The Challenges of Talent Retention in the Context of International Mergers & Acquisitions

Employees make or break business success. This saying, simple as it is, holds the key to a successful international merger or acquisition. In the same way, talent identification and retention make or break the merger or the transaction. The employees carry out an organization’s mission and it is only through them that a company can affect the world around it. Thereby, it is paramount for the acquiring or merging company to make sure that the key employees of the Target company either join the Parent company or remain in the newly combined company. One of the greatest risk a company faces when acquiring or merging with another is to fail at identifying and retaining talent. The consequences of such a failure are manyfold and include, amongst other, the possibility that the lost talent will join a competitor or, worse, the pool of lost talent many organize and create a brand-new competitor for your company to deal with henceforth.

To avoid such scenarios, a company that intends on merging or acquiring another in a foreign country must plan ahead. This means: 

  • Identifying clear goals for the merger/acquisition. 
  • Creating a process to identify and select talent for retention. 
  • Putting forward the right incentives for successful retention of talent.

This article presents our insights on how an organization can meet the workforce-related challenges of an international merger or acquisition head on and maximise talent retention.

IDENTIFYING AND SETTING CLEAR GOALS FOR THE TRANSACTION

Whatever the reason for the transaction, the parties must realize that if the Target company’s key employees do not carry over, the Parent company may very well be acquiring an empty shell. Because the Parent company doesn’t yet have sufficient infrastructure and effectives in the target country to mitigate the effects of talent leakage, the consequences of such losses will be greatly exacerbated. Failing to onboard key talent from the Target company is indicative of a failed retention strategy and, ultimately, a failed transaction.

Creating an adapted talent retention strategy should therefore be a top priority for any business undergoing the process of merger or of an acquisition. The purported goal (or reason) of the transaction will influence how the management of the Parent company (or of the combined company) will be able to devise and deploy an effective talent retention strategy, which in turn will determine the success of the transaction. Without a clear goal set out, it is impossible for the Parent company to devise a complete talent retention strategy, because it won’t be able to set out clear parameters for HR to refer to when deploying the plan.

Knowing the goal of the transaction will allow management to determine the needed scope of the talent retention strategy. Is the Parent company trying to acquire the core team of the Target company to create a new division of its own and diversify its service offer? Or is the Parent company acquiring a competing Target company with the goal of adding the latter’s key employees to its own team and thereby bolster it? Even when the goal of a transaction is to acquire another business’ asset (such as a new technology, a specific process, IP, etc.), one must be mindful of talent retention. Anyone who’s seen inside of a plane’s cockpit knows that even great technology can be rendered useless (or worse) when deprived of a qualified operator.

Therefore, setting out a transaction goal is the first step of any successful international merger or acquisition and should be undertaken at the beginning of the transaction. In a typical merger, the goal should be to pool both companies’ talent together and use it to increase the combined company’s performance. In such cases, international mobility of both Parent and Target companies’ key staff will be crucial. This reciprocal swap of key staff will allow both groups to imbibe themselves with the other company’s culture, in order to form the new and synergized combined company culture.

THE PROCESS OF IDENTIFYING KEY STAFF

Identifying key staff and key roles is, quite literally, half the battle. Once they know who they want to keep or which positions need to be filled by a transferee from the Parent company, the people in charge of talent will be in a much better position to put forward an effective retention strategy. From an immigration point of view, identification of key staff and of their functions is of paramount importance. Indeed, it is common that the same employee, in the same position, will be allowed to qualify as key staff by immigration authorities for company A, but not for company B. Why? Because while they may execute the same work, company B hasn’t been able to convince immigration authorities that this work is a crucial contribution to its activities in the Target country. This means that the Parent company must not only identify key staff in the Target company, but also its own in order to know who they can and must send to the Target country to ensure the success of the merger or acquisition.

While there’s a wide array of approaches to identifying key staff, they all fit in two categories: top-down approaches and bottom-up approaches. Both schools of thought have their merits, but in terms of talent retention, bottom-up approaches emerge as the clear winner. Here’s why.

In a top-down approach, the management of the Parent company confers with that of the Target company and determine, based on the observations and recommendations of the latter, which staff should be targeted for retention. The main upside of this approach is that it is quick and thereby will fit a narrower transaction window. It is, however, much less precise and therefore will lead to loss of critical talent, as well as retention and over-incentivizing of superfluous staff. A way to increase the effectiveness of the top-down approach is if the Target company has recently undertaken a comprehensive talent-to-value exercise, which is unlikely at best. Furthermore, when considering the reports issued from the Target company’s talent-to-value exercise, the management of the Parent company must make sure that their criteria align with those set out in the exercise. What constitutes a key skill for the Target company may not qualify as such within the Parent company’s mission. To ensure that Parent and Target companies’ vision of the talent pool align, we strongly recommend sending at least one person from the Parent company’s higher management on the ground to confirm the reports supplied to them by the Target company and see firsthand what their workforce has to offer to the combined company. To be able to do so, the Parent company will need to plan ahead and secure all the necessary visas and permits to allow their representative to travel to the Target company’s country and conduct business there.

