The domestic financial industry has been changing rapidly. Given the more competitive financial landscape arising from greater globalisation and liberalisation, it is vital for banking institutions to respond promptly to enhance capacity and capabilities. With the recent the proposed three-way merger acquisition of RHB-CIMB-MBSB (mega bank wannabe), it just inspired me to blog on a general topic on merger acquisition. The three-way merger had been relatively complicated with lots of drama i.e (1.) starting of with everyone wondering who is the actual acquirer along with plot twist behind the deal (RHB or CIMB?); then (2.) the voting issue of EPF coupled with the demanding Abu Dhabi state fund (Aabar Investment) going against the transaction; (3.) and the concern on valuation as the stocks market heading south; (4.) lastly the merger was finally aborted (what a relief?).
Of course the shares price for three of the companies had been roller coaster but I’m not going to blog about the merger implication on the shares performance at the moment. The rationales behind the mega merger were justified by (1.) valuation creation through synergy 1+1+1=??? (a common argument for all mergers) (2.) earnings accretive (3.) being largest Islamic bank to drive growth (4.) being top 5 largest bank in the region of ASEAN. However, channel check on the ground, most of the employees were not even happy or looking forward for the merger.
Aside from its products innovation and large network distribution, the success of the banking industry also heavily rely on the professional services which people play a key role in the company. So here's some people issue arose or rather the resistance to change during the transition period that lead to the failure of delivering the expected full value of mergers.
So we used to be fierce competitor and we used to fight but now you expect us to be a happy loving family? After the acquisition has been formally announced, the differences in the two organizational cultures usually lead to competition between employee groups and hostile ‘we-they’ attitudes. Particularly in target company, the employees may have perceived the acquisition as a loss. The merger usually emphasize or even exaggerate the differences in status between employees, the resultant structure is often a constant reminder of who the `winners” and who the `losers’ are. Employees may not know where the new organization is headed and how they fit into the new scheme of things.
While the two organizations are still in the transition period, it is common to notice that the number of employees who have been coming to work with workplace concerns and issues has risen dramatically. Most of the complaints surround the culture clash between the two merging companies. It became quite clear that this merger was going to be challenging, given the drastically different cultures of the two organizations. An employee-centric approach to business vs a power culture will make a big difference to way people used to do things i.e. clearly defined position, status, rules and procedures.
Despite the fact that mergers and acquisitions look attractive to management and investors, the reality of their execution is that organizations are composed of employees who generally view such organizational changes as a threat. Accordingly, many merger and acquisition deals have inherent retention issues resulting from negative attitudes often felt by employees, including, but not limited to uncertainty about the future organizational direction, feelings of loss of previous organizational culture, uncertainty about personal job security, perceptions of lack of leadership credibility, feelings of confusion due to a lack of communication, survivor guilt due to downsizing of other employees, perceptions of increased job stress and workload.
In essence, employees from the target company lose trust in their organizations and feel betrayed by leadership. Employees begin to grieve the loss of corporate identity and reminisce about the good old days before the merger. Consequently, in an attempt to regain control over individual job situations, many employees begin to contemplate "jumping ship" as the merger and acquisition is implemented. During the transition period, many of the senior, experienced and qualified professionals may leave due to uncertainty of the post-merger organisational structure of the company and the resistance to change. Following the departure of the head of team and senior management, most of the team members will follow suit leaving to the closest competitors which led to loss of human capital. Not to mention, good staff tend to leave while "bad apples" tend to stay.
Aside from its products innovation and large network distribution, the success of the banking industry also heavily rely on the professional services which people play a key role in the company. So here's some people issue arose or rather the resistance to change during the transition period that lead to the failure of delivering the expected full value of mergers.
We-they attitudes
So we used to be fierce competitor and we used to fight but now you expect us to be a happy loving family? After the acquisition has been formally announced, the differences in the two organizational cultures usually lead to competition between employee groups and hostile ‘we-they’ attitudes. Particularly in target company, the employees may have perceived the acquisition as a loss. The merger usually emphasize or even exaggerate the differences in status between employees, the resultant structure is often a constant reminder of who the `winners” and who the `losers’ are. Employees may not know where the new organization is headed and how they fit into the new scheme of things.
Cultural clash
While the two organizations are still in the transition period, it is common to notice that the number of employees who have been coming to work with workplace concerns and issues has risen dramatically. Most of the complaints surround the culture clash between the two merging companies. It became quite clear that this merger was going to be challenging, given the drastically different cultures of the two organizations. An employee-centric approach to business vs a power culture will make a big difference to way people used to do things i.e. clearly defined position, status, rules and procedures.
Confusion and confusion
Despite the fact that mergers and acquisitions look attractive to management and investors, the reality of their execution is that organizations are composed of employees who generally view such organizational changes as a threat. Accordingly, many merger and acquisition deals have inherent retention issues resulting from negative attitudes often felt by employees, including, but not limited to uncertainty about the future organizational direction, feelings of loss of previous organizational culture, uncertainty about personal job security, perceptions of lack of leadership credibility, feelings of confusion due to a lack of communication, survivor guilt due to downsizing of other employees, perceptions of increased job stress and workload.
Lost and found
In essence, employees from the target company lose trust in their organizations and feel betrayed by leadership. Employees begin to grieve the loss of corporate identity and reminisce about the good old days before the merger. Consequently, in an attempt to regain control over individual job situations, many employees begin to contemplate "jumping ship" as the merger and acquisition is implemented. During the transition period, many of the senior, experienced and qualified professionals may leave due to uncertainty of the post-merger organisational structure of the company and the resistance to change. Following the departure of the head of team and senior management, most of the team members will follow suit leaving to the closest competitors which led to loss of human capital. Not to mention, good staff tend to leave while "bad apples" tend to stay.
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