​Surviving Merger Attrition

Mergers can be great for shareholders and share price, but can leave a legacy of having to rebuild technical talent on mines affected by downsizing, organisational and culture change.

What is employee attrition?

It refers to a reduction in the workforce that happens when employees leave and aren't replaced. Why they leave can be due to a number of reasons, notably downsizing for economic reasons, retirement, or because of a merger / consolidation / acquisition. The latter is a reasonably common cause of employee attrition due to the double up of departments and roles when two companies merge their operations. It also happens when unproductive operations are shut down or sold off after a merger.

Some of the world's biggest mergers and acquisitions have happened in the mining sector. They come about for a number of reasons:
  • To buy out competition 
  • To increase market share
  • To increase / gain access to commodity stockpiles / reserves
  • To diversify into other commodities
  • To realign portfolios and get out of certain commodities
  • To gain entry into overseas markets
  • To save a company from going bankrupt

Mergers, Consolidations, and Acquisitions

Just for the record - whilst the terms are often used interchangeably, they're actually different.

The Merger

Mergers and consolidations are similar but differ in one important aspect. They're similar in that both require the boards of the involved companies to obtain shareholder approval to merge their operations. However, in a merger one company will be the 'acquirer' and the other company is the 'acquired'. After the merger, the acquired company is integrated into the acquiring company and ceases to exist as a legal entity. Whilst the name of the acquiring company may change to reflect the incorporation of the other company, legally it remains the same entity it was before the merger. The BHP / Billiton merger for example led to BHP changing its name to BHP Billiton but the company has since reverted back to just BHP.

The Consolidation

A consolidation differs to a merger in that the shareholders of both companies agree to merge to create a new legal entity and that's the important distinction. In a merger, one company is merged into the other. In a consolidation, BOTH companies wind up their individual incorporations to create a new single legal entity. The Shenhua Group and China Guodian Corporation merger in 2017 to create the China Energy Investment Corporation is an example of a consolidation.

The Acquisition

Acquisitions are different again. When one company buys a majority holding in another company, that's an acquisition. Typically, the acquired company remains a separate legal entity and retains its name. Barrick Gold's recent acquisition of Randgold Resources is an example. Barrick own 2/3rds of Randgold, and the remaining third is owned by Randgold shareholders.

What happens to talent when companies merge, consolidate, or get acquired?

Numerous studies have detailed the need for companies to pay more attention to the human side of mergers, consolidations, and acquisitions. They've also pointed out the requirement to consider more than just the psychological and behavioural effect on employees too. That's because ultimately it's people that drive the success, or failure, of a merger. Unhappy people do not make for a successful merger, as companies have found out in the past!

The mining industry is no different in many respects. A lot of focus is put on the financial, legal, and operational aspects of a merger without considering just how much contribution the human element will make to the success of the merger. It also proves that there is a distinct lack of awareness around the importance of 'employee satisfaction' in these types of deals.  Employees can, and do, walk if they're not happy with how a merger is panning out for them personally. Usually the first ones to leave are those the new management team would prefer to keep – valuable employees know their worth and they know they'll pick up another job easily enough. When they leave they take with them the knowledge and experience they've accumulated through working for the company. For the mining industry, already facing a skills shortage, avoiding this type of brain drain and the resultant loss of technical skills and knowledge (intellectual assets) after a merger, is paramount. 

Culture clashes, leadership stability, and their role in merger attrition

Mergers often create culture clashes, typically because this is a very real issue that simply isn't given sufficient importance, and thus dealt with correctly, in the lead up to the merger. In fact, some of the most spectacular merger failures in history have come about purely because the cultures and management styles of the companies involved were so diametrically different they couldn't mesh. Or else the companies were fierce rivals prior to the merger and employees simply couldn't get past that to work together. Unfortunately, technical talent that walks from a mine site due to culture and organisational changes after a merger is talent that then needs to be replaced, which isn't easy. 

Research​ done by Emerald Insights found that management / executive teams in target (acquired) companies are usually pretty stable prior to a merger or acquirement. After the merger however, the 'new' company or the acquiring company can reasonably expect about one fifth of those managers / executives to leave each year. This is double the rate in companies that haven't been part of a merger. This trend typically continues for up to a decade after the merger too. The implication is that mergers and acquisitions often destroy leadership stability in target companies. From a mining perspective, this translates to a loss of senior mining personnel and technical talent in an industry where their replacements are not exactly thick on the ground.

