Case study for implication of Corporate Mergers and Acquisition on human resources :By Dr.

Narinder Kumar Bhasin

Implications of M&A`s: A Case for Human Values

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Introduction
Corporate Restructuring of business is an integral part of the new economic paradigm. As controls and restrictions give way to competition and free trade, restructuring and reorganization become essential. Restructuring usually involves major organizational change such as a shift in corporate strategies to meet increased competition or changed. Many successful executives have experience with mergers and acquisitions. With so many experienced executives, why do over half of US mergers fail? Think about it. What lessons we have learned about successful organizational integration? Successful chief executives and their teams harness the power of organizational integration. Despite colossal time investments that executive teams apply to acquisition choices and selections, few are prepared for the aftermath of organizational integration. The rational factors that guided acquisition selections and choices are replaced by organizational confusion, disruption and loss of control. Making a merger or acquisition work requires high regard for human and organization development. Integration activities necessitate a distinctive combination of executive introspection and action. Executives who understand the lessons of successful integration forge powerful alliances with organizational stakeholders every step of the way. The major motives of the unprecedented rise in merger and acquisition activity include globalisation, consolidation, product differentiation, vertical integration, growth and diversification, tax advantage, technological requirements. Various synergies like operating , financial , managerial , sales are considered as the additional benefit that can be derived from resources of two companies But most important motive and synergy which is either forgotten or given a back seat is Human Resources Synergy which in fact is necessary for converting the vision of M&A through Economic Value Added and Market Value Added .

The press release announcing any new merger or acquisition is always quick to announce the benefit to the consumer first, the stockholder maybe second, and the principals (CEOs, investment bankers, lawyers ) and employees never. But, taking critical look at such activities, it's hard to see that many direct consumer benefits, or at least benefits that don't come with a price.

Change Management
Change has become an inevitable part of the organizational working, survival and continuation of an organization depends on how it can foresee and tune its corporate objectives towards the changing environment. Stiff competition , impact of globalization, technology advantages entry into new markets have made Merger's and Acquisitions as an avenue being used increasingly by institution's to expand their operations and position themselves in the globally competitive market .When the process of M & A takes place , the changes that resonate both at the acquirer and the acquiree entity are inexplicable . For the entire process of M & A to be smooth, the foremost requirement is proper Change Management. An analysis of the failures in many of the simplest of M&A`s or mega M&A`s would reveal that some of the intricacies which would have seemed as trival would have been knowingly or unknowingly ignored. The other extreme would be that despite the acquirer organization or the merged entity have taken adequate cognizance of the intracies, the M&A process have failed because of the lacunae in the integration or transition process between the steps.

Stages in M&A process :Four Stages of the M&A Life Cycle

M&A life cycle passes through its four stages, focusing on the crucial people issues that arise at each stage. The four stages are: 1. The Pre-Deal Stage or Primary Plan: In this stage, acquirers search for compatible targets or merger partners. Typically, this involves developing a growth strategy that defines the role of M&As; setting criteria for candidates screening, evaluation and selection; identifying and assessing potential candidates; deciding which candidate offers the best fit for a deal; and developing an action plan for executing the deal. HR is least involved in this stage. 2. Due Diligence: After an offer to merge or acquire has been made, companies must ensure that the proposed deal is sound from strategic, economic and implementation perspectives. This is the time to discover whether a proposed acquisition meets the needs or standards of the acquirer. At this stage, HR professionals should help negotiators understand the potential impact of people, organizational and cultural issues to enhance the deal's chances for success.

3. Integration Planning: During this stage, successful acquirers or merger partners create a comprehensive plan for all aspects of integrating their businesses and organizations. This stage begins when both sides are reasonably confident that the deal will go through. HR should help to ensure that people, organizational and cultural issues are found, evaluated and resolved in a timely and expert manner. 4. Implementation or Final Integration: The final stage of the M&A life cycle builds on the planning that has gone before. Maintaining business continuity and momentum during this stage is the single most important factor in the ultimate success of an M&A. Employees will influence the success of this stage, and HR's actions will influence employee attitudes and behavior

Human Resources and M&A:

Schmidt notes that strategic people management is as crucial to a successful merger or acquisition as a sound strategy or fair valuation. According to the survey participants, the top seven obstacles to achieving success with a merger or acquisition are:

An inability to sustain financial performance Loss of productivity Incompatible cultures Loss of key talent A clash of management styles/egos An inability to manage/implement change Objectives/synergies not being well understood

