[Mike]

Hello,

I am wondering what others think about Human Resource role in Due Diligence. While financial, strategic and operational matters tend to dominate, I have seen organizations fail in their objectives because they didn’t understand culture, employee legislative requirements, how to merge rewards and policy etc. In textbooks a HR DD is always recommended, but I’m wondering if anyone can share in actual practice.

For me, I’ve worked for two different companies, one that was heavily reliant on HR DD and one that always left it too late.

[CHOON LIANG TAN]

Hi Mike,

From experience, I believe the feasibility and resource constraints play a large role. In situations where the potential impacted size of the org. was relatively small and single-origin similar to the parent, it was decided to take a much reserved approach with the DD and ultimate integration. Additionally it would depend on how integrated these entities would operate (e.g., if completely separate entity not needing integration then not much concern).

Whereas for those where we are talking about large orgs and/or multi-site locations different from the parent & synergies are dependent upon being fully integrated, then certainly a more detailed DD is required. From that end we would usually dedicate a good 8-12 weeks for a proper Human Capital DD where we touched on all the key textbook items such as org structures, governance processes, workforce allocations & org design, compensation structures, contract management, benefits policies/employee handbooks, etc., labor relations and other HR operations. But more important than that, we leveraged the McKinsey OHI (org health index) assessment areas to truly gauge other softer areas of how the companies operate and manage thru change. This was a key tool/methodology we used in the HC DDs.

The real pains come after the acquisition, when you have to start harmonizing all areas across the companies. That’s usually where the most pain and disagreements really come out. So anything you can do to mitigate that and give early warning’s or indications may help smoothen that integration process post-deal.

Thanks Mike

[Author]

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