HR Factors Affecting Mergers and Acquisitions on Banking Sector in Pakistan. Institute of Management Sciences, Bahauddin Zakariya University, Multan. Abstract Purpose- The purpose of this study is to explore the significant HR factors which can effect the M&As in banking sector in Pakistan. Findings-The result shows that Different variables like involvement of HR department communication, cultural clashes, job security, procedural hiring, policy changes, and salary and fringe benefits changes has significant effect on the M&As . Limitations-This study is conducted on a particular sectors so factors significant for it may not be significant for the other sector. Key Words- Mergers and acquisitions, human resource management, cultural clashes, communication, Pakistan.
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HR Factors Affecting Mergers and Acquisitions on Banking Sector in
Pakistan.
Institute of Management Sciences, Bahauddin Zakariya University, Multan.
Abstract
Purpose- The purpose of this study is to explore the significant HR factors which
can effect the M&As in banking sector in Pakistan.
Findings-The result shows that Different variables like involvement of HR
department communication, cultural clashes, job security, procedural hiring, policy
changes, and salary and fringe benefits changes has significant effect on the M&As .
Limitations-This study is conducted on a particular sectors so factors significant
for it may not be significant for the other sector.
Key Words- Mergers and acquisitions, human resource management, cultural
clashes, communication, Pakistan.
Introduction
Although they are often uttered in the same breath and used as though they were
synonymous, the terms merger and acquisition mean slightly different things.
When one company takes over another and clearly established itself as the new owner,
the purchase is called an acquisition. From a legal point of view, the target company
ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be
traded.
In the pure sense of the term, a merger happens when two firms, often of about the same
size, agree to go forward as a single new company rather than remain separately owned
and operated. This kind of action is more precisely referred to as a "merger of equals.
"Both companies' stocks are surrendered and new company stock is issued in its place.
For example, both Daimler-Benz and Chrysler ceased to exist when the two firms
merged, and a new company, DaimlerChrysler, was created.
In practice, however, actual mergers of equals don't happen very often. Usually, one
company will buy another and, as part of the deal's terms, simply allow the acquired firm
to proclaim that the action is a merger of equals, even if it's technically an acquisition.
Being bought out often carries negative connotations, therefore, by describing the deal as
a merger, deal makers and top managers try to make the takeover more palatable.
A purchase deal will also be called a merger when both CEOs agree that joining together
is in the best interest of both of their companies. But when the deal is unfriendly - that is,
when the target company does not want to be purchased - it is always regarded as an
acquisition.
Whether a purchase is considered a merger or an acquisition really depends on whether
the purchase is friendly or hostile and how it is announced. In other words, the real
difference lies in how the purchase is communicated to and received by the target
company's board of directors, employees and shareholders.
The Role of HR
HR may be in a unique position to question assumptions about the nature of assets and
synergies. Investment bankers have a narrower training, and are rewarded for making
deals; human issues tend to get lost or overlooked.
The HR manager, on the other hand, has an opportunity to influence events so that each
company comes out ahead — but, to do that, the HR manager must preserve their own
position! Before, during, and after the merger, HR may be responsible for assuring that
cultural issues do not derail integration; for increasing innovation; for keeping
communication going in all directions (upwards, downwards, across departments, across
organizations); and for lessening the impact on those who are “reduced” and on the
survivors.
Even at the highest level of the company, HR can have a role. The new leadership team
will need to work together on a daily basis, despite cultural and personality differences,
power issues, and other barriers. HR can act as a facilitator, and also as a coach to
individual executives. Personal and team assessments can be helpful in enabling team
members to work together constructively.
Opportunities for HR
Mergers and acquisitions are often planned and executed based on perceived cost savings
or market synergies; rarely are the “people” and cultural issues considered. Yet, it is the
people who decide whether an acquisition or merger works. Do not reproduce without
written permission. The opportunity for HR lies in the fact that customer and employee
reactions determine whether the newly combined company will sink or swim.. If a
convincing argument is made to senior leaders, HR may gain more power to increase the
effectiveness of the organization, and may be able to mold the cultural changes instead of
being pushed along by them.
Hazards for HR
One result of many mergers is the consolidation of staff departments. Eliminating one of
the HR departments is sometimes stated up front as a justification for the merger.
For the “losing” department, layoffs tend to be a fact of life. The “winning” department
may find a substantially higher workload. If both HR departments are kept, there may be
issues of interdependence and autonomy, and hard decisions about which policies and
services should be shared and which should stay separate.
In many cases, the parent company has taken on a great deal of debt to finance an
acquisition. The next logical step is to cut costs — and HR is often the first department
on the block. Thanks to outsourcing agencies, even HR people in formerly indispensable
functions such as benefits administration can now be replaced for short-term gains (and,
sometimes, long-term losses — but since the stock market rewards cuts in head count,
this may not be an overriding issue for leaders). Internal OD consultants may be the first
to be cut, since they are not clearly required to keep products or services rolling out. This
makes it particularly important for HR managers to make a strong value case to the senior
leadership.
Problem Statement“To determine the significant HR factors affecting M&As in banking sector in Pakistan”.
MethodologyIt is a descriptive research. We will conclude the effects of different HR factors on
mergers and acquisitions. We restricted our research to the banking sector. We will tell
how much HR factors have effected on mergers or acquisitions. We used the Primary
data to collect the information. In this we used questionnaire and interview method. We
used personally administrated questionnaire and structured face to face interview
techniques. We conducted our research in Multan. We used purposive sampling for this
research. We visited 5 banks there. Due to the requirement of our research, we took two
sampling units the one was manager of the merged or acquired bank and other was
employee of the merged or acquired banks. The sample size we took was 60. 10 were
managers and 50 were employees. We visited the following banks.
Standard Chartered Bank.
National Bank of Pakistan.
Royal Bank of Scotland.
Habib Metropolitan Bank.
National Investment Bank.
Literature ReviewJane Bryson finds in Managing HRM Risk in a Merger most common problems in the
mergers indicate the crucial importance of HRM factors and include the problems like
difficulty blending cultures and systems, fall-off in service quality, poor motivation, loss
of key personnel, loss of focus on long term objectives. The most common HR factors
affecting the M&As are job security, procedural fairness, communication. Carmen Castro
Casal and Edelmira Neira Fontela finds in Transfer of socially complex knowledge in
mergers and acquisitions that knowledge and communication is a very important factor in
the managing the M&As. There were two basic things which were discussed in it, the
influence on the transfer of knowledge from the acquired firm to the acquirer of the
socially complex nature of the knowledge to be transferred and the influence of
knowledge base possessed by the acquiring firm. The results showed that the social
complexity of the knowledge, the knowledge base existing in the acquiring firm, and the
frequency of rich communication media had a positive influence on knowledge transfer.
Elina M. Antila and Anne Kakkonen finds in factors affecting the role of HR managers in
international M&As that six sets of factors can be found to affect the roles of HR
managers in general: the orientation of top management to people management; the
skills, abilities and competencies of HR managers themselves; the HR function and its
characteristics; the expectations that line managers have of HR; external factors; and
internal factors The results show that top management sees the participation of HR
managers as being very important and agree that it should be a common policy. This
study finds that the most important contributing factors to HR managers’ participation are
HR managers’ own capability and activity throughout the IM&A process.
Vassilis M. Papadakis in the role of broader context and the communication
program in M&As implementation success finds what actually influences a M&As
successful implementation. Results indicate that the existence of a communication
program is among the most influential factors in the successful implementation of an
M&A. Other determining factors are aspects of the external corporate environment, the
formalization of the decision-making process and the consequentiality of the M&A.
Chris Rees and Tony Edwards finds in Management strategy and HR in international
mergers: choice, constraint and pragmatism, that The range of contextual factors that
impact on management strategy and HR in the post-merger period (such as corporate
structures and cultures, pressures from shareholders and regulatory and legal
environments at national and international level) with an examination of the interests and
power of various groups of actors within the firm. Numerous studies and experiences
have suggested that HR and employment relation issues are poorly handled in merger and
acquisitions, the problem is integration of HR strategies and difference of culture among
different management styles.
Peter McGraw in Influences on HRM practices in MNCs: a qualitative study in the
Australian context finds that In local firms where Mergers & Acquisition occurs don’t put
much influence on Human Resource Management practices however big organizations
and Multinational Companies put more influences on HRM practices but these practices
are not properly followed or implemented. The core HR assets such as recruitment,
training and compensation and performance systems which are consistent not only
facilitate integration but also leverage capability both during pre or post M&A period.
HRM practices have included Scientific Management, more strategic and planned
approaches to the recruitment selection and maintenance of workforces, job re-design,
computerization, just in time production techniques, formal grievance handling
procedures and quality initiatives.
Bou - Wen Lin et. Al.in “Mergers and Acqusitions as a human resource stratagey” finds
that the usefulness of M & A as a strategy tool depends on the local firm’s human
resource capability. HR capability serve as the assign for firm’s to a asimdale effectively
acquired firms. M & A strategy can be effective when the firm has high HR capability
and can manage the post-acquisitions integration effectively. HR strategy should be
considered as an integrated part of corporate strategy. M & A can be an effective growth
strategy for banking firms. M & A contribute to firm productivity share holder value and
profitability. HR capability is more valuable when the firm makes out of stake acquisition
in that the post acquisition integration is more challenging.
Jeffrey A. Krug and W. Harvey Hegarty in “Predicting who stays and who leaves after an
Acqusations: A Study of Top Managers in a Multinational Firm” finds that Executives’
perceptions of the merger announcements interactions with manager in the acquiring
company after the meager and long term effects of the merger each has a significant
effect on determining whether executives stayed or leave. Executives have less
favourable perceptions and were more likely to leave when their company was acquired
by a foreign multinational. The merger announcement lead to a variety of dysfunctional
outcomes such as increased job dissatisfactions and intent to turnover among a target
company’s manufacturing employees company can decrease dysfunctions outcomes
through communication by keeping employees informed of changes before they occur.
Pre-acquisition negotiations do appear to have a significant effect on executive’s
perception and they play a larger part in determining the level of future firm level top
management departures.
VariablesWith the help of literature review, we identified the important HR factors which can
affect the process of M&As in banking sector in Pakistan. These are involvement of HR
departments, communication, cultural clashes, job security, procedural hiring, policy
changes, and salary and fringe benefits changes. We will analyze that what the employees
and managers say about the M&As process. For them which factor is more important and
which is less.
AnalysisWe had different questionnaires for managers and employees. The variables included
were same but the way of questioning was different. First of all we will analyze the
response of managers.
ManagersQ No 1) What was the core reason for the M&As?
1) Expand into new markets2) Create economies of scale.3) Limit competition.4) To globalize.5) To meet certain gov regulations6) Others _________________(specify plz)
Core reason of M&As
Frequency Percent
Valid Percent Cumulative Percent
Valid
Expand into new market
3 30.0 30.0 30.0
Create economies of scale
2 20.0 20.0 50.0
To globalize 1 10.0 10.0 60.0 To meet certain
Gov. regulation4 40.0 40.0 100.0
Total 10 100.0 100.0
There were different reasons for the M&As but mostly managers were of the view i-e
40% said that M&As was due to meet the gov regulations.30% said to expand the market.
20% of the view to create economies of scale. 10% said they think merger was to
globalize the business.
Q No 2) Does the organization involve HR department in M&As?
1) Yes 2) No Q No 3) If YES, then tick the level of involvement of HR department.
90% managers said that there was an obvious difference between the cultures of two
organizations. While to manage this difference, almost 56% managers tried to mix both
the cultures while 44% managers tried to establish only one good culture which they
thought was best for the organization.
Q NO 10 ) What kind of differences you face during post merger period?
Corporate structure Regulatory or legal environment Organization culture. Pressure from share holders. Others _________________________(Specify)
Differences Faced during post merger period
Frequency Percent Valid PercentCumulative
PercentValid corporate structure 2 20.0 20.0 20.0
regulatory or legal environment 3 30.0 30.0 50.0
organization culture 5 50.0 50.0 100.0
Total 10 100.0 100.0
About 50% managers were of the view that there was an obvious change in the
organization culture. 30 % find the difference in regulatory or legal environment of the
organization while 20 % thinks that there was difference in corporate structure of the
organization.
Q NO 11) What thing makes you to stay in the company?
Merger announcement itself. Positive long term goals. Interaction with top management of acquiring company. Handsome salary and fringe benefits. Any other