to measure the overall cultural values, habits and skills of the organisation. Through continuous feedback, managers will be able to understand their employees concerns and issues before they are a threat to the company in the long run. By implementing such a strategy, the merging company can understand where the cultural differences are, engage with employees throughout the merging period and carry out a successful culture shift. Explore the opportunities available to you today with The People Enablement Platform.

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