Human Resource Management in Financial Services · PDF file · 2010-04-18[Human Resource Management in Financial Services] September 11, 2009 Mergers and Acquisitions Page 1 Human

[Human Resource Management in Financial Services] September 11, 2009

Mergers and Acquisitions Page 1

Human Resource Management in Financial Services

A study concerning the impacts of mergers and

acquisitions on the psychological contract,

labour turnover, and labour retention

Background Information

EXBank is a UK based organisation. As part of its global

growth strategy to develop an international presence EXBank

is considering acquiring MMBank which is located in

Malaysia. The Board is aware that acquisitions often fail

because HR issues have not been adequately considered in

the feasibility stage. The fact that the acquisition target is

based in another country brings additional challenges.

Tasks

You have been asked to prepare a report for the Board which

discussed two key Human Resource areas that will need to be

considered if MMBank is acquired.

Working Paper

Sheffield Business

School

At Sheffield Hallam

University

Ee Suen Zheng

Bachelor of Arts with First Class

Honours in Banking and Finance

+503-9283 8950

+6016-696 6566

[email protected]

jamesesz.wordpress.com

Word Count: 3289 words

(excluding references and

appendix)



Table of Contents

1. Executive Summary 3

2. Defining the problem 3-5

3. Two Key Areas of Human Resource Management (HRM) to

be considered

3.1 The Psychological Contract 5-6

3.2 Labour Turnover and Retention 7-8

4. Merger and Acquisition Challenges in the Financial Services

Industry

8-10

5. Responses 10-11

6. Conclusion 12

7. Bibliography 13-16

8. Appendices 17-26

„



1. Executive Summary

Mergers and acquisitions have in recent years become increasingly common as both

the forces of globalisation, deregulation and advances in technology enables large

multinational corporations deploy resources far from their country of origin. This working

paper attempts to highlight two key human resource issues that should be considered by a UK

bank when acquiring a Malaysian bank. Both the psychological contract and labour turnover

and retention issues will be highlighted and discussed to provide a better picture on the role

that Human Resource Management would play in an acquisition. Results from this paper

indicates that these two issues must be pre-planned during the pre-integration stage before

other human resource issues are managed.

2. Defining the problem

Geographical scope is normally positively associated with a firm‟s profitability

(Tallman and Li, 1996) because of the availability of new markets and business

opportunities.1 However, Cartwright and Cooper (2000) have noted that 50% of mergers and

acquisitions (M&A) do not achieve anticipated outcomes.2 This fact is augmented by

Carleton‟s (1997) research of how 55-77% of M&As fail to meet their anticipated purposes

and outcomes.3 Weber (1996) suggested that the anticipated benefits and gains from M&As

are often unrealised due to productivity losses and traumatic effects on a firm‟s human

resources.

At the heart of an international mergers and acquisitions (IM&A) are two distinct but

not mutually exclusive problems. The first category, are the problems related to a normal

M&A that occur domestically. Overman (1999) stated that despite their recent popularity, the

outcomes of M&As are statistically disappointing.4 IM&As merely bring the complexity and

chance of failure to a higher level by introducing problems related to international human

resource management. Multinational corporations (MNCs) have a more complex business

1 Tallman, S. and Li, J. (1996), Effects of international diversity on the performance of multinational firms,

Academy of Management Journal, Vol. 39 No. 1, pp. 179-96. 2 Cartwright, S. and Cooper, C. (2000), HR Know-how in Mergers and Acquisitions, Institute of

Personnel and Development, London. 3 Carleton, R.J. (1997), Cultural due diligence, Training, Vol. 34, pp.67-80.

4 Overman, S. (1999), “Learning your M&ABC‟s”, HR Focus, Vol. 76 No. 8, pp. 7-11.



model as indicated by Prahalad and Doz‟s (1987) „Integration and Responsiveness (IR) Grid‟

and are more likely to fail in successfully conducting an IM&A.5

The combination of these two problems would require two levels of adaptation by

employees in both the acquiring and the acquired organisation. The first would be adapting to

new members of employees coming into the parent organisation from a foreign organisation

while the second involves working together with new employees from a totally different

country with different cultures and social norms. Both problems present a serious challenge

as many companies underestimate the complexities involved in international operations

(Briscoe, 1995)6, thus leading to high failure rates in the process of internationalisation

(Loustarinen et al., 1994).7

Early models (Johanson and Vahlne, 1977)8 suggested that internationalisation is a

sequential and orderly process and can be considered as a series of stages through which a

company moves, as it progressively enters markets that are closest in “psychic” distance

before moving into markets that are more “foreign” and difficult (Hallen and Wiedersheim-

