Last month, MSLGROUP launched an executive whitepaper discussing how Chinese companies can level the playing field in terms of outbound M&A negotiations, and potentially save the country more than US$30 billion in excess bids that are currently required in order to even stand a chance of being successful.
However in the same way that we argue communications must be initiated well-ahead of a deal even being negotiated, albeit in a different mode at that stage, we also discuss outreach during a deal and the fact that post-deal communications are equally crucial. Many business leaders agree that this is the most challenging component of M&A transactions. Li Shufu, Chairman of Geely, has repeatedly said that managing the corporate culture of his organization post acquisition of Volvo has been one of the most challenging issues he has faced during his whole career. Cost of replacing lost employees
The Center for American Progress estimates that the cost of replacing a ‘normal’ employee (with an annual salary of less than $50,000 – which means more than three quarters of the American population) is 21 percent of their salary. According to a report by PricewaterhouseCoopers, combined turnover-related costs can represent more than 12% of pre-tax income for the average company. Harvard Business Review published a case study on a watch company where the CFO found that the high voluntary turnover rate of 39.3% among assembly line workers during 2006, was costing her company as much as Rmb 718,189. The cost soars even higher as you start to look at the cost of losing someone at the senior and executive levels. For those in the top quartile, PWC indicates turnover costs are equivalent to nearly 40% of earnings.
In addition to the lost productivity during a vacancy, including that of the team and managers who are covering for a vacant position, and then training the new hire, and potentially increased labor costs due to overtime or contractors and recruitment and onboarding costs, there are also knock-on effects in terms of things like the effect on customer satisfaction and loss of institutional knowledge.
There is of course also the anxiety and uncertainty that employees experience as their company is being acquired. When we asked people to rank their concern if their company were the target of an acquisition, on a scale of one to seven (one being highly concerned), more than half of respondents rated their concern between one and three. This will of course negatively influence morale and productivity if not effectively managed. Furthermore, statistics from our survey of more than 1,600 people in the UK, the US and France, reveal that 84 percent of Americans believe company culture is very important, followed by 69 percent of French respondents and 56 percent of those in Britain. Surprisingly, two-thirds of the interviewed responded that they believe the culture of a company influences their work performance. For these reasons, business leaders ignore employee communications around M&A transactions at their peril. Management must keep employees informed throughout the acquisition process if they wish to eliminate unnecessary distrust and anxiety from target companies. Post-acquisition, one can easily argue that given the cost of replacement and the potential damage incurred in the loss of customer base relating to employee turnover, means that nurturing the merged corporate culture should be at the top of the management team agenda.
Building a post-transaction identity
Beside, town hall meetings, regular exchanges from the C-suite and senior management, social initiatives and a useful and interactive Intranet site can all help build a strong and healthy corporate culture which will in turn improve the performance of both employees and the company as a whole.
Read a more in-depth view in our report: