Publication: The Economic Times Mumbai;Date: Jan 18, 2011;Section: Career & Business;Page: 10

CRUCIAL LINK: EASING THE TRANSITIONHR Plays Key Role In Mergers

From working on the cultural fit to working out compensationstructures and roles, HR departments can make M&As clickDevina Sengupta BANGALORE

ACQUIRING a company is never easy. That’s because it is never fully possible to buy out the core of the firm:Its people. In these days of high attrition and a vibrant job market, companies involved in mergers and acquisitionshave to tread lightly when it comes to employees. They have to be reassuring about jobs, and allay all fears andconcerns. Given this situation, HR departments are beginning to play a more significant role than ever before, inintegrating people during M&A.

The Igate acquisition of Patni last week is an example. It required the integration of 25,000 people (16,000 fromPatni and 9,000 from iGate). Though it was not easy telling Patni staff their company had been bought out, HRofficials ensured they were informed about this well ahead — even before the external stakeholders. Withinminutes of the announcement, employees received mails from the CEO, Powerpoint presentations explaining thebenefits of the deal, and timelines for various activities. Discussion forums, Town Hall meetings andteleconferences were set up.

“These will continue so that employees in all geographical locations can get their doubts cleared,” says SunilChitale, chief strategy and marketing officer at Patni. Even queries posted online anonymously, will be answered.The two companies will continue with their independent HR policies till they can figure out integration. In fact,Phaneesh Murthy, CEO of iGate, assured that retention packages would be rolled out to select employees soon.

“The success and failure [of an M&A] hinges on HR activities,” says A Sudhakar, executive director (HR) forDabur. People integration is a complex issue. For most HR personnel, work begins before the actual M&A, whena company is scouting for a prospective. A cultural fit is key; if not addressed, this could lead to high attritionlater. Working out compensation structures and roles, and the swapping of best practices, follows. Sensitisingemployees on both sides, the HR departments must make it clear there is no ‘loser’. If the merger is cross-cultural, employees need to be briefed on the cultural norms of the partner.

Post-acquisition, surveys need to be conducted in the acquired company, and training provided to staff, forthem to get a feel of their new environment. Role changes are crucial; the sudden removal of top management inan acquired firm leads to instability.

For Tata Sons, which acquired Tetley, Daewoo Motors, Natsteel and Corus, among others, it is more aboutgetting a sense of the acquired company. Satish Pradhan, chief, Group Human Resources, says acquisitionshave evolved from the initial stage of looking at financial strategy, to looking at employees and answering thequestion, ‘what will we look like’ and ‘do we have the right mix of people ?’

A September 2010 study by Mercer, entitled ‘Asia on the Byside’, of 155 senior executives from Asia-basedMNCs involved in cross-border acquisitions, showed that 35% of respondents identified ‘human capital integration’as the most significant issue during an M&A. Only 23% identified ‘financial reporting integration’ as significant,while 16% said ‘lack of employee engagement’ and ‘leadership/management retention issues’ were uppermost forthem. Len Gray, Asia Pacific business leader of the M&A business at Mercer, says: “This has meant that the HRfunction has an increasingly important role to play, even during the due diligence stage of an M&A, to be able toassess the cultural fit of the transaction, particularly where the objective is complete integration of the acquired ormerged entity.”

Wipro Technologies has made 21 acquisitions till date — starting with Spectramind in 2002 and Nerve Wire in2003 — and the role of HR in M&A has greatly evolved. “We have learnt from our earlier mistakes,” says Bhandari.“Like the fact that employee retention is key during an acquisition.” In 2005, Wipro formed a global workforce teamto ensure a smooth transition during acquisitions, where HR specialists looked into the ‘target’ (or acquired)company’s best practices.

Bhandari says during later projects, they ensured an HR manager remained with the target firm for 3-6 months

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after the acquisition, to ensure a smooth integration of policies. “In earlier acquisitions, we made the mistake oftrying to do everything at once, but now we proceed step by step,” adds Bhandari. First looking at the cultural fit,then compensation details and, finally, implementation of processes. At Wipro, employees of the acquiredcompany have to go through assessment tests every few months, to ensure they understand the parent companyand its culture better.

When FMCG major Dabur acquired Balsara in 2005, Sudhakar says he “stopped recruitment at Dabur a fewmonths before the acquisition” so that the 575 Balsara employees could be accommodated. Dabur’s acquisition ofFem brought a different set of learnings. The company had a sales team which needed to be incorporated intoDabur without being integrated, since that would lead to a loss of jobs. “We had learnt this from the Balsaraacquisition,” says Sudhakar. While Dabur faced 20% attrition post the Balsara deal, the attrition rate after Femwas 0.

Cultural integration is a concern even with smaller companies. When telecom manufacturing company TejasNetworks acquired Israel-based Ethos Networks, “we got the Israeli side to travel to India, and explained to bothsides the importance of the acquisition,” says Arnob Roy, president (engineering) at Tejas. Joint projects andtechnology became binding factors for employees, who were encouraged to speak to each other over phone,rather then email.

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