This article offers two acquisition scenarios based on real cases, which concentrate on the employee perspective in the acquired company. The first scenario examines an acquisition from within a low involvement and engagement culture and the second one of high involvement and engagement. A commentary highlights the impact of each situation on the psychological contract.

With the ever-increasing merging and acquiring of companies and changing corporate cultures, employees are being asked to enter into employment relationships of increased uncertainty, fewer benefits and very often expanded workloads and accountabilities. The psychological contract between employer and employee in which loyalty and commitment to an organisation is rewarded by fair pay, some career prospects and job security is being severely strained if not broken. The following scenarios, taken from real life situations identify the implications for the psychological contract, and some tips for taking steps.

Acquisition scenario within a low involvement and engagement culture

Employee perspective
‘For the last few months now we have been tracking our share price in the midst of rumours of a bid for this company. Lunchtime chat has been focussed around who it will be and exactly what it will mean for us. This speculation has created a sense of pessimism amongst my colleagues and it seems we are all reluctant to do that little bit extra. Fear and uncertainty have gained the better of our dedication to customer service and we seem to have lost our focus in terms of what we do and how we deliver it. With a sense of growing fear we hear gossip that an official bid has been launched and it is rumoured to be from one of our overseas competitors. Immediately we speak to our manager who seems to know less than we do. Our conversation triggers a series of speculative questions and we seem to be very effective in identifying our common issues and concerns. At midday we get our first company circular – a quick paragraph to say that the bid is being resisted and that there is no need for concern.

A few days pass and the press is full of articles outlining the key players, the strategic issues for our company, our potential new owners and the market as a whole. Still no contact from our own management. I am beginning to think that they don’t think that we read the same newspapers that they do. The press have commented on the inevitability of the take-over and yet our own management have not made any comment on our future other than the initial ‘no need to worry’ message. The union has just issued a circular to its members giving us some insight into the company by whom we will shortly be employed. I am not altogether too fussed at the moment about whether their pay rates are higher than ours or that they also recognise trade unions. I want to know about my own and my family’s future. Interesting though that the union seems more proactive than our management in filling the communication void or was that always the case?

We hear from the press that the take-over has been ‘successful’. We are now part of an overseas-owned group. Rather than see this as a challenge we view it with fear. It seems to have taken what little confidence from our managers that they previously had. Press speculation had been hot around potential job losses especially amongst middle managers. It seems that they have lost confidence just at the time when their employees need it most. When our new owners appear they seem friendly enough but we all know that they want to take costs out of our organisation and we are waiting for the cuts to commence. Our takeover paralysis clearly has some long lasting after effects.

Implications for the psychological contract

Feedback from research suggests that the main problems faced by merging/acquiring organisations when seeking to renegotiate the psychological contract are: explaining the concept and selling it; overcoming cynicism; managing expectations; and integrating local
deals with wider deals. The destruction of the old psychological contract thus requires the creation of a new one that addresses all these issues if employee innovation, retention, motivation and commitment is to be maintained. The lack of communication regarding the newly formed organisational restructuring drastically reduces company loyalty and raises the ugly question of job security, a substantial expectation within the psychological contract.

This in itself can result in a reduced sense of trust and provide an employee with the incentive to leave. The newly formed organisation then risks ‘a walkout’ of the valuable tacit knowledge, skills and abilities they sought to acquire.

A stagnant and/or panicky workforce may also lack the creativity and innovation to take the organisation through the transitional stage due to the fear that they may be the targets for the next restructuring phase.

Creativity and innovation require a range of factors: a feeling of security so that employees are willing to take risks, empowerment so that employees can make things happen, resources to get things up and running and effective teamworking.

Furthermore, there appears to be a problem when employees are left to their own devices, receiving little guidance as to how best to adjust to change or what skills and resources they need to do this.

Acquisition scenario within a high involvement and engagement culture

Employee perspective
‘For the last few months now we have been aware of the falling share price and our managers have shared the speculation within the press that the company could be subject to a takeover bid. We have been engaged in a number of exercises on the ‘shopfloor’ to improve our performance. We know our initiatives are having a positive impact on the feasibility of our site but not surprisingly the City has not responded to our positive contributions. Morale is pretty low but we are determined not to lose our focus because we understand from our managers and our trade union just how important the next few months could be for us. We may lose our independence but we do not want to lose our jobs. I am genuinely surprised as to how much can be achieved in adversity.

In recent days press speculation has been increasing and our managers and trade union representatives are attending breakfast briefings to ascertain what is going on. Thankfully this information is being shared with our team. We know that no one has all the answers but it is great to be able to express your concerns and ask the questions that we know can’t be answered at this point in time. What particularly impresses me at this moment is how the union representatives are fully supportive of the management line.