All these obstacles are either directly or indirectly related to the strategic management of people and Schmidt believes that, of these, cultural differences between companies may be the single highest barrier to success. HR professionals usually have little involvement at the pre-deal stage, which goes a long way to explaining why people, organization and culture issues tend to get overlooked, the usual members of the deal team not being trained to identify or assess such issues . HR factors to be considered under the different stages of M&A are as below : Primary Plan Manpower pattern Age profile Knowledge Level Organizational Structure Infrastructure & Technology 3

- Territorial geographical distribution of branches /offices - Union / association representation / recognition Conduct of Due Diligence Wage , Salary , & Allowances Policies , procedures , guidelines Method of categorization Work flow patterns & methodology Dissemination of powers & mode of exercising Infrastructure for training & development

Final Integration : Retaining and enhancing the confidence of employees Synergy of staff Rationalization & redeployment of manpower Rationalization of wage structure Culmination of policies / procedures and guidelines Technology matching Adoption of new work pattern & its uniform implementation Reasons for wishing away from HR aspects: Emphasis is more on the other functions such as finance, infrastructure technology etc. The hypothesis that the human issue is more sensitive but will settle in due course after initial resistance The ignorance of the fact or taking for granted that the people related issues are less critical The absence of proper representation to give voice to the people related view in M & A team Recognition of human resource issue as one of the indicators for the success or failure of any M & A process is therefore imperative The importance of this factor is not limited to any stage in the M & A process but is omnipresent in each of this stage

Case Study: Merger of ANZ Grindlays Bank with Standard Chartered Bank
Abstract of the case and Synergies In July 2001, this merger helped the merged bank achieve significant synergies through operating efficiencies and revenue enhancements. The deal added to the strength of Standard Chartered Banks management resources and helped it become number one in India. It also helps in create premier international banking business in Middle East and Asia, thus emerging as a leading consumer bank in the region. News item published: Stanchart assets touch Rs 29,000 cr with ANZ merger
2 Sep 2002, 1535 hrs IST , PTI

NEW DELHI: With the successful merger of ANZ Grindlays to its fold, Standard Chartered Bank's total assets have touched Rs 29,000 crore, making it the largest foreign bank in the country. "The Indian operations of Grindlays have merged with the Standard Chartered Bank as on August 31, 2002 and the bank is happy to announce that all aspects of this exercise have been successfully accomplished and with the formal approval from the Reserve Bank," Stanchart's CEO (Indian operations) Jaspal Bindra said in a statement. Stressing that it was in the process of strengthening the presence in the country, the bank claimed it had assets of Rs 29,000 crore, making it the largest foreign bank. "The significant value that the Grindlays franchise has brought to the Standard Chartered Banking group was clearly reflected in out annual results for 2001-02 and India is now a key market for growth within the group," Bindra said. He said the merger would put us in a position to deliver significant benefits in terms of network, products and customer service. The bank would open branches in Chandigarh, Ludhiana, Lucknow and Jaipur by this 5

calendar year and plans were afoot to expand distribution in the current and other cities in the country, he said. At present, the bank has presence in 15 cities across the country. In June, Standard Chartered Bank and Standard Chartered Grindlays together recorded Rs 848 crores' operating profits. HR strategies adopted : Benefits of Merger accrued, Synergies of combined entity resulted in positive post merger performance This is what the W ORLD knows but what the World donot know is what happened to employees of the acquired entity. VRS , forced retirement , lowering of retirement age from 60 to 58 to 55 , golden hand shake for staff aged 53 -55 , interviews for existing staff members for survival of their same job position in the merged entity , pressures to opt for management cadres for clerical staff , transfer of clerks to Resource Management Cell ( No work and made to sit idle) . Clerical staff was offered waiver of loans where as management staff that the organisation want to throw out were labelled as non performer. Brief facts of the case: It was Sept 2001 after fifteen years of my work experience managing big teams I realize the true concept of management with human values. I realize that just for name sake of professionals, many organizations are treating their employees as resource like any other fixed assets. When the fixed assets depreciate after their constant use, they are written off or disposed. Their main objectives are to take work and work only without caring for their professional developments and understanding their human needs and values. After they find these employees have grown old and not updated with the latest information and techniques, they wish to throw them out and recruit young people. Employees who have given their golden era of their life for growth of their organization were left to surprise that where they have defaulted and failed where as in reality their organizations are to blame for this. I was called by my boss that I have been nominated from Northern India for banking operations on the job training at Fort Mumbai Branch. He also advised that I have to leave immediately tomorrow morning. When I asked the agenda for the training programme, he told that will be advised once I reached the venue. In past also I have imparted training where the agenda, contents and presentations were prepared in advance. I was having some doubts in my mind the way I have been informed for this training programme and so urgently it has happened. My doubts were correct as next day when I reached the venue at Mumbai , it was advised that forced voluntary retirement have been plan for the senior staff in clerical cadre with few incentives and the will be transferred to new created RMC department . They will be made to sit idle and no work will be allotted Fresher with 6

