VIEWPOINTS : The Human Side of Corporate Mergers : Senior Management Can Ease Employees’ Uncertainty, Stress

Most mergers and acquisitions are financial failures. Experts suggest many reasons for the high failure rate: The wrong partner was chosen, the wrong price was paid, the timing was bad or the companies were integrated too slowly or too quickly.

All of these hurt the financial performance of the merged organization. Even more quickly, however, another factor can unsettle executives in one or both firms, put the two firms at odds and doom a merger. My colleague Philip Mirvis of Boston University and I have tagged it the “merger syndrome”--the defensive, fear-the-worst response of managers and employees to being merged or acquired.

People become preoccupied, even obsessed, with thoughts of how they will survive a merger with their jobs, benefits and careers intact. Managers of acquired work forces report that their employees become “paralyzed” after a merger announcement and that “all people do around here is talk about the merger.”

Rumors of mass layoffs and forced relocations run rampant throughout merging organizations, “horror stories” of how people suffered in other deals are widely circulated, and, in the absence of reassurance from their leaders, employees conjure up the bleakest scenarios of how the merger will affect them.

As with any threat to one’s well-being, employees react by attempting to protect themselves. Typewriters and copying machines churn out resumes, while company phones are kept busy with calls to recruiters and friends in other firms.

And it is the best performers, those with the most to market, who usually jump ship first. If left unchecked, the time and energy put into self-preservation detracts from work performance and, ultimately, harms the financial performance of the organization.

Mergers are particularly threatening to employees who have been loyal to a company, have played by its rules and, in return, have expected to be repaid with job security and career advancement. With a merger, those rules suddenly change, and people who may have felt secure working for an RCA or a Gulf Oil feel like betrayed losers.

They report bouts of sleeplessness, fights with spouses and children and increased alcohol, tobacco and drug use. At an acquired multibillion-dollar manufacturing firm where I was a consultant, incidents of high blood pressure among the work force rose from 11% the year before the merger announcement to 22% the following year.

Being offered a position in the merged organization does not ease the symptoms of merger syndrome. Acquired personnel worry that their past track records don’t count with the new company, that they have to prove themselves to their new bosses and that they won’t fit into the new corporate culture. Many live in fear of another round of layoffs, watching for when the “next shoe may drop.”

Mergers also can threaten the acquiring company’s work force. A case in point was Burroughs’ acquisition of Sperry, creating the giant computer company now known as Unisys Corp. The plan of Burroughs Chairman W. Michael Blumenthal was to develop a “meritocracy” in which the best people, regardless of former affiliation, would advance.

While stressing the importance of Sperry people, products and customs in the success of Unisys, Blumenthal’s concept of a partnership triggered a backlash among many Burroughs personnel. They contended that only through their hard work and sacrifice was Burroughs able to acquire Sperry.

Some managers were eager to apply Burroughs programs in their newly acquired domain. Others expected little disruption to their accustomed work situations. Instead, many had the feelings of anxiety and uncertainty usually found in acquired work forces.

On balance, most mergers provide a mixed bag of costs and benefits for employees. Experience shows, however, that people focus on the negatives. This is not from a lack of willingness to hear the good news about a merger. People want to believe that the merger makes sense, they want to see signals that a merger is being well-managed and they want to hear that the merger will benefit both the company and its people.

Instead, however, employees typically find little support from their bosses to help cope with the stress of a merger. Preoccupied with the legal and financial demands of combining two complex firms, distracted by their own fears of what they might lose in the merger and assuming that employees will regard no news as good news, senior managers provide few answers to employees’ questions.

Some executives have even scheduled out-of-town trips immediately after a merger announcement because they know that employees will be lining up outside their offices with questions for which no answers are available.

Our studies of what distinguishes successful mergers show that much can be done to minimize merger syndrome. First, in successful cases, personnel issues are taken into account in pre-merger negotiations and planning. Second, full and early communication of merger information--both the good news and the bad--is provided to all employees. But employees also are sold on the merits of the merger.

The Unisys case, a relatively smooth merger despite a handful of problems, provides an excellent example of this. Blumenthal rallied people from both organizations around the basic concept underlying the Sperry and Burroughs merger: that the two firms would be more competitive and more likely to survive as partners rather than as separate entities.

Third, people and groups are given help in moving past psychological resistance to change and in building an effective post-merger team. Even when providing new opportunities, a merger or acquisition--or even an internal reorganization--means that employees lose the accustomed status quo. People need to let go of past allegiances and be prepared to meet new challenges and opportunities.

The human uncertainty and stress associated with the merger syndrome can’t be eliminated, but it can be brought under control. What is necessary is a commitment from senior executives to manage the human side of the merger well.

As an acquired senior executive recently told me: “What will make or break this merger’s financial success will be how people are treated, not the business decisions. Business losses can be recouped, but if you treat someone poorly early in the game, you never can change the feelings which result.”