Taming the M&A Beast

Experts shed light on what it will take for HR professionals to become true strategic partners to top managers during mergers and acquisitions.

Wednesday, August 1, 2012
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So you think you -- and your HR direct reports -- will perform stunningly well during a merger or acquisition? Well then, consider this scenario, courtesy of someone who's managed more than 50 acquisitions at a major company: The business leaders overseeing a merger want to retain a superstar employee from the firm being acquired. However, the salary they want to pay this person far exceeds what someone in that role normally gets at the acquiring organization. What to do?

The typical HR response, says Shari Yocum, would be to tell the people at the table "No." And that, in a nutshell, illustrates why HR -- despite the vital need to retain and engage talent during the M&A process -- often fails to play a strategic role during these events, she says. (To see what Yocum thinks is the better response, read further.)

Yocum should know. At Cisco Systems, she spent 11 years managing the technology giant's HR mergers-and-acquisition practice, helping to oversee Cisco's acquisition of big firms, such as $3.2 billion for WebEx, and even bigger ones, such as $6.9 billion for Scientific-Atlanta.

She helped ensure those companies were properly integrated after the agreements had been signed, helping Cisco avoid the massive outflow of post-merger talent that undermines most M&As.

Last year, Yocum and several other HR M&A veterans formed Tasman Consulting, a San Francisco-based boutique firm that consults with HR leaders at acquiring companies.

The goal is to ensure the process is smooth and successful, says Yocum, a managing partner at Tasman, while providing advice that large consulting firms fail to provide. (Yocum says larger firms typically assign inexperienced associates to consult on mergers and acquisitions.)

Much of that advice revolves around taking care of the employees at the company being acquired, while helping leaders at the acquiring firm work together effectively without succumbing to the political games that can render everything dysfunctional. An HR leader who can do this successfully, says Yocum, is one who's equally adept at people skills and business strategy.

Yocum and Niki Lee, also a managing partner at Tasman and a fellow veteran of Cisco's HR M&A team, recently spoke with Senior Editor Andrew R. McIlvaine about what it takes for HR to be a key player in a successful merger or acquisition.

To begin with, why do you think so many mergers and acquisitions result in an exodus of staff and/or staff turmoil? What can HR do about it, and what might stand in the way of HR doing these things?

Yocum: I think there are two categories of employees who leave. The first group are those who really value being part of a smaller company and are reluctant to be part of a bigger, more-complicated company, with all the bureaucracy and politics that entails. They want to keep being able to think outside the box, and these are often the people you want. These are the creative, innovative people -- many times, they include the founders. They're the ones who will be important in helping you build the next generation of the company's product, and so you want them on board. HR can retain those people; the problem is, HR tends to think they'll be gone "because we're a big company," but don't let that stop you. You can section them off a bit, give them more creative freedom.

How does that typically work?

Yocum: It's about not overwhelming them with bureaucracy, not forcing them to deal with the processes of your big company. It's not necessarily keeping them in a separate organization, but giving that team a little bit of freedom to help create the next product roadmap. And you want that, because they created this company you've acquired; it's part of why you're buying it, so slow down a bit, bring them in and let them speak up and help drive the process. Give them mentors to help them adjust to being in a big company.

If you acquire a smaller technology company, section that group off and fund it separately. Set aside a budget to help them get through next two years so they don't have to go through the corporate bureaucracy to get funding. Ideally, you'll also let them be part of the leadership team; not railroad them, but let them help drive, let them partner.

Also, put a little money in there: Some of these folks will be so critical for your company that it's wise to take some equity and lock them in, so you're both buying time for the new company to transition into the larger organization and also giving them an excuse to stay. Who knows, maybe they'll like it and decide to stick around for the long term.

Who should serve as a mentor to these folks?

Yocum: It should really be a partner who gets the company, who has the network in this big company to get things done. That's the person they need to work with, someone with a lot of leverage.

What about the other group of employees?