graduate degrees have been recruited with low salary of Rs . 6000 / and team of four members including myself will impart on the job training for one week. It was a great set back for me that people who have served for these organizations will be treated as useless when they need regular income for the family obligations and other commitments. Same day evening many staff members came to my room asking for their future, some were weeping, some were planning for their childrens marriage. Their entire financial planning has gone wrong and they were worried. I do not have any replies for their queries except to console them and give them hope to face these bad times with courage and things will settle soon. These staff members left my room but that whole night I could not sleep. My conscious was not ready to accept this that how cruel is our top management who do not give emphasis on staff needs and understand their problem .Why they forget that today its clerical cadre and tomorrow it will be management cadre . They are using us to train these young people and once they are trained and able to mange the work, we will also be not required. I further analysed that these people have been so sincere in their 25 -35 years of work experience that they have neither tried to update themselves with the outside world in banking industry nor academically. No manager and team leader has taken initiative to develop and nurture their talent It was 4 o clock in the morning and when I open the window of my room , fresh cool air from the sea side touch my face , my hair , my mind as it was trying to give some message . I dressed up in my jogging suit and went out for a morning walk near sea shore. Waves of sea are touching the shore and going back gave me a message to learn, Share, teach and develop my team members so that they should be multi talented people. I could not do much for these employees who were forced to take VRS at that stage but this merger have give some food for thought and waken my insights . I was correct after clerical cadre, managerial staff was also forced to retire, later same process was repeated in Delhi and other centres also. Learning from this case: With this realization of human values for caring my people, updating and developing professionally as well as personally, my vision for leadership and mentorship underwent drastic shift with human values at the top priority. I adopted 24 by 7 by 365 leadership rather than 10 to 5 affair. I started coming close to my team member and understanding their personal, career and social vision. Along with assuming role of manager, leader, I also become their HR core person .I started teaching English conversation, training and development, communications. Personality development to my team members which was not my KRA but that are a part of my human values vision. Irrespective of designations whether its an outsource person or permanent employee I started interacting and convincing them to graduate , do some computer skills courses and later I am successful in placing them in good job positions . I even sacrificed good talented people working under my supervision where our organization was not able to promote or give incentives due to the constraints in their HR policies. Today there are hundreds of people for

whom I have planned their personal goals and careers. I do not wish to call Guru but a friend or a mother who identify the need of their children and go ahead to help them in achieving the same. Few live examples namely Avadh , Sunil , Deepak , Amarjit Singh , Pankaj , Jitesh , Alok .and list goes on are my proud disciples where boss- staff relations have ended long ago but relation based on human values still continues and will continue for ever . Thanks to Spandan for giving me the meaning of this word and a platform to contribute towards this cause of leadership and management based on human values in a more effective manner. Now when I admire the wonder of sunset or the beauty of the moon, remember the fresh morning cool breeze, my soul expands in worship of the creator. Similarly when I see young students or young employees on the threshold of new life and career, I marvel at Gods creation. We have dreams for students and staff members. Dreams that they will become successful in life do well for society; make us proud that they are children. With this vital shift in my thinking, my philosophy for management based on human values underwent drastic change and my mission of life and theme is: Lets learn, Teach, Share and Develop. While handling big teams and imparting on the job training , I came in touch with various B schools to share my experiences and thoughts , writing articles and papers on various topics of banking , finance ,economics . I re-joined IIBF and qualify two certificate courses on AML /KYC and trade finance. Completed Indian Bank Association research on Impact of Technology on payment systems and awarded with award & scholarship. All these efforts were directed not for any self achievement and appreciation but to share and teach my students and disciples to achieve my vision to update and develop them academically as well as technically. Later the name of Grindlays were also removed and it became Standard Chartered Bank only . For the world it was a merger but employees know it was Acquisition. In 2003 I also resigned from SCB though I got a promotion to Assistant Manager in December 2002 in search of organisation who cares for human values, an organisation which does not treat its people as a resource but as equal opportunity partners. People need growth and wish to move ahead through training and development, promotions and job rotation. They contribute to the success of the organizations and in fact they are partners so caring from them during important decisions like M&Aas, they should be taken care off and atleast there is a better way to manage M&as based on Human values.