Paul, 1979).9 However, by acquiring a foreign bank, EXBank would be skipping the normal

steps of internationalisation by directly acquiring a direct subsidiary in a foreign country. The

fundamental strategic problem posed to top managers in international firms is to balance the

economic need for integration with the social, cultural and political pressures for local

responsiveness (Barlett and Ghoshal, 1989).10

According to Cartwright and Cooper (2000), failures of M&As can be attributed to

human resource factors such as culture and management differences, poor motivation,

leaving of personnel and uncertain long-term goals.11

Schuler and Jackson (2001) implicitly

support these factors by stating that M&As fail frequently because of the neglect of human

5 Pralahad, C.K. and Doz, Y. (1987), The Multinational Mission: Balancing Local Demands and Global Vision.

New York: The Free Press. 6 Briscoe, D. (1995), International Human Resource Management, Prentice Hall, Englewood Cliffs, NJ.

7 Loustarinen, R.K., Korhonen, H., Jokinen, J. And Pelkonen, T. (1994), Globalization of Economic Activities

and Small and Medium-Sized Enterprise Development, Helsinki School of Economics, Helsinki. 8 Johanson, J. and Vahlne, J-E. (1977), The internationalisation process of the firm – a model of knowledge

development and increasing foreign commitment, Journal of International Business Studies, Vol. 8 No. 1, pp.23-

32. 9 Hallen, L. and Wiedersheim-Paul, F. (1979), Psychic distance and buyer-seller interaction, Organisation,

Markand och Samhalle, Vol.16, No.5, pp 308-324. 10

Barlett, C. And Ghoshal, S. (1989), Managing across Borders: The Transnational Solution, Harvard Business

School Press, Boston, MA. 11

Cartwright, S. and Cooper, C. (2000), HR Know-how in Mergers and Acquisitions, Institute of

Personnel and Development, London.



resource issues and activities.12

This is probably due to the fact that human resource policies

have a significant effect on the acquirer‟s ability to get the best of the acquired firm (Faulkner

(2002).

(Please refer to table 1, 2, 3 and figure 1)

3. Two Key Areas of Human Resource Management (HRM) to be considered

3.1 The Psychological Contract

At the heart of an international acquisition lies the inevitable change that would occur

when two organisations merge to become a single entity. Perhaps the most serious damage to

both parties would be a change in the psychological contracts between employer and

employees. According to Rousseau (1995), it is generally accepted that the psychological

contract is concerned with an individual‟s subjective beliefs regarding the terms of the

relationship between the individual employee and the organisation.13

The psychological

contract is subjective in the sense that it is an unwritten and an often not discussed contract

that goes beyond the formal contract of employment.

The fact that the psychological contract is unwritten makes it extremely elusive yet

undoubtedly important during an international acquisition. There are two forms of

psychological contracts that are generally accepted. The first is termed as relational, with

employee offering loyalty, conformity, commitment and trust in return for security of

employment, promotion prospects, training and development and flexibility during times of

difficulty (Arnold et al., 1998).14

Should relational contracts be violated, transactional

contracts in which „employee offers longer hours, broader skills and tolerance for change and

ambiguity in return for high pay, rewards for high performance and simply a job‟ are

imposed.

An acquisition of a new organisation changes the nature of the psychological contract

by introducing a high degree of uncertainty in both organisations. This would cause a

significant change in the unstated expectations of the past that because of the old

psychological contract have over time become relatively stable. This would likely cause the

12

Schuler, R. and Jackson, S. (2001), HR issues and activities in mergers and acquisitions, European

Management Journal, Vol. 19 No. 3, pp. 239-53. 13

Rousseau, D. (1995), Psychological Contracts in Organizational Behavior: Texts, Readings and Cases, 2nd

Ed, London: McGraw-Hill. 14

Arnold, J., Cooper, C. and Robertson, I. (1998), Work Psychology: Understanding Human Behavior in the

Workplace, 3rd

Ed, Harlow: Financial Times.



relational psychological contract to be void and replaced with a transactional contract that

would be narrower and highly undefined. Rousseau (2001) also suggested that a negative

change in the employment relationship may adversely affect the psychological contract.15

The danger in an international acquisition is that the acquirer shatters the old

psychological contract and fails to negotiate a new contract with the acquired organisation‟s

employees. Sparrow (1996) noted that psychological contracts are similar to Herzberg‟s

hygiene factors in the sense that a good psychological contract may not always result in

superior performance or satisfied employees while poor psychological contracts tend to act as

demotivators that cause lower levels of employee commitment, higher absenteeism and

turnover, and reduced performance.16

The outcome of a unilateral breaking of the

psychological contract and the failure to negotiate a new one would most likely lead to a

decrease in commitment, motivation, morale, and performance.

In relation to performance management, the psychological contract also points out

that it would be wrong for the acquiring organisation to assume that employees seek

primarily monetary rewards. Both quality in relationships, work experiences and more

importantly the concept of mutuality found in the psychological contract are important

motivational factors that foster a higher level of performance in employees. It is important

that the acquiring organisation renegotiation of a new psychological contract that transcends

both contractual and statutory obligations to rebuild the trust and relationship between

employees of both organisations and the newly formed corporate entity.

The reestablishment of a new psychological contract should be considered an

imperative first step that should be planned during the pre-integration stage of the acquisition.

Due to the different cultures in different organisations and countries, it is likely that the

nature of the psychological contract in different geographical regions is different. As Fralicx

and Bolster (1997) put it, “cultures can be a make-or break factor in the merger equation.”17

Cartwright and Cooper (1993) also stated that financial benefits anticipated from M&As are

often unrealised because of incompatible cultures. The acquiring organisation must take into

account that cultural differences would lower the possibility of successful integration because

of the failure of understanding psychological contracts of different cultures.

15

Rousseau, D. (2001), „Schema, promise and mutuality: the building blocks of the psychological contract‟,

Journal of Occupational and Organisational Psychology, 74:511-541. 16

Sparrow, P. (1996), Transactions in the psychological contract, Human Resource Management Journal,

6,4:75-92. 17

Fralicx, R.D. and Bolster, C.J. (1997), “Preventing culture shock”, Modern Healthcare, August, Vol 11, p.50.



(Please refer to table 4 and figure 2)

3.2 Labour Turnover and Retention

The psychological contract answers three of the four human resource factors

(Cartwright and Cooper 2000) namely culture and management difference, poor motivation

and uncertain long-term goals, which lead to the failures of M&As. While the renegotiation

of a new psychological contract may not be a direct way to manage the three factors as stated

above, the presence of a new psychological contract will help in the integration of the two

organisations. The last factor as stated by Cartwright and Cooper (2000) is the leaving of

personnel during the pre and post-integration stage.

The problem of labour turnover and retention is not one that is completely

independent of the problems faced from the dissolution of psychological contracts during

acquisitions. On the contrary, the problems of labour turnover and retention are a mere

extension of the problems created when psychological contracts are broken. According to

Wallum (1980), people feel threatened and defensive during takeovers and mergers.18

Among

the factors influencing individuals during a M&A includes uncertainty, loss of identity, job

loss, changes in reporting relationship and new co-workers (Bruckman and Peter, 1987).19

The CIPD survey (CIPD, 2005) identified the main reasons for employee turnover

which include promotion outside the organisation, lack of development or career

opportunities, change of career and level of pay.20

Lack of development or career

opportunities is a problem that is prevalent during an acquisition because corporate

restructuring (downsizing and rightsizing) will increase redundancies, lower job security and

promotional opportunities. This is usually done by removing a layer of employees from the

organisational structure and thus removing the previous path for career development. The

level of pay factor may also be relevant in an acquisition as some personnel may find that

their pay are not as high as it previously was.

18

Wallum, P., (1980), "Personnel's Role in Company Mergers", Personnel Management, Vol. 12 No. 10, pp.

58-61. 19

Bruckman, J.C. and Peters, S.C., (1987), "Mergers and Acquisitions: The Human Equation", Employment

Relations Today, pp. 55-63. 20

Charted Institute of Personnel Development (2005), Recruitment, Retention and Labour Turnover, CIPD

Survey Report.



Although high labour turnover may not necessarily be problematic if the acquiring

organisation is seeking to reduce costs (Sadhev et al., 1999)21

, high labour turnover rates after

an acquisition may potentially disrupt the organisation‟s business operations (CIPD survey

data, 2005).22

This is especially true when the acquisition is done in order to „purchase‟

certain expertise or experienced personnel from another company. It would defeat the

purpose of acquiring the company to obtain key personnel and then on a later date realise that

those individuals would not remain with the organisation. Also due to the fact that EXBank is

acquiring a foreign organisation, retaining key individuals in Malaysia would be an

imperative for the success of the acquisition.

A report from a HR benchmark group (IRS, 2002) listed down five factors affecting

labour turnover which include, the quality of the relationship with their supervisor or

manager, an ability to balance work and home life, the amount of meaningful work and the

feeling of making a difference, the level of cooperation with co-workers, and the level of trust

in the workplace.23

In the event of an acquisition, the likely relevant factors are the decrease

in quality of the relationships with supervisors and managers, the level of cooperation with

co-workers, and the absence of trust in the workplace.

