Acquisitions And Buyouts
As A Manager or As An Employee.
A special report by Linda Brakeall,
author of Unlocking The Secrets of Successful Women in Business
As I've been doing the research for a book on the people part of mergers and acquisitions for the best part of the last two years, I ask everyone I meet to tell me their experiences about this process.
Have you have been involved in any kind of corporate change?
Did you feel that you were prepared properly for the event?
Did you feel that the changes were handled well?
Did you feel included in the process . . . or left out of the loop?
Last week I met a man who told me how wonderful his personal experience was when his com-pany was bought out.
"Did they keep you informed? I asked,
"No," he replied.
"Did they supply counseling or job hunting help for those who were being let go? "
I guess I missed something. "Jack! I said, "What, exactly was it that was so wonderful for you?"
He said to me, " I wanted to move on. I was ready to make a change. I knew I had to grow professionally or die! I had been taking MBA courses for two years and the severance package made the whole process so much easier. I got to look for a new job on their time! It was wonderful! "
It was not the way that the company handled the change; it was the way the change was han-dled by the individual. He knew that HE needed a change and he had already initiated action to propel him in that direction. So he looked upon this merger as a blessing that helped him move on. He perceived he had some control over his destiny because he was already thinking about his op-tions before a change was announced. Isn't that a powerful perspective?
But Jack's perspective was not the usual one. Many of us in such a situation react with shock and dismay. We are immobilized by fear. We hate the very idea of change. We look around at who we are, where we work and what work we do and we find that it is not the same.
Not the same as our parents did and usually not the same as we had planned and not the same as what we were doing - even 1 or 2 years ago. Where is the job security that our fathers took for granted? Our parents, for the most part, worried little about mergers and acquisitions in their fields.
My father was with Bethlehem Steel for over 30 years; from the construction crew at age 17 to eventfully running most of their construction in America including the first floating dry dock dur-ing world War II. He was a self-educated engineer who was irreplaceable because of his broad knowledge base and skills. At that time, who could buy a huge company like Bethlehem Steel? Competent employees felt secure. Who can say that now?
And we ask ourselves WHY is it so very different now? The answer is that . . . things change. A report in Psychology Today says that change scares people! A dominant change in the world of work today is mergers and acquisitions. Small companies become big. Big companies become small. And inefficient or ineffective companies become an endangered species.
Mergers, acquisitions and buyouts have accelerated change and have had impact on the employ-ment lives of almost all of us. I've been researching and studying this topic for almost two years now. I've read most of the books and articles that have been published here, in the UK and in Can-ada. I've found there is even a monthly magazine called Mergers & Acquisitions! How 'bout that?
As I read the bios on the authors, I found a recurring theme. Most of the people who are write about mergers and acquisitions are "bean counters" or finance wizards. Their focus in on profit, their personal reality centers on balance sheets, so they are not sensitized to the people issues in-volved in mergers and acquisitions. I found few writers with front line, in the trenches, experience. Few who have actually been there, who have "felt the pain", watched the anguish and seen lives disrupted. A merger or acquisition's potential for mayhem to someone holding a mid-level or en-try-level job is completely outside the experience of most current writers of these books and arti-cles.
I speak to you as a person who has been bought, sold, merged, purged, down-sized, right-sized, patronized and ostracized. These things have happened to me as a salesperson, as a branch manager and as a Vice President of a major corporation. I'm here to tell you that the people part of mergers and acquisi-tions has serious problems and deficiencies. There is a major lack of sensitivity and communication. In fact, it stinks! Big time!
Today, mergers and acquisitions affect everyone - even if you own the company. If it is not your very own company that is merged or acquired, it is one of your customers or your vendors. And that affects how we do or don't do business with those people. Products that you take for granted disappear; you have to find raw materials from another source. Your favorite store no longer ex-ists because it was bought by a bigger store and closed to eliminate a competitor in the market-place.
So let's take it from the top and see if we can find some answers to the question: How do we survive and thrive in the face of change?
The first area to investigate is why are there so many M & A's? Why do companies merge?
Why do companies acquire other companies? Surely profit is the bottom line answer, and yet . . . the promise of profit is not always realized. Why?
Thomas Szott of Coopers & Lybrand released a study a few years ago that said,"70% of mergers failed to achieve the buyer's objective, and in fully half of the mergers the stockholders lost money. American Management Association has been tracking downsizing for more than a dec-ade. Their statistics prove that . . . cutting heads (often in an acquired company) is bad for busi-ness. Long term, a downsized firm has a far less-than-even -chance of improving profitability and productivity."