Role and Functions of HR personnel

First point of contact as regards HR issues A compass to provide necessary direction to the top management Strategy makers to come out with appropriate organizational structure

 An analyst to study the personnel policies , procedures and guidelines in both the entities without any bias or halo effect Abridge between the representatives of the workforce i.e. unions and associations and the management and serve as an advocate / arbitrator / negotiator An catalyst or as a main functionary in the relationship building process An conduit and a shock absorber in chalking a smooth road map for the people related issues in the M& A process Mode of selection of HR personnel who will be a part of M&A team

Distinct Traits of HR person or team

Unbiased Attitude : Both entities are represented Flexible Mind : Best of practices in various processes for new entity Sensitivity to needs : Emotions and mind set or employees to carefully addresses without conflicts Commitment :Integrate HR systems and processes in the new entity Good communication skills Knowledgeable Result orientation Vision orientation Analytical orientation Ability to mentor

Seven

Lessons

of

Successful

Integration

Executives

Here are seven indispensable lessons executives have learned from winning organizational integrations. 1. Have a point of view and communicate it. In the first days and weeks of integration, negotiation-weary executives believe that rational choices and activities will drive integration success. The infant enterprise is driven by the need for sales at a time when executives are strained by demands from analysts, the Board, customers, employees, and suppliers. In the initial weeks, it's easy to let organizational values and vision take a rear seat to seemingly endless demands on executive time. Organizations succeed when the team at the top pays something other than lip service to the future. Values and vision setting are unlikely to be successful when these foundational events are sandwiched between other organizational demands. Chief executives who opt to delegate values and vision-setting to committees create an illusion of speed and end up producing insufficient results. 9

Value and vision setting will provide opportunities to "re-recruit" employees, many of whom will be unsettled by the integration activities. It will also provide the basis for the organization to clarify its value propositions, and to yield a return on the significant financial and emotional resources deployed on merger and acquisition activities. 2. Set participative goals. Beyond its value as an interesting exercise, ask members of the new executive committee to identify six-month and one-year goals. One group of 12 leaders on a newly formed executive team I worked with produced an outstanding variety and number of goals - nearly 50 distinct goals among 12 smart people. There was keen interest to reduce the list to 3 or 4 short and moderate term goals, but the process failed to evolve, because the new team and organization lacked vision. Sadly, for all stakeholders, there was no Hollywood ending to this merger. Participative goal setting is a means to creating and developing the new executive team. Participative goal setting reduces silo-towering and involves executives in the personal and professional success of one and other. These activities contribute to the development of trust and productive working relationships between and among executives. A participative goal-setting process creates a climate and pattern for other organizational leaders to follow. 3. Learn as you go. Successful integration takes time, and few stakeholders are willing to go the distance unless they see compelling results. Successful executives create short-term wins during the integration process as a means of reducing resistance and combating organizational fatigue. The creation of successive short-term wins builds organizational capacity for the long-haul organizational transformation effort. The team at the top of the change effort will not have all of the answers for successful integration. Acknowledgement of doubt and self-imposed exclusion from problem-solving is difficult for seasoned executives. However, real change efforts require broad and deep involvement of employees. Involvement creates organizational learning, which may be the cornerstone of competitive advantage. 4. Find humor in situations. Humor is a spring for creativity that contributes to the flow of executive and organizational effectiveness. Leaders know that humor helps to maintain perspective. Integration executives can be overwhelmed with amounts of transactional and transformational change in the new organization. Humor provides the comfort and grace to sustain grueling integration schedules and to produce the deliverables stakeholders expect. 10