Yocum: The mass of the employees in an acquired company tend to be the easiest to retain, I think. Typically, when you announce the merger, they're immediately online, looking for a new job, but if you can do a few things right, you can keep them. First, let them know what is going to happen -- offer a timeline of exactly what is going to transpire, and then, on Day 1, focus on getting their personal questions answered: They either have a job or not, this is what will happen with their benefits, and so on. Get those done, because you're not going to have an effective employee until they get those questions answered.

Where do mistakes tend to be made in this process?

Yocum: A common mistake is when HR tries to throw everything into that first step. So you're trying to do training, having IT setting up new systems and so on. Meanwhile, these folks don't even know whether they're going to still be working there. So let them know right away what's going to happen, so they can focus on doing their jobs. It's just a good framework to have to ensure you'll get the biggest bang for your buck, rather than spinning your wheels. With an acquisition, the faster and cleaner you can do it, the more effective you're going to be.

In terms of skill sets, what do HR leaders need to be effective in this area?

Yocum: I've always hired people on my team who weren't just in HR. It's nice if they worked in other areas and bring a broader perspective. In terms of skill sets, they need to understand the business. Now, we hear that all the time, but I do tend to see HR people looking at HR as being part of the business instead of actually understanding the business. Often, they're not thinking from the business leaders' perspective, which is what you need to be doing so you get where they're coming from and can craft solutions that meet their needs.

As an HR leader, it's critical that you be a strong networker and influencer, because getting this done requires you to understand how things actually work in the company. You need to be a strong communicator, to be able to get out there and let people know what you're doing. And flexibility: to me, this is so critical. This is where I get frustrated. Let's say you're working with a business leader, trying to get a transaction done -- I've heard them complain so many times that they're frustrated with HR telling them they can't do this or that.

Can you give an example?

Yocum: Let's say you're working on a merger, and HR will say, "We can't pay this person X amount, because it's out of the pay range." Well, why not work to understand the driving issue, the broader negotiation, and work to solve it? The merger team has other things it's negotiating, so find out where you can give a little here, take a little there, and go back with a different solution. You might offer a cash bonus in this particular example, so you're solving the merger team's problem and doing what makes sense for the deal without undermining long-standing HR policies. That's a person I look for when I'm staffing my M&A team, because that's the sort of person business leaders want to work with and will get along well with.

During your time at Cisco, what were some of the most important things you learned with regard to keeping things running smoothly and successfully during an M&A?

Yocum: One of the foremost things was really knowing my partners and what they're doing, everyone from cross-functional partners in finance, legal, corporate development, along with my HR partners in comp and centers of excellence. It's about helping them understand how the process is going to work, so the more they understand what each team owns and does, the more things will be kept running smoothly. You need to help people understand why things are being done this way. Terminology is another thing you need to watch out for. It's important that everyone is on the same page with regard to terminology, so people will understand what they're responsible for and what others are responsible for, and you won't have folks tripping over each other.

Lee: It's important that everyone on the team, including the company being acquired, be clear about the meaning behind a word. It's important that there be clarity on these things from the outset; otherwise, you'll find yourself in meetings where everyone at the table nods their head as if they understand, when in reality one person may have a completely different interpretation from the person sitting across from them.

Can you describe for me how a successful HR department operates during a merger/acquisition? What sort of impact will this have on employees during such an event, compared to a department that is less adept at keeping things running smoothly during this sort of event?

Yocum: HR should be using the leaders of the acquired company as its advocates and partners. Many times, it's easy for a big company to come in and run the show, but it's easier, long-term, if you can let existing leaders run the show and get employees on board, and let them drive big parts of the process.

It's really easy for people at a big company to fall into the trap of thinking you know everything and run roughshod over everything the acquired company is doing or, even worse, force everyone to go through an interview process in order to determine whether they should keep their jobs.

Look, you obviously bought this company because it does something that you value, so give them some trust and find ways to lead and bring on their employees. I'm not a big fan of interviewing them -- you can assess them, but force them to interview for a company they never asked to work for? You may lose the best people that way. Give people the benefit of the doubt. You'll get a lot more in the long run.