The mining industry is not much different to other industries when it comes to reducing unplanned merger attrition. People are people, regardless of occupation and employer.

Mergers and consolidations invariably affect employees in several ways, especially if the companies involved are in the same industry, as is typically the case with mergers in the mining sector. Joining two companies into one for example creates duplicate departments excess to requirements. There's no point having 2 HR or exploration departments for example. So some of the personnel within these duplicated departments will either be redeployed elsewhere, or they'll be made redundant. There will be the inevitable organisational changes such as realigning roles to suit the new company structure. There will be inherited positions and departments that don't 'fit' so those incumbents will be redeployed or offered redundancy. Likewise, there may be new positions and departments created that will assume responsibility for teams that previously worked for 'someone else'. All of these changes have a flow on effect, and need to be discussed with those affected well before they actually happen. Unfortunately, all too often they're not, with resultant and undesirable staff losses.

Downsizing is often also inevitable with a merger – indeed it's one of the major side affects of them! Mergers lead to asset rationalisation and the closing down of operations and departments considered not viable, surplus to requirements, or that don't fit into the new structure.

Then there are the cultural changes that may not sit well with those employees who are used to doing things a certain way, or a particular type of working environment. This is usually the biggest reason for voluntary employee resignations, and also the one many companies fail to adequately address when putting together merger plans. Cultural changes include different management styles, different policies and procedures, changes in workplace environment and so on.

How should a mining company deal with technical talent after a merger or consolidation?

The most obvious solution is to try and avoid the loss of important technical talent in the first place. This starts with information. Keeping employees 'in the loop' and informed about the progress of the merger goes a long way towards building a good relationship with them. We also mentioned it above – in order for this level of communication to happen, it requires upper management to accept and understand the importance of the human aspect of these events.

Once they understand this, they will also understand the absolute importance of preparing team members in both companies for the changes ahead. From the board down, right through to the workers on the remotest mine sites. If they want to keep the majority of these employees, or the valuable ones at least, they need to provide opportunities for them to voice their fears and concerns about their jobs, about fitting in with the new culture, and all the other changes that go with working for a new / different company/manager. Then they need to adequately and address those concerns before they turn into problems. If they can do this successfully, chances are they'll be able to retain at least some of the technical talent that would otherwise have walked.

Employees that are informed, with sincerity and honesty, about changes are also more likely to view both the changes and the merger more favourably. Or, at the very least, they'll be in a better position to understand why the changes are being made and to see the whole picture. It will also give them more time to consider their options in the long term. To stay, or go. 

Figuring out beneficial employee programs for the newly merged companies and then keeping employees informed about those too helps retain employee loyalty and engagement. Identifying key personnel with influence and getting them onside very early on in the merger process is another strategy that works well to reduce brain drain and loss of talent. In fact, it's probably a pivotal tactic because these influencers can just as easily have a negative impact too.

Secondly, wiping out one company culture and replacing it with the 'acquiring' company culture is a sure way to lose key personnel, foster ill feeling, and destroy productivity. Employees who are not happy with new working conditions 'imposed' on them arbitrarily from above are not going to feel any loyalty whatsoever, much less want to be particularly productive. When employees are not working at their productive best, or are not sufficiently engaged with their jobs, profit and eventually the company suffers.

Therefore assessing, determining, and documenting the cultural attributes of the acquired company and their importance to key performance indicators like employee engagement, motivation, morale, and productivity is essential. Retaining those that work and are key to driving success, and incorporating them into the company culture moving forward, is even more important. Or key personnel will leave….

Enlightened companies may appoint an integration team whose responsibility is to identify potential problem areas, resolve them, and build the vital relationships needed to create a harmonious whole moving forward. Taking the time to do this will ultimately save a lot of problems (and talent) down the track, and reduce the attrition rate significantly. It's probably also fair to say a merger that results in a wholesale loss of talent is likely going to find it hard getting new talent willing to come on board.  Word spreads!
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Friday, 24 May 2019
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