What downsizing does is provide a short-term stock gain. But even that silver lining has a cloud. In AT &T's case, (of downsizing) a 2-point increase was followed by an 8-point fall once the bad publicity set in. That's a lot of pain for absolutely no gain.
From the Journal of Commerce and Commercial: Only 36% of utility companies which merged with other firms...exceeded the industry average in terms of revenues and profits.
The Economist said, "Mergers fail because the acquirer fails to plan for what will happen with the two companies after the merger is completed."
What goes wrong? Time after time? What is being missed? Why is profit not always realized? The Economist said: The acquirer fails to plan for what will happen!
And who is the acquirer? Who creates mergers and acquisitions? People put together mergers and acquisitions. But the specific people who put together mergers and acquisitions are typically not people sensitive, and they have no vested interest in the long-term success of those companies they merge or acquire. They often depart shortly after the process is completed.
The people who put together mergers and acquisitions are generally referred to as bean counters. We may be talking pleasant folks who just happen to be high-level, financial geniuses - but bottom line? They are more like bean counters than visionaries who want to build a dream.
Bean counters are very valuable, bottom line, laser-focused individuals. We couldn't do business without them! They tend to dwell on balance sheets, P & L statements, stock prices, stock options, assets and liabilities, real estate, buildings, plants, refineries, machineries, patents, formulas, tax basis, tax loopholes, tax avoidance - even tacks in the carpet - and they need to do exactly that but they never seem to care about the people. Only the dollars those people represent, because the fo-cus of their reality is dollar-based not people-based.
Remember what The Economist magazine said? The acquirer fails to plan for what will happen . . . with the process and with the people. They fail to plan in advance of the Merger & Acquisi-tion, they fail to plan during the Merger & Acquisition, and seldom do they plan for what will happen after the Merger & Acquisition. And that spells disaster to companies who are involved in mergers & acquisitions 70% of the time.
We've all seen that at the merest whisper of a buy-out or a merger, many top people from BOTH companies leave. The sales stars, the inventors, the savvy managers. WHY? Because they can. BECAUSE THEY CAN! And both companies are left with nice, affable people, who are the backbone of every company, but they are NOT the risk takers, the visionaries or the pio-neers. Those who leave, leave not because they inherently fear change but because they fear loss. Loss of job, loss of power, loss of control. So they cut themselves a fancy deal with a com-petitor and they leave.
Those who remain, stay because they value stability more than risk. The unknown is always more frightening than the known. Even when the known is not good, . . .people will hang around waiting and hoping for things to get better.
Middle management - that includes anyone below owner and above the mailroom - is most affected because middle management is usually the first to go. Few people feel secure any-more. We feel insecure because we are constantly receiving mixed messages! And we receive more mixed messages during a merger or acquisition than any other time.
In all too many companies, they are hiring right up to the day they close the doors. They are denying the rumors of a merger or acquisition until the truck pulls up with a new sign for your company. The day after t h a t you get a short memo about the changes and everyone waits nerv-ously for pink slips. And the waiting is tough because change itself is tough!
A former training manger for International Harvester, said that people who find themselves in this scary limbo dig in when they see other people disappear. They become more preoccu-pied with keeping their jobs than with doing their jobs.
This manager routinely did a lot of personality testing and he said that in these stressful situations, those personality-reading graphs, - like the Carlson DISC system went from up and down to straight line... which indicates to anyone who knows how to interpret them that those folks became incapable of making decisions.
He also said, only somewhat facetiously, that in the face of a merger or acquisi-tion or downsizing or the specter of a company closing, those who remain are seldom contributing much more to the company than those who left . . .because the ones who remain, the lucky ones who keep their jobs, are immobilized and incapacitated by fear of the unknown.
Psychology Today research has shown that there are fewer problems if people perceive that they have some control over change. It is the perception of control that makes all the dif-ference. Without the perception of control, fear takes over and festers. Part of that control is learn-ing to cope with uncertainty.
Marilyn Bruner, President and CEO of a large hospital in Ontario, Canada, in an article called: Adopting an organizational culture of continual change, says the only managers who are success-ful these days are the ones who have achieved "Comfort with ambiguity!"
Tom Peters was quoted in the same article. He said: "The most successful managers in excellent companies have an unusual ability to resolve paradox, to translate conflicts and tensions into excitement, high commitment and superior performance." That's way past comfort with ambi-guity, that's bordering on delight! How do we keep employees functioning effectively when merg-ers, acquisitions, buyouts, downsizing, moving markets, and change in general have become part of our culture?
