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Breaking the Bank
Success in M&As is a delicate and difficult task, and that task is even more difficult in the stunningly unexpected Bear Stearns case. Assimilating different cultures, calming fears, communicating honestly and striving to retain the best employees -- regardless of which company they work for -- are just some of the important elements involved.
In any merger or acquisition, anxiety rules. Employees on both sides of the fence typically endure an angst-filled wait as the "new" organization gets sorted out. But in the case of the recent offer by JPMorgan Chase to purchase 85-year-old Wall Street investment firm Bear Stearns, anxiety may not quite do justice to the situation. The phrase "shock and awe" might be a more apt description. In fact, according to some experts, never has an acquisition happened so stunningly, with phrases like "fire sale" being used to describe the situation. After all, JPMorgan's initial offer of $2 per share valued Bear Stearns at $236 million. A second offer, at $10 per share, drove the company's value to $2.1 billion. Less than two weeks ago, the 14,000-employee firm, rated as the fifth-largest U.S. investment bank, was valued at $8.3 billion. What does it all mean for Bear Stearns employees? For starters, some estimates say it means they lost more than $3 billion over the last month, as employees were major shareholders through 401(k) and other stock-ownership plans. It also means, according to reports, that about half will lose their jobs. Of course, without the JPMorgan Chase purchase plan (which includes a $30 billion guarantee from the federal government), it would have meant everyone at Bear Stearns would have lost their jobs AND their retirement savings, a la Enron. "This is extraordinarily unusual," says San Francisco-based Laird Post, a principal of Booz Allen Hamilton. "This is not just a company acquiring another company. It's more like a fire sale. "Bear Stearns employees have seen significant reductions in personal wealth through retirement plans in the company stock. So they are feeling a huge loss of wealth, as well as loss of control that occurs in a takeover. That means a much more heightened sense of anxiety, and anger." "In a situation like this," says Manny Avramidis, senior vice president of human resources at the American Management Association in New York, "which almost is beyond extreme, employees coming from Bear Sterns to JPMorgan Chase are going to be in a state of shock. "It's really in JPMorgan's best interest to retain not only the top performers, but also as much of the rest of the workforce as possible," he says. And, Avramidis says, to have any chance at success, JPMorgan must be open and honest with its new employees. "They must talk about the impact of the deal, the shifting strategies, the changing roles of the individual and offer them consistent updates, almost on a daily basis," he says. "This is where leaders really need to lead. They must step up to the plate, and control the situation by offering a real a plan to turn things around." Of course, with the economy struggling, it's an inopportune time for workers in the financial sector to be job hunting. So that may give JPMorgan a leg up in preventing the most talented as well as the rank and file Bear Stearns employees from jumping ship too soon. "JPMorgan must do whatever it takes to give employees some confidence, so they can make an educated decision whether to stay or leave. That is, if they have the choice," Avramidis says. "These are significantly scared employees. Somehow, they are going to need to have confidence in JPMorgan." He adds that, to retain the talented performers -- who will always find a job if they want one -- JPMorgan will need to take an even more aggressive approach, including retention bonuses. "It's fairly simple to talk about, but complicated to do," Avramidis says. In any M&A situation, says Bob Kustka, a former HR executive for the Gillette Co. and current president of Fusion Factor, a Boston HR consulting firm, workplace culture plays a critical role in determining whether or not the union succeeds. Yet, even in the Bear Stearns situation, which he calls "not normal," some of the classic strategies still apply. Assessing talent and skills, on both sides of the aisle, is at the top of the list. "This is a real unusual case, but all acquisitions are akin to hostile takeovers from the employee point of view," he says. "Companies who fail to look at the talent of both companies suffer from a very high failure rate." For example, he says, when Gillette acquired Duracell in 1996, the company had lost 90 percent of the Duracell executive team within three years. Why? Because Gillette failed to assess its talent and people properly, costing the company in market share and profitability. He says that in most acquisitions, the acquiring company first will try to take people out of the business, which can be good if there are redundancies. But companies often fail to look at best practices and talent within both organizations, and that's a major mistake. Some key steps for any company that is acquiring another, he says, are: * Form "work environment teams" from both companies to define how each culture differs and what steps are essential in bridging the cultural gap. * Conduct a risk analysis of the acquired company's talent. As in, who might the acquiring company lose and what steps can be taken to retain them. * Define which best practices can be adopted from each company. * Develop a communications strategy early on -- and use it often. "It's natural to assume that all the JPMorgan people should stay, but that should not be the case," says Booz Allen's Post. "They need to be wise, to look at entire talent base as fast as they can and get a handle on who best performers really are." Moving fast is critical, Post adds, as rumors are already flying, mainly speculating that Bear Stearns employees are planning to leave in droves, calling headhunters (or lawyers in some cases). And what about those Bear Stearns workers who don't make the cut, and lose their jobs post-acquisition? Everyone interviewed for this story agreed they deserve the best possible care and consideration. In other words, JPMorgan Chase must do whatever it takes to ensure those who are leaving receive every possible benefit as part of the outplacement process. "I believe they almost should treat the departing Bear Stearns employees better than their own staff," says Post. "It's not just the morally right thing to do. It's also about the message it sends to the people who remain. If they treat people who are leaving poorly, those who remain will wonder if this is the kind of culture they want to stay in. JPMorgan Chase should do the right thing, and make it very public and respectful." "This is an ugly and demoralizing experience for the employees both from a private and public perspective," says John Jazylo, a partner at Epsen Fuller/IMD, a Morristown, N.J.-based international search firm that places executives in the financial sector. "From an HR perspective, JPMorgan Chase must be bold in its position to win over Bear Stearns employees without alienating its own employees, a difficult balancing act to say the least."
March 27, 2008 Copyright 2008© LRP Publications |
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