To maintain your focus on the bigger picture, you'll need to laugh at some of the well-intentioned cost containment and revenue generation proposals that are generated by employee teams. Successful executives balance serious work with humor. The balance of humor and serious work creates positive environments for employee contribution. 5. Take pride in what others accomplish. People want to be acknowledged, and you want to gain their commitment. The affirmation and support of others is essential to gaining commitment. The objective of a successful transformation isn't to blend two or more organizations; it's to create a new organization. Successful executives want to end up with something more that a sum of distinctive organizational parts. The creation of a new organization requires everyone's efforts and energies. The best way you can encourage contribution is to acknowledge and to take pride in best practices and noteworthy solutions to thorny integration issues. In time-pressed environments, the top team can show its pride in the organization through regular and ad hoc communication means. To maintain enthusiasm and momentum, learning and achievement needs to be celebrated. Successful integration executives focus away from reports of integration progress and towards creative accomplishments, results, and solutions. Top team executives who lavish their praise maintain employee momentum to deliver the new organization. 6. Act ethically. Leadership scholar James O'Toole wrote that convictions are necessary to sustain leadership energy. Convictions, according to O'Toole, make it possible for leaders to attract followers and to provide the focus and optimism to lead. Energy, focus, follower-ship, and optimism are essential for the long-term success of integration efforts. Stakes are high in integration: new contracts, new suppliers, and new markets. Increasing pressure makes many reminisce for the newly perceived slow pre-merger pace. By acting ethically, top executives create climates for trust and honesty. 7. Remember your passions. In their 50s and 60s, many executives reflect on their career successes and end-up discovering that their lives are empty. Regular diets of merger and acquisition activities can contribute to the feeling of loss. During integration, executives often lament about the lack of time available for complete accomplishment. Business triumphs are often fleeting, but lifetime accomplishment is readily sustained through focus on both business and personal passions. The benefits of life at the top enable you to live life fully. Remind yourself that life is full of opportunities for contribution and meaning. Management guru Peter Drucker attributes his success to developing a new leisure pursuit 11

each year. Passion will prolong your energy and involvement in creating and building a successful new organization.

Recognize Impacts and Respond Appropriately

To be able to offer useful advice, HR professionals must learn more about the M&A process and how to capture a deal's expected value by identifying and managing the people issues involved. By knowing more, HR managers have more of a chance to join their counterparts in finance, operations, legal and other functions while the early stages of the M&A process develop. When HR can prove its value in the M&A process, it can participate more fully in key decision-making and management activities in the process. The downsizing bug is not confined to those in control of government or public sector enterprises. It is now the mantra of the private sector as well. And each merger or acquisition is met with eventual reduction in staff, as in the above case in merger of two foreign banks, Standard Chartered and ANZ Grindlays What those advocating such downsizing tend to forget is that the issue involves much more than justified concern about the fate of the workers who lose their jobs in this process. It also tends to involve a genuine loss of efficient functioning as the remaining workers are forced into additional workload and insecure contracts. International experience, from countries as far apart as England and Brazil, suggests that the costs of obsessive downsizing of the workforce can be severe and even socially damaging A merger or an acquisition has a profound affect on the people of both companies, and managing this impact is an important part of managing a successful transition to a unified leadership, business model, and organization. By recognizing and responding appropriately to the impact of the deal on each employee, HR managers can set the tone for long-term success or failure of the new company. Successful mergers and acquisitions depend on the effective management of people issues. Making Mergers Work, means senior leaders and HR managers must play a larger role in the success of M&A deals by giving an empathetic respect to sentiment and human angle. This important HR challenges that companys face during the M&A process should be dealt with feeling and healing process.

Questions for discussion:

Consider your experience in merger and acquisition activities. What integration advice would you give to young leaders in your organization? What passions are sustaining your energy and involvement for complex organizational problem-solving in HR issues in M&As ? Do you agree that human resources synergy is an important to achieve success of Merger?

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Role of HR person or core group plays an important role in people integration in the merged entity ? Do you agree with this statement ? Implication or aftermath of M& As Is there a case for human values for its success ?

Dr. Narinder Kumar Bhasin

Doctrate in Management Studies (DMS) National institute of Manageement Master of Business Administration (MBA) C H Bhabha Research and Schoalrship Award 2007 Indian Bank Association First Prize Holder Micro Research on Banking Technology - Indian Institute of banking & Finance (IIBF) First Prize Case Study on Implications of Mergers and Acquisitions Human Values Associate of Indian Institute of Banking & Finance , Member AIMA ,DMA & AIMS. B.Com ( Honours ) , C. A.I.I.B , P G Diploma Financial Management , Diploma in Banking& Compnay Law Annamalia University P G Diploma in financial Advising (IIBF) Diploma in Treassury , Investment , Risk and Management ( IIBF ) Diploma in International Banking & Finance Certificate IIBF Anti Money Laundering /Know Your Customer Certificate IIBF Trade Finance Certificate IIBF Customer Services & Banking Codes and Standard Cert IIBF Banking Oriented Paper in Hindi ,NCFM Financial Markets Overview ,NCFM . Depository Certified Corporate Trianer

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