How do we let employees perceive that they can exercise some control?
How do WE personally maintain some control over the gut churning panic?
There are 5 primary strategies that come to mind:
1. We do it with information.
2. We do it with contingency plans that are shared with all employees.
3. We educate and prepare ourselves and our employees with options.
4. We tell the truth and we acknowledge that M&A's and change in general are today's reality.
5. We involve employees in the management & decision - making process.
Strategy Number 1.
Disseminate Information Early & Often
Before, during and after any change, we keep everyone as thoroughly informed as we can. We do it in person if that is remotely possible. We do it by memo if necessary . . .or we do it by video, so that everyone receives the information with the same intonation from the same original source. Usually the information we get during M & A's comes to us via the grapevine, which is re-colored and re-shaded with every telling.
The lack of timely and accurate information is the largest single complaint most people have about mergers and acquisitions. Most people can deal with truth. They don't always like it and fortunately liking it is not required, but the truth is a much better basis for action than gossip or fiction. Even the truth of "We don't know anything new" is a positive communication, isn't it? At least you, as the recipient of such a message, know that the powers that be know that you are nervous, antsy and wanting to be kept informed. At least you know that someone is sensitive to the fact that you exist, have a job to do, customers to keep happy and plans to make. As long as you feel that people are being straight with you, you can function. Maybe not 100% while waiting for the final answer, but you can function.
People in Top Management often believe that since they are acting for the greater good the em-ployees will be better off in the long run if they don't have to think about the big picture. So they tell employees very little. In essence they are saying to men and women alike: "Just do your job as usual Sweetie and don't you worry your pretty little head about a thing. We'll do what's best for you!"
Much like a salesman is reluctant to make keep- in- touch calls " because I have nothing new to say" - companies in transition who have nothing new to say are reluctant to say anything. But you know, as a consumer, that often when a salesman calls with nothing to sell you, merely to say "HI", that the relationship moves to a different level. Because you perceive that the salesman is interested in you . . . as a human being not merely as a customer! Even though you know that he or she is building a long-term relationship in order to get more business out of you in the long run . . . that call is usually a positive experience. Because we are all simply human beings who wish to be acknowledged as such.
Human beings thrive on touch, interaction and feedback. We wilt when we are neglected or ignored. We need to know what's going on.
We need constant updates. Without frequent input, information and communication, people are immobilized in stressful situations such as a merger or acquisition. They are wondering, speculat-ing, creating and dwelling on worst-case scenarios. That is not good for anyone. Not the individ-ual and certainly not the company.
Strategy Number #2.
We create a sense of control with contingency plans.
What would happen IF . . . we were bought by another company?
if we bought another company?
if there was less business?
if there was more business?
if the market dried up?
if our biggest supplier went out of business?
We discuss these and other possibilities with our employees and come up with game plans to over-come the problem if possible and to find other ways to use our skills, or equipment if necessary.
Strategy Number 3.
We educate and prepare ourselves and our employees with options.
If employees themselves can't understand a bigger picture than their own little microcosm of the universe, they minimize their chances of changing themselves in order to survive corporate change.
We help ourselves and our employees perceive that they have some control by shifting the burden for employees remaining employed onto the shoulders of those employees as we help them under-stand the big picture by sharing information.
We make classes or tuition for classes available so that they can upgrade or increase their skills.
We encourage them to go, and we encourage them to learn. But they have to choose to go, choose to learn and chose to improve or upgrade their skills in anticipation of change. Ultimately it is their choice to increase their knowledge & skills or maintain the status quo.
You see, in every company, some people always seem to land on their feet. We, as corporate America - both employer and employee have to learn that skill and teach it to others. My research indicates that that skill is not programmed in your DNA! It doesn't just happen. Those people who
always land on their feet have their plans in place - in advance!
They are flexible, they have considered their options, they look for opportunities, and they are con-stantly learning and growing. They welcome change and they work hard because the days of the dilettante are over.
The days when employees could get by on "sorta working" are gone. As companies get leaner, we all have to work smarter because there are fewer of us doing the same amount of work and while technology is a great back up, it can never make decisions, it can never come up with creative so-lutions that go outside the box.
Strategy Number #4.
We tell the truth. Radical concept!
We talk about options in the event of M & A, and discuss the very real possibility of combining with another company. We offer to cross train our employees so that they are multi-functional and will have more than one chance of keeping their jobs.