(Please refer to table 3, 4 and figure 5)

4. Merger and Acquisition Challenges in the Financial Services Industry

Mergers and acquisitions are not something new in the Malaysian financial system.

After the Asian financial crisis in 1997, the Malaysian central bank engineered many mergers

and acquisition in order to prevent the recurrence of failures in smaller financial institutions.

By the end of 2001, there were only 10 anchor banks left, out of the previous 54 financial

institutions that existed in Malaysia (Bala 2003).24

However, mergers and acquisitions are not something that guarantees success

regardless of how well the potential benefits are. This is especially true for workers in both

21

Sadlev, K. Vinnicombe, S. and Tyson, S. (1999), Downsizing and the changing role of HR, International

Journal of HRM, 10,5:906-923. 22

Charted Institute of Personnel and Development (2005), Recruitment, Retention and Labour Turnover, CIPD

Survey Report. 23

IRS (2002), The changing face of successful planning, IRS Employment Review 756, 22 July;37-42. 24

Bala Shanmugam (2003), Mergers and Acquisitions of Banks in Malaysia, Vol. 30, No.4 Available at:

http://www.emeraldinsight.com.lcproxy.shu.ac.uk/Insight/viewContentItem.do;jsessionid=518EA667781C97A

A7E0BDA2A1F505824?contentType=Article&contentId=865920 Accessed: 12 September 2009

http://www.emeraldinsight.com.lcproxy.shu.ac.uk/Insight/viewContentItem.do;jsessionid=518EA667781C97AA7E0BDA2A1F505824?contentType=Article&contentId=865920




organisations that suffer from “survivor syndrome” after the placement of a poor

psychological contract (Baruch and Hind, 1999).25

Herriot and Pemberton (1997) also noted

that continuous change and restructuring were shown to lead to increase feelings of

insecurity, inequity and powerlessness which would likely affect morale and motivation in

employees of both organisations.

Evidence of this can be seen in the recent acquisition of Bear Sterns by JP Morgan

Chase. In the process of acquiring Bear Sterns, JP Morgan Chase would have to cut 4,000 of

its own employees worldwide to take in 6,000 of Bear Stern‟s employees.26

While the taking

in of Bear Stern‟s employees would fill in areas that JP Morgan is not strong in, namely,

prime brokerage, clearing, energy trading and investment banking coverage, potential

synergies may be disrupted as the performance of existing staff plummets. One of the reasons

for this is that many employees face the “survivor syndrome” as the duplication of functions

particularly in the technology and operations arm would mean that some people must be

made redundant.

Another recent example is the acquisition of Merrill Lynch & Co. by Bank of

America. After the acquisition, Bank of America announced plans to cut 30,000 to 35,000

jobs for the next three years after acquiring Merrill Lynch.27

The New York Times reports

that this move would reduce the total workforce of both firms by a significant 11 percent. The

rationale is that both Bank of America and Merrill Lynch have significant duplication in the

areas of research and investment banking. This move would also likely trigger the “survivor

syndrome” among employees and have a negative impact on employee performance.

Furthermore, problems in remuneration policies triggered a huge problem as Bank of

America had to pay bonuses amounting to $3.6 billion to employees in Merrill Lynch.28

On the other hand, the acquisition of Bankers Trust by Deutsche Bank can be viewed

as one of the most successful integration processes in the financial industry (Salama et al.,

25

Baruch, Y. and Hind, P. (1999), Perpetual motion in organization: effective management and the impact of

the new psychological contracts on survivor syndrome, European Journal of Work and Organizational

Psychology, Vol. 8, No. 2, pp. 295-306. 26

Xieli Lee, May 2008, 4,000 JP Morgan staff Face the Axe, Human Resources Online, Available at:

http://www.humanresourcesonline.net/news/6725 Accessed: 12 September 2009. 27

Bank of America to cut 30,000 jobs, 11 Dec 2008, Business News, United Press International, Inc, Available

at: http://www.upi.com/Business_News/2008/12/11/Bank-of-America-to-cut-30000-jobs/UPI-55991229044012/

Accessed: 12 Sept 2009. 28

Sarah O‟Connor, 31 March 2009, Merrill‟s $3.6bn bonuses under fire, Financial Times Limited, Available at:

http://www.ft.com/cms/s/0/ea5bfba6-1d7e-11de-9eb3-00144feabdc0.html?nclick_check=1 Accessed: 12

September 2009).

http://www.humanresourcesonline.net/news/6725

http://www.upi.com/Business_News/2008/12/11/Bank-of-America-to-cut-30000-jobs/UPI-55991229044012/

http://www.ft.com/cms/s/0/ea5bfba6-1d7e-11de-9eb3-00144feabdc0.html?nclick_check=1



2003).29

Although potential synergies were expected at the beginning of the merger, the real

cause of its success was the careful planning undertaken to tackle difficulties of integrating

two organisations. What is relevant here is that Deutsche Bank, a German bank, acquiring

Bankers Trust, an American Bank, runs parallel to EXBank acquiring a Malaysian bank.