In a bottom-up approach, the management of the Parent company gathers input from multiple tiers of management within the Target company and combines it with information from other sources such as surveys, social network analysis, employee interviews, etc. Diversifying the sources of input allows the Parent company’s management to have a much deeper comprehension of the internal mechanics of the Target company’s environment, leading to a more accurate identification of key employees and the roles they fill. While much more in-depth than the top-down approaches, bottom-up approaches are time-consuming and require significant hands-on presence from the Parent company’s staff and management. Consequently, bottom-up approaches will rely on the Parent and Target companies having a relationship at least good enough to allow representatives from the former into the latter’s offices for a prolonged period of time to analyze their workforce dynamics. Needless to say, in the context of an international merger or acquisition, the Parent company will need to send a full team to the target country, comprising of HR professionals and representatives from management to be able to analyze the talent pool and make decisions. If the companies are located in countries that are members of WTO (World Trade Organization), their key staff and management will have access to visas and permits that allow them greater international mobility and the right to work in the Target country. In most cases, their spouse will be allowed to work, and their children will be able to enroll in school in the Target country.

Implementing the Selection AND RETENTION Process in an International Context

Once the key staff and management of the Target company have been identified, it’s time to deploy the selection and retention process in order to keep the talent within the combined company. When poorly implemented, the selection and retention process itself could turn away talent that would’ve stayed otherwise. Therefore, it is crucial to get the best people from the Parent company on the ground in the Target country to conduct this delicate HR operation.

The most important element in implementing a successful selection and retention process in an international context is coordination. It is impossible for the Parent company to pilot this process from outside of the target country. Therefore, establishing a temporary selection office (TSO) to conduct the selection process should be at the top of the list of priorities of the transaction. While this office may take various forms, we strongly recommend that it regroups a panel of HR professionals, as well as representatives from the Parent company’s management invested with the power to make final decisions regarding staff retention and hiring. The whole of the selection process must go through the TSO to ensure proper coordination and stability during the workforce shakeup. Going through the transaction and the consequential selection process is very stressful for the Target company’s workforce. Having a unique point of reference, the TSO, who can take quick and effective decisions will be a relief for the Target company’s workforce. In an international context, the TSO cannot rely on decisions being made by management back in the Parent company’s country of origin. If key staff perceive the TSO as ineffective or reliant on foreign authority, they may be less inclined to engage with it and in turn, more likely to leave the combined company prematurely, before retention measures could be implemented. To cut the time it takes to make and implement decisions, the TSO should always have an immigration professional on hand to manage international mobility. Having the clear picture of which talent from home you can import into the combined company in the Target country will greatly help HR place the best people at the right place to maximise effectiveness.

A good selection and retention process is equitable and transparent. This means that the Parent company must define and communicate the criteria and timeline of the process. These communications should be handled by the TSO, who speaks as the sole voice of truth in the process. Once key roles have been identified, the TSO must decide whether they want to keep the Target company’s talent in place or if they want people from the Parent company to step in and fill the positions. For the employees this process can be done piecemeal, but when it comes to the new management team of the combined company, it should be announced all at once as a team. Including legal professionals from the target country is highly recommended, as they will ensure that the workforce shakeup being conducted respects the local laws and business customs to avoid the Parent company making a faux pas when jumping into a new market.

After the talent pool has been selected, the TSO must deploy the right incentives to retain it. In a typical merger, most of the employees of the Target company won’t receive a retention package. This means that the packages offered must be designed with two ends in mind : first, it must be effective at retaining the targeted talent; second, it must not divide the talent pool over internal conflicts about who gets what and how much. A common and timeless incentive is money, whether in the form of a raise or a bonus. It must be said that, while effective in the short term, money incentives do not breed loyalty to the combined company in employees. Money incentives can also backfire and lead to talent loss when it is distributed unevenly and the word gets out, leading some employees to feel their worth isn’t being recognized.

Soft incentives, meaning praise, attention from leaders of the Parent company, opportunities of advancement, have a better rate of success. According to a survey conducted by McKinsey & Company[1] concluded that praise and commendation from an immediate manager was the most effective retention lever, even better than money incentives. It is nearly impossible to deploy soft incentives from abroad: a generic praise email from an unknown manager abroad just won’t cut it. The Parent company needs its management representatives on the ground in the target country ASAP so they can not only begin evaluating the talent pool, but so that they can earn the respect of said talent in order to make soft incentives effective. Praise coming from a respected, hands-on manager will go far in making an employee feel appreciated. The presence in the target country of the Parent company management will also allow them to map out what opportunities exist for the existing talent and how it should be distributed.

ONBOARDING AND FINAL THOUGHTS

When all the targeted talent is retained and installed in their new positions, one might be tempted to declare the selection and retention process to be over. Doing so would be a mistake, as the final and crucial step of the process would be the onboarding of the newly constituted talent pool. While some employees might hold the same positions as before the transaction, a substantial amount of them will be starting new responsibilities once the deal closes. The Parent company’s management, through the TSO, needs to remain onsite and make sure things run smoothly and according to the transaction plan. Leaving at least some representative in the target country to monitor performance and make adjustments will be crucial to the success of a transaction happening internationally. This monitoring will allow the Parent company to create or give access to the tools employees require to perform in their roles.

In a world where cross-border transactions are increasingly common, implementing forward-thinking, practical talent retention strategies is a must. The international component of a transaction will inevitably exacerbate the strain that represents talent retention and creates new pitfalls from which companies must guard themselves. As we’ve covered, having a hand-on approach and sending not only representatives, but people with deciding power, into the target country will lead to better results in talent retention. By being proactive and getting their people on the ground in the target country ahead of the deal closing will reward companies with better identification of the talent pool, and a better comprehension of how this talent should be utilised.

 


https://www.mckinsey.com/business-functions/m-and-a/our-insights/talent-retention-and-selection-in-m-and-a

 

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