We show respect for the intelligence & integrity of the employee by sharing information. They are not children to kept in the dark till the eleventh hour! On the other hand, employees have to recognize and acknowledge the truth of the situation. You can't help people in denial. They won't change!
Let me give you an example:
In mortgage banking, there are loan processors whose salary has jumped to $30,000. Less than 5 years ago they were making $15,000 doing the same job.
Have they learned any new skills? NO!
Are they assuming any new responsibility? NO!
Are they handling a larger number of loans? NO!
Are they viewing what they do as a career or merely a job? Most consider it a job and do not un-derstand that technology can easily replace the clerical parts of their jobs and it will shortly and they will be left without a job... except for the ones who are spending this time figuring out the how's and the why's, and learning supplementary skills like . . . underwriting which will always need a human being.
When it only cost $15,000 a year, an acquiring company could afford to have a lot of processors, even if they were only non-thinking technicians. But since they are truly not paying for them-selves at $30,000, new management aggressively seeks ways of eliminating those jobs, or mini-mizing the number of people who hold those jobs. Processors who do not acknowledge this reality will soon be out of work. If they are terminated, they may feel that the company was cold and un-feeling. They may feel powerless and never understand that they could have had a very real im-pact on the final outcome of their career at that company if they had taken steps to increase their value. If not to that company then to another company.
We need to be honest with people about how personnel decisions are made; about who will stay and who will go (not by name, but by profile) and WHY. Because the reality is NOT IF, but when will a Merger or Acquisition come to your company.
Listen to this:
"We keep the people who are multi -facetted.
We keep the people who are multi - skilled.
We keep the people who communicate well and know how to think.
We keep the people who are easy to keep, who are pleasant to work with,
who want to make the company better."
Those things are the collective conclusion of all the managers I've interviewed about this topic. Why doesn't someone say that to the employees? That is telling the truth!
Strategy Number #5.
Involve Employees in the Management & Decision Making Process
Our employees know the answers and can solve many of the problems inherent in the Merger & Acquisition process. Very much like the ear, nose & throat surgery nurse who knows more about the specifics of E, N T than most general practice doctors; because they spend every day immersed in that microcosm of medicine.
It is management's job to look at the big picture, to figure out what the goals are, what the direction is, devise master strategies and envision the end result.
Does anyone else have trouble remembering the difference between strategies and tactics? I finally figured out that tactics have to do with being tactile, which has to do with touching as in hands-on implementation. The strategy is the thinking up in the stratosphere, the tactic is the do-ing. (Think of tactile as something you do, something you handle!)
In a smart company, when a merger or acquisition occurs and two sets of policies have to be combined, management will involve the folks who are affected most. Let them have a run at creating tactics that will implement strategies. Think about that for a moment! Isn't that logical? Doesn't that make sense? Isn't that perfect in its simplicity?
Clever, thinking, management will happily hand over tactical policy- making to the people who are most affected by those policies. If the overall strategies are in place and the tactical policies con-form, why would management waste it's ever-so -valuable time dealing with it? Is there anyone out there who has not experienced ludicrous tactics being handed down from above and said to himself or herself and to anyone else who would listen, "This makes NO SENSE at all!" "Didn't they talk to anyone who works in this department? " Have you heard that? Or said that yourself? When you think about those Ivory Tower Policies, can't you just see a Dilbert Cartoon writ-ing itself right before your eyes?
Panel One: Dilbert's Sanitary Engineer is holding a Scroll in two hands, which just came out of his printer.
Panel Two: is a close-up of the scroll and we see that it says NEW POLICY For Changing Toilet Paper and has 15 paragraphs of microscopic print and 3 diagrams.
Panel Three: has long lines of people in front of the rest rooms muttering, " I've been waiting for two hours! If I don't get in there soon, they'll be sorry!"
Panel Four: Someone peeks into the rest room to talk to the Sanitary Engineer and asks, "What is taking so long?" Sanitary Engineer replies, " I'm just reading the new Toilet Paper Changing Policy Memo and as soon as I figure it out you can come in."
That was a silly example but here's a real life example: I consult with a major company who bought another major company. Corporate travel at company A involved calling the company travel agent and going. Company B required 3 forms and 4 signatures for you to get on a plane for any reason to go anywhere.
Their policies on capital expenditures were reversed. What was easy at one company was tough at the other. When those two companies merged, those policies had to find a way to co-exist or com-bine. There are two ways to approach such a problem.
Approach Number 1.