Harold Stoehr noted that the pre-integration stage was crucial as a cultural assessment was

carried out to better understand the perception of employees in both organisations.

Adding oil to the flame was that the previous acquisition of Alex Brown by Bankers

Trust was not done properly, leaving Alex Brown‟s employees feeling a „loss of identity.‟

This ended in Deutsche Bank rebranding the merged company as The Deutsche Bank – Alex

Brown Investment Bank in the USA. During the implementation stage, some employees from

both organisations were made redundant and retention strategies were used to hold key

individuals. Harold noted that retention programmes were carried out swiftly in order to

avoid undesirable labour turnover and uncertainties.

(Please refer to table 6)

5. Responses

Harper and Comeraie (1995) noted that one of the major reasons for the failure of a

M&A is “a lack of adequate preparation of the personnel involved and a failure to provide

training which fosters awareness, cultural sensitivity and the spirit of co-operation.30

Both the

psychological contract and labour turnover remains highly volatile during the pre and post-

integration stage of an acquisition. These two HR issues must be managed first before other

important HR issues are taken into consideration.

To overcome these challenges during an acquisition, Walker (1998) identified a series

of steps that include 1) celebrating small wins, 2) acknowledging value in past practices, 3)

measuring integration processes at regular intervals, 4) involving employees in managing the

integration process, 5) identifying ingrained behaviours that might become obstacles, 6)

29

Alzira Salama, Wayne Holland, and Gerald Vinten (2003), Challenges and Opportunities in mergers and

acquisitions: three international case studies – Deutsche Bank-Bankers Trust; British Petroleum-Amoco; Ford

Volvo, Journal of European Industries Training, pp313-321. 30

Harper, J. and Cormeraie, S. (1995), “Mergers, marriages and after: how can training help?”, Journal of

European Industrial Training, Vol. 19 No. 1, pp. 24-9.



communicating how integration will be implemented, and 7) providing a clear rationale for

the merger and acquisition.31

Culture shock and to a certain degree the psychological contracts between employer

and employees can be managed through the following steps highlighted by Fralinx and

Bolster (1997) that calls for letting employees know 1) where the firm is going, 2)

recognizing the diversity in each organisation‟s culture, 3) being honest and patient, and 4)

harmonizing leadership to drive the new culture.32

This is in line with Buono et al., (1985)

that suggested that even though typical individuals resist changes, they are more likely to

support change if they understood it.33

The risk analysis grid on the other hand, is a useful tool to help manage labour

turnover. Bevan et al., (1997) identified two factors, namely, the likelihood that an individual

will leave and the consequences of resignation.34

According to the IRS (2001), people who

are younger, better qualified, holding a shorter service record, few domestic responsibilities,

marketable skills and low morale are the most likely to leave.35

The consequences of any

resignation would on the other hand be determined by their position in an organisation,

performance and the ease of replacement.

Lastly, Schneider and Dunbar (1992) emphasised the role that the media plays in

shaping the social context of M&As.36

The media can work to fuel the anxiety levels of

employees according to the perspective presented by journalist. The higher management

should utilise this outlet of communication through either press releases or interviews to

guide the media in publishing material that are in line with goals and objectives of the

acquisition. Media materials that are in direct conflict with these goals and objectives should

be met with quick and decisive responses to clarify any uncertainties concerning the

acquisition.

(Please refer to table 7 and 8)

31

Walker, K. (1998), Meshing cultures in a consolidation, Training and Development, Vol. 52, No. 5, pp 83-8. 32

Fralinx, R. D. and Bolster, C. J. (1997), Preventing culture shock, Modern Healthcare, August, Vol.11, p.50. 33

Buono, A. F., Bowditch, J.L. and Lewis, J. W. (1985), When cultures collide: the anatomy of a merger,

Human Relations, Vol. 38 No. 5, pp 477-500. 34

Bevan, S., Barber, L. And Robinson, D. (1997) Keeping the Best: A Practical Guide to Retaining Key

Employees, London: Institute for Employment Studies. 35

IRS (2001), Risk Analysis and Job Retention, IRS Employee Development Bulletin 141. 36 Schneider, S. C. and Dunbar, R. L. (1992), A psychoanalytic reading of hostile takeover events, Academy of

Management, Vol. 17, No. 3, pp 537-59.