Finally it has been confirmed that the bid has been successful and that we have new owners. This news is shared with us as a group on the same day as it is confirmed in the press. We have been called to a meeting where our site MD will address us. The first thing he tells us is that the take-over has been successful and that many questions that we have cannot be answered at this point in time. He tells us about our new owners, about their business, locations and markets. He also confirms that no decisions have been made at this point about our product or our site. He confirms that our enhanced effectiveness over the last few months stands us in good stead and it is the management’s firm hope that our efforts will be positively rewarded. The trade union representative stands up and supports the line taken by the MD. He says that the union at national level will be seeking a meeting with the new owners and that the union will be putting the case for the site and the product. The union representative confirms that management have been sharing information on the success of the site and that this information will be incorporated into their presentation.’

A few weeks later and our new owners have made their presence known on the site. They have shared their thinking with us and it appears that as a site we have a role to play in their
future. Other sites have been less fortunate.

There have been a few changes at managerial level but some of our own people are still there and as dedicated to the site as they ever were. Yes we were sorry to see some of the stalwarts go but in all honesty it was fairly predictable that some would go and more predictable about who they would be. Our new management have been interested in the work that we had started before the take-over and they seem very keen to contribute their own ways of operating to our project. This is adding real value as it almost adds the missing ingredient to what we previously had. We are very heartened that they want to leave us to it.

The new owners have different expectations of us but these are shared with us and we have the opportunity to comment and clarify. Some changes are great; others seem to have negative repercussions. We are encouraged to voice our questions and generate alternatives to the management line. Some of our changes are accepted, others rejected, but we are told why. It appears as if the new owners are offering a different style of management but preserving all that has been considered to be a strength in our previous management. This style of management is one into which my colleagues and I are willing to buy.

Implications for the psychological contract
Employees were kept informed prior to and during the merger and in contrast to the first scenario people were considered.

Questions that could be answered were, whilst those that could not were clearly communicated and their reasons discussed and explained. Hence, employees knew what it was they were working towards. This is Maslow revisited: you have to take care of safety and security needs before someone can focus on higher order goals.

Many tools and techniques are available to ensure that the psychological contract is considered particularly in times of upheaval. A typical and well supported success scenario and one that ER Consultants utilises and endorses is the conducting of a cultural audit just after announcement.

Conducting a cultural audit of both organisations helps to speed the education process for all employees addressing issues such as organisational values, managerial and leadership styles, cultural symbols, heroes, myths and stories.

This type of information allows the creation of joint teams and moves the communication process forward hence building a new psychological contract in a safe environment. Line managers also need to be considered as they play perhaps the most important role in the employee expectation setting process. They can help maintain realistic expectations about the merger and provide a sense of stability and commitment during the process. They should be as honest as possible during the merger, admitting what they know and don’t know. Listening to people’s concerns, both individually and in groups, and reminiscing together helps during times of stress. It is also important to handle terminations and outplacement as sensitively as possible.

Lessons learnt
Organisations can act to minimise the impact of organisational restructuring upon the individual and in turn upon the organisation through a conscious management of the change process. They can:

• Produce a clear vision of change and the logic that underpins it
• Clearly communicate the reason for change, its benefits, expectations, downfalls and ‘tough bits’. The message is to be honest with your staff
• Encourage a participatory approach
• Facilitate a sense of personal control for the individual and if that control is going to be removed or added to inform them
•  Ensure a two-way communication system for staff that includes constructive feedback and response
• Consciously and openly rewrite the psychological contract making it clear that there is mutual responsibility for performance in terms of training and skill development
• Create an aligned reward system that reinforces the new psychological contract by rewarding performance as opposed to tenure

The management of an individual’s expectations and ultimately behaviours are crucial in order to cultivate a workforce that brings with it a positive outlook necessary to embrace change and the new challenges it brings. To achieve successful mergers organisations must ensure that these needs are met so that their workforce moves through the process of personal change in a productive way, remembering that they cannot necessarily do it on their own.

So what is the message? To us it is simple. You cannot treat the M&A issues as the opportunity to try out a new communication strategy or generate a different style of industrial relations. If you haven’t got something positive before you enter into the realms of take-overs you stand very little chance of creating it. An emerging take-over can however be the test of an enlightened approach to communication and industrial relations. Even if the resistance to the take-over is unsuccessful these strong foundations within the organisation could be what are required to ensure survival of the operation or the employability of those who work there.

ER Consultants can work alongside you to achieve these goals and have the experience required to carry out cultural audits, team integration workshops, communication skills development, skill and competency audits and the development of appropriate management and leadership styles.

For further information, please contact Ann Gammie
T +44 (0)1223 315944
E ann.gammie@erconsultants.co.uk