MA_680x220Studies reveal that 50 to 70% of M&A transactions ultimately fail to realize expected synergies and, in fact, many actually dilute shareholder value. One of the causes of M&A failures is that companies often neglect to adequately consider the psychological impact of M&A on their employees.

Will I be laid off? Will I be moved to a different position? Will I get along with my new colleagues? Like downsizing and other types of organizational change, M&A creates considerable uncertainty and has widespread psychological effects on employees in every level. A paper by People & Culture identifies the following potential psychological issues and sources of stress for employees:

  • Anxiety – employees face uncertainty about job prospects and impact on career
  • Social Identity – employees lose their old organizational identity
  • Acculturation – employees must adjust to a new culture and form new relationships
  • Role Conflict – employees face uncertainty about where they stand in the post-merger organization
  • Job Characteristics – employees must adjust to changes in their jobs as certain functions are changed to eliminate redundancies
  • Organizational Justice – employees lose trust if the company is unfair or not transparent about who they promote or layoff

The effects of these issues are well-documented. The stress and uncertainty caused by M&A results in lowered morale, job dissatisfaction, unproductive behaviour, increased turnover and absenteeism, among other things.

In fact, a study by researchers at the University of Calgary reveals that there is a statistically significant correlation between M&A activity and mental disorders. Employees exposed to M&A activity were 2.8 times more likely to have had a generalized anxiety disorder over the past year compared to those who were not exposed to M&A activity. The researchers stress that generalized anxiety disorder can eventually evolve into major depression.

Clearly, neglecting these issues can have severe consequences on productivity and ultimately reduce shareholder value. Management must be proactive in addressing these issues at all times during an M&A transaction and not simply brush it off as a post-merger matter for Human Resources.

The key to alleviating employee stress during M&A is effective communication early and at all stages of the transaction. While this may not always be practical given the commercially sensitive nature of some information, management should proactively inform employees (to the extent possible) about details which may impact them. This reduces uncertainty and prevents the spread of rumours which may be difficult to control after the fact.

Also, companies should adopt comprehensive mental health policies and practices if they have not already done so. Guidance for such policies is provided in the National Standard on Psychological Health and Safety in the Workplace, published in 2013 by the Canadian Standards Association and the Bureau de Normalisation du Quebec. A recent study of financial institutions by the Shareholder Association for Research & Education reveals that very few companies currently comply with the national standard. Of the 25 companies reviewed, only one company published a comprehensive policy or instituted training for managers on psychological health and safety matters.

For strategies on retaining key employees during M&A, please see our other recent articles: How can companies retain talent during M&A? and Employee retention: good people equals better results.

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