Sunday, April 15, 2012

A Dozen “Value-Inhibitors” to be AVOIDED in the “HR-M&A” Arena

Based on experiences leading the HR aspects of numerous high-profile M&A’s (e.g., Swiss Bank Corp’s acquisition and integration of SG Warburg and Dillon Read, Simon & Schuster’s acquisition of Macmillan Publishing, over 50 smaller acquisitions within Wayne Huizenga’s portfolio of companies, etc.), here are a dozen potential value-inhibitors that should be given focused attention during pre and post-closing due diligence and subsequent business integration --- so that they are clearly avoided.

For a working definition, let’s view HR-M&A as a set of formal, well-developed processes and tools for proactively managing the people-related risks and opportunities inherent in M&A transactions. These human capital risks and opportunities are now universally viewed as the major determinants in whether M&A deals succeed, under-perform or outright fail in the eyes of leadership and shareholders.

During due diligence / before business integration phase

1. Not being quick to lock-in key employees / value contributors … and all the attendant replacement costs as a result; also not properly incenting employees with key knowledge or customer relationships to stay for at least a transition period

2. Only doing basic due diligence on key employees being considered for significant roles … ideally, advanced human capital due diligence should include assessing degree of commitment, cultural fit, potential retention risk, personal integrity yellow flags, possibly exaggerated career accomplishments and impacts, etc.

3. Unrealistic commitments or pronouncements that “nothing will change”

4. Inadequate reserves and provisions for HR-related risks that were not discovered or improperly evaluated; e.g., Comp and Benefits-related risks

5. Inadequate or ineffective financial accounting for (likely underestimated) integration costs

During integration planning and execution

6. Not being quick about combining talent acquisition / recruiting pipelines as well as succession planning efforts ... and combining them using the same success profile criteria

7. Funding redundant or non-integrated organizational units, HR systems and processes, etc.

8. Making decisions on which HR technology platforms to retain or phase-out based on (a) comparative investments made to-date or (b) how “rooted” the systems are due to multiple integrations with other corporate systems … as opposed to which platforms are being leveraged more and driving value-creation, or are more aligned with business plans and priorities of the emerging entity

9. Productivity dips and/or customer service downturns due to unclear communications about job security, compensation and other “me” issues

10. Productivity dips and/or customer service downturns due to lack of speed and efficiency in the integration process

11. Continuation of incompatible HR policies and plans between the two organizations

12. Selection of inappropriate levels of employee benefits for the industry and/or desired culture

Steven Goldberg
April 2012