Effects of Company Mergers on Employees

¶ … Company Mergers on Employees

The end of the twentieth century saw a wave of domestic and cross-border corporate mergers and acquisitions. Worldwide M&As grew at an average of 42% per annum between 1980 and 1999, reaching U.S.$2.3 trillion in 1999, according to the United Nations World Investment Report 2000. The report also suggested that the merger trend was evidence of an emerging globalized market (Cheng). While the globalization of markets is one important driving factor behind cross-border mergers since this allows for easier access to new markets through acquisition of strong local players, there are several other reasons why companies may choose to merge. Objectives range from the need to reduce competition, lower cost of production, eliminate excess capacity, increase market share through the acquisition of strong, established brands to the desire to acquire new technology and realize economies of scale in production, distribution, and purchase. Further, weak financial positions make some companies highly attractive take over targets. Indeed, there are many theoretically sound reasons behind the phenomenon of corporate mergers. Yet, Tom Stewart, editor of Harvard Business Review says that the rule of thumb is that three out of four acquisitions fail to deliver the expected results (Gharib, Feb. 24, 2004). Again, though there are many factors that may attribute to failed mergers, one rather common cause is the effect of mergers on company employees.

An impending merger may, at times, result in a positive effect on employees caused by the potential promise of increased compensation and employee benefits as well as brighter career prospects stemming from the hope of exceptional company growth. More often than not, however, mergers cause a great deal of employee anxiety and stress due to the fear of the consolidated operation resulting in rationalization of staff strength and lay-offs. Typically, employee morale and consequently productivity gets affected negatively once the news of an impending merger gets out. In addition, the fear of being laid off sometimes results in talented managerial and other staff hedging their risk by switching jobs. Unfortunately, senior management get so caught up in issues concerning finance, assets and markets that they tend to de-prioritize employee merger issues, often with disastrous results.