(Please refer to table 9, 10, 11 and 12 for data on the Malaysian workforce)

6. Conclusion

The success of an acquisition depends highly on the level of anticipating and pre-

planning human resource issues that will occur during the pre and also post-integration stage.

It is important from the pre-integration stage to involve human resource personnel throughout

the entire acquisition process. This should be done to give human resource personnel a better

overall understanding of the desired outcome of the acquisition and also put them in a better

position to foster a more transparent way to re-negotiate psychological contracts with

employees and prevent a drastic spike in labour turnover.



7. Bibliography

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8EA667781C97AA7E0BDA2A1F505824?contentType=Article&contentId=865920

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http://www.humanresourcesonline.net/news/6725



8. Appendices

Table 1: Profitability of the Malaysian banking system

2001 2002 2003 2004 2005

Pre-tax profit

(Rm mil)

6,923 9,328 10,177 11,569 12,380

Return on

assets (ROA)

1.0 1.3 1.3 1.4 1.4

Return on

equity (ROE)

13.4 16.3 15.3 16.3 50.5

Source: Bank Negara & AmResearch

Table 2: Summary of the pressures making up the I-R grid (adapted for financial

services organisations)

I-R grid Pressures

Strategic coordination

need is high where:

Multinational customers are a large proportion of customer

base making it important to coordinate pricing, service and

product support because multinational customers have the

ability to compare prices on this basis.

Global competition is likely as the company is operating in

multiple markets.

Investments in one or more parts of business must be

coordinated globally to increase benefits and yields.

Operational

integration need is

high where:

Technological intensity is high as the company is serving

geographically dispersed markets.

Cost reduction through economies of scale is a priority.

The product is universal and requires minimal adaptation to

local markets.

Local responsiveness

is high where:

Customer demands vary across nations and regions.

Distribution channels need to be tailored to suit the

characteristics of local regions.

There are other similar products that may have to be

tailored to suit local needs.

Local competitors rather than multinational competitors

define the market competition.

Restriction by host country on operating subsidiary.



Figure 1: I-R Grid

Table 3: Stages in a merger

Stage Characteristics of merger

1. Preparatory Degree of environmental uncertainty (technological, market,

sociopolitical) may vary, but respective organizations are

relatively stable, and members are fairly happy with the status

quo.

2. Planning Environmental uncertainty increases, which precipitates

discussion of merger/takeover possibilities; fears rise that

unless the firm grows, larger companies will destroy it or the

organization will become less competitive or even fail; the firm

is still relatively stable, and discussion is confined to top

executive level.

3. Announcement Environmental uncertainty continues to increase, influencing

decision; the organization is still relatively stable, and while

members have mixed emotions about the merger, expectations

are raised.

4. Initiation Organizational instability increases, demonstrated by structural

ambiguity (high) and some cultural and role ambiguity (low);

although members are generally co-operative at the outset,

goodwill quickly erodes.

5. Formal Organizational instability increases as structural, cultural and

role ambiguities increase; mechanistic organizations take on

some organic characteristics for a period; conflict between

organizational members increases.

6. Aftermath High organizational instability, lack of co-operation, and "we-

they" attitude exist; violated expectations lead to intra-and

Integration

I-R Grid

Multi-domestic

Transnational Global

Low High

Low

High

Responsiveness



inter-unit hostility; structural ambiguity decreases, but cultural

and role ambiguity remains high; dissenters leave the

organization.

7. Psychological Organizational stability recurs as ambiguities are clarified and

expectations are revised; renewed co-operation and intra-and

inter-unit tolerance; time-consuming process.

Source: Buono, A.F. and Bowditch, J.L. (1989) The Human Side of Mergers and

Acquisitions, Jossey-Bass, London.

Table 4: Types of Psychological Contracts

Relational and Transactional Contracts

Transactional Relational

Primary focus Economic factors Economic factors

Time frame Closed ended and short-term Open ended and indefinite

Stability of relationship Static, rarely changing Dynamic and frequently

changing

Scope of relationship Narrow Broad and pervasive

Tangibility of terms Well defined Highly subjective

Source: Julie Beardwell and Time Clayton (2007), Human Resource Management: A

Contemporary Approach, 5th Ed, Prentice Hall, Pearson Education Limited, England.

Figure 2: Corporate Culture

Power Culture

(Autocratic/ patriarchal)

The Employee does what he or

she is told

Role Culture

(Closed/Open)

The Employee acts within the

parameters of his/her job description

Task/Achieve Culture

The Employee acts in the way he/she considers sutable

for the task

Person/Support Culture

Employee/person does his/her "own

thing"

High Constraints High Freedom



Source: Charted Institute of Personnel Development (2005), Recruitment, Retention and

Labour Turnover, CIPD Survey Report.

