Kelly Kubicek is the Co-Founder and CEO of Fulcrum HR Consulting.
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In 1998, Daimler-Benz AG, a German luxury car manufacturer, announced a $36 billion merger with Chrysler Corporation, one of the “Big Three” automotive companies of America. The goal was to expand the company's footprint in the United States and the rest of North America.
Today, the Daimler-Benz and Chrysler merger is one of the most significant case studies of one of the most unsuccessful big-money mergers of modern-day businesses. It highlights one of the key ingredients in any mergers and acquisitions (M&A) transaction: the human resources department.
On paper, both companies showed incredible synergies in the form of their dominance in the automotive sector of their respective countries. Still, the cultural aspects never showed signs of merging and growing together as a single entity that would go on to dominate the American and European automotive sectors, as shown in the presentation and memos of the executives of both companies and the investment banks involved.
Daimler-Benz was proud of the German culture they brought—a culture of conservative salaries. They followed a top-down hierarchical organizational structure and systematic decision-making process.
Things at Chrylser couldn’t be more different; the salary structure mirrored the booming American chronic capitalism of the pre-dot-com era, the decision-making process was more creative and unstructured and they followed a flat organizational structure.
Within a decade, Daimler-Benz, in an attempt to get rid of Chrysler, sold 80% of the Chrysler stake to Cerberus Capital Management for just $7 billion. A merger that was supposed to build a generational legacy of German and American automotive institutions didn’t even last a decade, with Chrysler losing $29 billion in value and Daimler burning a massive hole in its pocket.
Cultural Synergies Triumph Over All Synergies
Even before M&A discussions take shape, HR’s job is already in full swing. HR should look at the culture, the people of the organization and the values they'll bring with them. Will they even fit in together?
HR plays a vital role in identifying the cultural values of both organizations and preparing to integrate them into the new entity or teach new values through developing a new company mission and vision and ways to communicate them effectively to every employee. This process starts the functions of the new organization on the right foot, ensuring every employee has a clear understanding of the motivation of their colleagues and the entire organization.
As in the case of Daimler-Benz and Chrysler, so many mergers and acquisitions fail miserably due to cultural differences. Factors like leadership conflicts, the need for management commitment, the absence of shared objectives and poor change management also fall within the responsibilities of HR.
HR aids in determining whether the organizational cultures of two businesses considering a partnership are compatible enough to integrate as one. Human resources also ensures a seamless transition when two company cultures merge by helping staff members understand and accept the new organizational culture.
Communication About Compensation And Benefits
The M&A process leaves everyone uncertain, especially the employees of both companies. And uncertainty leads to unnecessary stress among the employees, sometimes causing them to quit. During this period of uncertainty, HR provides much-needed clarity and works as the ear of the management and executive teams.
M&A is a wise step in scaling up a company, but you need talented people to scale a company, and HR identifies and keeps qualified professionals from leaving. If the uncertainty remains and is not being proactively cleared, great talent may start believing they belong elsewhere. After an M&A, companies may become vulnerable to competitors stealing talent away or employees themselves may even leave.
After an M&A is complete, HR must work with management to create new benefits and compensation structures for both workforces. Employees will want to know whether their raises and bonuses will be affected, what the new promotion timelines look like, how they can schedule time off and whether they will still be eligible for the same healthcare.
After all the legwork is done, HR’s role is to constantly communicate, inform employees of any changes, refresh their knowledge and make sure the staff is aware of these developments.
Retention And Downsizing
Retaining great talent should always be a company’s priority, but letting go of people who do not fit in the new organizational structure is also vital so they don’t muddle the functional and cultural aspects of the organization.
M&A creates many redundant positions, and these positions don’t always appear on the first day. Six to 12 months after the merger, when things start settling down, HR departments may come across roles that are no longer required, and they must cut those down for the organization’s benefit.
The company can end up with two marketing departments focused on doing the same job or an accounting department that is twice the size needed for a company to function. HR helps trim the fat, which directly affects the balance sheet and the topline of the company—and this is always a great deal of interest to people after the M&A process. Ideally, HR and management teams should collaborate to evaluate the competencies, potential and skills of new hires.
Bringing It All Together
From day zero, human resources helps identify the culture of the M&A prospects and decides if the values and mission fit together in the new entity. They then move on to ensuring the people have all the necessary details to thrive in the organization, which helps retain talent.
When the dust settles, they help peacefully remove the redundancies or move them to new roles, which will help the company grow to new heights. Still, HR professionals don’t always get a seat at the table even though they have one of the most crucial roles in the success of the newly formed organization.
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