The usual process involves someone in the Ivory Tower handing down a policy fiat that apparently was created with at least the same authority that brought us the Ten Commandments. It has no room for modifications, no concern for exceptions to policy and absolutely no hint that anyone who would ever be affected by this particular policy had anything to do with its creation. You are probably familiar with that approach.
Approach Number 2.
Ivory Tower could say to the people in the departments involved: "Here's the situation. A, B, C, and D . . . We need to find a way to combine two policies into one. It's important to keep in mind that we need to streamline the process and keep costs in line. As long as you can do those two things, how you implement this policy is up to you. Just run it by me for final approval. Ques-tions?"
Which approach is more likely to work? 1 or 2? W h y ? Number 2 tends to get more cooperation because when people are involved in the creation process, they not only buy into that policy, it is also usually a better, more usable, user-friendly policy going in. That's another radical concept!
How much time, energy & MONEY, are wasted every day in corporate America on policies that are created at the top, tried in the departments - and after a lot of W B & M - (Sorry, that's a tech-nical term we use a lot in M& A. It means "whining, bitching & moaning") - those policies are found to be ineffective, cost prohibitive or in some cases just plain stupid! ...another technical term!
And then we return to square one to try again. Typically that involves many meetings, many memos, printing the policy manual again, maybe more training, . . . and for what? A policy that was doomed to fail before the ink was dry!
Haven't we all seen Ivory Tower Policies that had no remote relationship to reality? All too often - even with the best of intentions - employees feel that they have been left in the dark, and given inadequate tools to work with. They feel that they have been fed false information and,
more often than not, feel that they have been lied to. They tend to take that rather personally.
As a result company loyalty goes down the tubes.
Every time a bad policy is put in place, or a decision is not made in a timely fashion, it costs us time, money and loyalty. When progress and decisions are not communicated immediately trust is tarnished. Even when nothing new has happened and there is nothing new to report because things are stagnant, . . . people need to know that.
Employees are often not given status reports because management is embarrassed to have nothing new to report. Like the salesman's keep in touch calls that are sometimes awkward but are the essence of keeping a relationship alive, management is uncomfortable delivering pedestrian communiqués and rather than be less than spectacular, they choose not to communicate at all. They assume that the troops will believe that " No news is good news. "
And the truth, as we all know, is exactly the opposite. Most people feel: "If things are going so (expletive deleted) well, then why isn't anyone talking about it"?
But management tends not to trust the employees to act like responsible adults, so they keep the possibility of a buy out secret rather than reminding people that change is the name of the game and that we all have to be constantly prepared for it. I suspect this mind set is not a conscious de-cision but more a case of doing what we've always done the way we've always done it, because we've always done it that way!
I trust the people who are our employees to prepare for constant change, to enhance their value as employees if we will only give them a little leadership, a few ideas and model that behavior for them by expanding our skills and our horizons. Because people do what you do, not what you say. You've got to walk the talk!
I trust the people who are on the line every day to develop appropriate tactics. To come up with the creative, workable answers about how we merge two payroll systems, how we find a happy me-dium about travel practices and capital expenses for each department.
I trust the people in the offices and the departments to be thoughtful, problem solving, competent adults . . .who will let management know when there is disparity between the dream and the exe-cution. And I expect management to listen!
We need to involve our employees early and often in the possibility of mergers and acquisitions and all the many variations . . .so that they are fully prepared and fully equipped for the inevitable changes that will occur.
Only then will they - the people, the employees, our most valuable assets - function fully and make the Merger & Acquisition as profitable as it was meant to be.
Explanation for the following: This report is an excerpt from a book in progress called Slender & Tender.
I've been asked why this is called Slender & Tender; they say it sounds like a diet book! The first management style I encountered in the 70's had no name but I called it Fat & Lazy. There was so much business that as long as you and your company did any kind of a reasonable job, you were in business almost forever! In the 80's all that changed with an early recession and new technology, which brought in a new style called Lean & Mean, remember that? . . with em-phasis on the MEAN!
If you and your particular position or department didn't have a directly correlated impact on the bottom line you were history! Whole layers of middle management disappeared overnight. BAR CODES -those funny little lines that they scan into the cash register - bar codes alone, wiped out whole layers of workers.
As we passed the year 2000, it became ever more apparent to me that we must find balance. We must find a way to control overhead, capacitate employees, (capacitate is the exact opposite of incapacitate ) while we manage firmly and gently. We must create a positive vested self-interest in the success of the busi-ness for both the employer and the employee. Employees must take responsi-bility for themselves and their career paths which are no longer linear, and management teams must become Slender & Tender."