Source: Charted Institute of Personnel and Development (2005), Recruitment, Retention and

Labour Turnover, CIPD Survey Report.

Promotion outside the

organisation

Lack of development

or career opportunities

Change of career

Level of pay

53%

42% 41%37%

Figure 3: Main Reasons for Employee Turnover

Main Reasons for Employee Turnover

Exit interviews

Information from staff attitude/satisfaction survey

Word of mouth

Exit surveys (ie anonymous questionnaire)

24

28

30

90

Figure 4: Methods used to investigate why people leave (%)



Table 5: Risk analysis grid

Likelihood of leaving

High Low

Impact on

organisation

High Danger zone Watching brief

Low „Thanks for all you have done‟ No immediate danger

Source: Bevan (1997)

Table 6: Examples of acquisitions

Stages Details

Integrating Deutsche Bank and Bankers Trusts

Reasons for acquisition Strategic fit

Changing a German bank into a global organisation

Bankers Trust include people from Alex Brown (the

oldest US investment bank)

Pre-integration period Crucial successful action taken by top management

Two companies operated independently after acquirer

commits to the acquisition

Cultural assessment

exercise

Powerful strategy to minimise culture clashes between

the German and the US bank

Cultural assessment was conducted by an external

company to provide neutral results

Cultural assessment

outcomes

Deutsche Bank employees were not convinced that

Bankers Trust would help the German bank‟s reputation

Top management sees this as an information gap and

better communication to employees on the rationale and

validity of the deal was implemented

Results also show that employees in Alex Brown felt

they had lost their identity after being acquired by

Bankers Trust

Top management decided to name the merged company

in the USA, The Deutsche Bank – Alex Brown

Investment Bank

Results revealed national culture differences

Integration Phase An integration team of key executives was made in

charge of making the necessary decisions relating to

integration strategies

Team consisted of the human resource head and the

CEO

Some employees from both organisations were made

redundant

Redundancy packages were introduced in an incentive

programme

Retention strategies were introduced to avoid

undesirable employee turnover and minimise



uncertainties

Integrating British Petroleum and Amoco

Pre-merger phase Success lay in the preparation phase with an integration

team created to face the challenges of merging two

international groups (US and British)

Integration team was lead by a senior line manager

reporting o the CEO

During this phase, the team assessed the possible

synergies and focused on combining two head offices

and merging two operating divisions

Integration phase Integrating duplicated areas

Establishing the management for the new company with

importance being placed to create opportunities for

personnel from both companies

Integrating systems was necessary to ensure smooth

running of operations

Integrating benefit packages, training, recruitment

activities etc

Building a new corporate culture for the organisation

Monitoring the progress

of implementing the

integration strategies

Survey was conducted on a sample of staff on a monthly

basis for 18 months to see how people felt as the merger

unfolded

This strategy helped to inform the subsequent

communication effort as well as providing top

management with good data for monitoring the

integration processes

Source: Alzira Salama, Wayne Holland, and Gerald Vinten (2003), Challenges and

Opportunities in mergers and acquisitions: three international case studies – Deutsche Bank-

Bankers Trust; British Petroleum-Amoco; Ford Volvo, Journal of European Industries

Training, pp313-321.

Table 7: Key Success Factors for Acquisitions

Key Success Factors for Acquisitions Importance

Ability to integrate company 85

Synergies 84

Competitive position of company acquired 81

Evaluation of acquisition candidate 80

Management abilities of company acquired 77

Prior experience of making acquisitions 69

Market growth of company acquired 69

Technology position of company acquired 68

Compatibility of management styles 67

Price paid 64

Aid from public authorities 24



Source: Ansoff, H.I., Brandenburg, R.G., Portner, F.E. and Radosevich, R., Twenty Years of

Acquisition Behavior in America. A comparative study of mergers and acquisitions of US

manufacturing firms 1946-1965, Cassell, London, 1972.

Table 8: Post-acquisition surprises

Post-acquisition surprises Occurrence (%)

Dishonest presentation 31

Lack of management control 23

Management calibre 19

“Problem” vendor subsidiaries 15

Personnel policies 8

Production capability 4

Source: Gerald Vinten (1993) Employee Relations in Mergers and Acquisitions, University

Press MCB 0142-5455 pp. 47-64.

