From 60% to 80% of all mergers are financial failures in terms of outperforming the stock market or delivering high profits.
There are many reasons for this. One of the least discussed is the exodus of human capital as a result of poor planning and a failure to integrate resources.
The key to success is good management of your human capital before, during, and after the merger.
The groundwork for retaining crucial employees should be laid well in advance of a merger. When the deal is on the table, human capital is usually the last thing on the negotiators' agendas.
The ideal scenario is a merger between two companies with similar corporate cultures or that complement each other. This almost never happens.
One exception was the Chase-Chemical merger, a case study in merger fluidity. The corporate cultures were similar; the post-merger company's CEO, Bill Harrison, recognized the importance of making people feel they belong; and he had the leadership ability to bring them together.
A company should strive to create a corporate culture with a tangible commitment to employees, one that engenders their trust. Communications should be regular and meaningful, with the goal of addressing employee concerns and furthering employee development.
Though it is unnecessary to pay more than the competition, it is wise to keep in step with the market and compensate fairly. Compensation should be performance-driven.
Hire to fit the company's culture, and get people together so that they feel part of the company and develop a sense of camaraderie. If structured properly, an effective mentoring program is an excellent way to reinforce bonding.
Having a force of satisfied employees already in place can help a merger proceed more smoothly. From the outset a merger requires quick decisions. If you've already laid the groundwork for trust among your employees, they will look for direction and leadership from the new company.
Keep employees apprised of developments, announce the leadership team, and get them to organize their teams and pull people together. This was done effectively in the BankAmerica-NationsBank merger; divergent cultures were anticipated, and issues were effectively resolved.
Create focus and momentum, and don't allow downtime that gives employees an opportunity to shop the market.
A seldom-taken step in merger due diligence is conducting an inventory of key management players. Identify which ones would be most crucial to the new organization, and tell them clearly that they will have important roles in it. Define what their contributions will be, and outline what the new organization will expect of them.
Be proactive in retaining your most important talent, and adopt aggressive retention strategies. Generous financial incentives should be offered to key employees. Retention bonuses will save the company in recruiting and training costs.
It is also important to establish a central merger office with a full-time staff dedicated to carrying out merger initiatives, including handling issues affecting human capital retention.
There will inevitably be fallout from a merger, but the damage can be minimized. The steps suggested here will create an environment in which employees can feel comfortable and will be more likely to remain.
Ms. Burnett-Stohner heads the banking and diversified financial services practice at Heidrick & Struggles International.
