By Bryan Richardson
When the company goes through an acquisition or a split, it’s the people who are the prize.
A global economic slowdown, historically low interest rates, shareholder activism and tax savings opportunities between the US and parts of Europe are fueling mergers and acquisitions at a rate that is on pace to set a record in 2015. But it is not just M&A that is shaking up the corporate landscape. There are also sizeable company splits occurring. Hewlett-Packard is splitting into two companies soon—one for laptops and printers and the other for corporate enterprise solutions—and earlier this year eBay split off its PayPal unit into a separate public company.
Regardless of the reason, reorganizations of this magnitude are very impactful, negatively and positively, on the treasury teams which are in the thick of the activity needed to execute the transition. Two NeuGroup meetings last spring heard presentations from members on how their treasury departments were managing through such events, one being a split with an aggressive timeline of eight months, and the other being an acquisition of a company comparable in size and complexity. Both organizations shared thoughts on the complexity, long to-do list, planning and sequencing process and many other considerations. But one of the top priorities for both companies was managing their people through this disruptive season.
Both types of events have several key employee-related components in common:
1. A huge groundswell of work through the transition. Both acquisitions and splits require a one-time mountain of work to execute the transaction. One member formally referred to the overall post-acquisition work load as “Project Mountain.” Consultants are sometimes hired to support the large volume of work but the majority of it still falls to the employees and therefore they must be repeatedly encouraged to persevere through the project.
2. A directive to maintain or reduce current headcount. In the event of an acquisition there is always an expectation that some of the employees from one or both companies will be terminated or redeployed to another area. However, for the company split example, the organization was told that the project was to be done with no additional headcount. Consequently, the treasury team would essentially be cut in half and given new responsibilities in the new organization.
3. Uncertainty, anxiety and disappointment for employees. Given the above, it is understandable that employees would be anxious about their future. And when their future is disclosed there very well may be disappointment that could lead to an undesired departure. The splitting company shared that all employees were told in advance what their new roles were going to be. In this case there was a widespread view that one of the companies had a brighter and more exciting future than the other. Consequently, those employees assigned to the less exciting company felt disappointed.
4. Rumors will abound. In the absence of current and accurate information and in the presence of uncertainty and anxiety, misinformation will surely fill the vacuum. Employees will want to share their concerns and thoughts with one another to form common ground and alliances.
In summary, more work with fewer or the same resources combined with uncertainty results in anxiety and rumors. So managing significant change successfully is important. Following is a summary of the approach and lessons from two companies that went through big changes:
Create an organizational design and roadmap. In the case of the acquisition, it was determined that both aquirer and aquiree were stronger in some areas than the other. It was decided to incorporate the best attributes of both companies into the new organization. This also communicates to the acquired company that they have value and will not simply be assimilated into the existing model. Where possible, it is advisable to start with a clean slate for reorganization.
For the company that was splitting into two entities, one company would be very capital markets-intensive while the other would be more operationally intensive. While the total headcount might have been enough, the knowledge and expertise that was needed wasn’t sufficient to simply assign experienced people to the required roles.
The solution was to make post-split assignments and begin a cross-training process to develop the needed skillsets in specific individuals. In some cases, employees had to do their current job, train someone to do their current job and learn a new job. This required that all treasury activity be consolidated to corporate. Regional treasury centers (RTC’s) were shut down with only some limited local representation for local business support and back up to corporate. The working philosophy during this period was always make yourself available for knowledge transition to ensure one’s own success.
Remove roadblocks quickly. As noted earlier, the splitting company imposed a very short timeline on itself to close the transaction. Consequently, it was necessary to ensure there were no delays, especially self-imposed ones. The company committed itself to making all decisions within 24 hours. Employees were not held up in doing their jobs by the inability of someone higher up to make a decision.
Be realistic about Year 1 objectives. In the months following a significant organizational change there is a tendency to want to fix everything right away. Embracing this will become overwhelming and can result in frustration and burnout. Both companies took the approach to execute the transaction first and then optimize operations later and methodically.
Communicate often, from the top and directly to subordinates. The rumor mill and anxiety mentioned earlier is best managed with as much honest communication as possible from all levels. The acquisition company says it is important to “engage internal and external constituencies frequently. It is important to combat the water-cooler conversations with one-on-one conversations. Senior leaders are also communicating regularly with employees globally to keep them enthusiastic and motivated.” The splitting company shares similar thoughts to combat the fear of the unknown. The employees taking on new roles have anxiety about the unfamiliarity of the activity from time to time musto be reassured and given the tools to learn the new role.
Both companies also acknowledge that employees have to be educated about the new opportunities that will unfold for those who stick it out. Each experience loss of key employees who were compelled to run to a more stable environment. But this only opens doors for those who remain.
Embrace the disruption. Both M&A and splitting are immensely disruptive, and while this is unsettling, it is also an opportunity to conduct a wholesale review of the operation and use the disruption as an opportunity for positive change. Because of a very short timeline imposed for the transaction, the splitting company was forced to split the company in an “as is” state, or as they referred to it, “lift and shift”, i.e., to make no substantive changes. However, their approach did incorporate the documentation of all processes and taking note of where opportunities lay to improve within each company, or as they said, “optimize later.”
There continue to be weekly announcements of more corporate disruptions. If you happen to be the next headline, take comfort that following these practical steps will serve any company well as they will ensure fewer people will be “lost” along the way, and the united workforce experiences the gratification of the knowledge and expertise that was needed wasn’t sufficient to simply assign experienced people. It is important to ensure that soft skills are shared among employees, and that everyone feels comfortable about performing well in their future jobs. This builds camaraderie, bonds, and corporate culture in the new standalone businesses.