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Why do you think that it is not as common (as per my experience) to hire consultants to support with the HR/culture due diligence, equivalent to finance, tax and legal DD? Do businesses believe that this topic is not as scientific or difficult, and therefore they are capable of doing it themselves? Some HR related topics might get covered in the legal DD, but most softer issues, and especially culture, will not.
Great question Edel. I believe that financial/tax/ legal considerations take priority in assessing merits and risks of a deal as they are considered more tangible and measurable than the HR/Culture elements. It is often the case that ‘people matters’ are considered an integration and planning matter as opposed to serious consideration as part of deal value and risk assessments during earlier stages of deal.
There are several reasons why businesses may not hire consultants to support with HR/culture due diligence, as compared to finance, tax, and legal DD. These reasons include a lack of awareness of the value that consultants can bring, a belief that HR/culture is not as scientific, a focus on short-term financial results, and concerns about cost. Some businesses may not realize that these topics require specific expertise and that outside consultants can provide additional insights, and may prioritize short-term financial results over long-term cultural alignment. Finally, some businesses may be reluctant to hire consultants due to concerns about cost.
I would advise clients to get external support for HR/Cultural integration. Unfortunately, I think few actually provide practical, actionable results and in many cases just muddy the waters and makes things more complicated. My advice is to make sure you get the best HR person in your industry to support you in the integration. That is the person to trust – not the consultants. And you are lucky if she already works for you. And then get consultants to support.
Hi Edel,
Thanks for the prompt…there’s clearly some interest from the rest of the group.
My general sense is that your rationale (complexity of HR vs. finance DD) is correct. I also think numbers are definitive, while the culture/HR piece is not as easy to quantify. This is where human nature and EQ comes into the equation… there’s also the thought that the acquiring company wants to conduct the HR/culture DD themselves as the culture/people component is very important to the NewCO (much tougher to farm out to consultants). Gerhard mentioned a few key points with having top HR resources involved in the DD process… I think this is a fantastic idea to minimize risk.All the best!
Craig
I agree with Gerhard Prinsloo that it will be good to have top HR resource involved in the DD process. The consideration of a merger or acquisition usually comes packed with mixed feelings, including excitement, fear, uncertainty, enthusiasm and resistance. How an organization deals with its employees before, during and after the transaction can have a determinative impact on the success of the transaction.
I think this portion of M&A is still severely undervalued, even knowing what we know – that company culture is a huge part of why M&A’s fail. Due to this continued undervaluing, it is likely that executives do not want to either hire an expert, or remove their own internal HR experts from their day to day duties in order to take part in these assessments. While it is difficult to put a number on this aspect, it is a key role. I think executives are more conditioned to look at numbers and data, and HR data is incredibly difficult to measure. I think that if company leaders placed more value on it, the failure rate would decrease.
HR/culture consultants will leave at some point after their engagement. The outcomes from engaging the consultant can have long lasting effects. If the outcomes are adverse, it will take more (time, cost, effort, resources) to undo and unwind. HR/culture are people centric and it is by having employees who will have and take ownership of the integration outcomes that perhaps drive the tendency to “do it yourself” because they will be best positioned to understand the corporate culture, sensitivities and emotions of the employees at large.
R professionals should develop a process for recruiting, training and retaining the talent within both the companies. Functional roles and responsibility changes are to be identified; information about employee’s performance and potential is required in restructuring process.
I think that for culture to be an integral part of the assessment, is to have:
Awarness – managment understanding the affect culture have on business in general and M&As in specific
Structure – have the assessment integrated into the M&A DD structurlaly and not it wouldn’t be an optional activity
Evaluation & Reward – include cultural integration as part of post merger integration evaluation and reward accordingly.I agree with Erin that the HR/Culture work is undervalued in many acquisitions. Most leaders think that it’s only about job role and compensation harmonization and that’s it. They often feel that the HR leaders from the acquiring and target companies can hash out who goes into which pay banding and which job roles/descriptions and there is no need for additional help. They usually do not pay much attention to cultural integration so the Us-Them mentality lives on long after the post-integration activities finish.
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