Table 9: Different HR issues in different countries

National

Employment

Systems

Details

Germany: Social

partnership model

A framework of law: allows employers and workers to

regulate their own affairs with little direct interference from

the state

A dual structure of interest representation: issues of interest

(wages and hours) and issues of rights (industry-wide

collective agreements), trade unions and work councils are

separate legal entities with different functions

Centralisation and coordination of collective bargaining at

sectoral level: private sector collective bargaining taken place

in each region, public sector collective bargaining conducted

on a national level

Encompassing organisations of workers and employers:

Unions are legally required to represent all workers, not just

their own members, work councils represent all workers in a

workplace

Social partnerships: Strong emphasis on labour-management

cooperation supported by the state, peak confederations of

employees‟ associations and trade unions, participate in a

three-way „political exchange‟

Bargained corporatism: employment protection laws are

stricter than USA and UK but not as strict as Italy, Spain and

France

The vocational education and training system: most school



leavers who do not go on to higher education spend three years

as apprentices in the vocational education system

Japan: Enterprise-

based model

Lifetime employment: Large Japanese corporations have filled

the vast majority of their permanent vacancies by recruiting

school-leavers and university graduates as trainees which once

hired, usually remain with the company until retirement

Seniority-based pay and promotion: instead of pay being job-

related, it is also person related (age and length of service)

Enterprise unionism: Japanese union organisation is based

around individual enterprises (Nissan, Toyota)

Vocational education and training system: New recruits are

selected on their ability to fit in to company values, work

cooperatively with others and benefit from training in

company-specific skills

The American

model: Managerial

model

Pluralism: The New Deal introduced during the Great

Depression promised a series of government interventions to

create jobs, provide a measure of social security, and address

the historic imbalance of power in the employment

relationship (written contracts, detailed job descriptions,

formalised grievance and disciplinary procedures, seniority

rules to determine lay-offs)

Sophisticated unitarism: Welfare capitalism, a management

approach to labour relations based on non-unionism and strong

mutual commitment between employer and employees

Nature of state regulation: As a liberal market economy, the

government is reluctant to play an active role in the regulation

of business.

Vocational education and training system: does not have a

strongly developed system of vocational education and

training

Table 10: Employment by Gender and Sectors, 2000 and 2005

Sector Number („000) %

2000 2005 2000 2005

Male Female Male Female Male Female Male Female

Agriculture, Forestry, Livestock

and Fishing 1,030.3 392.7 4,046.9 358.8 17.3 11.9 15.2 9.0

Mining and Quarrying

36.5 5.3 39.9 2.8 0.6 0.2 0.6 0.1

Manufacturing

1460.0 1,105.8 1,865.8 1,266.3 24.5 33.5 27.0 31.7

Construction

704.3 47.9 703.5 56.1 11.8 1.5 10.2 1.4

Electricity, Gas, and Water

66.8 8.2 81.5 11.5 1.1 0.2 1.2 0.3

Transport, Storage

and Communications

402.8 58.8 536.3 94.9 6.7 1.8 7.8 2.4



Wholesale and Retail Trade, Hotels

and Restaurants 954.7 628.2 1,176.6 750.6 16.0 19.0 17.0 18.7

Finance, Insurance, Real Estate

and Business Services 296.4 203.8 421.4 310.9 5.0 6.1 6.1 7.8

Other Services 1019.0 853.1 1,026.6 1,144.4 17.0 25.8 14.9 28.6

Total 5,970.8 3,303.8 6,898.5 3,996.3 100.0 100.0 100.0 100.0

Source: Economic Planning Unit cited from: Abdul Rahman Embong, 2007, Social Science & Malaysian National Development, Ampang Press Sdn. Bhd., p.112.

Figure 11: Employment by Major Occupational Group, 2005-2010 ('000 persons)

Source: Kam Racheal et. al, 2008. Jobless rate fell to 3.2% last year. The Star, 27Jun. B10.

1,084.7 1,095.3 1,124.1

1,375.7 1,402.0 1,430.7

2,928.9 3,003.4 3,162.0

2,648.9 2,842.7 2,957.6

2,818.6 3,054.6 3,348.3

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2007 2010*

Managers, proffesionals and techncaians

Clerical & service workers

Craft related trade & plant workers

Agriculture & fishery workers

Elementary occupations

Note: *estimates



Figure 12: Population by Age Group

Source: Department of Statistics Malaysia, 2007. Population by Age Group. [Online]. Available at: http://www.statistics.gov.my/images/graf/pop2007.jpg [Accessed 19 June 2008]

32.6% 32.4% 32.2%

63.1% 63.3% 63.4%

4.3% 4.3% 4.4%

0

5

10

15

20

25

30

2005 2006 2007

Mil

lio

ns

65 Years and above

15-64 Years

< 15 Years

http://www.statistics.gov.my/images/graf/pop2007.jpg

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