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The emotional-intelligence aspect of this strikes me as interesting.

Yocum: These people didn't ask to work for you, you bought the company they worked for. So go talk to them and establish trust. One manager I once worked with, someone I had a lot of respect for, said, "Let's just post a list of who made the cut [from the company being acquired] and leave it at that." It reminded me of those times in school when tests results were posted on the bulletin board and everyone crowded around to see how they did. It was traumatic. I was dismayed, because this was a really good leader who came up with this idea and it's not a good one. That's not how you treat people; it will cause a lot of harm to the organization. 

Why did you decide to start this consultancy?

Yocum: I loved my time at Cisco; we built so much there in doing all these big and small deals, but when we were doing these really complex integrations, we had nowhere we felt we could go to get answers to questions, no one to call when we were doing something for the first time. We worked with these large consulting firms, but they would staff our projects with their new people, and I needed a partner I could call who had been through this, who'd failed and succeeded many times. I didn't need another pretty PowerPoint presentation; I needed to get stuff done, and I couldn't find a person like this. In starting this firm, we want to fill that role for other HR leaders.

But there are lots of consulting firms out there to choose from -- why you?

Yocum: Because we've walked in their shoes. We will not hire anyone to work with us who hasn't done this sort of work within a company. Having done this for 11 years at Cisco, there are many deals you live with years later on the decisions you made . . . .

So you want people who've lived and worked in that environment. You want people who have a direct understanding of the political organization, because mergers in big companies are very political.

Why are large deals so political?

Yocum: People will come out of the woodwork, wanting to put their mark on it. There tend to be a lot of big egos involved. And you have to learn how to manage that process, to let people be part of it while keeping things moving. So it's important to get out there and understand who the real decision-makers are, and then let other people know who they are.

Lee: In my experiences with smaller deals, dealing with the executives at the company being acquired can be very difficult. A lot of times you'll see the true colors of these executives, and that is so important for the people in your company who will end up working with and managing them. It's why it's important for the HR business partners who will be supporting this group to be a part of these conversations because that's when the fur really flies and you really get to see the underbelly of the beast.

"When the fur really flies" -- what sorts of issues tend to trigger this?

Lee: Things like compensation, span of control, title, what they're really going to own after the deal is concluded, how they want their product integrated. They're going from making all the decisions about expenses and so on to an organization like Cisco, where everyone flies coach; no one flies first-class. So an executive who's owned the company might say "I fly first class and so does my team," and then on Monday, they're flying to India on coach. That's a big deal for them. Whereas, for Cisco, we've got to maintain consistency.

People have been talking about the importance of HR during the M&A process for quite some time. Do you feel it's sunk in among senior business leaders?

Yocum: Yes, I think the senior leaders get it. It really comes down to adding value to the process. An HR leader who just sits there and only focuses on the HR picture is not adding value to the process. HR gets this amazing opportunity to be influential, and there are so many pieces there that are HR components: How many people are you locking in, what are you doing with equity, how will employee benefits change? There are so many opportunities for HR to be helpful, but you have to take time to learn this piece of the work and you'll be amazed how [senior leaders will] pull you in; they have confidence that this is your area and you know it. Don't just think about the HR side. So much more could be involved.

What are some things HR leaders should do to plan for the eventuality of an M&A during their watch?

Yocum: If they've done it before, they should go back and create a playbook.

They don't have to spend ridiculous amounts of money, but just take the time and put it together so it's usable. Create a repeatable process so everyone will understand what their responsibilities are.

Map out who your partners are and what they're responsible for. Know that people in certain areas, such as legal and finance, are going to be critical, so build a relationship with them now so they know who you are and trust you.

Relationship-building and networking are going to be critical when it's "go time." Also, if you've done this before, create some on-demand training that captures the critical knowledge you've gained so others can view it. Create templates that can be used over and over again.

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